Unregistered CPOs operated Ponzi scheme

The CFTC has won a consent order against Scott Bottolfson, Spirit Investments, and Increase Investments requiring them to jointly and severally pay a civil monetary penalty of over $6.8 million. The order finds that the defendants operated a $14 million commodity pool Ponzi scheme, and misappropriated $11 million in customer funds. The defendants did business as Commodity Pool Operators (“CPOs”), though they were never actually registered as such with the Commission.

According to the CFTC, beginning in 2002 Bottolfson solicited family, friends, and members of the public to invest with him and his companies, unregistered CPOs Spirit Investments and Increase Investments. He told potential customers that it was a risk-free investment, protected by FDIC-like guarantees, and promised a 20% fixed rate of return. In this manner, he was able to solicit $14 million from about 30 different participants.

However, Bottolfson only ever invested $2.97 million in commodity futures. Of that money, $845,000 was lost in trading. The remaining $11.03 million was deposited directly into Bottolfson’s personal account. These funds were used for personal expenses, and to make Ponzi payments to early investors in the scheme.

This CFTC enforcement action was conducted jointly with the U.S. Attorney’s Office for the Southern District of California. In February 2011, Bottolfson was found guilty of wire fraud in connection with the Spirit and Increase Ponzi scheme, was sentenced to 60 months in jail, and was ordered to pay over $6.8 million in restitution to his victims.

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

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