CFTC claims trader skinned investors in forex fraud

A Florida man accused of bilking 64 Hawaii investors and dozens of others in what officials contend was a classic Ponzi scheme was arrested by federal authorities Monday.

Patrick Rakotonanahary of Punta Gorda, Fla., was arrested without incident after arriving at an FBI office in Ft. Myers, Fla. for a meeting that FBI agents had requested. He is in custody pending a detention hearing set for Thursday.

After the arrest, an indictment handed down March 10 by a federal grand jury and containing 21 counts of wire fraud was unsealed. The federal Commodities Futures Trading Commission also filed a civil complaint against the 34-year-old man.

“Experience has taught us that many offers claiming to deliver returns far beyond what traditional investments are paying are not in fact what they claim to be,” Florence Nakakuni, the U.S. attorney for Hawaii, said at a news conference. “The indictment alleges that Mr. Rakotonanahary was marketing just that, an illusory investment scheme.”

The arrest was the first public sign of a multi-agency investigation called “Operation Unhappy Returns” that started eight months ago, said Charlene Thornton, special agent-in-charge of the FBI’s Honolulu office.

It began when the FBI and the state securities commissioner’s office received tips about Rakotonanahary, who was president and chief executive of Cyber Market Group LLC, authorities said.

According to the indictment, Rakotonanahary marketed a foreign currency investment plan, dubbed “Promissory Program,” in which investors would loan his firm at least $30,000 and in return were promised interest payments of between four to 10 percent a week.

Rakotonanahary pledged to return the principal after 52 weeks of interest payments, the indictment alleged.

In all, he is accused of collecting about $10.3 million from more than 100 persons, including almost $8 million from 64 Hawaii residents and the rest from more than a dozen residents in Virginia, and a few others living in New York, California, Nevada and Arizona.

About $1.8 million was used in currency trades, resulting in $814,000 in losses, the indictment stated. An additional $8.4 million was used to pay earlier investors and Rakotonanahary took $1 million for personal use, it added.

Rakotonanahary made at least two marketing trips to Hawaii, and he employed seven Hawaii “investment advisors” to help, authorities said. Those seven were identified in the indictment only by their initials, and Dep. U.S. Attorney Lawrence Tong said they are not considered unindicted coconspirators.

Tong would not characterize the victims, who also were identified in the indictment by initials.

But in similar “affinity frauds” around the country, victims tend to know or are related to each other, Stephen Obie, director of the enforcement division of the Commodities Futures Trading Commission, said at the news conference.

“That’s typically how these types of Ponzi schemes get perpetuated,” Obie said.

Rakotonanahary faces a maximum prison term of 20 years and a fine of no more than $250,000 on each of the criminal charges.

Nakakuni said he is expected to appear in federal court in Hawaii within 30 days.

The civil complaint carries a maximum fine of about $30 million, and Rakotonanahary could be ordered to make full restitution to his alleged victims as well. However, his financial resources appear insufficient to make full restitution, Obie noted.

Hawaii Securities Commissioner Tung Chan also issued a preliminary cease and desist order against Rakotonanahary and his firm.

Related Topics: Fraud Charge Tracker