Hedge Fund Focus

Ponzi Schemes Included Classic Forex Frauds

I have reprinted the following releases from the CFTC website.  It is obvious the CFTC has had their hands full as more and more Ponzi schemes come to light.

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Release: 5635-09
For Release: March 18, 2009

CFTC Charges North Carolina Foreign Currency Firm Barki, LLC and Its Recently Deceased Principal Bruce C. Kramer in Alleged $40 Million Ponzi Fraud

North Carolina Federal District Court Issues Restraining Order Freezing Assets and Appointing a Receiver
Washington, DC –The U.S. Commodity Futures Trading Commission (CFTC) announced today that it charged Barki, LLC of Mint Hill, North Carolina, and Bruce C. Kramer with fraudulently soliciting at least $40 million to trade leveraged foreign currency contracts (forex), misappropriating at least $30 million of customer funds to pay purported profits, return principal to customers, and for personal expenses. The defendants concealed their fraud and trading losses through false account statements for over five years.

The Honorable Graham C. Mullen of the U.S. District Court for the Western District of North Carolina, on March 17, 2009, the same day the complaint was filed, entered an order freezing the assets of defendants and relief defendants, appointing a Receiver, and granting other relief, in order to marshal all assets and funds and achieve a fair and equitable distribution of assets to the defrauded customers. Customers should contact the Receiver, Charles E. Lyons, Esq., at (704) 377-5050.

Defendants’ fraud became known to customers on or around February 25, 2009, when Bruce Kramer, who resided in Midland, North Carolina, committed suicide.

The CFTC’s civil complaint also names Rhonda Kramer, wife of Bruce Kramer, and Forest Glenn, LLC, a horse farm owned by the Kramers, as relief defendants. The CFTC seeks repayment of all funds or assets they received as a result of defendants’ fraudulent conduct to which they have no legitimate entitlement.

“Given the circumstances, the CFTC’s primary goal with this action is to ensure any existing assets are protected from further dissipation and fairly returned to customers,” stated CFTC Acting Director of Enforcement Stephen J. Obie.

According to the CFTC complaint, since at least June 2004 through February 2009, Barki, LLC and Bruce Kramer solicited at least $40 million from at least 79 individuals or entities for the purported purpose of trading forex. Defendants claimed success in trading forex, promised little risk using Kramer’s trading system, and lured customers with promises of monthly returns of at least 3 percent to 4 percent.

The complaint alleges that, in reality, defendants sustained trading losses of at least $10 million trading margined or leveraged forex, and otherwise ran a Ponzi scheme by using approximately $20 million of customers’ funds to make payments to customers. Defendants spent the remaining funds on personal expenses, including the purchase of a horse farm for more than $1 million, a Maserati sports car and other luxury cars, artwork, and extravagant parties.

Defendants issued false monthly and annual statements to customers showing purported profits earned from their trading and reflecting that defendants were taking a fee of at least 20 percent based on those purported profits, the complaint alleges. Following recent media coverage about Ponzi schemes and in response to customer questions regarding their investments, defendants created fictitious trading records showing that the trading account held approximately $59 million. In fact, the accounts held $1 million or less. Today, only $575,000 remains in trading accounts and the complete disposition of customer funds is unknown.

In its continuing litigation, the CFTC is seeking preliminary and permanent injunctions, return of funds to defrauded customers, disgorgement of ill-gotten gains, and civil monetary penalties.

The CFTC wishes to thank the Federal Bureau of Investigation, Charlotte Division, and the National Futures Association for their assistance in this matter.

The following CFTC Division of Enforcement staff are responsible for this case: Anne M. Termine, Stephen M. Humenik, Maura Viehmeyer, Judith Hutchison, Stephen Tsai, Michelle Bougas, Gretchen L. Lowe, and Vincent A. McGonagle.

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Release: 5634-09
For Release: March 12, 2009

CFTC Charges Tennessee Resident and Las Vegas-based Firm with Fraud and Misappropriation in $20 Million Commodity Pool Ponzi Scheme

Federal Court Promptly Freezes Assets of Dennis R. Bolze and His Firm, Centurion Asset Management, Inc.

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that on March 4, 2009, the federal district court in Knoxville, Tennessee, issued a court order freezing the assets of Dennis R. Bolze of Gatlinburg, Tennessee, and his Las Vegas-based company, Centurion Asset Management, Inc. (CAM). The asset freeze order was entered a day after the CFTC filed a complaint charging them with fraudulently soliciting commodity pool participants, misappropriating participants’ funds, and issuing false statements to participants in a $20 million fraud involving at least 100 participants in the United States and Europe in a six-year-old scheme.

The CFTC complaint, filed in the United States District Court for the Eastern District of Tennessee on March 3, 2009, also names Advanced Traded Services, Inc. (ATS), another firm operated by Bolze, as a relief defendant because ATS received funds as a result of defendants’ fraudulent conduct and has no legitimate entitlement to those funds.

“Bolze engaged in an international fraud claiming victims from both the US and Europe. In today’s globalized markets fraudsters no longer respect national boundaries. This is the reason the CFTC has engaged in a concerted effort to work cooperatively with our fellow regulators worldwide,” according to CFTC Acting Director of Enforcement Stephen J. Obie.

The CFTC complaint alleges that, from at least Spring 2002 through the present, the defendants misappropriated pool participant funds for their own benefit and operated the commodity pool as a Ponzi scheme, using newly received participant funds to pay purported profits and withdrawals to other participants.

Defendants allegedly misrepresented to prospective pool participants that Bolze’s trading generated annual profits of between from 15 and 20 percent and issued false account statements to give credibility to these misrepresentations. According to the complaint, despite accepting over $20 million, the defendants’ actual commodity futures trading accounts never exceeded $250,000 in equity, and Bolze’s trading during the relevant time resulted in approximately $800,000 of trading losses.

According to the CFTC complaint, Bolze also failed to disclose to prospective pool participants that he plead guilty in 2001 to four counts of failing to file sales tax returns and failing to pay sales tax, resulting in a six-year prison sentence. The prison sentence was ultimately suspended, and Bolze was placed on supervised probation and fined.

The CFTC is seeking permanent injunctive relief, return of funds to defrauded participants, repayment of ill-gotten gains, civil penalties, and other equitable relief. The CFTC is also seeking an order requiring ATS, the relief defendant, to disgorge funds up to the amount it received as a result of defendants’ fraudulent conduct.

The CFTC wishes to thank the Securities and Exchange Commission and the Comision Nacional del Mercado de Valores for assistance in this matter.

The following CFTC Division of Enforcement staff are responsible for this case: Diane M. Romaniuk, Jon Kramer, Michael Tallarico, Mary Beth Spear, Ava M. Gould, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.

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Release: 5632-09
For Release: March 11, 2009

CFTC Charges Charlottesville, Virginia Man with Stealing $1 Million from Investors in a Ponzi Scheme Involving More than $10 Million

Virginia Federal District Court Issues Restraining Order Freezing Defendants’ Assets and Preserving Records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it charged John M. Donnelly of Charlottesville, Virginia, with operating a Ponzi scheme involving more than $10 million in connection with three commodity futures pools.

The CFTC’s complaint, filed on March 11, 2009, charges Donnelly, along with three legal entities he created, Tower Analysis Inc., Nasco Tang Corp., and Nadia Capital Corp., with misappropriating at least $1 million and committing other types of fraud. In conjunction with the CFTC’s filing, the Honorable Glen E. Conrad of the U.S. District Court for the Western District of Virginia issued a restraining order freezing defendants’ assets and preserving records. Judge Conrad set a hearing on the CFTC’s motion for preliminary injunction on March 24, 2009.

The CFTC complaint alleges that Donnelly solicited individuals to invest in U.S. Treasury Note futures and S&P 500 futures. It further asserts that Donnelly operated three commodity pools for over seven years; however, neither Donnelly, nor any employee or agent of the other proposed defendants, actively traded the pools’ funds. Indeed, despite representations that his trading strategy required daily trading of the accounts, Donnelly only executed seven trades over the course of seven years. Despite the absence of trading, the investors still lost their funds because Donnelly misappropriated at least $1 million for himself and his wife. Donnelly may have received another $1.7 million from pool funds to which he was not entitled.

Three Relief Defendants Named

According to the complaint, Donnelly concealed the fraud by paying off certain investors with other investor funds and by issuing false account statements to the investors, lulling them into the belief that their principal was earning steep profits. Donnelly is also being charged with failure to register as a commodity pool operator. The CFTC named as relief defendants the two commodity pools, Blue Logic Operating Partners LP and Nadia Capital Operating Partners LP, in order to preserve any assets that may still exist. Also named as a relief defendant is Donnelly’s wife, Deborah B. Donnelly.

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

The CFTC appreciates the assistance of the Securities and Exchange Commission and the U.S. Attorney’s Office for the Western District of Virginia.

The following CFTC Division of Enforcement staff members are responsible for this case: Christine Ryall, Eugene Smith, Patricia Gomersall, and Joan Manley.