Two US regulators have filed a federal lawsuit in North Carolina, charging an investment fund and its owner with defrauding customers of FX investment pools, saying they scammed at least 19 customers out of more than $200,000 in a Ponzi-like scheme.
Both the SEC and CFTC alleged that beginning in April 2017 and continuing through February 2019, Winston Reed Investments LLC (WRI) and its vice president and investment consultant, Mark Pyatt (aka Daniel Randolph) solicited victims to invest in Forex trading and commodity futures pools.
The unregulated money manager claimed he was a successful foreign exchange trader, when in fact he had lost money on his own personal trades.
Defendants falsely told their customers, among other things, that they offer a safe investment with steady and guaranteed returns. But the agency alleges that the pool never generated any income from trading forex, as in reality, Pyatt lost nearly all of the pool participants’ funds.
Pyatt used stated experience to lure victims into the scheme
The complaint further alleges that despite incurring overall net trading losses, WRI and Pyatt touted their expertise and sent customers fabricated account statements showing large profits of between 19 and 86 percent per month. To cover up his fraud, Pyatt initially claimed he made such substantial returns from his trading and later claimed that all money was lost after the broker-dealer handling his trades didn’t follow his instructions.
The regulators also found that the company accepted clients’ trades and funds and therefore acted as Eligible Contract Participants (ECPs), without registering as such with the CFTC.
The CFTC also said that they did not use investors’ money for trading activities, but spent over $150,000 on unrelated personal purchases.
The watchdog has asked the court to provide full restitution to defrauded pool participants, disgorgement of ill-gotten gains, and the payment of appropriate civil monetary penalties. In addition to financial penalties, it also asked for the imposition of permanent registration, trading bans, and a permanent injunction from future violations of federal commodities laws.
