Shipkevich Bitcoin and ICO Attorney
Felix Shipkevich July 28, 2011

The CFTC announced that Jay C. Nolan and his company Lodge Capital Group have been ordered to pay $825,000 as a civil monetary penalty for commodity pool fraud. Nolan and Lodge Capital, registered at the time as an Illinois commodity pool operator (“CPO”) were found to have defrauded investors of millions through misrepresentation and misappropriation.

A federal judge in Illinois has found that between January 2005 and November 2009, Nolan solicited $3.9 million from ten individuals, purportedly to trade commodity futures in his commodity pool Lodge Diversified Fund.  Nolan was able to attract these funds by telling prospective pool participants (primarily his friends) that their funds would be invested in Treasury bills held at a local bank and that these bills were to be collateral for the pool’s trading activities. He registered Lodge Capital as a CPO to operate the fund and hold the participant’s investments.

According to the order, Nolan told participants that the pool was making a monthly profit of 1-2%, when in fact it incurred significant losses, sustaining an overall negative return of 95%. $2.3 million was lost in trading, and a further $550,000 was misappropriated by the defendants. Nolan and his CPO were paid an incentive-based fee theoretically linked to the commodity pool’s profitability, and Nolan paid for personal credit card bills, country club fees, and sports tickets with the misappropriated funds. To cover up these losses, Nolan distributed false account statements showing monthly profits and claiming that the fund was outperforming the S&P 500. Some early investors were able to withdraw money from the commodity pool because Nolan used other participants’ money to pay them, in Ponzi fashion.

Nolan was sentenced to 60 days in prison and ordered to pay $3.3 million in restitution in related criminal proceedings in March of this year.

Read more about this CFTC enforcement action.
Creative Commons License photo credit: Allie_Caulfield

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