The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action in the Eastern District of California, charging a slew of individuals and entities with operating a $14.5 million binary options and retail foreign currency (forex) Ponzi scheme.
Who uses other people’s money to pay for wine, women, and haircare?
According to the CFTC, any number of bad actors can…in this case, four individuals, four entities, and seven relief defendants. In its complaint, the CFTC charges the defendants with misappropriating over $11 million to make payments to certain pool participants in a Ponzi-scheme-type style and used the funds to pay for such personal expenses as personal travel, home renovations, limousine expenses, spa and haircare expenses, online gambling, and expenses relating to divorce and spousal support.
Charged are California-based defendants John D. Black and his affiliated entities Financial Tree (d/b/a Financial Tree Trust), Financial Solution Group (d/b/a Financial Solution Group Trust), and New Money Advisors, LLC, and his associates Christopher Mancuso and Joseph Tufo. Also charged are Colorado-based defendants John P. Glenn and his law firm, The Law Firm of John Glenn, P.C. The CFTC also names seven relief defendants in its complaint, charging them with receiving funds from the scheme to which they have no lawful entitlement.
Judge issues a restraining order freezing assets
Because the scheme was ongoing, on July 2, 2020, the Honorable Judge Troy L. Nunley of the U.S. District Court for the Eastern District of California entered a restraining order freezing the defendants’ and the relief defendants’ assets. The order also permits the CFTC to inspect all the defendants’ and the relief defendants’ relevant records.
“This action is among the latest examples of the CFTC’s efforts to aggressively root out fraud and bad actors involved in our markets,” says CFTC Director of Enforcement James McDonald, “…even during a global pandemic [and to…] preserve assets for potential victims, including through statutory restraining orders that freeze assets that could be used later to compensate victims.”
What happened in this Ponzi scheme?
From June 15, 2015 through the present, the defendants fraudulently solicited more than $14.5 million from at least 91 members of the public—including more than 50 U.S. residents—for pooled investments in binary options and forex. They then misappropriated the vast majority of those funds. They sought to conceal their fraud by issuing false account statements to the pool participants and making phony excuses to them for their failure to return funds and deliver promised profits. Over time, the excuses because more outlandish—including, for example, that Europeans’ summer vacations delayed return of funds and that storms in the Bahamas had delayed transaction processing.
As alleged in the CFTC complaint, the fraud is ongoing, with the defendants continuing to make fraudulent solicitations and phony excuses for their failure to return investor funds. In addition to the fraud violations charged, the defendants allegedly violated various registration requirements and disclosure rules.
$14.5 million delivered; only $10 million deposited
And that’s just the summary of the evildoing. Between June 15, 2015 and the present, the defendants fraudulently solicited at least approximately $14.5 million from members of the public. At least 53 U.S. residents deposited over $6 million in this scheme, and at least another 38 non-U.S. residents deposited over $8 million in the scheme. The defendants traded only a small portion of those funds in binary options or forex, misappropriating the rest.
In the course of perpetuating the scheme, the defendants told participants that:
What the defendants failed to disclose, among other things, was that the California Department of Business Oversight (“California DBO”) had issued a Desist and Refrain Order to Financial Solution, Black, and Mancuso for their Black Pools solicitations. Of the approximately $14.5 million invested with the groups, only $10,000 was deposited into U.S. trading accounts in the name of the Black Pools. And some of those funds were lost trading forex. For example, Financial Solution and Financial Tree, by and through Black, transferred approximately $254,280 overseas to possible binary options or forex trading firms but received back only roughly $59,239.
Approximately $5.1 million went to Ponzi payments to other pool participants and roughly $6.3 million was distributed for unauthorized personal or business expenses.
To conceal the theft, false account statements were issued reporting inflated and misrepresented trading returns and the value of pool participants’ interests in the Black Pools. When pool participants requested the return of their funds, extravagant excuses ensued.
In fact, the fraud continued at least until February 26, 2020.
Where was compliance?
Working for another company? There’s no question that bad actors acting badly will sidestep compliance or neglect it altogether. But that’s not you, right? That the defendants will be on the hook for millions of dollars is not in question. Nor do we have to say that compliance is always cheaper. But what about your organization? What if you could secure compliance for all your nontrading regulatory exposures without breaking the bank? That’s where Patrina comes in. For more than 25 years, Patrina has been helping compliance professionals like you stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective designated third-party services, our comprehensive 8-module compliance solution, and compliant data capture & file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.Let’s talk.