The Commodity Futures Trading Commission has taken its first enforcement action involving coronavirus-related fraud against a Florida man who regulators say falsely claimed to be a forex trader.
James Walsh of Boca Raton, FL, solicited investors by claiming the Covid-19 pandemic enabled him to generate increased profits, according to the CFTC.
Walsh advertised on Facebook and YouTube, and presented himself as a highly successful forex trader. The CFTC’s complaint alleges that Walsh solicited clients using social media and email since at least September 2019, despite not having registered as a trader with the CFTC, the complaint alleges.
His pitch to clients promised them average monthly returns of 8 percent to 11 percent or a flat 3 percent guaranteed profit each month.
According to the CFTC’s complaint, Walsh’s solicitations stated “the returns in forex continue to grow as the rest of the financial world continues to suffer” and claimed that he achieved his supposed trading successes by having access to “legal, inside information” like “proprietary access to sophisticated world bank charts.” None of that was true, the CFTC says.
After the coronavirus pandemic struck, Walsh allegedly continued boasting that the Covid-19 crisis allowed him to turn greater trading profits.
Despite receiving a cease-and-desist letter from the Texas State Securities Board in February 2019, Walsh allegedly continued to offer fraudulent trading opportunities, including to an undercover Texas SSB investigator who posed as a potential client.
The CFTC announced July 8 that it had charged Walsh with forex contract fraud, failing to register as a commodity trading advisor and committing fraud by a commodity trading advisor.
“We continue to actively monitor our markets to seek out bad actors using the Covid-19 crisis as a basis for investment scams,” said CFTC Director of Enforcement James McDonald.
CFTC warns about Covid-19-related fraud schemes
The CFTC has issued several advisories warning the public about coronavirus-related scams that take advantage of market instability.
Possible Covid-19 fraud schemes that the CFTC has highlighted include:
- Pitches by unregistered brokers
- Binary options fraud
- Fraudulent forex trading programs
- Investing in fraudulent cryptocurrency
- Precious metals promoters and dealers encouraging investors to use the CARES Act distribution rules to convert retirement savings into investments of gold or silver coins, self-directed gold individual retirement accounts (IRAs) or make leveraged purchases of physical metals.
Many schemes share common traits: they often promise unrealistically high and very quick profits, and then may trap victims with extortionate fees or disappear with the money altogether.
During the coronavirus pandemic, people who have lost their jobs have been particularly targeted. Scammers often reach out over social media and prey on unemployed victims’ desire for financial stability.
The CFTC has also cautioned investors about the risks of investing in commodity pools. Commodity exchange traded portfolios (ETPs) and mutual funds invest in futures, options, swaps, or foreign exchange carry elevated risks and are particularly high-risk in light of the market’s current uncertainty. Investors may be attracted to ETPs in hopes of profiting from an anticipated future recovery in particular commodities’ prices.
Whistleblowers can help stop fraud related to the Covid-19 pandemic
Whistleblowers are well-positioned to stop fraudulent commodities schemes, especially as opportunistic scammers proliferate during the Covid-19 pandemic. Market insiders with investment experience can discover and expose commodities fraud before the schemes grow larger and victimize more people by bringing undetected cases to the CFTC.
The CFTC’s whistleblower program allows whistleblowers to report fraudulent activity anonymously, and offers job protections and the opportunity to earn rewards to those stepping forward.
The CFTC provides whistleblower awards of between 10 percent and 30 percent of the amount collected by CFTC sanctions exceed $1 million. The largest CFTC whistleblower award was $30 million paid to a whistleblower in 2018.
CFTC whistleblowers are entitled to protection against employer retaliation. The Dodd-Frank Act prohibits employers from firing, demoting, suspending, threatening, harassing, or discriminating against whistleblowers who provide information to or assist the CFTC. Whistleblowers who suffer from employment retaliation as a result of their whistleblowing may sue for reinstatement, back pay and any other damages that occurred.
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