June 25, 2013

Federal Court Orders Chicago Resident Christopher Varlesi to Pay over $1.3 Million to Settle Ponzi Scheme Fraud and Misappropriation Action

Varlesi used misappropriated investor funds for business and personal expenses, such as entertainment, travel, restaurants, his children’s tuition, and spa treatments

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court Order against Defendant Christopher Varlesi of Chicago, Illinois, individually and doing business as Gold Coast Futures and Forex, requiring him to pay restitution of more than $638,000 to defrauded investors and a $700,000 civil monetary penalty. The consent Order of permanent injunction, entered June 12, 2013, by Judge James B. Zagel of the U.S. District Court for the Northern District of Illinois, also imposes permanent trading and registration bans against Varlesi and prohibits him from violating the anti-fraud provisions of the Commodity Exchange Act (CEA), as charged.

The Order stems from a CFTC Complaint filed March 7, 2012, charging Varlesi with fraudulently operating a commodity pool to trade commodity futures and off-exchange foreign currency (forex), making false statements to pool participants, misappropriating pool funds, and failing to register with the CFTC as a Commodity Pool Operator (see CFTC Press Release 6199-12, March 9, 2012).

The Order finds that Varlesi solicited and accepted at least $1.7 million from at least 20 individuals to trade commodity futures and forex contracts by touting his past trading record and ability to profitably trade futures and forex contracts. In exchange for their investment, Varlesi issued promissory notes to pool participants purportedly paying a fixed monthly interest rate on principal, according to the Order. However, Varlesi used no more than $220,000 of the $1,716,169 that he accepted from pool participants to trade commodity futures and forex contracts, the Order finds. Varlesi spent misappropriated investor funds on business and personal expenses, including food, utilities, gas, life insurance, entertainment, travel, restaurants, his children’s tuition, and spa treatments and used approximately $1,343,471 to pay participants purported profits in the manner of a Ponzi scheme, according to the Order.

To perpetuate the fraud, Varlesi made false verbal representations and provided pool participants with fabricated account statements and false account performance documentation, showing that their investments were growing, according to the Order. In fact, the Order finds that Varlesi knew the representations, statements, and account performance documentation were false because he failed to disclose to pool participants that he had misappropriated a significant amount of the pool’s money.

In or around March 2011, Varlesi stopped making interest payments on the promissory notes and admitted to a pool participant that there was no money in his account, the Order finds. Furthermore, despite subsequent promises to repay the pool participants, Varlesi has not done so and still owes 17 pool participants approximately $638,227, the Order finds.

The CFTC appreciates the assistance of the United States Attorney’s Office for the Northern District of Illinois and the Illinois Secretary of State Securities Department.

CFTC Division of Enforcement staff members responsible for this case are Robert Howell, Mary Elizabeth Spear, Ava M. Gould, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

Last Updated: June 25, 2013