February 12, 2014
Far too many folks think that you can learn how to profitably trade stocks, commodities, and currencies by taking courses. Ah yes, there are all sorts of courses these days. Ya got yer online ones. Ya got those glitzy, supposedly freebie ones at the hotel where they try to sock you with more pricey, intensive classes and DVDs. They teach you how trade on a demo screen with play money. They teach you the big trading secret: buy low and sell high. Paper trading and book learning only go so far in our biz. In the end, the only way to learn to trade is to enter the forge, put your own dollars into the fire, and get burned as part of your tuition in the school of real-world trading.
The Lawman came with the sun
David N. Hawkins, 43, of Colorado Springs, CO, was a deputy sheriff for the El Paso County, Colorado Sheriff's Office. Hawkins was a lawman. In 2006, lawman Hawkins attended so-called FOREX (foreign currency) trading courses; and, thereafter, he apparently applied himself to learning more about the industry on his own.
There was a job to be done
By November 2009, Hawkins seems to have decided that he was a mini-Master of the FOREX Universe and beyond risking only his savings, he managed to recruit his first trading client via a business he set up under the name of "PD Hawk Investments." Is that "PD" as in "Police Department?" Wow, talk about tempting fate. Anyway, the ostensible purpose of PD Hawk Investments was to pool funds from investors and trade FOREX. Through December 2011, Hawkins solicited some $1.2 million in trading funds from about 73 friends, family, sheriff's office colleagues, and other local law enforcement officers. Much of the $1.2 million came from the personal savings or retirement funds of his clients.
And so they sent for the badge
Just by way of an aside, it's one thing to risk your own money; it's another thing to roll the dice with your family's funds; and, sure, you might even want to spin the wheel with chips on the table from some of your friends. Frankly, if you ask me, none of the aforementioned is a particularly great idea. Family, friends and investment dollars are not a great mix; however, to bring into that cocktail, funds from law enforcement officers . . . I mean, seriously? You ever watch Cops on television? These guys don't kid around. They will chase you at high speeds, run after you for miles, tackle you, stun you with a Taser, sic a dog on you, and get all dirty doing it. Notwithstanding, Hawkins signed 'em up.
And the gun of the Lawman
I'm sure that you know where this is all headed. Hawkins lost over $204,000 of his investors' money, which is about 17% of their principal. Okay, maybe not the most horrific outcome because even the purportedly best and brightest professional FOREX traders often lose some if not all, of their investment. Still -- there's losing in good faith and then there's lying. It's that latter stuff that BrokeAndBroker tends to focus on. Now, let's bring out the magnifying glass.
And as he silently rode
Turns out that lawman Hawkins lied . . . big time. He claimed to have achieved a 62% one-day gain and a three-year record of "sustained and consistent" FOREX profits. He guaranteed a 10% return per month, for a whopping 120% per year. A guy who takes a few training courses and then hits the books in his spare time. He "guarantees" a trading profit?
On top of that touting, Hawkins promised to segregate the investments for FOREX trading purposes only. He said that he would only take a piece of the profits after he had achieved the guaranteed 10% monthly target. Okay, sure. Keep in mind, however, that this trading genius never, ever turned a sustained, net profit.
Where evil violently flowed
Hawkins transferred investor funds from FOREX trading accounts into bank accounts under his control; and, thereafter, he converted those funds to pay for his personal expenses or to cover his own FOREX trading - and, of course, what story of this ilk would lack the additional diversion a la Ponzi to pay off investors demanding the return of their principal?
By the middle of 2011, Hawkins had converted some $175,587 earmarked for FOREX trading to the purchase of two automobiles, various business franchises, and to set up operations for two semi-professional indoor arena football teams in Danville, IL, and Mesquite, TX (neither team became operational). Maybe the Mesquite team went up in smoke?
SIDE BAR (Bonus Points Awarded): The BrokeAndBroker Blog always goes the extra step for its readers. We go out, in darkest night, with shovels, many of which have broken handles with splinters, and we dig, often in nasty muck. We uncover stuff. Lots of stuff. For example, the name of Hawkins' Danville football team was the Danville Dragons. So . . . for 113 unredeemable bonus points, guess the name of the Mesquite semi-professional indoor arena football team funded by Hawkins? Hint: It's a job-related name that tempts fate. ANSWER
They knew he'd live or he'd die
On January 2, 2013, Hawkins entered into a plea agreement subject to an Information. On March 20, 2013, he pled guilty in the District of Colorado federal court to one count of wire fraud and one count of money laundering for which he faces, respectively, not more than 20 years in federal prison and a fine of up to $250,000; and not more than 10 years in federal prison and a fine of up to $250,000.
By the code of the Lawman
On February 4, 2014, Hawkins was sentenced to 30 months in federal prison and three years of supervised release. He was also ordered to pay $204,348.91 restitution to three victims who have not been repaid; and to forfeit $17,000 towards further victim restitution.
Bill Singer's Comment
Sure, I could leave this blog as is. We've had a bit of a laugh -- frankly, deserved -- at the expense of Hawkins. After all, he was, in fact, a lawman and someone who engaged in fraud. That being said, little in life is generally black or white. Ask a lawyer and he or she will tell you that everything is filled with shades of gray and nuance. Given that fact, let's agree that all of the above let me above is pretty much what's out there in terms of the Court's findings, the Plea Agreement, and the government's official press releases.
Now, let's explore some of the subtleties that make us shift uneasily in our seats, even when we are dealing with someone who has entered a plea of guilty. Without further comment from me, please consider the following statements from Hawkins' November 4, 2013, Objections to the Presentence Investigation Report. (Note: the Paragraph numbers are as noted in the Objections). READ the Full-Text Objections
1. Paragraph 17: Mr. Hawkins did not actively solicit his law enforcement colleagues or acquaintances to give him money, although he did say they could refer friends and family to him.
2. Paragraph 19c: Mr. Hawkins told people that he did not have a license and that he was not allowed to trade their money. He told them that he was borrowing their money and he would pay it back at 10% per month interest.
5. Paragraph 35: Mr. Hawkins did not intend to create a Ponzi scheme, and, when he met with investigators on December 8, 2011, Mr. Hawkins believed this was a tax investigation. Only at the end of the meeting did the investigator ask Mr. Hawkins if he knew what a Ponzi scheme was, to which Mr. Hawkins said that he did.
6. Paragraph 36: There were seven winning investors prior to December 8, 2011, not six. Mr. Livingstone was paid $1,542.82 more on his three accounts than he paid Mr. Hawkins. (See combined ledger of the three Livingstone accounts, attached as Exhibit 3).
7. Paragraph 37: As of March, 2012, there were three (3) remaining 'net losing investors,' not the 7 listed in paragraph 37 of the presentence investigation report. . .
8. Paragraph 38: . . . [T]his was not a classic Ponzi scheme and Mr. Hawkins had no intent to develop a Ponzi scheme. Based on Mr. Hawkins' lack of knowledge, he fell behind. When he saw that he was behind, Mr. Hawkins panicked. The purchase of the two football teams were not for personal gain, but potential money raising efforts. Total costs and expenses for the teams were $40,153 for the Danville team and $23,254 for the Mesquite team. Although Mr. Hawkins did, indeed, collect approximately $1,200,000 from investors, Mr. Hawkins personal "profits" were less than $100,000, representing less than 10% of the investments. These "profits" consisted of purchase of the Dodge in the amount of $18,736, purchase of the mini-cooper in the amount of $16,813, minor improvements on Mr. Hawkins' home, and payment of a portion of deductibles on his son's medical bills. Additionally, even after Mr. Hawkins discovered that what he was doing might be a Ponzi scheme, Mr. Hawkins continued to return funds to his investors such that only three investors now have losses.
17. Paragraph 59: In comparing paragraph 37 to the information in paragraph 59, the probation officer notes that investors invested a total of $1,212,898.61. In both paragraphs, the probation officer notes repayment by Mr. Hawkins to investors, the first made prior to December 8, 2011, in the amount of $585,649.26, and the second made after December 8, 2011 in the amount of $457,449.00. This results in a net loss to investors of $169,800.40. The overpayments to investors noted by the government and addressed in paragraph 37 of the presentence investigation report is $45,435. By further applying the $16,813 civil forfeiture that Mr. Hawkins will tender to the court at the time of sentencing, this would reduce the overall loss to below $200,000, supporting a 4 level variance decrease from the stipulated offense guideline level.
25. Paragraph 78: For clarification purposes, Mr. Hawkins states that while the out-of-pocket medical expenses for his son were significantly more than anticipated, Mr. Hawkins carried excellent insurance at the time, which covered approximately $600,000 in medical expenses. The out-of-pocket expenses for his son's treatment totaled approximately $20,000. Mr. Hawkins believes he may have used some of the funds from investors to pay a portion of the out-of-pocket expenses, but this was not done for greed or personal gain, but for the health and benefit of his son. At this time, Mr. Hawkins and his wife continue to make payments on the out-of-pocket expenses for their son's medical treatment.
37. Paragraph 132: It is appropriate for the courts to consider Mr. Hawkins' past history as a law enforcement officer, as well as his lack of history of substance abuse. Additionally, as noted by the probation officer, Mr. Hawkins' son, Ian continues the treatment and recovery process from a brain tumor and cancer. A sentence of prison for Mr. Hawkins would be very detrimental to the mental and possibly physical wellbeing of his son. A variance in this situation is appropriate to leave Mr. Hawkins in the family situation as Mr. Hawkins is a provider both financially and emotionally to his son.
For those of us who are old enough to remember, and for those of you who are too young to remember the Golden Age of TV theme songs, here's one of the best!