WASHINGTON, D.C. – The Commodity Futures Trading Commission (CFTC) has levied charges and reached settlements with Catalyst Capital Advisors LLC, its CEO Jerry Szilagyi, and portfolio manager Edward Walczak for misleading investors about the risks associated with the Catalyst Hedged Futures Strategy Fund. The actions stem from a period of misrepresentation and inadequate oversight spanning from 2014 to 2017.
Catalyst Capital Advisors, a registered commodity pool operator based in Huntington, New York, will pay a $1.3 million civil monetary penalty and $8,908,481 in disgorgement, including pre-judgment interest. Szilagyi, as CEO, is personally responsible for a $300,000 civil monetary penalty. Both are ordered to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations.
The CFTC alleges Catalyst and its agents made materially misleading statements regarding the fund’s risk management. Specifically, the firm falsely claimed stop-loss measures were in place to limit potential losses when, in reality, no such measures existed. Further, despite representations that a dedicated risk manager monitored the fund’s risk metrics daily, this monitoring did not occur. The CFTC found Catalyst failed to implement adequate procedures to prevent these misrepresentations to investors and investment advisors.
Edward Walczak, of Madison, Wisconsin, faces separate charges of fraud filed in the U.S. District Court for the Western District of Wisconsin. The CFTC complaint alleges Walczak intentionally misled investors and advisors into believing the fund was a safer investment than it was. He reportedly falsely stated he took specific steps to prevent losses exceeding 8 percent of the fund’s value. However, Walczak routinely failed to properly hedge investments, resulting in at least $500 million in investor losses.
“We are committed to protecting investors—including those who invest in our markets through mutual funds,” said CFTC Director of Enforcement James McDonald. “When companies or individuals make misleading statements about the risks of investing in their products—statements that go to the heart of any investment decision—they will be held accountable.”
The Securities and Exchange Commission (SEC) concurrently issued similar charges against Catalyst and Szilagyi, and also filed a complaint against Walczak in federal court, indicating a coordinated effort to address the alleged misconduct.
Source: CFTC.gov
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