Quick Answer: Victor Cilli’s New Jersey trading fraud case reveals key red flags: he operated a Ponzi scheme through Progressive Investment Funds, lost $200,168 of $263,000 actually traded, and misled investors about profits while misappropriating funds. Investors should verify actual trading performance and demand full disclosure of how their money is being used.
Victor Cilli pleaded guilty on October 3, 2011 to an Information charge against him with one count of securities fraud, one count of conspiracy to commit bank fraud and one count of tax evasion. Cilli was a commodity pool operator and day trader in New Jersey and directed two schemes to defraud investors and financial institutions out of about $2 million and evaded more than $150,000 in tax payments.
Chilli was the owner and president of Progressive Investment Funds (PIF), as a commodity pool operator (CPO) and engaged in a trust of investment that solicited funds for the sole purpose of trading commodity futures beginning in 2006 until around February of 2009.
Beginning as early as January 2007 and through September 2007, Cilli engaged in a Ponzi scheme to defraud at least four commodity pool participants of approximately $506,000. Though Cilli returned some funds to the investors, the payments were not from actual trading profits but from funds of existing pool participants. Cilli made false and misleading statements to the pool participants claiming he had made money for them when, in fact, most of his trading resulted in losses. Of the $506,000 invested, Cilli traded approximately $263,000, losing approximately $200,168. Cilli never disclosed to the pool participants that he had traded less than half of their money or that most of his trading had resulted in significant losses.
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Cilli also misappropriated thousands of dollars in pool funds for personal expenses – including hair salon visits, skin care treatments, payments on his Harley Davidson motorcycle, and other personal entertainment, meals, and travel expenses.
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In a separate scheme Chilli, and 16 others, defrauded Cleveland, Ohio’s KeyBank from 2002 through September of 2006 out of more than $1.5 million in a student loan scam. They claimed they were going to attend Tab Express International (“Tab”) in Florida which is why they needed the student loans.
Based upon prior agreements between Cilli and his co-conspirators, they never intended to enroll at Tab, nor repay principal or interest on the student loans to KeyBank. After KeyBank disbursed the loan proceeds to the school, approximately $600,000 of the loan proceeds were deposited into bank accounts solely owned and operated by Cilli. Cilli then made kickback payments totaling approximately $130,000 to his co-conspirators for signing up for the loans. Tab retained approximately $900,000 of the total loan proceeds. KeyBank was never repaid any of the principal or accrued interest on the loans.
To conceal his fraudulent conduct, Cilli maintained bank accounts in the names of Northeast Flight Training Inc., which was not a flight training school, and United Charities of America Inc., which was not a charitable organization. Both accounts were maintained by Cilli solely to perpetuate his frauds and fund his personal expenditures.
In 2003 and 2004, Chilli knowingly and intentionally failed to prove an information regarding the proceeds that he received to the IRS.
If Chilli is sentenced with all of the potential penalties at hand he could be facing 55 years in prison and over a $6 million fine. – Source.
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