First the SEC sued fund manager Joseph Forte, accusing him of running a Ponzi scheme that fleeced investors out of tens of millions of dollars.
Now Forte has been charged criminally with mail fraud. Authorities said his victims included a church, a charity and a private school.
The SEC sued Forte, 53, of Broomall, Pa., on Jan. 7, accusing him of running a $50 million Ponzi scheme over a period of 12 years. The U.S. Postal Inspection Service entered the case, filing an affidavit for an arrest warrant after learning Forte used the mails to defraud dozens of investors.
Authorities said the scheme collapsed when Forte no longer could make redemptions because he wasn’t getting enough money from new investors to pay off earlier investors.
“Between 1996 and 2008, Forte raised tens of millions of dollars in investment capital from roughly 80 investors, including at least one charitable foundation, one church, and one private school,” said George Clark, a postal inspector, in an affidavit.
“Several investors have advised government agents that they had been directed to the fund through ‘word of mouth’ and were attracted to the fundâ€™s reported gains which ranged from at least 18% to 37%,” Clark said.Â “At no time did the fund report a loss to investors, even though Forte consistently lost money on his actual investments.”
Forte provided fraudulent information to an accountant to advance the scheme, Clark said. The accountant prepared clients’ statements based on the bogus information, using the mails to send the statements. The accountant has not been charged.
Feds: ‘False’ In Its Entirety
Forte’s Ponzi scheme was just an exercise in creative writing, authorities said. While he told clients the fund had more than $154 million, it actually had $150,000.
“The last statement received by investors for the third quarter of 2008 indicates that the fund had a return of 18.88% for the quarter and that the Joseph Forte LP fundâ€™s total value as of September 30, 2008 was $154,700,189,” Clark said.
In truth, Clark said, the value of Forte’s trading account was only $150,000. The account was closed in October, but Forte continued to collectÂ money from clients until Dec. 19, Clark said.
“According to Forte, all reported returns were false in their entirety and were simply numbers that [he] fabricated,” Clark said. “Forte admitted that in every quarter from 1996 through the end of 2008, the reported returns were false.
“Forte told investigators that he believed that he would realize gains at some point and that he would be able to return to investors their principal plus their reported returns,” Clark continued. “Between 1996 and 2008, however, Forte never earned the returns that he had reported. In fact, an examination of records between 1998 and 2008, indicates that over that time period, Forteâ€™s trading account suffered aggregate trading losses of $3.3 million.”
Despite the losses, Clark said, new investors continued to give Forte money because he shielded the losses and reported high rates of return. Forte did not even execute trades for sustained periods of time, simply gathering money and depositing it in a bank.
“[F]rom December 2004 to December 2008, there were 26 months in which Forte made less than three trades, including 16 months in which Forte made no trades whatsoever,” Clark said.
Forte told Clark that heÂ halted his actual trading for long periods of time to practice using his â€œtrading models.â€