The CFTC pounces on another Ponzi scheme and starts “SmartCheck”

Chris Lee

We often forget that the CFTC (Commodity Futures Trading Commission) has a dual role to both protect and educate the investing public. While we fully expect our vigilant forex regulator to implement laws and regulations and then put the crooks behind bars, their fraud prevention techniques, designed specifically to stop fraud before it ever takes place, are generally passed over, due, perhaps, by lack of awareness since, as you might expect, the CFTC does not have a significant advertising and marketing budget.

The primary distribution outlets for this regulatory crew are comprised of their Internet website,, and their press release network. Press releases have a way of gaining a broader audience, especially when other news sites pick up the message and expound upon it, as we are doing now. If you go to their website and check the press release archive, you will note that they average nearly one release per day, many having to do with commodity and futures violations, but foreign exchange gets its due, as well.

The CFTC kicked off the new quarter by announcing the shutting down of one more forex Ponzi scheme, the defendants in this case being Dorian A. Garcia, and his companies, DG Wealth Management (DG Wealth), Macroquantum Capital LLC, and UKUSA Currency Fund LP, each operated out of Naples, Florida. Many government authorities had incorrectly believed that, after the Bernie Madoff scandal, the incidence of Ponzi related criminal activities would decline significantly, if only due to heightened public awareness. The opposite is true. Fraudsters took the “Madoff Model”, refined it, and have hit the streets in a vengeance.

Federal, state and local law enforcement resources are focused on stemming this tsunami of sorts by going after the crooks with an intensity that is greater than ever before, but the effort does not stop there. The second CFTC role, the protective aspect, has also received more aggressiveness. The commission has launched a new site, entitled, that gives an investor “easy access to free tools to check the background of financial professionals and stay informed on the latest fraud schemes – directly from those who regulate financial professionals.” The agency has also published a new book, “Ponzimonium”, that outlines precautions that every consumer should take before acting upon an investment solicitation.

What are the details for the latest Ponzi forex fraud scheme?

The Dorian Garcia fraud bares many of the trademarks of the much larger Madoff Ponzi rip off, but the amounts are considerably less by many factors of ten. It seems that Madoff may have been an inspiration for every petty con artist on the street that felt comfortable trying to sell complex financial investment ideas. The complexity and exoticness of foreign exchange, however, is often the icing that closes the deal on the forex cake, since the unsuspecting mark wants to believe that he has a genius working for him. While the losses for new schemes are not approaching billions, the shear number of attempts at this new racket are staggering.

DG Wealth Management may have conned 80 people out of $4.7 million. None of Garcia’s funds ever sought to register with the CFTC, the first sign that something may not have been on the up and up. The complaint lists the common tell-tell signals that a fraud is in process, but the investors appeared to have been a trusting lot. Naples, Florida, is a high-scale community, populated by retirees with ample funds for the taking. One would think that these educated patrons would have been skeptical of Garcia’s claims:

  • Promising that a large collateral account would guarantee that no principal would ever be lost;
  • Overstating the total amount of funds that his firms had under management;
  • Reporting large profits in existing trading accounts (bank and operating statements clearly show that reports were falsified); and
  • Lack of filing the proper documents and then grossly misrepresenting actual results.

These points were the charges filed, along with misappropriating $2.5 million for “personal and business expenses such as art, domestic help, jewelry, and cash transfers to his personal bank accounts.” If you see the lifestyle of your fund manager suddenly turn extravagant, then it may bee time to kiss your money goodbye. Legal efforts will continue for the next few years, leading to fines, penalties, and potential jail time, with very little left over to pay back investor losses. When a bankruptcy judge is appointed, he or she will most likely attempt to recover $2.1 million in Ponzi scheme payments made back to investors to make it all seem real. Investors will then become defendants, rather than plaintiffs, in the court actions, a shock and insult waiting in the wings.

Will “Ponzimonium: How Scam Artists are Ripping Off America” help consumers?

The CFTC did publish a book with the above title to educate the public on the rampant rise of Ponzi-type fraud in America by retelling several compelling case histories, including pictures showing how the crooks spent their ill-gotten gains. According to Commissioner Bart Chilton, “We thought all the frauds and Ponzi scams were horrific in the wake of the Madoff scandal, but it is even worse now. These are real cases, real fraudsters, with unfortunately, very real victims. These mini-Madoff scams took place all across the nation.” You can assume that there are already victims in your neighborhood.

To drive home the point of how to spot a fraud in progress, the book includes a chapter named “Red Flags of Fraud”, followed by a checklist of specific questions that should be asked before making any investment. The checklist is presented on the website, along with these five tips from the book that should make any investor stop and be a little more skeptical about a pending offer:

1)    If it sounds too good to be true, it is.

2)    The investment promises little or no risk of loss or promises you won’t lose money.

3)    Profits or rates of return on an investment are guaranteed regardless of the direction of markets.

4)    The investment is difficult to understand or incomprehensible.

5)    There is a need for secrecy. Not being able to get written information about a potential investment should raise suspicions.

The sad thing about this book and its warnings is that it is not new news. The CFTC has been harping on these very same issues for nearly two decades. Hopefully, many in the investing public have listened. As Chilton concludes, “The consequences for the investors-turned-victims can be pretty horrific—people losing money for their kids’ college funds, for needed health care expenses, or for their own retirement. In most instances it is preventable with a little education and some due diligence fact checking.”

What is the new “SmartCheck” service?

Would you like to have one place to go to check out the credentials of a potential financial professional that you are considering doing business with? The CFTC has fulfilled that request by creating the website address. The new service is free and contains many tools, all aimed at giving you the power to protect yourself from fraudulent business practitioners. In addition to interactive videos and helpful educational materials on fraud and would to look out for, the most unique feature of the site allows you to do a free background check on a prospective financial professional.

CFTC Chairman Timothy Massad encourages everyone to take advantage of these tools by adding, “If they are not careful, even experienced investors can be fooled by people who offer investment advice, but are actually not registered or licensed financial professionals. With only 19 percent of investors reporting that they confirm an advisor’s certifications and only 17 percent checking for past violations, we encourage all investors to use the tools on to check their financial advisors’ backgrounds before putting their hard-earned savings at risk.”

Concluding Remarks

Veteran law enforcement officials know from experience that the criminal element in our society is highly organized. Its hierarchy at the top of the pyramid commands the best and the brightest for crimes involving high technology. The enormous wave of cyber-crime is evidence of their ongoing efforts. For the vast majority of crooks that form the base off the pyramid, however, the tactics shift to the tried and true methods that continue to bare fruit. Ponzi schemes are on the rise again because they work, at least for a period of time until the fraudsters are found out. As long as there are people driven by greed and the hope of getting rich quickly, then the success of Ponzi will continue.

It need not be this way. The CFTC is the lone voice in the wilderness that is trying to protect your interests and those of many other people that are at risk. Awareness is key. Spread the word about their useful tools and educational materials. If the message stops one crook dead in his tracks, then the effort was worth it. For your own peace of mind, however, take the five warning signs to heart whenever approached with the latest and greatest investment idea known to mankind. Be skeptical. Go down the checklist of questions provided by the CFTC. Yes, there are many legitimate purveyors of good investment ideas in the marketplace, but make sure to ask questions and do your own due diligence before acting one way or the other.

Chris Lee

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