Forex Investment Scheme Results in Criminal Charges
Investment fund fraud and Ponzi schemes have become a staple of SEC enforcement. The investment fraud schemes often cross from securities into other areas such as the currency markets. In such instances either the CFTC or the U.S. Attorney may initiate an action. For example, at the close of last week the Manhattan U.S. Attorney’s Office filed criminal charges centered on what is claimed to be a forex scheme. U.S. v. Beatty (S.D.N.Y. April 21, 2015).
Mr. Beatty solicited investors through his investment firms, Peak Capital Management Group, Inc. and Peak Capital Group, Inc. Over a period of about two and a half years, beginning in January 2011, he and his firms solicited investors who were interested in trading in foreign currency. The solicitations were made through the website of Peak Capital, email and the mail. Mr. Beatty and his firm used a series of false statements in these solicitations, according to the criminal complaint, including:
Use of funds: Investors were told that their funds would be used in forex trading when in fact most investor funds were not;
Returns: Investors were told that Mr. Beatty’s trading results were generally positive with returns as high as 43.9% when in fact his trading was almost always unsuccessful;
Individual accounts: Investors were assured that their funds would be in an individual account would be created for each investor when in fact they were not; and
Account statements: False account statements were furnished to investors.
Overall about $825,000 was raised from 49 investors. Of the funds, raised about $184,000 was distributed to other investors in an effort to conceal the scheme. The majority of the investors were Japanese citizens who were not authorized to trade leveraged, margin, or financial forex in individually managed accounts under the Commodity Exchange Act.
The criminal complaint alleges one count of commodities fraud and one count of wire fraud. The case is pending.
Previously, the CFTC entered an order against Mr. Beatty. The Order alleged essentially the same scheme as detailed in the criminal complaint. It also claimed that Mr. Beatty lied to the agency during its investigation, denying that he solicited investors for forex trading. The action was resolved with the CFTC directing that $641,000 in disgorgement be paid along with a $1 million penalty. Mr. Beatty was permanently barred from the industry. In the Matter of Scott A. Beatty, CFTC Docket No. 14-34 (Sept. 30, 2014).
Program: Key Issues in SEC Enforcement, webcast by the ABA Criminal Division, May 2, 2016 from 1:00 to 2:30 p.m. EST. Moderators: Thomas O. Gorman and Frank Razzano. Panelists: Stephen Cohen, Associate Director, SEC Division of Enforcement, Harry Weiss, partner Wilmer Hale and Olga Greenberg, partner Southerland Asbil. Additional information and registration is available here.