Commodity Pool Operator Reportedly Defrauded Investors Of $3.6 Million
U.S. Commodity Futures Trading Commission v. Sharif: A federal judge in Connecticut has ordered a man accused of running a Ponzi scheme that defrauded investors of millions of dollars to pay more than $3 million in restitution and civil penalties.
Feisal Sharif, 43, of Branford, was ordered by U.S. District Judge Stefan Underhill to pay $2.23 million in restitution to defrauded customers and a $900,000 civil penalty. The judge also ordered permanent trading bans against Sharif for violations of the Commodity Exchange Act, which regulates the trading of commodity futures in the United States.
In November 2012, the U.S. Commodity Futures Trading Commission had filed a civil complaint against Sharif for fraudulent solicitation, misappropriation and other registration violations of the commission, including failing to register as a CPO, or commodity pool operator.
Sharif allegedly operated a commodity pool Ponzi scheme that solicited approximately $5.4 million from at least 50 people. Federal officials say the investors lost roughly $3.6 million.
A commodity pool, or managed futures funds, is an investment structure in which many individual investors combine their money and trade in futures contracts as a single entity in order to gain leverage. They are analogous to mutual funds, except that mutual funds are open to the general public whereas commodity pools and hedge funds are private.
In this case, the victims had invested in a commodity pool named First Financial LLC, which Sharif operated from his house in Branford. Sharif allegedly misappropriated at least $900,000 of the pool participants' funds by using the money to pay personal expenses and purchase gifts.
According to the complaint, from at least January 2007 until September 2012 Sharif enticed prospective participants with guaranteed monthly and yearly returns of 1 percent to 15 percent on investments. Of the $5.4 million solicited from pool participants, at least $900,000 was misappropriated, approximately $1.32 million was lost trading futures in accounts in the name of First Financial, and $3.17 million was paid to certain pool participants as fictitious "profits," according to the complaint.
In an attempt to assure pool participants that their funds were safe in the pool's trading accounts, Sharif allegedly fabricated trading account statements from First Financial and from futures commission merchants. In reality, Sharif was simply paying existing investors with new money he raised from other investors.
Many of these victims were relatives, friends and people he knew through their common connection with a religious institution, officials said.
When Sharif was unable to redeem all of the funds for someone who had invested more than $400,000, he admitted to the victim that he had been running a Ponzi scheme and using new investor funds to pay returns to other investors. The victim then reported the fraud to the FBI in July 2012.