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Opalesque Futures Intelligence

Regulators & Courts: The surge in futures scams

Tuesday, February 10, 2009

Regulators & Courts

Surge in Scams Found by CFTC

Already this year the US Commodity Futures Trading Commission took a number of actions that allege fraud or other violations, several involving foreign currency trading. CFTC acting director of enforcement, Stephen Obie, says there's an uptick in Ponzi scheme cases because in this economic climate new investors cannot be found to perpetuate the scheme.

The spike in cases may also be due to investors becoming more aware because of publicity about Bernard Madoff's alleged $50 billion Ponzi scheme. And perhaps regulators became more active in the wake of questions as to why the US Securities and Exchange Commission did not stop Madoff despite repeated complaints that go back nine years or more.

Recent actions taken by the CFTC include:

Charges against Minnesota resident Charles Hays and his company, Crossfire Trading, LLC, for a $5.5 million rip-off in connection to a commodity pool. The CFTC alleges that Hays falsely claimed Crossfire earned consistent profits from trading commodity futures with no losing months as he solicited money from at least three individuals and a charitable foundation. In addition, he fabricated account statements and misappropriated investor funds to purchase a $4 million yacht, from which he ran the scheme, according to the CFTC.

A suit against Nicholas Cosmo and businesses he controlled, Agape World Inc., and Agape Merchant Advance LLC, all in New York state, for defrauding customers by soliciting tens of millions of dollars to invest in bridge loans and merchant advances. In fact the money was used and mostly lost in unauthorized commodity futures trading. The CFTC says the losses were not disclosed to investors and Mr. Cosmo has a criminal history. He pleaded guilty to mail fraud in 1999, admitting to commingling funds, misleading investors and forging documents. At that time he was sentenced to 21 months in prison.

A court order freezing the assets of two firms called Atwood and two individuals, Michael Kardonick, who has multiple residences, and Gary Shapoff of New York state. According to the CFTC, the defendants made extraordinary and false claims to solicit more than $1 million from retail clients to trade foreign currency options. They claimed that Atwood clients will never lose their principal and profits are virtually guaranteed, failed to disclose past criminal records and pretended to operate out of Rochester, New York, while operating out of Rio de Janeiro, Brazil.

Charges against James Ossie of Georgia and his company, CRE Capital Corp., for running a $25 million foreign currency Ponzi scheme. CFTC says Mr. Ossie and CRE promised investors a 10% return within 30 days from trading US and Japanese currency pairs but lost $4.4 million and paid some customers with other customers money.

A court order imposing a fine and other sanctions against Boris Shuster of New Jersey for operating a forex boiler room that solicited more than 300 customers to trade illegal off-exchange contracts, misrepresenting the profitability and safety of trading such forex contracts.

Charges against Joseph Forte of Philadelphia for operating a $50 million scheme in connection with an unregistered commodity futures pool, Joseph Forte LP. CFTC charged Forte with solicitation fraud, misappropriation of pool funds, sending false account statements and failing to register. The regulator reminded the investing public that US futures professionals must register and registration status may be checked on the National Futures Association website, Individuals and firms that fraudulently solicit funds for futures and options trading are usually not registered with the CFTC, according to the Commission.

Sanctions against four commodity pool operators for failing to file timely reports as required by regulation. Spring Mountain Capital GP LLC, Spring Mountain Capital LP, Fortis Investment Management USA Inc. and UBS Fund Advisor LLC were assessed a total of $275,000 in penalties.

This article was published in Opalesque Futures Intelligence.
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