The U.S. Commodity Futures Trading Commission (CFTC) has announced that it has filed a civil enforcement action charging Defendants Michael Salerno of Chadds Ford, Pennsylvania, and his companies Black Diamond Forex LP and BDF Trading LP, both Pennsylvania limited partnerships, and Advanta FX, a Pennsylvania corporation, with fraudulently soliciting members of the public to become foreign currency (forex) proprietary traders and with misappropriating the traders’ funds for purposes other than forex trading.
The Complaint, filed on April 17, 2018, in the U.S. District Court for the Eastern District of Pennsylvania, also charges Black Diamond Investment Group, a Pennsylvania limited liability corporation, and Advanta Capital Markets Ltd., a Saint Vincent and the Grenadines company, as Relief Defendants for holding funds belonging to proprietary traders. As alleged, the Relief Defendants were funneled funds that Defendants had received from proprietary traders and used the funds for purposes for other than forex trading.
On April 17, 2018, U.S. District Court Judge Cynthia M. Rufe signed a Statutory Restraining Order freezing the assets of all the Defendants and Relief Defendants, and prohibiting the destruction of their books and records. The court has scheduled a hearing for May 1, 2018, on the CFTC’s motion seeking a preliminary injunction against the Defendants and Relief Defendants.
The Scheme’s Fraudulent Hiring Process
The CFTC’s Complaint alleges that beginning in at least January 2017 and continuing through at least March 2018, Salerno and his companies fraudulently solicited individuals to become forex traders by making false statements on online websites such as LinkedIn and Indeed.com and their own websites, in violation of the Commodity Exchange Act. As alleged, the Defendants required prospective traders to pay a “risk deposit” or “risk capital deposit” of varying amounts, usually ranging from $1,200 to $1,900, with a promise that Defendants would match these risk deposits with some multiple of company funds in proprietary trading accounts, and then share a portion of the profits from trading with the traders and to pay bonuses tied to certain performance milestones. Defendants’ job postings and solicitations enticed at least 150 prospective traders to deposit at least $310,000 in risk deposits, the Complaint alleges.
Fraudulent Misrepresentations and Misuse of Trader Funds
In soliciting prospective traders, the Complaint alleges that Salerno and his companies falsely represented that Salerno had amassed a comfortable income in the forex market, possessed an overseas bank account holding $9.5 million, and that Salerno had sold off $10 million in real estate in 2015. According to the Complaint, Salerno claimed that he was using these funds to start up his proprietary trading companies, from which Salerno promised to establish live trading accounts for traders at an overseas trading company and to split the profits from those trading accounts 70/30 in favor of the trader. However, Salerno allegedly has not traded successfully in the forex markets for at least five years.
In addition, the Complaint states that in 2015, the same year he claimed to have made $10 million in real estate sales, Salerno actually filed for bankruptcy and was discharged from debts totally over $250,000. He failed to tell prospective traders that he had been convicted of a felony and sentenced to 21 months in prison in 2005. Moreover, the Complaint alleges Defendants never established live trading accounts for anyone, but used risk deposits for purposes other than trading and have refused to return traders’ funds. For instance, on one occasion, Salerno told another employee that the “payroll needs to be covered by the deposits …,” according to the Complaint.
In its continuing civil litigation, the CFTC seeks restitution to defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against further violations of the CEA, as charged.
The CFTC appreciates the assistance of the Cyprus Securities and Exchange Commission and the St. Vincent and the Grenadines Financial Services Authority.