The incidence of forex related Ponzi schemes is certainly not limited to companies domiciled in Panama or other out of the way places.
For example, recent accusations of forex fraud were made by the U.S. Commodity Futures Trading Commission or CFTC against the Punta Gorda, Florida based forex firm known as Cyber Market Group, LLC.
On March 15th, 2010, the CFTC filed a 23 page complaint against the firm and the commission also named Patrick Rakotonanahary as a defendant along with the firm in its initial filings. Neither the firm nor Rakontonanahary were registered with the CFTC, nor were they members of any other registered futures association.
In addition to the CFTC’s March 15th complaint, the United States Attorney’s Office for the District of Hawaii or USAO also filed a criminal indictment for fraud against Rakontonanahary, and the Department of Commerce and Consumer Affairs, Office of the Securities Commission (the DCCA) also filed an administrative complaint against him and the company with which he was associated.
These legal actions eventually led to Mr. Rakontonanahary’s arrest on March 15th, 2010 to answer the fraud allegations.
The CFTC’s Allegations
The CFTC’s complaint alleges that Patrick Rakontonanahary and his Punta Gorda, Florida based Cyber Market Group LLC fraudulently solicited funds from the investing public claiming that the funds would be used to trade off exchange foreign currency contracts in the OTC forex market.
According to the CFTC, the defendants had been fraudulently soliciting funds directly and through the officers and employees of the company since at least June of 2008.
The company would typically extract funds from their “clients” through a “Promissory Program” in which the clients of Cyber would loan them the funds whereupon Cyber would employ the funds to trade in the forex market.
Cyber’s clients would then supposedly be repaid their loans with accrued interest out of the profits made by the company’s purported expert trading in the forex market.
According to the CFTC, prospective clients were lured to “lend” their money to Cyber Market Group with too good to be true returns of from four to ten percent per week and/or month. Learn more about to good to be true returns.
Nevertheless, the CFTC claims that the company knowingly and falsely represented to their clients that the weekly or monthly returns they were receiving from Cyber were derived from profitable forex trading operations, although these returns were actually being paid out of the client’s own funds or funds deposited with the firm from other clients in what seems to have been a typical Ponzi scheme forex fraud.
In addition to the unrealistically high trading returns promised, the CFTC’s complaint also says that the Defendants made the outrageous claim to have not lost any money in the forex market in seven years.
Besides taking their client’s money to supposedly trade in the forex market, the CFTC also alleges that Cyber falsely represented to clients that they had millions of dollars in customer funds invested, although accounting records show that Rakotonanahary and his firm only had thousands in their corporate bank and trading accounts.
It also appears that many of the funds “borrowed” from clients for this alleged Ponzi scheme may have been misappropriated for the Defendants’ personal use.
Was Cyber Market Group a Typical Ponzi Scheme?
According to the CFTC, the way that the Defendants operated was in keeping with the time tested framework of a “Ponzi” scheme. This scam was named after the famed fraudster Charles Ponzi who was an Italian immigrant that defrauded investors of millions of dollars in the 1920’s.
The Ponzi scheme typically takes in investments by promising very high returns, and the scheme operator then uses the proceeds from new investors to pay the promised high returns to earlier investors.
Although returns can be high until the scheme fails, the initial principal invested is often not returned to investors. The scam generally continues to operate until new investment funds received fails to meet the payments due to earlier investors.
Since the principal is often not returned, the perpetrator of the scam generally keeps the lion’s share of the money for their own personal use. The CFTC alleges that this was also the case with Cyber Market Group.
The Cyber Market Group Scheme Begins to Unravel
According to the CFTC, Cyber ceased making “interest payments” to several of Cyber’s clients as of August of 2008, and the company also continued making partial payments of principal to some of their clients but not to others.
Nevertheless, the CFTC claims that Cyber continued soliciting public funds for the purpose of forex trading despite — or perhaps because of — the fact that they were getting behind in their payments to investors.
In November of 2008, it seems that Cyber sent its customers a letter with an attachment representing that the firm had over $8 million in customer funds. Nevertheless, according to the CFTC, the Defendants had only $60,000 in both their bank and trading accounts at the time.
Furthermore, the CFTC’s complaint alleges that millions of dollars in Cyber client funds had been wired into one of the firm’s two bank accounts between December of 2007 and early 2010. Nevertheless, by February 12th of 2010, no funds remained in either of the firm’s two bank accounts.
Cyber’s Large Forex Trading Account Losses
According to the CFTC, several forex trading accounts were opened by Rakotonanahary in Cyber’s name and an estimated $1,864, 000 was transferred into these accounts.
Of that over $1.8 million, the company reported trading losses of $814,806, while approximately $1,049,193 was sent back to the firm’s bank account. It seems that the trading accounts were eventually closed in October of 2009, with no funds remaining in these accounts.
Conclusion – Watch Out For Ponzi Scams and Unregulated Companies
The CFTC’s Cyber Market Group fraud case seems to be just another classic example of a forex related Ponzi scheme reaching its virtually inevitable conclusion. Basically, when the fresh money stops coming in to such a fraud scheme, investors are subsequently left without a payout, and the operators simply pocket whatever cash is left over.
Once the payments stop, investors naturally begin asking questions that usually leads the appropriate authorities like the CFTC to investigate. Unfortunately, by the time an investigation begins, it is often too late, and most of the money is already spent or hidden beyond the normal means of legal recovery.
Because the initial lure of unrealistically high returns usually entices people to swallow the carrot presented by these forex fraud scams, many people who are taken in by these fraudsters eventually become the victims of their own greed and lose their investments in the process.
Another major forex fraud red flag about Cyber Market Group that many of its investors do not seem to have noticed is that the investment firm was not regulated by either the NFA or the CFTC. This lack of official oversight was a clear financial scam warning sign that anyone interested in investing should watch for and avoid. Read about other more well known Ponzi schemes:
Read about Bernard Madoff in the biggest Ponzi scheme ever.
David A Smith got sentenced to 30 years in prison.
Read about the nice guy who stole $11.3 million from investors.
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