George S. May Business Blog

Joseph Forte next to be charged for Ponzi-scheme

Today, 1/8/09, Joseph S. Forte, a Philadelphia-area investment fund manager, was charged with conducting a multi-million dollar Ponzi scheme. The Securities and Exchange Commission obtained and served the firm with an emergency court order, demanding that the firm cease operating and freezing their assets in the meantime.

The SEC’s complaint explained that Forte collected and estimated $50 million from up 80 investors in the form of limited partnership interests in his firm Joseph Forte L.P. Basically, the SEC says that Forte promised investors to put the money into an account that would trade securities in future contracts, including S&P 500 stock index futures. Although Forte maintained that the returns were quite impressive, in reality, when he did trade, he was consistently losing money and using money from the new investors repay the old ones. Classic Ponzi-scheme.

 ”As alleged in our complaint, Forte engaged in lies, deception and rapacious behavior at the expense of innocent investors, many of whom considered themselves his friends and close acquaintances,” explained Daniel M. Hawke, Director of the SEC’s Philadelphia Regional Office. “Using other people’s money, Forte promised and reported outrageous returns over more than a 10-year period, and because of his relationships with investors was able to lull them into trusting him with their funds.”

Allegedly, Forte has been doing this for sometime as the SEC’s complaint contains evidence going back to 1995. For instance, from 1995 up until late Sept 08, Forte reported to his investors returns ranging from 18.52 to 37.96 percent. However, his trading account shows losses of approximately $3.3 million over the last decade. The SEC documented how while Forte claimed to have raised $50 million from investors to trade with, he deposited only $25.8 million over the last decade. During this time he has also withdrawn $23.1 million. Finally, the SEC claims that he lied to investors about the value of Forte LP’s portfolio. A most recent example, in Sept of last year, Forte LP  claimed a value of over $150 million. In actuality, the account’s balance at the time was $146,814.

Forte will be found guilty, that is if he doesn’t take a plea bargain, for he has already basically admitted guilt. Not only did he withdraw a near $12 million, marked as fees for his personal use based on a knowingly overestimation of the value of Forte LP, but he outright admitted to using between $15 and $20 million of investor funds to repay other investors; the exact definition of a Ponzi scheme.

Between the Madoff case and this one, I find it interesting how quick these men have been to admit their own guilt. It seems as though the creators of these schemes, by the time they are caught, are so tired and ashamed of lying for so long to people that trust them, (many times close friends and colleagues), that it is almost a sigh of relief to get caught. It is as if they began, not worrying about the future, and as the market declined, they got so deep into it that there was no way to get out other than giving in or getting caught. I will say, however, with the economy so injured and people so timid to trade, I do believe that Forte will not be the last to be found guilty of illegally shuffling people’s money.

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