Charges filed against Forte

Clients of Joseph S. Forte learned yesterday that the Broomall investment manager was a complete fraud who made up wild assertions about how much money he managed, went years without investing anything at all, and took millions of their dollars for himself.

"It's amazing how long you can go" before a scheme like Forte's collapses, said David Baratko, a New Jersey resident who first invested with Forte about 18 months ago. The fund began in 1995.

The scope of the alleged fraud, which ensnared nearly 80 wealthy investors in the Philadelphia area and beyond, emerged from civil charges filed late Wednesday by the Commodities Futures Trading Commission and the Securities and Exchange Commission. They assert that Forte misrepresented his performance from the outset.

Forte, 53, told investigators he paid off old investors with as much as $20 million in new investors' money - the hallmark of a Ponzi scheme - and took $10 million to $12 million for himself, regulators said.

Until recently, he had no trouble persuading clients to invest. He could keep paying existing investors because he reported annual gains that ranged from 18 percent to 36 percent.

In reality, regulators said, Forte traded little and had a profit in only one year, 2002. The profit was $21,823. Between 1998 and 2008, he lost $3.3 million trading mostly S&P 500 futures contracts, according to the charges.

Forte's latest report to investors, on Sept. 30, asserted that his fund's value was $154 million. The actual balance of his trading account at MF Global Ltd. was $146,814.

"His deception was complete," said Daniel M. Hawke, director of the Securities and Exchange Commission's Philadelphia Regional Office. "It wasn't until he realized that he wasn't going to be able to continue honoring redemption requests," Hawke said, that Forte gave up on the scheme and turned to authorities.

The CFTC and the SEC, which filed separate complaints in federal court in Philadelphia, got approval for a preliminary injunction freezing Forte's assets and preserving records. They are continuing their investigation.

Forte and his firm, Joseph Forte L.P., consented to the order freezing his assets without admitting or denying the allegations, the SEC said. Forte, who was in court without a lawyer, did not return a call yesterday and has not returned calls all week. No one answered the door yesterday afternoon at his house in Marple Township.

Late last month, he told authorities that he did not have money to repay investors, the SEC complaint said. Figuring out what happened to the money will take many hours of forensic accounting.

Little is certain at this point about Forte's operation, not even that he collected $50 million from investors, as he told investigators. Between January 1998 and Oct. 31, 2008, he deposited $25.8 million in the MF Global account, while withdrawing $23.1 million, according to court documents.

Between October 2002 and February 2007, Forte deposited no money in the account.

He told investors that he brought in $33.78 million in new funds in the first nine months of last year. He admitted to investigators that he took $10 million to $12 million in fees, but according to statements to investors, he charged fees of $28.7 million between March 1995 and September 2008.

John N. Irwin, the accountant for the fund since its inception, did not return a phone call yesterday. An office worker at his business in Radnor said Irwin was at a meeting when a reporter visited Tuesday. Irwin did not return calls to his business and his residence earlier in the week.

Irwin sent a letter to investors Dec. 31 informing them that Forte had confessed to authorities that he had committed mail and wire fraud.

Speaking generally about Ponzi schemes, Stephen J. Obie, the CFTC's acting director of enforcement, said the key was to convince just one person who is widely perceived as honest: "If you target the right one or two people and use their word of mouth, you can rack up multimillions of dollars."