Posts Tagged ‘fraud’

CFTC Charges Philadelphia-area Resident with Operating $50 Million Ponzi Scheme

Wednesday, January 14th, 2009

Release: 5594-09
For Release: January 8, 2009

CFTC Charges Philadelphia-area Resident with Operating $50 Million Ponzi Scheme

Joseph S. Forte Confesses to Fraud Scheme and Failing to Register with the CFTC
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it charged Joseph S. Forte of Broomall, Pennsylvania with operating a Ponzi scheme involving approximately $50 million in connection with the unregistered Joseph Forte, L.P. 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. In conjunction with the CFTC’s filing, the United States District Court for the Eastern District of Pennsylvania 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. We are committed to rooting out miscreants who, like Forte, destroy the lives of innocent victims and, ultimately, undermine the confidence of investors everywhere,” said Acting Director of Enforcement Stephen J. Obie.

The CFTC complaint alleges that from at least February 1995 through present, Forte fraudulently solicited approximately $50 million 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% to 36.19%. 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 $154 million.

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 $3 million 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 $10-12 million of the solicited funds, information in the falsified account statements would suggest receipt of management and incentive fees totaling more than $28 million.

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.

The CFTC Urges the Investing Public to Exercise Due Diligence, Watch out for the Warning Signs of Fraud, and Report Any Suspicions About Commodity Ponzi Schemes

With certain exceptions, all individuals and firms that intend to do business as future professionals must register under the Commodity Exchange Act. Registration with the National Futures Association, the industry-side self-regulatory organization for the U.S. futures industry, provides a means for screening individuals and firms for fitness to engage in business as futures professionals and identifying those whose activities are subject to federal regulation. Moreover, all individuals and firm that wish to conduct futures-related business with the public must apply for membership or associate status with the NFA and submit to rigorous background and proficiency screening do business with the public on any U.S. futures exchange. Registration and membership status may be checked via the National Futures Association website at

Individuals and firms that fraudulently solicit funds from investors for commodity futures and options trading are usually not registered with the CFTC. They may operate “Ponzi” schemes in which little or none of the money sent in by investors is ever invested as promised in the commodity markets. Instead, the operator of the scam steals the funds, and creates the illusion of a successful business by using some of the money put in by later investors to pay phony “profits” to earlier investors. This tactic makes it appear to investors that the investment is actually making money, which in turn attracts additional investors. Be wary of such payouts if you do not fully understand their source. Additionally, the CFTC urges the public to watch out for these warning signs of fraud:

Get-rich-quick schemes that sound too good to be true.

Predictions or guarantees of large profits. Always get as much information as you can about a firm or individual’s track record and verify that information—even if you know the people involved or they are recommended by friends or relatives. If you can’t get solid information about your investment and the company, don’t invest. Before you invest, always check it out with someone whose financial advice you can trust.

Promises of little or no financial risk. Be suspicious if the firm or individual says there is little risk. Be suspicious if someone tells you that a written risk disclosure statement is only a routine formality. Written risk disclosure statements are important to read thoroughly and understand.

Claims of trading in the “Interbank Market.” If a firm claims that they will trade foreign currency for you in the interbank market, or that you should trade in the interbank market, be cautious. The term “interbank market” refers to a loose network of currency transactions negotiated between financial institutions, usually banks and investment banks, and other large companies.

Unsolicited telephone calls about investing. Be skeptical if someone you don’t know calls you about investment opportunities.

Someone asking you to send cash immediately. Be very cautious if someone tries to convince you to send cash or transfer money to them immediately by overnight express, the Internet, mail, or any other method.

The CFTC appreciates the assistance of the Securities and Exchange Commission (SEC). The SEC filed a related action against Forte and the pool.

The following CFTC Division of Enforcement staff members are responsible for this case: Luke B. Marsh, Kara Mucha, Gretchen L. Lowe, and Vincent McGonagle.

Last Updated: January 8, 2009