CFTC: Convicted Felon Was Running Texas-Based Forex Firm; Robert Mihailovich Sr. And Robert Mihailovich Jr. Charged In Case That Alleges Pattern Of Marketing, Webinar Deception
Investors turned over more than $30 million to a felon who hid his conviction and even managed to persuade clients to give him power of attorney, the CFTC said.
Robert Mihailovich Sr. was released from federal prison on June 27, 2007, after serving 21 months for mail fraud, the CFTC said. On Oct. 14, 2008 — while on court-supervised probation — Mihailovich Sr. formed a Texas-based company known as Growth Capital Management (GCM) with his son and namesake, Robert Mihailovich Jr., listed as president.
Now both father and son are charged civilly with misleading investors and regulatory agencies about GCM’s business practices.
Mihailovich Jr. is accused of making false statements in regulatory filings and not disclosing that his father was a principal in the firm. Meanwhile, Mihailovich Sr. is charged with fraudulent solicitation.
Together the father, son and company “fraudulently solicited and accepted more than $30 million from approximately 93 customers,” the CFTC said. Both men reside in Rockwall, Texas.
Mihailovich Sr. did not disclose his felony conviction to investors, the CFTC charged.
“There was no disclosure in GCM’s filings concerning Mihailovich, Sr. and/or his involvement with GCM,” CFTC alleged.
But Mihailovich Sr. “directed the day-to-day business of GCM” and “solicited most, if not all, managed account customers to trade commodity futures and forex,” CFTC charged.
Mihailovich Sr. used claims about an “electronic trading system” to woo customers on the Internet, the CFTC said.
Webinars and sales presentations were conducted on Saturdays.
“Mihailovich, Sr. presented the GCM electronic trading system by employing graphs that purportedly showed trading in live commodity futures accounts and forex accounts,” the CFTC charged. “Mihailovich, Sr. claimed that his GCM electronic trading system virtually guaranteed substantial profits and minimized the risk of loss trading commodity futures and forex. His recurring theme and reassurance was that trading using GCM’s electronic trading system was protected at all times from loss.”
Actual trading accounts managed and controlled by Mihailovich Sr., however, realized net losses, CFTC said.
One GCM customer told investigators that Mihailovich Sr. also used a “mass sub-algorithm†to make manual trades and gain extra profits.
Numerous misrepresentations were made to clients, including a claim that a $1 million investment would result in a $1 million profit and that “it does not matter what the markets do during the trading day for the computerized trading software to make an account profitable,†the CFTC charged.
Some customers were falsely told that GCM had not closed a trade at a loss since 2000 and that Mihailovich Sr. “had over twenty years of continuous trading experience,” the CFTC charged.
“Defendants’ marketing materials stated that their software ‘has never closed a managed position at a loss. Not on Forex . . . Not on Bond positions . . . Not on the S&P . . . Or even on the many other types — commodities, stocks and indexes — it has managed over the years,'” CFTC alleged.
Meanwhile, the agency said Mihailovich Sr. tried to have his felony conviction overturned by claiming ineffective assistance of counsel, “but that petition was denied.”
Despite claims of safety and assurances that the firm did not lose clients’ money, “approximately half of Defendants GCM’s and Mihailovich, Sr.’s customers lost money from their investments, and overall, their trading resulted in net losses of approximately $2.2 million in customer accounts,” the CFTC alleged.
“From June 2008 through June 2009, GCM’s and Mihailovich, Sr.’s trading of forex on behalf of customers resulted in overall realized losses of approximately $711,000,” the agency said. GCM and Mihailovich, Sr. received approximately $241,000 in performance and management fees related to this trading.”
“Between September 2008 and through November 2009, GCM’s and Mihailovich, Sr.’s trading of S&P e-mini futures resulted in realized net losses totaling approximately $1.5 million,” the CFTC said. “GCM and Mihailovich, Sr. received approximately $147,000 in performance and management fees related to this trading.”
“Despite these mounting losses, GCM and Mihailovich, Sr. continued to solicit new customers by highlighting the profit potential of investing with GCM using GCM’s proprietary trading software, without disclosing the fact that many of their customers lost most, if not all, of their investment,” the CFTC charged.
Read the CFTC complaint.
That doesn’t sound too effective if he was able to run a scam of this size.
Yes Tony, but the best one of late was two convicts in prison running a credit card scam, while using prison phones to communicate with their underlings doing the dirty work. Prison phones are recorded, so you can imagine the elaborate code words they used to keep the authorities from catching on to what they were doing right under their noses. They weren’t the first to run a scam while in prison, won’t be the last.
The way they got caught was the exceeive amounts of money that was put into their prison account to buy things from the prison commissary. They traced the money back to the bank acocunts of the companies set up to run the credit card scams.
I am sure there is another side to this story. Sucks for these guys to get their reputations smeared before the hearing because either way they will lose for the negative press. Also, seem like a fraud of this size would get more media attention than back page Business Section of Dallas Morning News. They had to be making money for people or the complaints would have mounted and a regulatory action would have occured much sooner. How did they do live market demonstrations on every Saturday morning? Also, it seems hard to pull off “fraud” when using software in conjunction with an “individually managed account” because you never take custody of the client funds, they open their own brokerage account and fund it, so no room for Madoff Type mischief. Also, Limited Power of attorneys are a staple in managed accounts, quite the norm! Most of this complaint seems highly unlikely or at least not well thought out. Maybe they just pissed the wrong guy(s) off??? I am interested in how this one plays out.
Perhaps Joker ‘broker’ Jones will finally get caught now.
I was a person who lost with GMC, is there any money left for us to claim?
[…] Robert Mihailovich Sr., a convicted felon, was charged by the CFTC last year with presiding over a Forex fraud that purportedly used a “mass sub-algorithm.” Mihailovich allegedly started the new scam after his release from prison in 2007. […]