May 10, 2019
CFTC Charges CEO of Managed Fund with Misappropriation, Fraud, and Making False Statements to NFA
Washington, D.C. -- The Commodity Futures Trading Commission (CFTC) announced today that it filed a civil enforcement action (Complaint) in the U.S. District Court for the Southern District of New York that charges defendant Fabio Bretas de Freitas with fraud and misappropriation in connection with commodity futures trading. Bretas de Freitas conducted his scheme through the registered commodity pool operator and commodity trading advisor Phy Capital Investments LLC, f/k/a Phynance Capital Management LLC (PCI) (Collectively defendants). The Complaint also charges Bretas de Freitas with making false statements to the National Futures Association.
James McDonald, the CFTC’s Director of Enforcement, commented: “As this case shows, CFTC is committed to stopping fraud in our markets. As alleged, defendants lied to the NFA, and lied to their clients while taking millions of their dollars instead of trading their funds. We’ll continue to vigorously pursue these types of violations, and we’ll continue to do so, where appropriate, working in parallel with our law enforcement partners.”
The Complaint alleges that from at least March 2016 to the present, Bretas de Freitas and PCI fraudulently solicited at least $7.8 million from various victims for the defendants’ commodity pools or managed futures funds (“Funds”). As alleged in the Complaint, the defendants falsely represented to prospective clients and clients that the Funds used “Managed Futures” to invest in U.S. markets and utilized proprietary software to select investments, monitor performance, and ensure the safety of investments. As further alleged, the defendants falsely claimed that futures trading under this software produced rates of return of 49.05% from February 2016 through November 2017. In fact, the Funds never traded commodity futures on U.S. exchanges. Additionally, the only account traded by the defendants on U.S. exchanges was a proprietary account that lost over $85,000 and a managed account for a PCI employee that earned less than $150. According to the Complaint, in order to conceal the fraudulent scheme, Breitas de Freitas sent clients false account statements which showed their accounts earning profits from trading commodity futures. Instead, Bretas de Freitas and PCI misappropriated their funds.
The Complaint further alleges that the defendants misappropriated their clients’ funds by using some to make payments to other clients in a manner akin to a Ponzi scheme, and some to pay personal expenses and payroll.
In further efforts to conceal the scheme, Breitas de Freitas made false statements to the National Futures Association (NFA), the self-regulatory organization for the U.S. derivatives industry. The Complaint alleges that Breitas de Freitas had falsely claimed, for instance, that one of PCI’s commodity pools was a private equity fund, and set up a fictitious email account that led NFA staff to believe they were communicating with one of PCI’s purported lenders to the fund.
In its continuing litigation, the CFTC seeks full restitution to defrauded clients, disgorgement of any ill-gotten gains, a civil monetary penalty, permanent registration and trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.
Related Criminal Indictment
On May 9, 2019, the United States Attorney for the Southern District of New York indicted Fabio Bretas de Freitas on six counts of bank fraud, wire fraud, commodities fraud, conspiracy to commit wire fraud and commodities fraud respectively, and aggravated identity theft in the U.S. District Court for the Southern District of New York.
The CFTC appreciates the assistance of the National Futures Association, the Money Laundering and Transnational Criminal Enterprises Unit of the United States Attorney’s Office for the Southern District of New York, the New York Division of the Federal Bureau of Investigation, and the Comissão de Valores Mobiliários.
CFTC Division of Enforcement staff members responsible for this action are Elizabeth M. Streit, Joy McCormack, Scott R. Williamson and former staff member Diane Romaniuk.
CFTC’s Commodity Pool Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.