John M. Donnelly of Charlottesville, Virginia, has been charged by the U.S. Commodity Futures Trading Commission (CFTC) with operating a Ponzi scheme that defrauded investors of over $10 million. The charges, filed on March 11, 2009, allege that Donnelly misappropriated at least $1 million and committed other forms of fraud through three commodity futures pools: Tower Analysis Inc., Nasco Tang Corp., and Nadia Capital Corp.
According to the CFTC’s complaint, Donnelly solicited investments in U.S. Treasury Note and S&P 500 futures, promising returns through active trading. However, the investigation revealed that despite claiming a daily trading strategy, Donnelly only executed seven trades over a seven-year period. Investors lost funds not through legitimate trading losses, but because Donnelly allegedly diverted at least $1 million for personal use and may have improperly obtained an additional $1.7 million from the pool funds.
The scheme was allegedly concealed by paying existing investors with funds from new investors and by providing false account statements that falsely indicated substantial profits. Donnelly is also accused of failing to register as a commodity pool operator, a violation of federal commodities laws.
The Honorable Glen E. Conrad of the U.S. District Court for the Western District of Virginia issued a restraining order, freezing Donnelly’s assets and preserving records. A hearing on the CFTC’s motion for a preliminary injunction was scheduled for March 24, 2009.
The CFTC has named Blue Logic Operating Partners LP, Nadia Capital Operating Partners LP, and Donnelly’s wife, Deborah B. Donnelly, as relief defendants in an effort to recover any remaining assets. The agency is seeking restitution, disgorgement of ill-gotten gains, civil monetary penalties, and permanent injunctions to prevent further violations of commodities laws. The CFTC worked in conjunction with the Securities and Exchange Commission and the U.S. Attorney’s Office for the Western District of Virginia on this case.
Source: CFTC.gov
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