The US Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against three firms and an individual alleging they misappropriated FX traders’ funds as part of a fraudulent scheme to establish a proprietary FX trading business.
In the action, the CFTC says that beginning in at least January 2017 and continuing through at least March 2018, Michael Salerno and his companies, Black Diamond Forex, BDF Trading LP and Advanta FX, fraudulently solicited individuals to become FX traders by making false statements on online websites such as LinkedIn and Indeed.com and their own websites, in violation of the Commodity Exchange Act.
The Defendants are alleged to have required prospective traders to pay a “risk deposit” or “risk capital deposit” of varying amounts, usually ranging from $1,200 to $1,900, with a promise that Defendants would match these risk deposits with some multiple of company funds in proprietary trading accounts, and then share a portion of the profits from trading with the traders and to pay bonuses tied to certain performance milestones. The CFTC says that some prospective traders paid a higher deposit on the promise of a better profit share scheme and that the job postings and solicitations enticed at least 150 prospective traders to deposit at least $310,000 in risk deposits.
In what is a sadly familiar manner, the CFTC action claims that Salerno and his companies falsely represented that Salerno had amassed a comfortable income in the FX market, possessed an overseas bank account holding $9.5 million, and that Salerno had sold off $10 million in real estate in 2015.
According to the Complaint, Salerno claimed that he was using these funds to start up his proprietary trading companies, from which he promised to establish live trading accounts for traders at an overseas trading company and to split the profits from those trading accounts 70/30 in favour of the trader. The CFTC alleges, however, that Salerno had not traded successfully in the FX markets for at least five years and that in 2015, the same year he claimed to have made $10 million in real estate sales, he actually filed for bankruptcy and was discharged from debts totally over $250,000.
Salerno is also charged with failing to tell prospective traders that he had been convicted of a felony and sentenced to 21 months in prison in 2005.
The Complaint alleges the Defendants “never established live trading accounts for anyone, but used risk deposits for purposes other than trading and have refused to return traders’ funds”.