U.S. Court of Appeals affirms judgment but vacates restitution in Southern Trust Metals suit

By Jim Tyrrell | Jul 15, 2018

In a commodities-fraud case concerning Southern Trust Metals, the United States Court of Appeals for the Eleventh Circuit affirmed the judgment of the district court, except in regard to certain restitution, which was vacated and remanded.

ATLANTA — In a commodities-fraud case concerning Southern Trust Metals, the United States Court of Appeals for the Eleventh Circuit affirmed the judgment of the district court, except regarding certain restitution, which was vacated and remanded.

On Thursday, the U.S. Court of Appeals for the Eleventh Circuit affirmed the U.S. District Court for the Southern District of Florida’s decision that Southern Trust Metals be barred from operating in the commodities-trading industry and the corporation must repay investors they deceived. However, the appellate court vacated the district court’s decision that Southern Trust Metals be required to pay restitution for investor losses incurred while the corporation operated as an unregistered futures commission merchant.

In 2014, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against Southern Trust Metals, as well as the corporation’s owners, Loreley Overseas Corporation, and its founder, Robert Escobio, claiming that Southern Trust Metals failed to register as a futures commission merchant and illegally invested its customers money, thus violating the Commodities Exchange Act.

The CFTC claims that Southern Trust Metals told customers that the corporation would issue them loans and then invest the borrowed money in precious metals. However, the CFTC alleges Southern Trust Metals never issued the customers a loan and instead used the customers' money to indirectly trade in metals derivatives through multiple intermediaries. While no loan existed, the CFTC contends that Southern Trust Metals charged its customers loan interest.


While Southern Trust Metals failed to alert customers that they were not registered as a futures commission merchant and that the corporation was working with intermediaries, it is not required to pay restitution for investor losses sustained while doing so, according to the U.S. Court of Appeals. 

“Because the CFTC did not prove that the Defendants’ violations in the unregistered-futures scheme caused any loss, we vacate the restitution award related to that scheme,” the appellate court said.

The court of appeals remanded this restitution award to the district court with instructions to weigh other equitable remedies.

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11TH Judicial Circuit U.S. Commodity Futures Trading Commission U.S. District Court for the Southern District of Florida

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