Washington, D.C., Jan. 8, 2009 (LAWFUEL) – The Securities and Exchange Commission has charged a Philadelphia-area investment fund manager and his firm for conducting a multi-million dollar Ponzi scheme, and has obtained an emergency court order freezing their assets.
According to the SEC’s complaint, Joseph S. Forte of Broomall, Pa., fraudulently obtained an estimated $50 million from as many as 80 investors through the sale of securities in the form of limited partnership interests in his firm, Joseph Forte, L.P. The SEC alleges that Forte told investors that he would invest the funds in an account that would trade in securities futures contracts, including S&P 500 stock index futures. According to the complaint, despite the impressive and consistent returns he reported to investors, Forte consistently lost money in the limited trading that he did, withdrew millions of dollars in so-called fees for his personal use based on the falsely inflated value of Forte LP, and used investor funds to repay other investors.
“As alleged in our complaint, Forte engaged in lies, deception and rapacious behavior at the expense of innocent investors, many of whom considered themselves his friends and close acquaintances,” said Daniel M. Hawke, Director of the SEC’s Philadelphia Regional Office. “Using other people’s money, Forte promised and reported outrageous returns over more than a 10-year period, and because of his relationships with investors was able to lull them into trusting him with their funds.”
Judge Paul S. Diamond, U.S. District Judge for the Eastern District of Pennsylvania, issued an order on January 7 granting a preliminary injunction, freezing assets, compelling an accounting, and imposing other emergency relief. Without admitting or denying the allegations in the Commission’s complaint, Forte and Forte LP consented to the entry of the order.
The SEC’s complaint alleges that Forte has been conducting a Ponzi scheme since at least 1995. Forte, who has never been registered with the SEC in any capacity, has admitted that he misrepresented and falsified Forte LP’s trading performance from the very first quarter. From 1995 through Sept. 30, 2008, Forte and Forte LP reported to investors annual returns ranging from 18.52 percent to as high as 37.96 percent. However, from January 1998 through October 2008, the Forte LP trading account had net trading losses of approximately $3.3 million.
The SEC’s complaint further alleges that in addition to misrepresenting to investors that the trading was highly successful and making huge profits, Forte and Forte LP misrepresented the use of investor funds. Although Forte claimed that he raised approximately $50 million from investors for the purpose of participating in the trading program, Forte deposited only $25.8 million in the trading account between January 1998 and October 2008, and during that same time period withdrew $23.1 million. Forte claims that he took at least $10 to $12 million in so-called fees for his personal use based on the falsely inflated value of Forte LP. But Forte LP statements provided to investors reflect fees charged of $28.7 million between March 1995 and September 2008. He also claims he used approximately $15 to $20 million of investor funds to repay other investors – the hallmark of a Ponzi scheme. The SEC’s complaint alleges that Forte and Forte LP also lied to investors about the value of the partnership portfolio. For example, in September 2008, they reported to investors that the Forte LP portfolio had a value of more than $150 million. In fact, Forte LP’s trading account at that time had a balance of only $146,814.
The SEC’s complaint alleges violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief, the Commission’s complaint seeks disgorgement of the defendants’ ill-gotten gains plus pre-judgment interest, financial penalties, and permanent injunctions barring future violations of the antifraud provisions of the federal securities laws.
The SEC’s investigation is continuing.
The SEC acknowledges the assistance of the Commodity Futures Trading Commission. The CFTC has filed a related action against Forte.