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Pennsylvania resident admits to multi-million dollar Ponzi scheme

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A federal court in Philadelphia has entered a consent order of permanent injunction against defendant Joseph S. Forte of Broomall, Pennsylvania after the US Commodity Futures Trading Commission charged him with fraud and misappropriation in connection with operating a USD50m commodity pool Ponzi scheme.

In the consent order, Forte admits defrauding pool participants.

The CFTC enforcement action was filed in the US District Court for the Eastern District of Pennsylvania on 27 January 2009.

The order bars Forte from trading commodity futures and options contracts and CFTC-regulated foreign currency contracts. Forte is also prohibited from soliciting funds for such trading, registering with the CFTC and acting as a principal, agent or employee of a CFTC registrant. The order also requires payment of restitution to defrauded pool participants and a civil monetary penalty.

In the consent order, Forte admits that, from February1995 through December 2008 he fraudulently operated a commodity pool, ran a Ponzi scheme and misappropriated commodity pool funds.

Forte admits to fraudulently soliciting at least USD50m from at least 76 individuals or entities to participate in a commodity futures pool to trade S&P 500 stock index futures, foreign currency futures and metals futures. Forte admits that in soliciting prospective and existing participants, he claimed to be a successful commodity futures trader and that his pool had a successful track record. The order finds that, to the contrary, Forte was never a successful trader either for himself or for the pool.

Forte admits he paid himself at least USD10m to USD12m as his purported fees for his profitable trading on behalf of the pool. Forte estimates that he spent at least USD15m to USD20m of pool participants’ funds to pay off other pool participants and to pay business expenses.

According to the order, Forte engaged in minimal trading and sustained net losses of at least USD3m trading commodity futures on the pool’s behalf. For a 34-month period from 2004 into 2007, he conducted little to no trading at all. However, Forte issued false statements to pool participants reflecting gains and consistent returns of approximately 20 per cent to more than 36 per cent annually, and that the pool had increased in value to more than USD154m.

On 5 June 2009, Forte entered into a guilty plea agreement in United States v. Forte in the Eastern District of Pennsylvania. The Securities and Exchange Commission also filed an action against Forte, and the court entered a partial final judgment on 29 September 2009.

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