CFTC Charges Trader for Operating a Ponzi Scheme

The CFTC charged a trader and two firms for soliciting and misappropriating funds intended for foreign exchange trading.

According to the Complaint filed in the US District Court for the Eastern District of Louisiana, defendants allegedly engaged in a scheme to defraud at least 40 individuals of $7.6 million by: (i) misrepresenting that their funds would be pooled in a Forex investment fund managed by the defendants with promises of guaranteed returns; (ii) using the funds to cover personal expenses and make payments to other investors in a Ponzi-like structure; and (iii) issuing falsified monthly statements to investors.

The CFTC alleged that the defendants (i) failed to establish a legally separate pool entity as required by CFTC regulations; (ii) commingled investor funds with personal funds in the defendants' accounts rather than maintaining a dedicated pool account; and (iii) failed to have current registration as a Commodity Pool Operator or Associated Person, despite soliciting funds for retail Forex trading. The CFTC also alleged that the defendants issued false transaction records, including fabricated wire transfers, which purportedly demonstrated fund movement between US and offshore trading platforms. The CFTC said that these records falsely indicated the existence of trading activity and returns, when no such trading took place.

The CFTC charged the defendants with violations of CEA Sections 4b(a)(2)(A)-(C) ("Contracts designed to defraud or mislead"), 4k(2) ("Registration of associates of futures commission merchants, commodity pool operators, and commodity trading advisors"), 4m(1) ("Use of mails or other means or instrumentalities of interstate commerce by commodity trading advisors and commodity pool operators"), 4o(1)(A)-(B) ("Fraud and misrepresentation by commodity trading advisors, commodity pool operators, and associated persons"), 2(c)(2)(C) ("Jurisdiction of Commission") and 6m(1) ("Unregistered operation of a CPO and AP"), along with CFTC Regulations 4.20 ("Prohibited activities"), 5.2 ("Prohibited transactions") and 5.3 ("Registration of persons engaged in retail forex transactions").

The CFTC is seeking (i) a permanent injunction preventing defendants from engaging in further CEA violations; (ii) restitution to impacted investors; (iii) disgorgement of funds gained through fraudulent means; and (iv) civil monetary penalties.