The U.S. Commodity Futures Trading Commission (CFTC) announced that it has filed a civil enforcement action in the U.S. District Court for the Southern District of New York against Defendants Kevin P. Whylie of Mamaroneck, New York; Matthew James Zecchini of East Islip, New York; and Algointeractive Inc, a New York corporation owned and controlled by Whylie and Zecchini.
The CFTC Complaint charges that, from approximately April 2016 through the present, Defendants engaged in a fraudulent scheme to solicit at least $300,000 from members of the public to participate in a pooled investment vehicle for futures trading, misappropriated and commingled commodity pool participants’ funds, issued false account statements to pool participants to conceal their trading losses and misappropriation, engaged in false advertising, and failed to register with the CFTC, as required.
Specifically, the Complaint alleges that Defendants made material misrepresentations and omissions in solicitations to pool participants and prospective pool participants – including misrepresenting or omitting material information about their own experience, track record, and amount of assets under management – and misrepresented that all or substantially all of the participants’ funds would be pooled and invested in, among other things, futures contracts, for the participants’ benefit.
In fact, the Complaint alleges, only a fraction of the funds solicited were ever deposited into a futures trading account held by Algointeractive, and only approximately $60,000 has been returned to pool participants (including through Ponzi-style payments to participants from other participants’ funds). The Complaint alleges that Defendants misappropriated most of the funds for their own benefit, including by using participants’ funds to pay unauthorized personal or business expenses, including food, transportation, and entertainment.
The Complaint alleges that, in order to perpetuate the fraud and conceal their trading losses and misappropriation, Defendants made and issued false documents, including monthly participant account statements and monthly expense charts that inflated and misrepresented Algointeractive’s assets and trading returns.
The Complaint further alleges that Defendants failed to operate their commodity pool as a separate legal entity, received pool participant funds in a name other than that of the pool, commingled pool funds with non-pool property, and failed to register with the CFTC as a Commodity Pool Operator (Algointeractive) and Associated Persons (Whylie and Zecchini) of a Commodity Pool Operator. Defendants also misrepresented to one participant that her funds were unavailable for withdrawal due to actions taken by the National Futures Association (NFA) or government authorities, according to the Complaint.
In its ongoing litigation, the CFTC seeks restitution to defrauded persons, disgorgement of ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC Regulations, as charged.