Wednesday, October 28, 2020

Miami based investment firm fined $17.2 million in a commodities fraud scheme

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The U.S. Commodity Futures Trading Commission announced a default judgment was entered on October 3rd against defendants Fabio Bretas de Freitas, of Miami, Florida, and Phy Capital Investments LLC, a registered commodity pool operator and commodity trading advisor, for fraud and misappropriation of client funds.

The judgment orders the defendants to pay a civil monetary penalty of $12,608,982, to pay $4,625,166 in restitution and prejudgment interest to Phy Capital clients, to disgorge $5,752,042 in ill-gotten gains, and permanently bans the defendants from trading in CFTC-regulated markets.  The Honorable Jesse M. Furman of the U.S. District Court for the Southern District of New York entered the judgment.

The order resolves a CFTC enforcement case filed on May 9, 2019, charging the defendants with fraud and misappropriation in connection with commodity futures trading.  Bretas was also charged with making false statements to the National Futures Association (NFA), the self-regulatory organization for the U.S. derivatives industry.  [See CFTC Press Release 7927-19]

The order finds that from at least March 2016 through May 2019, the defendants fraudulently solicited clients and prospective clients to trade commodity interests by claiming they had developed proprietary software called SoPhyA, which achieved profits of 49 percent on futures trading from February 2016 through November 2017 for one of their commodity pools.

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According to the order, however, only $155,000 of the $6,894,979 in client funds received by the defendants was ever put into any trading accounts and the balance was either misappropriated for non-trading uses or returned to other clients in a manner akin to a Ponzi scheme.

The court also found Bretas misrepresented to NFA that one of the defendants’ commodity pools was a private equity fund created to develop intellectual property sold to other businesses.  Bretas was also found to have set up a fictitious email account to mislead NFA staff into believing they were communicating with a purported lender to the pool.

In a related criminal case in the U.S. District Court for the Southern District of New York, Bretas awaits sentencing after having pleaded guilty on August 8, 2019, to charges of conspiracy to commit wire fraud and commodities fraud.  [See Case No. S3 19 Cr. 257 (LTS)]

The CFTC cautions victims that restitution orders may not result in the recovery of money lost, because wrongdoers may not have sufficient funds or assets.  The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

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The CFTC appreciates the assistance of NFA, the Money Laundering and Transnational Criminal Enterprises Unit of the United States Attorney’s Office for the Southern District of New York, the New York Division of the Federal Bureau of Investigation, and the Comissão de Valores Mobiliários of Brazil.

The Division of Enforcement staff members responsible for this case are Elizabeth M. Streit, Joy McCormack, Scott R. Williamson, Matthew Edelstein, and Stacie Pan.

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CFTC’s Commodity Pool Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories providing the warning signs of fraud, including the Commodity Pool Fraud Advisory, which puts a spotlight on a type of fraud involving individuals and firms, often unregistered, offering investments in commodity pools.

Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.

Source: CFTC

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