Foreign Exchange Investment Fraud
Investments in the foreign currency exchange market (FOREX) is a relatively new fraudulent promotion being developed and sold across the country.
You are led to believe that you are investing in a currency futures market which is highly regulated, and a market traded in by large banks and financial institutions whose commissions for trades are no more than two or three points.
The foreign currency "spot market" is commonly referred to as the "Forex".
Foreign currency contracts may be legitimately traded either on a recognized futures exchange or in the "interbank market," which generally involves trading between large institutions such as banks and corporations, rather than individual or retail customers.
Fraudulent currency trading firms often tell customers that their trading is done in the "interbank market" on your behalf.
"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."
Many currency traders ask customers to give them money known as "margin," often sums in the range of $1,000 to $5,000.
These amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading.
Margin trading can make you responsible for dollar losses that greatly exceed the margin amount you deposited.
"You take only as much risk as you see fit."
Such leveraged trading allows investors to speculate with a cash margin of less than 5% of the U.S. dollar price for foreign currencies such as the German Mark, the Swiss Franc, the British Pound and the Japanese Yen.
"Whether the stock market moves up or down, in the currency market you will always make a profit."
The victims of these fraudulent promoters are actually being sold a position in a currency forwards market which is both completely unregulated and provides no guarantee that the promoter has secured the forward position in the traded currency.
You are also not aware that you will pay a 50% commission on each deal and that they have no chance to either make a profit or to recover their investment.
One group, Forex Investment, recruited "professional currency traders" who actually had insufficient training and experience in forex trading, leaving most investor accounts suffering substantial losses; about three out of every four dollars invested in the program.
Companies will make deceptive, misleading and high-pressured sales solicitations. Often principals fail to diligently supervise employees and agents in the conduct of their commodity futures activities.
They make deceptive, misleading and unbalanced sales solicitations; churn customer accounts and fail to uphold high standards of commercial honor and just and equitable principles of trade.
Soliciting people to invest without being registered. Engage in fraudulent solicitation practices.
They commit fraud in connection with the purchase and sale of commodity futures and options contracts for customer accounts by making false, deceptive, and misleading statements or omissions of material facts.
They commit fraud by churning customer accounts in a pervasive and widespread manner to generate commissions, without regard for the trading objective of customers; making fraudulent statements concerning, among other things, the likelihood of profits in trading commodity futures and options contracts, the risk of loss, and the experience and trading success of their company and salespeople.
Make communication with the public which operates as a fraud or deceit.
They directly or indirectly (1) Violate, aid or abet or induce directly or indirectly the violation of sections 4b(a)(i), 4b(a)(iii), and 4c(b) of the Act and sections 33.7(f) and 33.10 of the CFTC'S regulations involving cheating or defrauding or attempting to do so, or willfully deceive or attempt to do so in regard to any commodity/future order or contract, and (ii) violate Section 166.3 of the CFTC'S regulations by failing to supervise diligently the handling of commodity accounts.
They fail to prove by clear and convincing evidence that their registration would pose no substantial risk to the public.
They engage in acts and practices that violate the Commodity Exchange Act and CFTC regulations.
They make false statements on their registration documents filed with the CFTC by failing to list principals of the company due, in part, to their controlling financial interest in the company.
They fail to supervise diligently the handling of customers' commodity futures and commodity option accounts by failing to monitor sales solicitations made by its salespeople and by instructing its salespeople to misrepresent material facts to induce customers to engage in trading practices designed to maximize commissions.
The company officials, without admitting or denying any allegations, usually consent to the entry of a permanent injunctive order finding that their company violated the anti-fraud provisions of the CEA and CFTC regulations and permanently enjoining it from further such violations. Then they just wipe the slate clean and start a new company.
The courts often find "systematic, willful and pervasive fraudulent conduct" regarding violations of the law and CFTC regulations over a long period of time. Improper sales practices often continue even after the filing of actions with the principal's approval and active participation.
They violate NFA Compliance Rule 2-29(A)(2) by employing a high-pressure approach with the public.
Misrepresentations often include: the likelihood of profit and the possibility of loss in trading commodity options, the applicability and importance of the risk disclosure statement required by Commission regulations, their company's experience and reputation in the commodity industry, their success rate in trading commodity options, and the existence of an in-house research department and a staff of analysts.
They systematically engage in high-pressure sales tactics, typical of a boiler-room operation, and routinely make false or deceptive statements when soliciting customers. They provide little training to its AP's other than sharpening high-pressure sales techniques.
They encourage its salesmen to maximize commissions by pressuring and convincing its customers, through high-pressure and fraudulent sales techniques, to purchase inexpensive, significantly out-of-the-money options that were seldom profitable to the customer after commissions.
They typically charge its customers a commission of $175 per option to buy an option with a commission fee of $75 to offset an option transaction.
The paramount goal of the sales operation is to maximize commission income by maximizing the number of options purchased by customers and by misrepresenting the profit potential of the options purchased for customers.
Numerous option accounts contained transactions in which the commission-to-premium ratio exceeded 100 percent, and that a majority of customers paid between 40-60 percent of their investment funds for commissions.
They encourage such high commissions by financially rewarding account executives based only on the volume of options purchased, and by discouraging or prohibiting the purchase of more expensive options.
They accomplish their objective of maximizing commission income by encouraging its AP's to misrepresent the profitability of the options marketed by them and to misrepresent the impact of the commission structure on the profit potential of the options marketed to customers.
For example, one complaint alleged that over a 3 1/2 year period one company traded over 2,800 customer accounts and that over 90 percent of those customers lost all or substantially all of their money, while the company collected $12.8 million in commissions.
That one complaint also alleged that in just five months the company had 1,126 actively traded customer accounts, and those accounts had an aggregate net loss of about $5.5 million and had paid total commissions of approximately $2.6 million, which accounted for 48 percent of the net losses.
Another CFTC complaint alleges that, in a twelve-month period, one company handled approximately 988 customer accounts, which generated $3.16 million in commissions while customers lost over $7 million.
Of the customer accounts handled in this period, 97 percent lost all or nearly all of their equity.
For a five-month period, they handled approximately 1,019 accounts, which generated $2.2 million in commissions but resulted in 83 percent of its customers losing all or nearly all of their equity in an amount aggregating $5.2 million.
Their radio commercials operate as a fraud and deceit and are created and aired with a total disregard for the truth.
At the principal's direction the companies engage in a deliberate course of conduct to defraud and deceive customers.
Foreign Currency Fraud Victims
Representing to customers and prospective customers:
-- that they are guaranteed to make a profit as the result of an investment in commodity options,
-- that trading commodity options is virtually risk-free, and
-- that disclosure documents required by CFTC regulation are insignificant or of little importance, or words to that effect.
Omitting to inform customers and prospective customers:
-- that a seasonal increase in demand for a specific commodity, such as heating oil and unleaded gasoline, in and of itself, will not necessarily result in increased value of the option on the given commodity,
-- that past trends in futures prices on specific commodities do not necessarily forecast current profitability of options on futures contracts on those commodities,
-- that currently known market news does not necessarily mean that a customer will make money by trading through them as currently known market news is usually already factored into the underlying futures price, as well as the option value,
-- that, except possibly for in-the-money options, a rise in the price of the underlying futures contract does not typically correlate on a one-to-one ratio with a rise in the price of an option on that futures contract,
-- that stop loss orders are not always effective in limiting risk of loss, -- that diversification of option positions does not necessarily limit risk of loss or increase profit potential for each option position purchased, and
-- that, under certain market conditions, a customer may find it difficult or impossible to liquidate a position since market conditions on the exchange where the order is placed may make it impossible to execute a liquidation of the position.
They fail to obtain customer information in a proper manner.
They fail to maintain the amount of net capital required by Commission regulations, fail to notify the Commission of such and fail to keep current books and records.
Some fraudulent forex companies solicit customers to trade in an options strategy known as "butterfly spreads" aware of the consistently negative effect the strategy has on the ability of customers to make money over the long term.
They defraud its customers by placing matched buy and sell orders for futures contracts on U.S. futures exchanges.
It then assigns trades to particular accounts to create a desired pattern of profits and losses.
They place orders to purchase and sell the same quantities of the same contract at identical or nearly identical prices.
These trades generally are offset by another company, as day trades at the exchange clearinghouse, but are nonetheless listed as "open" in separate sub-accounts held in one company's name.
They then issue trading statements that falsely reported these closed-out day trades as remaining open.
The one company uses these statements to falsely report profits or losses to customers by means of matching long and short positions from the various sub-accounts and falsely reporting to customers that such trades were mutually offsetting.
They falsely and deceptively confirm the execution of certain fraudulent transactions by suggesting that the purchases and sales listed side-by-side in the confirmation are mutually offsetting, when, in fact, they are unrelated trades.
They purchase for customer accounts, most of which were discretionary, butterfly-spread option positions, for which the firms assess a fee of $180 per option.
The butterfly spreads consist of four puts or calls (two buys and two sells), resulting in four commissions for each butterfly option position, or $720 per spread.
The $720 commission is in addition to a 12 percent of equity, up-front fee charged.
Along with the commission structure, they also institute a policy of minimizing the amount of customer money committed to the market as premium by purchasing less expensive "out-of-the-money" positions.
The butterfly spread trading strategy and commission structure was used to replace a previously charged 40 percent up-front fee and $60 per roundturn option commission after German courts were looking with disfavor on large up-front fees charged by brokers and were awarding damages to complaining customers.
This reduced the up-front fee to the 12 to 13 percent range, tripled the per option commission to $180, and allowed them to begin trading butterfly spreads for their customer accounts, which were mostly discretionary.
The fraudulent trading strategy makes it virtually impossible for customers to earn a profit on their investments given the commission structure and the trading strategy employed.
In fact, almost all the butterfly spread trades expired without value, or were exercised and assigned for a financial result of zero.
Total losses consisting of commissions and premiums for 339 customers in one case were approximately $5.6 million, of which approximately $4.8 million, or 86 percent, were attributable to commissions (excluding the 12 percent fee deducted).
09/98 - The SEC filed a complaint and obtained emergency relief involving a Ft. Lauderdale company, International Capital Management, Inc. (ICM) that solicited investors with claims that they would profit from its foreign currency exchange program.
According to the complaint, ICM used high pressure "boiler-room" telemarketing sales tactics to raise approximately $18 million from more than 1600 investors from October 1997 to early September 1998.
They told investors that they could obtain returns of 3%-6% per month and sent bogus monthly account statements that showed consistent profits.
ICM also told investors that 80% of investor funds would be held in a bank account and the remaining 20%, which would be used in ICM's foreign currency trading program, would be protected from significant losses by their purported use of a "stop-loss" order on every trade.
All of these representations were false in that the foreign currency trading generated a net loss for investors, ICM did not keep 80% of investor funds in bank accounts, nor did they use "stop-loss" orders on all trades.
The SEC's claim also named WorldCorp Traders & Co., Inc. (WorldCorp) as a relief defendant, alleging that ICM had transferred at least $10 million to WorldCorp., which used at least some of those funds to trade in foreign currencies.
The SEC froze all of ICM's assets and those assets of WorldCorp that were provided by ICM.
ICM consented to a permanent injunction against future violations of the antifraud provisions of the federal securities laws and consented to the appointment of a receiver.
The receiver has recovered approximately $5.2 million and made an initial distribution to more than 1,600 investors and creditors of nearly $3.3 million, representing 19.6% of their claims, and continues to pursue actions against other defendants.
On July 6, 2001, Jared D'Argenio who pled guilty to one count of conspiracy to commit mail fraud and wire fraud faces a maximum sentence of five years in Federal prison.
Later in the year Nelson N. Schembari pled guilty to one count of conspiracy to commit mail fraud and wire fraud and faces a maximum five years.
Ken Tripoli pled guilty to one count of conspiracy to commit mail fraud and wire fraud and one count of money laundering and faces a maximum sentence of twenty years.
Larry Tripoli pled guilty to one count of conspiracy to commit mail fraud and wire fraud and faces a maximum sentence of five years.
Civil Action No.98-7062-CIV- DIMITROULEAS
A similar foreign currency trading scheme, Unique Financial Concepts, Inc., was also sued by the SEC.
09/99 - Anthony Baldwin and Global Currency Management, Inc. were alleged to have fraudulently raised over $1 million from investors who believed his promotional material which stated he had a notable and recognized record of consistently profitable returns, averaging almost 5% monthly, in his foreign currency trading.
Reassured by false monthly account statements which depicted the investment as safe and profitable, victims were unaware that he had already lost virtually all of their money in trading despite, or perhaps because of, his former experience with International Capital Management. ( see above )
He agreed to the SEC injunction but was not required to make restitution due to his demonstrated inability to pay.
A few current ops are using the firm names Salmon Chase International, Inc., Gibson Reed and First Forex Holding Corporation.
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10/02 - EMF HOLDINGS, INC., a "real estate" firm in Cebu and Manila in the Philippines and Hong Kong ( with plans to expand to Singapore and Japan ) specializes in currency trading ( yen against the dollar ), though they also maintain different savings and checking accounts in dollars and pesos in various international banks.
Though the company is small, EDGAR FIGER, the owner, says he has a great deal of experience in trading and while he seems to own 80% of the company, for some reason, his name does not appear in any of the registration documents, especially with the SEC there.
Investors seem to become creditors who loan the company money with a promise of 20% returns every 30 days.
The traders must accumulate enough borrowed funds to reach a contract size in either yen or dollars in order to make quota before they get on the payroll.
EMF Holdings Inc.
Fedman Bldg, Salcedo St. Makati City
802-A Keppel Tower Cebu Business Park, Cebu City, Philippines
EMF Investment Ltd
Unit 1808 One International Finance Center, HK
EMF HOLDINGS, INC., RRN20020726083651362
EMF HOLDINGS, INC., RRN20020726085816947
EMF MULTI-SYSTEM MANAGEMENT AND HOLDINGS CORPORATION, RRN02169101937
Siphon Tap Turned Off
CA - 11/15/03 - UnionTrib.com - A federal jury yesterday convicted two San Diego men on charges of mail and wire fraud related to an apparent Ponzi scheme the pair operated out of La Jolla offices.
William F. McCray and Paul Yates were indicted in August 2000 on charges that they lured the public to invest $30 million in International Forex and Earthwise International, two firms that purportedly traded foreign currency.
Prosecutors said the two solicited clients with fraudulent claims of high annual returns on these currency trading accounts and falsely told investors their funds were insured and held in trust with a bank.
In addition, prosecutors said they told victims who invested that their accounts were earning substantial positive returns, when in fact they were being paid with new investor money.
Prosecutors said McCray also siphoned off $5.8 million in investor money, putting it into a Bermuda bank account and using it to purchase a condominium and a luxury sports car.
Yates was convicted on 12 counts of mail fraud and six counts of wire fraud. He faces up to 90 years in prison and fines of $4.5 million, prosecutors said.
McCray was convicted on five counts of money laundering, two counts of filing a false tax return and one count of conspiracy to evade taxes for concealing more than $1 million in income from the Internal Revenue Service over three years.
He also was found guilty of four counts of perjury for his testimony in bankruptcy proceedings for International Forex, in which he denied the company was related to Earthwise International.
McCray faces a maximum sentence of 101 years in prison and fines of $10.5 billion, prosecutors said. Sentencing for the pair is scheduled for February.
The jury also found that $5.8 million McCray wired to the Bermuda bank and the car were assets related to the money laundering charges. Prosecutors said this finding could lead to their forfeiture to the U.S. government.
A third man charged in the scheme, Tony D. Ortega, pleaded guilty earlier this year to charges of conspiracy to evade taxes. He is scheduled to be sentenced next month.
|C1931660||3/20/1995||forfeited||INTERNATIONAL FOREX LTD.
|C2012765||6/5/1997||active||INTERNATIONAL FOREX OF CALIFORNIA, INC.
Dubai Currency Trading Scam Bust
02/07 - (Gulf News) Dubai: The Dubai Financial Services Authority (DFSA) said on Thursday it has broken a global currency trading scam.
The scam invited investors in Australia and Singapore to put their money in fictitious entities which claimed to be based in the Dubai International Financial Centre (DIFC).
One alleged operative, who liaised with potential investors using a UAE phone number, has been arrested in Dubai. At least six fraud victims contacted the DIFC regulator, leading to a four-week investigation.
"At this stage we cannot be certain about the size of the scam or investor losses, but we know that approximately $600,000 has passed through a bank account set up by these fraudsters in Malaysia," DFSA chief executive David Knott said.
The probe was conducted by DFSA and with the Emirates Securities and Commodities Authority and involved market regulators from Malaysia, Britain, the US and Singapore.
The racket operated three fictitious entities called the Dubai Options Exchange, the UAE Commodities Futures Board and Cambridge Capital Trading. All claimed to offer services within the DIFC.
The fraudsters used a US-based internet service provider. Australian and Singaporean investors were cold called by representatives of Cambridge Capital Trading to take options on currency movements.
The investors were then directed to the false websites and told to transfer funds into the bank account in Malaysia.
Florida is fertile for foreign currency fraud
02/06 - When investigators from the Commodities Futures Trading Commission looked into Lazaro Jose Rodriguez's bank accounts, they said they found that in a single month he had withdrawn customer trading funds to spend $173,251 on two Chevrolet Corvettes.
In a separate case, the CFTC in December sued a Coral Springs man and the companies he ran, alleging they had fraudulently taken $14 million from at least 140 people by falsely claiming they made large profits trading foreign currency futures.
Commodities fraud, a growing problem in South Florida and across the nation, will be a topic of debate when industry leaders meet at the Futures Industry Association's annual conference next month in Boca Raton.
Though there are no reliable statistics on commodities fraud by geographic region, and many cases include suspects from different areas, the industry consensus is that South Florida outpaces the rest of the nation.
"The combination of numerous palm trees, roguish telemarketers, phone banks, rich retirees, telemarketing defense lawyers, and [South Florida's] close proximity to foreign jurisdictions makes it a magnet for those that want to earn their living with their tongue and a telephone," said Gregory Mocek, enforcement director for the CFTC, which polices the sale of commodity futures and options. "Pour a little Panama Jack suntan oil on the situation and you have a perfect environment where investors get burned."
In a suit filed earlier this month, the CFTC alleged that Miami-based Rodriguez had burned about 400 investors for a total of $1.5 million after promising them 300 percent trading profits. Rodriguez could not be reached for comment.
Among the trends the CFTC is finding in South Florida: Trading operations are overcharging customers by requiring them to pay both a commission and a so-called spread, essentially another commission.
Some boiler rooms have started to seek investors for gold, which is attractive because it has risen 26 percent in the past year.
With the growth of the Internet, regulators also are seeing more online trading operations offering illegal foreign exchange contracts and then misusing the investments they receive, Mocek said.
Some industry experts say South Florida's history as a hotbed for telemarketing boiler rooms makes it easy for fraudsters to move quickly into commodities such as currencies when the market gets hot.
"South Florida was the commodities options fraud capital of the world in the early to mid-1980s," said Robert Wayne Pearce, a Boca Raton lawyer specializing in commodities and stock law.
In the 1990s, federal and state officials cracked down on boiler rooms, and the commodities markets quieted as investors shifted money into the stock market.
But with the prices of commodities such as gold, oil, copper and platinum rising sharply in the past year, investors have become more interested in the esoteric world of futures and options trading. "That gives opportunities to the hucksters out there," Pearce said.
One good indicator, though unscientific, is that advertisements for training in commodities trading are starting to appear more frequently in newspapers and other media outlets, he said.
Commodities are physical goods, such as metals, foods, grains and currencies. An investor usually buys them through a futures contract, an agreement to buy or sell a set amount of a commodity at a predetermined time.
A futures contract is an obligation to the buyer and seller. An options contract is different in that it is an obligation only to the seller.
Nationwide, the CFTC has gathered about $300 million in restitution and penalties in 85 cases in the past five years, Mocek said. About 24,000 people were victims in those cases.
But John Damgard, president of the Futures Industry Association, thinks the penalties -- typically suspensions, fines or banishment from the industry -- aren't harsh enough.
The biggest problem is not the firms that trade on exchanges, but criminals running "storefronts" that pretend to be legitimate, Damgard said.
In South Florida, the CFTC needs to work more closely with law enforcement officials and the state attorney's office to ensure that offenders go to jail, he said. The CFTC doesn't have that authority.
"It's a cruel hoax to make the CFTC the lead agency in putting these guys in the slammer," Damgard said.
He would like to see a state prosecutor in Florida "make an example" of fraudsters the way New York Attorney General Eliot Spitzer challenged Wall Street firms in court.
Mocek said the CFTC opened an Office of Cooperative Enforcement more than three years ago and has been collaborating with the FBI, state attorney general offices and local prosecutors.
But Mocek knows that as long as the weather is agreeable, commodities fraudsters will make South Florida home.
"There are a number of people," he said, "who would rather do it from a warm spot rather than sit on an icecap."
Restitution ordered in foreign currency investment fraud case
03/06 - Florida - Seventy victims in an investment scam may get a chance to recoup their losses.
Attorney General Charlie Crist, Friday, said David Alan Luger, of Boca Raton, has been ordered to pay $2.2 million in restitution to victims of what the state called a multimillion-dollar investment fraud.
Luger was also ordered to serve 13 years in prison. He was convicted in a case prosecuted by Crist's Office of Statewide Prosecution.
Luger, who was prosecuted for management roles in what the state called several boiler room operations, ran what prosecutors called an investment fraud ring that victimized elderly Floridians, promising high returns in the foreign currency market.
Instead of investing the funds, prosecutors argued Luger and an accomplice kept the money for their personal use. The state said many of Luger's victims lost their retirement savings to the scam.
The boiler rooms operated from 1999 to 2003 under the business names USFX Corp. and Worldwide Forex Corp.
Luger was arrested in 2001 for his role in the scam, but then prosecutors said he started another operation, called Group 24, while serving house arrest in Boca Raton. The state said an accomplice is currently an international fugitive.
"Those who steal from our senior citizens for their personal gain will be prosecuted to the fullest extent of the law," Crist said. "Floridians can rest assured they will be protected from these unscrupulous characters."
The Boca Raton Police Department and the Broward County Sheriff's Office conducted the investigation.
Luger was convicted in January on counts of racketeering, grand theft, fraudulent transactions and telemarketing fraud. Palm Beach Circuit Judge Krista Marx sentenced Luger yesterday.
South Florida Business Journal
Richmond man faces up to 120 years for foreign currency school fraud scheme
12/06 - (AP) RICHMOND, Va. -- A 22-year-old Richmond man accused of cheating more than 350 investors out of about $8.3 million pleaded guilty Wednesday to mail fraud and money laundering.
James E. Brown Jr. faces a maximum of 120 years in prison and fines of up to $16 million on each count when he is sentenced March 14 by U.S. District Judge Richard Williams, according to federal prosecutors.
Brown was arrested in September after an investigation by the FBI, the U.S. Postal Inspection Service and the Internal Revenue Service.
Authorities charged that Brown, owner and president of Brown Investment Services, promised investors he could double their money every 30 business days through trading on the Foreign Currency Exchange Market.
The investment program, which Brown promoted at classes and seminars, was bogus.
Little of the money was invested, and Brown paid early investors with cash coming in from subsequent investors to lull them into believing the investments were paying off as promised.
Brown used the money to finance a lavish lifestyle, including a $2.9 million fleet of luxury automobiles for himself and his employees.
According to prosecutors, of the $8.3 million Brown obtained from investors, he only invested $484,000 in the foreign currency market, losing about $61,000.
Only about $700,000 remained in the company's bank account when Brown was arrested.
Forex trading educational center taught victims how to lose money
08/07 - California - Joel Nathan Ward, 48, of Turlock, has pleaded guilty to charges related to swindling millions of dollars out of trusting investors.
Mr. Ward, a frequent commentator and seminar speaker on foreign currency exchange (“forex”) trading, ran an elaborate scam through two of his companies, the Joel Nathan Forex Investment Group of Turlock and Learn: Forex Inc., a forex trading educational center based in Sacramento, federal prosecutors say.
A federal grand jury indictment alleged that as part of the scheme, Mr. Ward offered investors the opportunity to invest in the foreign exchange interbank “spot” market through his fund, the Joel Nathan ForexFund.
Many of the victims were family members, close friends, and individuals who had been enrolled in the Learn: Forex program, either in Sacramento or through online classes.
Mr. Ward required a minimum $50,000 investment, and told investors they could anticipate significant returns.
The indictment also charged Mr. Ward with defrauding investors in a second scheme relating to a purported real estate investment project in Mississippi. He was alleged to have simply diverted investors' funds to his own use.
In pleading guilty Friday, Mr. Ward admitted that he stole the investors’ funds, using the money for his own compensation and expenses, and to purchase the Learn: Forex School in Sacramento.
He also admitted that in order to conceal the theft, he made “Ponzi” payments using other investors’ funds and provided his investors with altered account statements.
The scheme collapsed in November 2006. The investor victims lost over $7 million.
"Ward used his self-proclaimed expertise in foreign currency trading to steal millions of dollars from family, friends, employees, and other investors.
While he claimed to be a highly successful trader, in fact he was merely a thief,” says U.S. Attorney McGregor Scott.
The guilty pleas were entered to five counts of wire fraud, two counts of mail fraud, and two counts of engaging in monetary transactions in property derived from specified unlawful activity, a form of money laundering, according to Assistant U.S. Attorneys Benjamin Wagner and Ellen Endrizzi, who are prosecuting the case.
There was no plea agreement in the case, and Mr. Ward is to be sentenced Nov. 2.
The maximum penalty under federal law for each offense of wire fraud and mail fraud is 20 years’ imprisonment, a three-year term of supervised release, and a $250,000 fine.
The maximum penalty for each offense of money laundering is ten years’ imprisonment, a three-year term of supervised release, and a $250,000 fine.
However, the actual sentence will be determined at the discretion of the court after consideration of the advisory Federal Sentencing Guidelines, which take into account a number of variables, and any applicable statutory sentencing factors.
Central Valley Business Times
Commodity Futures Trading Commission warns of a rise in foreign-currency trading scams.
03/06 - They reach people, often retirees, through cold calls and television commercials. And they likely made off with $1 billion of stolen money in the last five years.
Foreign-currency trading scam artists, thanks to their growing numbers, are the target of increased enforcement and education efforts by federal regulators.
And a disproportionate number of them seem to have set up camp in South Florida, said Reuben Jeffery, chair of the U.S. Commodity Futures Trading Commission, at the Boca Raton Resort & Club.
Jeffery and other CFTC regulators said the Futures Industry Association has created a task force to attack the fraud problem that plagues the foreign-currency markets, which trade an average of $1 trillion a day.
"Most forex dealers are legitimate. But there are a growing number of scam artists," CFTC Commissioner Michae Dunn said. "It's a black mark on the entire industry."
He said scam artists have ripped off tens of thousands of Americans of all ages, though they primarily target retirees.
In the 87 cases the CFTC has filed in federal court in the last five years alleging foreign-currency fraud, investors have lost a total of $380 million.
Dunn estimates that investors lost $1 billion in that time to foreign-currency fraud.
"We've got stories of people suffering from dementia and get these cold calls," said Dunn said. "There are also some very, very bright people [who get scammed]."
With foreign-currency trading, investors buy currencies on the open market. They hope the currency they're buying will rise in value more than the currency they're using to buy it.
The CFTC is working with state and local authorities to step up investigations and prosecutions in fraud cases.
It is also trying to educate the public through an informational brochure, partnerships with consumer groups and town hall-style meetings hosted with the National Futures Association.
The message, in large part, is that investors should be wary of unlicensed brokers offering deals that sound too good to be true.
Investors should avoid high-pressure sales, confusing investments and brokers who encourage them to mortgage their home or cash out their retirement savings.
Dunn also encouraged people who've been cheated to spread the word about fraud among their friends and neighbors.
"I'm always amazed people are being defrauded and they don't tell anybody about it," he said. "We had a whole community ripped off that way."
Investors who suspect fraud or want more information can visit www.cftc.gov. The National Futures Association's website, www.nfa.futures.org, also allows people to run background checks on brokers.
Palm Beach Post
Man given prison time in currency fund scam
01/06 - California - A San Diego man was sentenced yesterday to five months in prison and five months' house arrest for his part in a multimillion-dollar scam centered on a bogus foreign currency fund.
Stephen Baere, who worked for Richard Robert Matthews at the La Jolla-based White Pine Trust Corp., was sentenced by San Diego federal Judge Jeffrey Miller. Baere is to surrender to federal authorities March 27.
Matthews admitted last April to soliciting $22 million from 247 investors between 2000 and 2004 and then absconding with much of the money, according to court filings.
He pleaded guilty to one count of mail fraud and was sentenced in December to more than five years in prison.
He also was ordered to pay back more than $14.7 million to investors in the United States and abroad.
Baere admitted to prosecutors in June that he misled hundreds of investors, but he said yesterday through his lawyer that he was unaware that the fund was bogus and that Matthews was making off with clients' money.
“He had no idea what Matthews was doing, and he was crushed when he found out,” said Colin Murray, Baere's attorney.
Baere, who pleaded guilty to one count of conspiracy to commit mail fraud, told prosecutors that he worked for Matthews between January 2002 and December 2003. During that time, Baere told prosecutors that he gained between $400,000 and $1 million.
In addition to the prison time, Miller yesterday ordered Baere to pay $600,000 in restitution.
Tyler Zollinger, also associated with White Pine, is scheduled to be sentenced in February.
Scammed forex investors may get some of their money back from crooks
08/07 - About 100 investors in a securities scam – most of them from Texas – are a step closer to getting some of their money back after a court granted a summary judgment against the architect of the scam, the Securities and Exchange Commission said Thursday.
U.S. District Judge Jane Boyle last week ordered Gerald Leo Rogers of Seattle to return $11 million and pay a fine of $120,000.
In 2005, the court froze the assets of Mr. Rogers and his companies, Premium Investment Corp., TriForex International Ltd. and InForex Ltd.
According to the SEC, Mr. Rogers is a twice-convicted felon whose criminal and securities fraud history spans nearly four decades.
He started his latest scheme in 2004, shortly after being paroled from a 35-year prison sentence, the SEC said.
According to the SEC, Mr. Rogers hired 140 sales agents to target mostly retirees with promises of "guaranteed profits" and "safety of principal" in covered-call options in foreign currency trading.
"Rather than investing in these safe, covered-call transactions, Rogers, who believes he's a financial genius, invested millions of dollars in speculative trades," said Jeff Norris, the trial attorney for the Fort Worth SEC office in the case.
"It's one of the most clever and diabolical schemes that I've seen, because Rogers created a program that made it extremely difficult for investors and even brokers to do due diligence, because everything was taking place overseas."
Mr. Rogers' parole has been revoked, and the 72-year-old is back in prison until 2015, according to the Bureau of Prisons Web site.
The summary judgment should clear the way for the court-appointed receiver to start returning some of the victims' money.
"It looks like about 40 cents on the dollar, which is not really bad" in a case like this, Mr. Norris said. "If we hadn't caught this when we did, it could all have been gone."
Dallas Morning News
Forex Fraud Nets Conman Jail Time
NEW YORK - 02/08 - A New York man was sentenced to more than 12 years in prison Friday in connection with a foreign currency exchange scam that bilked more than 200 investors out of $6.5 million.
The U.S. Attorney's office in Manhattan said Boris Shuster, also known as "Robert Shuster," was sentenced to 150 months in prison at a hearing in U.S. District Court in Manhattan.
U.S. District Judge Victor Marrero also ordered Shuster to forfeit $7.89 million and pay a $10,000 fine.
Shuster,guiltyleaded guilty to conspiracy, 14 counts of wire fraud and 13 counts of mail fraud last June. Prosecutors had sought a sentence of 235 months to 293 months in prison, said Sarita Kedia, Shuster's lawyer.
"We do plan to appeal," Kedia said.
Shuster was previously sentenced to 60 months in prison after pleading guilty to criminal charges in a separate forex scam in federal court in Brooklyn.
He had remained free pending his sentencing in federal court in Manhattan, Kedia said.
In the Manhattan case, prosecutors had alleged that Shuster and Alexander Dzedets operated a fraudulent forex firm named Holston, Young, Parker & Associates in Manhattan.
Dzedets, 32, and nine others have pleaded guilty to criminal charges in the "boiler room" scheme, prosecutors said.
Employees of the firm allegedly used false and misleading sales pitches and high-pressure sales tactics to convince people to invest in its purported forex trading program, the government said.
Funds raised weren't used to invest in the forex market, but were instead diverted to bank accounts in Cyprus and Russia, prosecutors said.
The Refco Case: How $75 billion evaporated.
The forex business has always had its dark side. A forex scam is nothing new, and most traders are aware that trading forex necessitates a basic acceptance of the risks involved in interacting with a broker.
Still, the Refco case stands out in recent history due to the size of the collapse and the number of people involved, not to mention the material and psychological damage incurred.
At the time of its collapse in 2005, Refco, a New York commodity broker catering to forex traders, had about $4 billion in client assets, with liabilities reaching upwards of $75 billion.
It is clear that the leverage risk taken by the managers of the firm went far beyond anything that could be considered reasonable.
The fraud, however, was operated mostly by the CEO and chairman of the company, Richard Bennett, and involved creative account techniques that we have grown familiar with since the years of the .com bust.
Mr. Bennett simply shuffled the bad debt of Refco between the company and certain hedge funds and shadow entities funded by Refco’s own capital.
In order to prevent these bad assets of the firm from being written off, they were sold to shell companies controlled by Mr. Bennett.
It was then that he abused his status as the chairman of Refco by ensuring that a continuing supply of capital flowed to the fake entities he was creating.
The fraud was eventually discovered by Refco itself after a period of almost five years and resulted in the corporations Chapter 11 bankruptcy.
Losses were suffered by many clients, including forex traders at FXCM, which at the time Refco held a 35% stake in.
One notable feature of this scandal is the fact that Refco was a repeat offender when it came to regulatory infractions.
The commodities broker was found to be in breach of several regulations at various points in time by the authorities, but clearly not enough was done to ensure future compliance through tighter oversight and enforced regulation.
There are a few lessons one can derive from the Refco scandal. First, regulation is by no means a guarantee of protection against creative executives or employees perpetrating fraud.
One can also note, as in the case of FXCM, that even a healthy and trusted broker may cause losses to clients if its parent company is a victim of fraud, or is being run by con-men.
Next, using leverage at any unsustainable level is not a sensible practice. And finally, the status of Richard Bennett as the architect and chief perpetrator of the fraud reminds us that the declarations of a company’s management about itself should by no means be taken at face value.
While it is possible to gain an understanding of various trading platforms by reading through forex software reviews, even the best broker reviews and studies will not help much in anticipating a fraud.
The best protection against such a devastating result is diligence and diversification.
First make sure that you execute your forex trades through reputable brokers that are licensed and free of regulatory infractions.
Then make sure that all your eggs aren't in one basket. Only invest what you are fully prepared to lose since forex trading is highly risky.
Visualize the loss of every last penny you invest rather than the untold riches you hope to gain.
Just like in Vegas, money can be made, but you must fully realize that the odds are not primarily in your favor.
These tips may help to ensure that your assets will not totally be wiped out even if one of your broker goes bankrupt, or commits fraud.