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Thursday, January 8, 2009
UPDATES: Main Line investor 'confesses' to $10M+ fraud, feds say

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SEC statement and links on Forte charges: http://www.sec.gov/news/press/2009/2009-5.htm
Harold Brubaker's Inquirer coverage:
 Jan. 9:  http://www.philly.com/philly/business/20090109_Charges_filed_against_Forte.html
 Jan. 8:  http://www.philly.com/philly/hp/news_update/37269199.html
 Jan. 7:  http://www.philly.com/inquirer/breaking/business_breaking/20090107_Fractured_profile_of_local_Madoff-type_manager.html 
 Jan. 7: http://www.philly.com/inquirer/business/20090107_Millions_missing_at_Philadelphia-area_charity.html

From the official statement: "The U.S. Commodity Futures Trading Commission (CFTC) announced today that it charged Joseph S. Forte of Broomall, Pennsylvania with operating a Ponzi scheme involving approximately $50 million in connection with the unregistered Joseph Forte, L.P. commodity futures pool.

"Forte recently confessed to federal authorities in the wake of the scheme’s collapse. The CFTC’s complaint charges Forte with: solicitation fraud; misappropriation of pool funds; sending customers false account statements; and failing to register with the CFTC as a commodity pool operator.

"In conjunction with the CFTC’s filing, the United States District Court for the Eastern District of Pennsylvania issued a restraining order freezing assets and preserving records...

"The CFTC complaint alleges that from at least February 1995 through present, Forte fraudulently solicited approximately $50 million from dozens of individuals and entities to participate in a commodity futures pool to trade, among other things, S&P 500 stock index futures, foreign currency futures, and metal futures. 

"In soliciting prospective and existing participants, Forte claimed he was a successful commodity futures trader and that his pool had a successful track record.  For example, in a solicitation memorandum directed to a church, Forte represented that the eight-year annual return on the fund ranged from 18.52% to 36.19%.

" To conceal his ongoing fraud, Forte failed to register with the CFTC and provided quarterly account statements to pool participants showing consistently profitable returns of the pool and eventually reporting that as of late 2008, the pool had increased in value to over $154 million.

 

"In reality, however, Forte was neither successfully trading nor making an effort to do so. When trading, Forte purportedly sustained net losses of at least $3 million trading almost exclusively the S&P 500 futures contract on behalf of the pool. However, during a 34-month period from 2004 into 2007, Forte purportedly conducted little to no trading at all...

"Instead of generating the astounding profits from high volume trading touted in solicitations and falsified in account statements, Forte used pool participants’ funds to pay off other pool participants and to pay business expenses.

"From the outset, Forte also paid himself purported management and incentive fees based on the falsified earnings and increased value of the pool. While Forte confessed to taking $10-12 million of the solicited funds, information in the falsified account statements would suggest receipt of management and incentive fees totaling more than $28 million...

"The CFTC seeks restitution, disgorgement, civil monetary penalties and permanent injunctions against further violations of the federal commodities laws and against further trading..." CFTC's Luke B. Marsh, Kara Mucha, Gretchen L. Lowe and Vincent McGonagle "are responsible for the case."

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About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column, which is printed in the business pages of The Philadelphia Inquirer every Sunday, Tuesday, Wednesday, Thursday and Friday. Joe has worked at the Inquirer, mostly, since 1988. He has also written for Bloomberg and Gannett, authored the book Comcasted, majored in economics at Penn, and fathered six children. Reach Joe at 215-854-5194 and JoeD@phillynews.com

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