$30 Million FOREX investment fraud – David R. Lewalski pleads guilty – prison likely to follow…

August 5, 2011

From time to time I wonder what motivates someone to perpetrate such a significant fraud?  Having been there, I understand that once the illusion is created it’s difficult to escape from the lack of reality that sets in, but still – what motivated it to start with?

David R. Lewalski, formerly of Gainesville, Fla., pleaded guilty today to mail fraud in connection with his operation of a $30 million investment fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Robert E. O’Neill of the Middle District of Florida.

Lewalski, 47, pleaded guilty before U.S. Magistrate Judge Mark A. Pizzo in the Middle District of Florida and faces a maximum penalty of 20 years in prison.

According to court documents, the defendant, who operated a company called Botfly LLC, willfully engineered and executed a scheme to defraud by promising victim investors that he could generate returns of up to 10 percent per month, compounded monthly, through his trading in the foreign currency (forex) market.  In fact, the defendant operated an investment fraud scheme.  The defendant and others working at his direction raised approximately $29,851,598 from victim investors, but the defendant used only a small percentage of those funds for forex trading (approximately $2.6 million), the vast majority of which he lost.

Lewalski admitted that instead of trading in the foreign currency market as he promised, he used the bulk of victim investor funds to make payments to other investors in order to perpetuate the scheme and make it appear as if he was generating the promised returns.  Lewalski paid investors $14,339,887 in “returns” that he led them to believe were generated by his forex trading when, in reality, he was merely paying them with other victim investors’ funds.  Lewalski also spent millions of dollars of victim investor funds on personal expenses, including high end real estate, private jet travel, luxury automobiles, computer equipment and jewelry.

YOUR COMMENTS WELCOME!


Forex Fraud: Scams, Scum, and How to Defeat the Designs of a Con Artist

August 12, 2010

GUEST ARTICLE by Vincenzo Desroches

Nothing can be more discouraging than to learn a new investment skill, put it work, and then find out that you have fallen for some scam that more experienced traders would have spotted in an instance.  The popularity of forex trading in the past five years has been enormous due to easy access to trading platforms on the Internet and to its overall flexibility.  The downside of such popularity, however, is that the criminal element in our society, eager to pounce on the unsuspecting, has jumped into the fray right along with you and your uncle Harry.  Law enforcement and forex brokers have policed the area quite a bit over time, but antics from offshore con artists are difficult to eliminate in any field of endeavor where money is involved.

So what is a prudent forex trader to do to protect himself from these thieves?  The first thing to realize is that you and you alone represent your immediate and last line of defense.  Your awareness of the potential for fraud is a good second step.  You must be highly skeptical of any attempt to sell you on anything, because all scams start and end with the “sell”.  Train your mind to be wary, get your greed in check, and let caution be your guide.

Beyond yourself, look at how you “connect” to the market.  Make sure your PC has no marketing “bots” that have been downloaded to convince you to buy or to send back information to someone who will.  Give your bank a “stress test” by reviewing their public financial reports.  Don’t use an offshore bank unless you like to play with fire.  Next is your broker.  Again, he should be of high integrity, onshore, well capitalized, respected by his peers, and well recommended by review sites, local business bureaus or government agencies, and by other traders whose opinions you trust.  Lastly on connectivity, are you comfortable with your trading forex platform?  Are trades transacted quickly?  Do the spreads vary over time?  Do backlogs or downtime occur frequently?  These types of problems may be broker related or dependent on how your broker is connected to the market.  If they are not up to standard, shop around for a better service provider.

Con artists generally update their devious schemes every year, their way of improving the probability that you will fall for their various designs.  Scams come in all shapes and colors, but the general appearance will resemble one of these three genres:

  • High Yield Investment Program:  Be wary of any low risk/high reward promotion by anyone.  Forex trading involves high risk and requires specialized training before anyone should attempt to trade the first dollar.   A likely forex scam scenario may also tout high levels of leverage as the only path to success.  As always, If it sounds too good to be true, it is;
  • Unsolicited Approaches:  Be extremely cautious of emails, phone calls, or mailers bearing tips or products with the “secret”.  Rely on your best judgment when evaluating these come-ons;
  • High Pressure Sales Efforts:  Be skeptical of any salesman’s pitch that has a sense of urgency connected to it.  Hold onto your wallet, and walk the other way when he asks for money, because he surely will at some point.

Investment fraud artists can come at you when you least expect it.  For this one reason alone you always need to be ever vigilant, skeptical and aware.  Put your greed on the back burner, and apply caution when appropriate.

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FOREX Trading “Guru” – Joel Nathan Ward – Sentenced to Nine Year in Prison for $11 Million Fraud!

April 30, 2008

Described as a financial serial killer, JOEL NATHAN WARD, 49, of Turlock, California, was sentenced to nine years in prison for masterminding a Ponzi scheme in which nearly 100 investors lost over $11 million. WARD was also ordered to pay restitution in the amount of $11,275,501.53 and to serve three years of supervised release after the completion of his prison sentence. He was remanded into custody immediately following the sentencing hearing.

Ward took in more than $15 million from investors from 2003 to 2006 and most of the money was used to promote his business interests, salary, travel and other expenses, according to the statement.

This case is the product of an extensive joint investigation by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation Division. The Commodity Futures Trading Commission, the federal agency that regulates commodity futures and options markets in the United States, has noted the sharp rise and increasing complexity of foreign currency exchange (“forex”) trading scams. WARD, a frequent
commentator and seminar speaker on forex trading, ran an elaborate forex trading scam through an investment fund he controlled called the Joel Nathan ForexFund.

Now as a white collar crime speaker I must admit, anyone can make wrong choices. It’s ashamed that Ward used his speaking skills to further perpertrate a fraud of this magnitude.

According to material presented at sentencing, WARD offered investors the opportunity to invest in the foreign exchange interbank “spot” market through his fund. Between early 2003 and November 2006, WARD took in over $15 million from investors. Of that, about 85% was diverted to other purposes, including promoting WARD’s business interests, salary, travel and other expenses, and purchasing a foreign exchange trading school in Sacramento called Learn:Forex. WARD also used about $3.7 million to make “Ponzi” payments back to investors who sought to withdraw funds. According to trading records, he only actually traded about $2 million, and lost virtually all of it in the foreign exchange market. WARD concealed his diversion of funds by sending false account statements to investors purporting to show trading profits. He also defrauded investors in a second scheme relating to a purported real estate investment project in Mississippi. Nearly 100 investors lost a total of over $11.3 million.

“Joel Nathan Ward earned every minute of the nine-year sentence the court imposed. He brazenly defrauded scores of victims out of over $11 million,” stated US Attorney Scott. Several victims spoke during the sentencing hearing, telling the judge about the financial devastation caused by WARD’s conduct, and their hopes for restitution. In sentencing WARD today, Judge Burrell stated that WARD “defrauded many people. He caused losses over $11 million, and many investors suffered devastating losses.”

The defendant had proposed that he be allowed to remain out of prison while he attempted to generate funds to repay investors. In rejecting that plan, Judge Burrell stated that the “magnitude of his crimes, the manner in which the economic crimes were committed and concealed, and the duration of the criminal activities” required a lengthy prison sentence.

Every choice has a consequence. Ward’s choices have resulted in a substantial prison sentence. And, having spent time in federal prison (not something I am proud of), the time Ward spends will be life changing. Not only will he become a number, lose his identity, and have little to no ability to earn money, he will emerge with limited opportunity to make restitution.

Today, I speak nationwide on (1) fraud in business, (2) how to avoid fraud in your company and (3) how business ethics can improve your financial performance.

One thing is for sure – You do reap what you sow! Ward has come to learn that as he is now sleeping on a prison bed.

If you know fell for Ward’s ponzi scheme and are willing to share the effect you loses have had on you…feel free to comment.


White Collar Crime Ponzi Scheme – R. Gregory Gibbs Pleads Guilty!

March 21, 2008

Facing 20 years in federal prison, R. Gregory Gibbs plead guilty to mail fraud in an investigation that uncovered a massive Ponzi scheme. Facts, as they appear in the US Attorney’s news release appear below:

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Gibbs admitted that he engaged in a scheme to defraud numerous individuals who had invested in Golden Summit, a business he owned and operated, a Foreign Currency Market (“FOREX”) Ponzi scheme. The FOREX is an over-the-counter speculative market in which buyers and sellers trade one currency for another. As part of Gibbs’s scheme, he would enter into loan agreements with investors who would loan Golden Summit money for a period of 12 months and, in return, Golden Summit promised to pay a guaranteed rate of interest of between 3 to 5% per month. From August of 2004 until March of 2007, pursuant to his loan agreement program, Gibbs accepted approximately $21 million of investor funds from approximately 150 investors located in 24 states across the nation.

Named after Charles Ponzi, a ponzi scheme is a fraudulent investment operation where high returns are promised to investors and usually paid out of other investors money rather than from profits generated from the investment promised.

Gibbs has acknowledged that although he initially believed that he could make good on his promises of paying investors a large return on their investments, by June of 2006, his sustained and rapidly growing FOREX trading losses made it apparent that he would not be able to do so. Despite this, Gibbs continued to accept new investor money and made false representations about his trading success and the safety of the client investments. Specific misrepresentations by Gibbs to many investors included his claim that the majority of the money that he traded in the FOREX was his personal funds. This statement led investors to believe that Gibbs had significant personal assets and that he could make good on his promised interest payments even if he experienced trading losses in the FOREX market. In truth, the vast majority of the money traded by Gibbs was investor funds. Gibbs made other misrepresentations to many investors to assuage their concerns regarding the safety of their investments, including his claim that he had enough personal assets on hand to pay all outstanding “loan” obligations – both principal and interest – if he became incapacitated or died. In truth, he had very limited personal assets – other than those purchased with investor funds – and his mounting trading losses made repayment of the outstanding loan obligations almost impossible given his sustained losses in the FOREX.

Of the approximately $21 million that Gibbs received from investors, he deposited approximately $7.2 million in a FOREX trading account and utilized these funds to make foreign currency market trades. He lost approximately $6.2 million of that money. Gibbs also paid other individuals approximately $1.4 million for referring investors to Golden Summit. In addition, he utilized approximately $1.75 million in investor funds for personal expenditures, including approximately $1.1 million spent building a luxurious home for himself and his family.

OBSERVATION: Most of the time in any white collar crime scheme, some portion of the money stolen seems to end up enriching the one (including the family) who committed the crime. As a white collar crime speaker, there is a general pattern of behavior that seems pleasant and pleasurable for a time. Yet, the final outcome – the consequences – are far more severe than any short term benefit received.

Consistent with typical “Ponzi” or pyramid scams, Gibbs made some payments of what he purported were returns on investments to certain investors. The payments were intended to convince the investors that the investments were sound and to conceal the significant FOREX trading losses. In fact, however, the payments were made from deposits from investors who had come into the scheme later.

COMMENTS are welcome. If anyone knew R. Gregory Gibbs or fell victim to his scheme, feel free to comment.