Former CBOE board member Alvin Wilkinson hit with $21.8 million penalty for running futures Ponzi scheme

SFC fines

The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Virginia Kendall of the U.S. District Court for the Northern District of Illinois entered an Order of default judgment and permanent injunction against Defendants Alvin Guy Wilkinson of San Juan, Puerto Rico, and his entities, Chicago Index Partners, L.P. (CIP) and Wilkinson Financial Opportunity Fund, L.P. (WFOF), both located in Sharon, Connecticut, in connection with a commodity pool fraud that victimized 30 investors.

The Order finds that Wilkinson misappropriated pool funds, fraudulently solicited pool participants, issued false statements to customers and provided false financial information to the National Futures Association (NFA). The Order also finds that Defendants were not registered with the CFTC, as required.

Wilkinson is a former member of the Chicago Board Options Exchange (CBOE), who served in leadership capacities on CBOE committees and on the CBOE’s board of directors.

The Court’s Order requires Defendants, jointly and severally, to pay a $12,382,207.20 civil monetary penalty, disgorge $4,127,402.40 of ill-gotten gains, and pay restitution to defrauded investors totaling $5,389,381. The Order also imposes permanent trading and registration bans on the Defendants and prohibits them from violating provisions of the Commodity Exchange Act and CFTC Regulations, as charged.

The Order, entered on November 22, 2016, stems from a CFTC Complaint filed on June 28, 2016, which charged Wilkinson and his entities with fraud, misappropriation, failing to register with the CFTC, and making misrepresentations to the NFA. The Order finds that, from July 1999 to the filing of the Complaint, Wilkinson fraudulently solicited and accepted a total of $11,017,774 from 30 investors for purchase of interests in WFOF and CIP, claiming that he would trade a portfolio of financial instruments on their behalf, including futures contracts, using a market volatility strategy.

However, instead of trading participants’ monies as he represented he would, Wilkinson misappropriated all or a significant portion of their funds, or used them to pay earlier investors as a return of capital and purported profits in the manner of a Ponzi scheme, the Order finds.

The Order finds that Wilkinson also directed his accountant to issue false Schedule K-1 Forms that misrepresented the profitability and value of participants’ interests in WFOF and CIP. The Order also finds that Wilkinson told investors that the assets of WFOF and CIP were all invested in a promissory note to an Australian financial firm; however, no such note exists, and WFOF and CIP have virtually no assets.

As part of his scheme, Wilkinson lied to participants about the likelihood of profit and risk of loss and, when participants demanded to withdraw their interests, lied about conditions that purportedly prevented him from making disbursements, the Order finds. According to the Order, Wilkinson gave a litany of excuses to other investors about why he could not return their capital when requested, but omitted to tell them the true reason why he could not do so – that he had misappropriated their funds and their partnership interests were worthless.

Furthermore, the Order finds that when the NFA was investigating Wilkinson in May 2016, he produced fraudulent financial information for WFOF and CIP reflecting that nearly all of the assets of the companies were ultimately tied to the nonexistent promissory note.

The CFTC cautions that Orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

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