Tag Archives: fraud

SEC Charges Investment Advisers With Cherry-Picking, Obtains Asset Freeze

The Securities and Exchange Commission today announced that it has obtained an asset freeze and other emergency relief, and filed fraud charges, against a Miami-based investment professional and two investment firms for engaging in an alleged “cherry-picking” scheme in which they channelled millions of dollars in trading profits to preferred accounts.

According to the SEC’s complaint filed under seal on June 10 in federal court in the Southern District of Florida and unsealed today, defendants Ramiro Jose Sugranes, UCB Financial Advisers Inc., and UCB Financial Services Limited engaged in a scheme since at least September 2015 to divert profitable trades to two accounts believed to be held by Sugranes’ relatives and saddle other clients with losing trades. The defendants allegedly used a single account to place trades without specifying the intended recipients of the securities at the time they placed the trades. As alleged, after the defendants established a position, if the price of the securities increased during the trading day, the defendants usually closed out the position and allocated those profitable trades to the two preferred accounts. Conversely, the complaint alleges that if the price of the securities decreased during the trading day, the defendants usually allocated the unprofitable trades to other client accounts. According to the complaint, the preferred clients, who are named as relief defendants, received approximately $4.6 million from profitable trades while other clients sustained more than $5 million in first-day losses.

“We allege that Sugranes used the UCB investment firms to funnel millions of dollars to two clients, while unloading over $5 million in first-day losses on their other clients,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit.  “The SEC uses sophisticated analytical tools to ferret out investment professionals who abuse their positions to engage in cherry-picking and other fraudulent conduct, as we allege happened here.”

The SEC’s complaint charges Sugranes and the two UCB entities with violating the antifraud provisions of the federal securities laws, and seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties. The complaint also names the preferred clients as relief defendants and seeks to recover their unlawful gains and prejudgment interest. On June 14, the court granted the SEC’s request for emergency relief, including an asset freeze, accounting, and expedited discovery.

The SEC’s investigation, which is ongoing, stems from the Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns, including improbably successful trading. The investigation is being conducted by Jeffrey E. Oraker, Daniel M. Konosky, and Helena Engelhart Bean of the Market Abuse Unit and Denver Regional Office with assistance from John Rymas of the Market Abuse Unit and Stuart Jackson and Joshua Mallet of the SEC’s Division of Economic and Risk Analysis. The investigation is supervised by Danielle R. Voorhees and Joseph G. Sansone. The SEC’s litigation will be led by Christopher E. Martin and Mark L. Williams under the supervision of Gregory A. Kasper.

Federal Court Orders UK Man to Pay More Than $571 Million for Operating Fraudulent Bitcoin Trading Scheme

The Commodity Futures Trading Commission today announced that the U.S. District Court for the Southern District of New York entered a default judgment against Benjamin Reynolds, purportedly of Manchester, England, finding that he operated a fraudulent scheme to solicit bitcoin from members of the public and misappropriated customers’ bitcoin. This case was brought in connection with the Division of Enforcement’s Digital Assets Task Force.

The court’s March 2, 2021 order requires Reynolds to pay nearly $143 million in restitution to defrauded customers and a civil monetary penalty of $429 million. The order also permanently enjoins Reynolds from engaging in conduct that violates the Commodity Exchange Act and CFTC regulations, registering with the CFTC, and trading in any CFTC-regulated markets.

The judgment is the result of a 2019 enforcement action brought by the CFTC charging Reynolds, conducting business as Control-Finance Limited, with fraud and misappropriation. [See CFTC Press Release No. 7938-19]

Case Background

Between May 2017 and October 2017, Reynolds used a public website, various social media accounts, and email communications to solicit at least 22,190.542 bitcoin, valued at approximately $143 million at the time, from more than 1,000 customers worldwide, including at least 169 individuals residing in the U.S. 

Among other things, Reynolds falsely represented to customers that Control-Finance traded their bitcoin deposits in virtual currency markets and employed specialized virtual currency traders who generated guaranteed trading profits for all customers. He also constructed an elaborate affiliate marketing network that relied on fraudulently promising to pay outsized referral profits, rewards, and bonuses to encourage customers to refer new customers to Control-Finance. In fact, Reynolds made no trades on customers’ behalf, earned no trading profits for them, and paid them no referral rewards or bonuses. While Reynolds represented that he would return all bitcoin deposits to customers of Control-Finance by late October 2017, he never did and instead retained the deposits for his own personal use. Customers lost most or all of their bitcoin deposits as a result of the scheme.

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

The CFTC appreciates the assistance of the British Columbia Securities Commission and the UK Financial Conduct Authority. 

The Division of Enforcement staff members responsible for this action are Dmitriy Vilenskiy, Kyong J. Koh, Julia C. Colarusso, Hillary Van Tassel, Jonah E. McCarthy, A. Daniel Ullman II, Luke B. Marsh, and Paul G. Hayeck. Additionally, Daniel J. Grimm and John Einstman contributed to the case while members of the Division of Enforcement. CFTC staff members, Christopher Giglio, Lauren Fulks, and Mary Lutz, also assisted in this matter.

Founder Of $90 Million Cryptocurrency Hedge Fund Charged With Securities Fraud And Pleads Guilty In Federal Court

Stefan He Qin Stole and Dissipated Nearly All the Assets of His $90 Million Flagship Hedge Fund and Attempted to Steal Millions of Dollars from a Secondary Fund to Pay Back Investors

Audrey Strauss, United States Attorney for the Southern District of New York, and Peter C. Fitzhugh, Special Agent in Charge of the New York Field Office of Homeland Security Investigations (“HSI”), announced that STEFAN HE QIN, the founder of the Virgil Sigma Fund LP (“Virgil Sigma”) and the VQR Multistrategy Fund LP (“VQR”), a pair of cryptocurrency hedge funds in New York, New York, with over $100 million in investments, was charged with one count of securities fraud and pled guilty today in Manhattan federal court.  For years, QIN stole investor money from Virgil Sigma and, in December 2020, QIN tried to steal investor money from VQR to pay back his investors in Virgil Sigma.  QIN pled guilty today before United States District Judge Valerie Caproni.           

U.S. Attorney Audrey Strauss said:  “Stefan He Qin drained almost all of the assets from the $90 million cryptocurrency fund he owned, stealing investors’ money, spending it on indulgences and speculative personal investments, and lying to investors about the performance of the fund and what he had done with their money.  Then, as he further admitted today, Qin attempted to steal money from another fund he controlled to meet redemption demands of the defrauded investors in the former fund.  The whole house of cards has been revealed, and Qin now awaits sentencing for his brazen thievery.”

HSI Special Agent in Charge Peter C. Fitzhugh said:  “Virgil Sigma and VQR, two multimillion-dollar cryptocurrency investment funds, were revealed to be slush funds for Qin to live his extravagant lifestyle.  Qin orchestrated this reprehensible criminal scheme for many years, making misrepresentations and false promises that coaxed investors into pouring millions of dollars into fraudulent cryptocurrency firms, all the while stealing the hard-earned money of his investors.  Furthermore, Qin mastered the art of trickery by representing these firms as profitable investment strategies so more victims fell to his tactics and were defrauded of nearly $100 million.  The HSI New York El Dorado Task Force, with our incredible law enforcement partnerships, are committed to aggressively pursue fraud in all forms, regardless of how elaborate and profitable these schemes appear.  In today’s technological world, there are increasingly more opportunities for fraudsters to take advantage of people, and with Qin pleading guilty to his deceitful acts, HSI and our partners remind those who attempt to defraud victims in any manner, your fraud will be uncovered and you will be brought to justice.”

According to the Information and statements made in open court:


STEFAN HE QIN is a 24-year-old Australian national.  Between 2017 through 2020, QIN owned and controlled two cryptocurrency investment funds, Virgil Sigma and VQR, both of which were located in New York, New York.  Since its creation, Virgil Sigma purported to employ a strategy to earn profits from arbitrage opportunities in the cryptocurrency market, specifically, by using a trading algorithm to take advantage of price differences for a number of cryptocurrencies, including Bitcoin and others, in approximately 40 different exchanges around the world, including three exchanges located in the United States.  This strategy was touted by QIN to the investing public as “market-neutral,” meaning the fund was not exposed to any risk from the price of cryptocurrency moving up or down and therefore provided a relatively safe and liquid investment.  QIN exercised day-to-day control over Virgil Sigma and was responsible for tracking the fund’s balances at different trading exchanges, designing the algorithms to implement arbitrage trading, and preparing monthly investor statements.  QIN also regularly participated in calls with Virgil Sigma investors and other forms of public communication where he touted the growth and success of Virgil Sigma.  Until recently, Virgil Sigma purported to have over $90 million under management from dozens of investors, including many in the United States.  According to its public marketing materials, Virgil Sigma has been profitable in every month from August 2016 to the present, with the sole exception of March 2017.

In or about February 2020, QIN founded VQR.  VQR employed a variety of trading strategies and was poised to make or lose money based on the fluctuations in the value of cryptocurrency and was not market neutral.  QIN was the sole owner of VQR’s general partner, but was not involved in VQR’s day-to-day operations.  Instead, VQR had its own trading staff, including a head trader (the “Head Trader”) and other investment professionals.  Until recently, VQR had at least approximately $24 million under management from investors. 

Qin’s Scheme to Steal Assets from Virgil Sigma

Since 2017, QIN engaged in a scheme to steal assets from Virgil Sigma and defraud its investors.  Rather than investing the fund’s assets in a cryptocurrency arbitrage trading strategy as advertised, QIN embezzled investor capital from Virgil Sigma and used the funds for purposes other than the purported arbitrage trading strategy, including: (a) using a substantial portion of investor capital stolen from Virgil Sigma to pay for personal expenses such as food, services, and rent for a penthouse apartment in New York, New York; (b) using a substantial portion of investor capital from Virgil Sigma to make personal, often illiquid, investments in other entities that had nothing to do with cryptocurrencies (for example, in or about October 2018, QIN invested hundreds of thousands of dollars stolen from Virgil Sigma in a real estate investment); and (c) using a substantial portion of investor capital from Virgil Sigma to invest in crypto-assets that had nothing to do with the fund’s stated arbitrage strategy (or example, in or about 2018, QIN invested funds from Virgil Sigma in certain initial coin offerings, a speculative form of investing in new issues of cryptocurrency).  As a result of these and other fraudulent activities, QIN dissipated nearly all of the investor capital in Virgil Sigma.

In the course of stealing assets from Virgil Sigma, QIN regularly lied to the fund’s investors about the value, location, and status of their investment capital.  These lies included an array of investor and public communications, including:

(a) QIN prepared and disseminated monthly statements to investors purporting to record the value of their holdings in Virgil Sigma.  The amounts recorded in these statements did not accurately reflect the results of cryptocurrency trading.  Instead, the amounts were made up by QIN and did not disclose the dissipation of assets by QIN.

(b) QIN also periodically prepared marketing materials for the investing public, including summary reports known as “tear sheets” that fraudulently reported that Virgil Sigma was earning remarkable profits, often with double-digit returns in a single month, month after month.  For example, in or about February and in or about April 2017, QIN falsely reported that Virgil Sigma had earned 48.7% and 35.5% returns, respectively.

(c) On an annual basis, QIN prepared spreadsheets that purported to show Virgil Sigma’s balances at the approximately 40 exchanges where Virgil Sigma purportedly traded in order to prepare tax forms for the fund’s investors, also known as schedule K-1s.  As QIN well knew, however, these spreadsheets and the resulting schedule K-1s were false and substantially overstated Virgil Sigma’s balances and trading activity on the exchanges. 

As a result of QIN’s lies about the activity and success of Virgil Sigma in these and other communications, QIN was able to steadily attract new capital to Virgil Sigma thereby (a) ensuring that he was able to pay off investors’ redemption requests, and (b) projecting to the public the appearance of continued growth.  For example, after QIN and the purported success of his fund were profiled in the Wall Street Journal in or about February 2018, Virgil Sigma experienced substantial growth as new investors flocked to the fund.

Qin Attempts to Steal Assets from VQR to Pay Virgil Sigma Investors

In the summer of 2020, QIN was having difficulty meeting redemption requests from investors in Virgil Sigma.  In order to access funds to make those redemptions, and in order to conceal his fraudulent activities described above, QIN attempted to steal investor capital from VQR to pay redemptions to Virgil Sigma investors.  After a few Virgil Sigma investors requested redemptions that Virgil Sigma could not pay, QIN convinced those investors that rather than redeem the funds outright, the investors would agree to have the funds withdrawn from Virgil Sigma and transferred into an investment in VQR.  After months passed and no funds were transferred to VQR, QIN falsely told these investors that he had requested the transfer of funds from Virgil Sigma, but that the transfer was delayed because of an intermediary bank.  QIN showed some of these investors wire transfer requests in order to bolster the impression that QIN was in fact trying to transfer the funds from Virgil Sigma to VQR.  Virgil Sigma’s bank could not, however, effectuate these wire transfers because QIN had dissipated all of Virgil Sigma’s assets.

In or about December 2020, faced with additional redemption requests that he could not meet, QIN demanded that the Head Trader at VQR wind down all trading positions at VQR and transfer a portion of the funds to QIN so that QIN could use that money to pay off these redemptions to Virgil Sigma investors.  QIN issued the demand even though the Head Trader advised QIN that closing out VQR’s then-current trading positions, rather than holding those positions in accordance with VQR’s directional trading strategy, would result in losses to VQR’s investors.  In the course of those conversations, QIN threatened that if the Head Trader did not sufficiently expedite that process, QIN, as the sole owner of VQR’s general partner, would need to take over control of all of VQR’s accounts in order to access the funds.  At QIN’s direction, the Head Trader accordingly closed out VQR’s positions and turned over access to VQR’s trading accounts to QIN.  QIN subsequently attempted to take control of VQR’s assets in order to enable QIN to meet certain Virgil Sigma investor redemption requests.

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QIN, 24, pled guilty to one count of securities fraud.  This charge carries a maximum term of 20 years in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. Sentencing has been scheduled for May 20, 2021.

Ms. Strauss praised the work of Homeland Security Investigations.  She further thanked the Securities and Exchange Commission for its cooperation and assistance in this investigation.   

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorney Daniel Tracer is in charge of the prosecution.

Federal Court Orders North Carolina Man to Pay Over $255,000 in Futures and Forex Fraud Scheme

The Commodity Futures Trading Commission today announced that Judge Max O. Cogburn Jr., of the U.S. District Court for the Western District of North Carolina, entered a consent order against Mark N. Pyatt, of North Carolina, imposing a permanent injunction and ordering Pyatt to make restitution in the amount of $255,850. The order also permanently bans Pyatt from registering with the CFTC and from trading commodity futures and retail foreign exchange contracts (forex). In the order, Pyatt admitted to fraudulently soliciting individuals to place funds in a commodity pool and to misappropriating most of the funds he solicited.

The consent order resolves a CFTC case against Pyatt that was filed in the Western District of North Carolina on February 10, 2020. [See CFTC Press Release No. 8120-20] The CFTC’s litigation continues against Pyatt’s company, Winston Reed Investments LLC.

The consent order finds that from at least April 2017 to February 2019, Pyatt accepted $276,850 from pool participants to trade commodity futures and forex. The consent order also finds that Pyatt misappropriated most of pool participants’ funds for business expenses and personal use, and to make Ponzi-like payments to other pool participants, while using only a fraction of the funds to trade. In addition, despite overall net trading losses, Pyatt sent reports to investors claiming profits of between 18.8 percent to 86.5 percent per month.

Related Criminal Action

In a parallel criminal action, the U.S. Attorney for the Western District of North Carolina announced that Pyatt pleaded guilty to wire fraud in connection with the scheme. On October 27, 2020, Pyatt was sentenced to 37 months in federal prison and ordered to pay restitution to his victims. [See United States v. Mark Nicholas Pyatt, Case No. 1:20-cr-00016, ECF No. 42 (W.D.N.C. Nov. 5, 2020)]

The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the 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.

The CFTC appreciates the cooperation and assistance of the U.S. Attorney’s Office for the Western District of North Carolina in this matter.

The Division of Enforcement staff members responsible for this case are Michael Loconte, James A. Garcia, Erica Bodin, and Rick Glaser.

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CFTC’s Foreign Currency (Forex) Fraud Advisory

The CFTC has issued several customer protection fraud advisories, including the Forex Fraud Advisory, which provides information about a type of fraud involving the trading of foreign currencies and how customers can detect, avoid, and report these scams.

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.

Role of Forensic Accounting in Trading

What is ‘Forensic Accounting?’

Forensic accounting described as the integration of accounting, auditing and investigative methods to conduct an investigation into a company’s fiscal reports. Forensic accounting provides a financial analysis suitable for court. Forensic accountants are both a finance expert and a professional investigator who trained to look behind the accounting figures and deal with the business reality of a situation. They are frequently used in fraud cases by businesses, law firms, law enforcement agencies, investment companies and insurance agencies.

Alan Zysman, a noted forensic accountant since 1987, states, “Forensic accounting provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution”

Forensic Accounting in Trading

In today’s complex financial markets world with very complex financial instruments trading around the globe, investment firms, banks, hedge funds regulatory bodies and exchanges are often victims of financial crimes such as money laundering, employee theft, embezzlement, spoofing, price manipulation and insurance or securities fraud.

Forensic Accounting in trading can help a company investigate price fixations, stock market manipulations and at times even manipulation of the financial figures by the company’s Board to window dress the financial statements and profit and loss account figures to hide real facts from the shareholders and investment community, for the funds misused or misappropriated by the top management.

The real need for Forensic Accounting came in 2001-2002 with huge corporate financial frauds coming to light, like Enron, and World com.The forensic accountant should be well versed with all business and investment laws (MIFID II) at national and international level as financial fraudsters have become more intelligent in their activities exploiting loopholes in the statutes and laws across major financial centers.

The forensic accountant in trading and investments uses all modern techniques and tools in gathering all the data necessary and relevant for his purpose. The various techniques and tools include data mining, finger print identification, order book analysis, laboratory analysis, forged cheques and altered cheques identifying tools, electronic surveillance, email communications etc.

Forensic accounting also requires a great deal of creativity, since one must often explain complex financial concepts (derivatives, forex, cryptocurrencies) to an audience that lacks basicaccounting knowledge. It is not surprising that the American agency, the Federal Bureau of Investigation (FBI)confirmed that ‘one key element was the creation of a standardized, professional investigative support position known as the forensic accountant in 2009’.

Forensic Accounting in trading may be subdivided in four categories:

1.Litigation support

2.Investigative and assisting in the disputes

3.Frauds Detection and finally

4.Forensic Data analysis

The litigation support is provided to lawyers by giving support of documentary evidence to support or rebut a claim. Also assisting in designing relevant questions to be asked at the time of trial in courts of law.

Under the second category the Forensic Accountant helps in minimizing future damages and risk of loss. Because of their financial expert knowledge he is effectively used in fraud detection.

Today Forensic Accountants have become part of all major accounting firms, and all big investment companies such as banks, mutual funds, hedge funds, brokers specializing in fraud detection and prevention and helping the courts of law by giving evidence of the financial crime. Courts depend on the expertise of forensic accountants in all financial litigations and disputes.

The important skills needed for the role of a Forensic Accountants includes:

They should understand the business and the technology used in the organizations, the software used, as he is dealing with the management as well the technical and software departments of the company.

Should have sound technical knowledge to get the source of required information from the storage and other computer equipment’s and for following the trial of information needed for investigation.

Forensic Accounting in trading role not only includes unearthing a fraud but also to find out why the fraud occurred.

Helpful Resources

  1. Forensic Accounting Careers – Careerherd.com
  2. Forensic Accountants to the Rescue – Strategic Finance
  3. How Forensic Accountants Fight White Collar Crime
  4. The Advantages of Having a Forensic Accountant Within an Organization | Chron.com

Investigators turn attention to second forex fraud in Dubai

Investigators turn attention to second forex fraud in Dubai

As the man behind a Dh50 million forex scheme that promised to double investors’ money is arrested for a second time, investigators are now turning their attention to a second forex fraud believed to have snared thousands of Emirates crew.

Sydney Lemos, who investors claim was the protagonist in the Exential operation run from Media City, has been rearrested and is in police custody, according to lawyers. He is accused of leading a team of sellers promising 120 per cent returns on US$20,000 accounts invested in foreign currencies. The bogus Exential trading scheme was shut down by the Economic Development Department last year.

Private investigators at UK firm Carlton Huxley, who are working on behalf of 30 clients – most of whom Emirates cabin crew – claim a second fund offering similar returns could have more victims.

UTMarkets is a UK-run website with offices in Bulgaria offering investors the chance to trade Forex and other commodities.“Our lead investigators have established that some people involved in Exential may also be connected with UTMarkets,” said John Rynne, a director of Carlton Huxley. “Carlton Huxley has been retained by a number of clients to look into the conduct of those involved in UTMarkets. “We are working with the Bulgarian law firm New Balkan Law Office along with authorities in the UK and Bulgaria.” The UTMarkets website makes similar profit promises to those of Exential, which left thousands devastated by debt.

The site, which remains active, offers an “unparalleled mix of forex and commodities brokerage services that’s easy to use and completely secure”.

Fraud investigators said the UTMarkets scheme developed quickly through recommendations among airline workers in late 2015 and early last year as Exential started to collapse.

“We have grounds to believe there are about 6,000 UTMarkets victims, 95 per cent of whom work for Emirates airline,” said one of the UK investigators, who has visited Dubai several times to interview account holders of both schemes. “We are keeping the legal department of Emirates informed and have identified people who appear to have been actively involved with Exential who are also involved in UTMarkets.”

Several UTMarkets account managers were approached for comment, but none responded. Asif, an Emirates ground crew employee from India who has been in Dubai for 11 years, borrowed about Dh110,000 to invest in UTMarkets in January 2016. He earns Dh15,000 a month.

He was paid about Dh7,000 a month for five months, but was encouraged to reinvest most of that by relationship managers working from an office in Sofia, Bulgaria. “I had heard of Exential for years, but had not invested,” he said. I was hoping to plan for my future with my wife, and heard Exential account holders were having problems, so invested with UTMarkets instead. They were offering almost twice as much in monthly returns. “My friends and colleagues at Emirates persuaded me that UTMarkets was a better investment.”

He claims many who lost out through Exential ploughed more money from loans and credit cards into the UTMarkets funds in an attempt to recover their initial deposits. Asif, who took no financial advice before handing over the cash, said he is owed about Dh84,500 from UTMarkets and was kept informed by his relationship managers via a What’sApp group that is no longer posting. “One of my friends has invested $30,000, another $50,000,” he said. “There are a lot of people in Dubai with big financial commitments to this. The conversation with UTMarkets stopped when they stopped paying out each month. The account managers have all now disappeared. It’s hard to know if the trading information they were giving us was real, or fake.” Carlton Huxley is planning a series of free to attend educational seminars later this year in Dubai to warn about the dangers of investing in similar schemes.