CFTC charges unregistered commodity pool operator over USD50m Ponzi scheme

CFTC charges unregistered commodity pool operator over USD50m Ponzi scheme

The US Commodity Futures Trading Commission has charged Joseph S Forte of Broomall, Pennsylvania with operating a Ponzi scheme involving around USD50m in connection with the unregistered Joseph Forte commodity futures pool.

Forte recently confessed to federal authorities in the wake of the scheme's collapse.

The CFTC's complaint charges Forte with solicitation fraud, misappropriation of pool funds, sending customers false account statements, and failing to register with the CFTC as a commodity pool operator.

The US District Court for the Eastern District of Pennsylvania has issued a restraining order freezing assets and preserving records.

'Ponzi schemers succeed by creating an illusion of profitability through lies and deceit to lure investors to part with their money,' says CFTC acting director of enforcement Stephen J Obie. 'We are committed to rooting out miscreants who, like Forte, destroy the lives of innocent victims and, ultimately, undermine the confidence of investors everywhere.'

The CFTC complaint alleges that from at least February 1995 to the present, Forte fraudulently solicited approximately USD50m from dozens of individuals and entities to participate in a commodity futures pool to trade, among other things, S&P 500 stock index futures, foreign currency futures, and metal futures.

In soliciting prospective and existing participants, Forte claimed he was a successful commodity futures trader and that his pool had a successful track record. For example, in a solicitation memorandum directed to a church, Forte represented that the eight-year annual return on the fund ranged from 18.52 per cent to 36.19 per cent.

To conceal his ongoing fraud, Forte failed to register with the CFTC and provided quarterly account statements to pool participants showing consistently profitable returns of the pool and eventually reporting that as of late 2008, the pool had increased in value to over USD154m.

In reality, however, Forte was neither successfully trading nor making an effort to do so.

When trading, Forte purportedly sustained net losses of at least USD3m trading almost exclusively the S&P 500 futures contract on behalf of the pool. However, during a 34-month period from 2004 into 2007, Forte purportedly conducted little to no trading at all.

Forte allegedly failed to deposit any funds into the trading account during a 53-month period from October 2002 to February 2007.

Instead of generating the astounding profits from high volume trading touted in solicitations and falsified in account statements, Forte used pool participants' funds to pay off other pool participants and to pay business expenses.

From the outset, Forte also paid himself purported management and incentive fees based on the falsified earnings and increased value of the pool. While Forte confessed to taking USD10-12m of the solicited funds, information in the falsified account statements would suggest receipt of management and incentive fees totalling more than USD28m.

Efforts are ongoing to account for and locate pool participant funds.

In the continuing litigation, the CFTC seeks restitution, disgorgement, civil monetary penalties and permanent injunctions against further violations of the federal commodities laws and against further trading.

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