Hong Kong Firm Accused of Commodities Fraud in U.S. : Investments: Trading authorities call it the largest operation of its type yet uncovered.

Police and U.S. marshals have raided an unregistered Hong Kong-based commodities trader in what federal officials Thursday called the largest operation of its kind yet uncovered.

The offices of Frankwell Bullion Ltd. subsidiaries were seized and shut down Wednesday in California, Texas and New York, said Robert Butchko of the Commodity Futures Trading Commission.

“We expect it to involve the largest number of customers, and we hope to freeze the largest amount of money for the benefit of the customers,” Butchko said at Frankwell offices in San Francisco.

The seizure is the fifth since December, 1992, to involve a Hong Kong company accused of illegal commodity trading, commission documents show.

Regulators are still examining books and bank records, said Mark Breckler of the California Department of Corporations, but it appears that Frankwell’s operations involved at least 1,000 investors and $1 million a month nationwide.

Officials said Frankwell purportedly specialized in the sale of gold, silver and foreign currency futures contracts and that customers had been called cold or responded to ads in local newspapers.

Investors were often falsely told they could get returns of 15% to 20% and that their investments were guaranteed, authorities said.

Frankwell may never have invested customers’ money, they said. “We have seen no evidence that any trades were executed on any market,” Butchko said.

One of the eight complainants listed in a federal court filing that led to the seizure reported losing $70,000, he said. Others reportedly lost all or part of their investments.

Regulators have frozen all Frankwell bank and trading accounts to determine what assets the company has, but Breckler said he is not optimistic.

“Their losses will no doubt be great,” he said. “We are not hopeful about our chances to find monies that have already been shipped overseas.”

Papers are being served on Frankwell’s Hong Kong headquarters, Butchko said. Regulators refused to comment on the company’s operations in other nations. Butchko said Frankwell had apparently once been listed on the Hong Kong commodity exchange but that it had been suspended.

Criminal prosecutions are possible, he said.

In the United States, Frankwell did business as Frankwell Investment Services Inc. in San Francisco and Foster City, Calif.; Maywell Investment Services Inc. in San Diego; Frankwell Investment Services Inc. in Houston, and Frankwell Management Services Inc. in New York City.

As did the other four Hong Kong companies seized, Frankwell started out in San Francisco selling in Asian immigrant communities, Breckler said. The company eventually branched out to sell to other investors around the United States, he said.

By federal law, contracts for the purchase or sale of a commodity for future delivery can only be offered and executed through a board of trade designated by the CFTC and by regulated brokers. None of the Frankwell companies were registered, Breckler said.