Where’s the Money? Gold Investor Asks

PALM BEACH (CN) - An investor claims Lloyds Commodities, of Palm Beach Gardens, hired a federally barred trader who defrauded him of $162,980. He claims the trader was barred in 2002 and was found in 2009 to have violated his ban, but Lloyds employed him as a manager anyway.

Paul Zarcadoolas claims Lloyds employed Chris Smithers as its director of dealer development, though it knew that the federal government had barred Smithers "from engaging in any commodity-related activity, was aware that Smithers had formerly misappropriated clients' funds, and knew that Smithers' assets had been frozen in the past."

Zarcadoolas sued Lloyds Commodities, but not Smithers, in Palm Beach County Court.

In his complaint, Zarcadoolas says he "entered into an agreement with North American Asset Management LLC ('NAAM') ... stipulat[ing] that NAAM would be entitled to a $17,020.00 commission based on a successful transaction wherein Zarcadoolas received 10,002 gold bars in return for depositing $180,000 into NAAM's SunTrust bank account. ...

"NAAM, acting on behalf of Zarcadoolas, contracted with defendant Lloyds Commodities LLC to use its relationships with worldwide suppliers to provide the 10,002 gold bars to Zarcadoolas.

"At all times, NAAM negotiated and consummated an agreement on behalf of Zarcadoolas to purchase the 10,002 gold bars with Chris Smithers, Director of Dealer Development at Lloyds. ...

"Upon the consummation of an agreement between NAAM and Lloyds, Smithers, action on behalf of Lloyds, instructed NAAM to wire plaintiff's $162,980.00 to a company in exchange for the deliver of the 10,002 gold bars.

"NAAM wired the $162,980.00 belonging to the plaintiff to the account based on Smithers' instruction.

"Lloyds has not provided NAAM with the 10,002 gold bars.

"Zarcadoolas has demanded that Lloyds return plaintiff's $162,980.00

"Plaintiff's $162,980.00 payment has not been returned to NAAM.

"Zarcadoolas has not received the 10,002 gold bars and has not been reimbursed for the $162,980.00 paid in exchange for the contracted receipt of 10,002 gold bars."

According to the complaint, in 2002 "The U.S. District Court for the Southern District of Florida found that Smithers committed fraud in the solicitation of customers, in commodities transactions.

"The U.S. District Court for the Southern District of Florida's order prohibited Smithers from engaging in any commodity-related activity, including the solicitation of new customers."

Smithers' assets were frozen in June 2005 and he was ordered not to destroy books and records, Zarcadoolas says. Then on Aug. 21, 2009, "the U.S. Commodities Futures Trading Commission obtained an order against Smithers which determined, in part, that Smithers violated his prior federal court injunction from engaging in any commodity-related activity and found that Smithers previously withdrew client funds and used them for personal expenses or sent them to other clients as purported returns on their investments," according to the complaint.

Zarcadoolas seeks damages for multiple counts of negligence. He claims Lloyds "had knowledge of Smithers' ban from engaging in any commodity-related activity, was aware that Smithers had formerly misappropriated clients' funds, and knew that Smithers' assets had been frozen in the past."

He is represented by Richard Wolfe of Miami.

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