U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20847 / January 8, 2009
SEC v. Joseph S. Forte, et al., Civil Action No. 09-0063 (PD) (E.D. Pa.)
SEC CHARGES JOSEPH S. FORTE FOR CONDUCTING $50 MILLION PONZI SCHEME
The Securities and Exchange Commission announced that on January 7, 2009, it filed an emergency action to halt an estimated $50 million Ponzi scheme conducted by Joseph S. Forte (“Forte”) and Joseph Forte, L.P. (“Forte LP”), of Broomall, Pennsylvania. According to the Commission’s complaint, from at least February 1995 to the present, Forte has been operating a Ponzi scheme in which he fraudulently obtained approximately $50 million from as many as 80 investors through the sale of securities in the form of limited partnership interests in Forte L.P. Forte was the general partner of Forte L.P. The Honorable Paul S. Diamond, U.S. District Judge for the Eastern District of Pennsylvania, has issued an order granting a preliminary injunction, freezing assets, compelling an accounting, and imposing other emergency relief. Without admitting or denying the allegations in the Commission’s complaint, Forte and Forte LP consented to the entry of the order.
The Commission’s complaint alleges that in late December 2008, Forte admitted to federal authorities that from at least 1995 through December 2008, he had been conducting a Ponzi scheme. Forte, who has never been registered with the Commission in any capacity, told investors that he would invest the limited partnership funds in a securities futures trading account in the name of Forte LP that would trade in futures contracts, including S&P 500 stock index futures (“trading program”). The complaint also alleges that despite the impressive and consistent returns the defendants falsely reported to investors, Forte consistently lost money in the limited trading that he did. Forte has admitted that he misrepresented and falsified Forte LP’s trading performance from the very first quarter. From 1995 through September 30, 2008, the defendants reported to investors annual returns ranging from 18.52% to as high as 37.96%. However, from January 1998 through October 2008, the Forte LP trading account had net trading losses of approximately $3.3 million.
The complaint further alleges that in addition to misrepresenting to investors that the trading was highly successful and making huge profits, defendants Forte and Forte LP misrepresented the use of investor funds. Although Forte claimed that he raised approximately $50 million from investors for the purpose of participating in the trading program, between January 1998 and October 2008 Forte deposited only $25.8 million in the trading account and during that same period withdrew $23.1 million. Forte admitted that he took at least $10 to $12 million in so-called fees for his personal use based on the falsely inflated value of Forte LP, but Forte LP statements provided to investors reflect fees charged of $28.7 million between March 1995 and September 2008. He also claimed that he used approximately $15 to $20 million of investor funds to repay other investors - the hallmark of a Ponzi scheme. The complaint alleges that the defendants also lied to investors about the value of the partnership portfolio. For example, in September 2008, the defendants reported to investors that the Forte LP portfolio had a value of over $150 million. In fact, Forte LP’s trading account at that time had a balance of only $146,814.
In addition to the emergency relief obtained, the Commission’s complaint seeks disgorgement of the defendants’ ill-gotten gains plus prejudgment interest, civil penalties, and permanent injunctions barring future violations of the antifraud provisions of the federal securities laws.
The Commission’s investigation is continuing.
The Commission acknowledges the assistance of the Commodity Futures Trading Commission. The CFTC has filed a related action against Forte.