Manhattan U.S. Attorney Announces Charges Against Manager Of Commodities Pool For Defrauding Investors Of More Than $5 Million
Preet Bharara, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, the Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing of an indictment in Manhattan federal court against WHILEON CHAY for his alleged management of several fraudulent commodities pools, generally operating under the name “4X Solutions” or a variation thereof. Beginning in or about 2007, CHAY solicited more than $5 million from investors in commodities pools that purported to engage principally in foreign exchange (“forex”) trading, promising approximate annual returns of 24% and claiming that “[t]here is no risk in this activity.” In fact, however, CHAY lost more than $2 million in forex and other commodities trading, and misappropriated a significant portion of the remaining investor funds for his personal use, including to pay for luxury cars and for his deceased wife to be cryogenically frozen. CHAY fled the United States during the course of the investigation. The case has been assigned to United States District Judge Kimba M. Wood.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Whileon Chay deceived investors about the commodities pools he managed, claiming to be a successful trader when he in fact was losing millions and misappropriating investors’ money for his own use. Although he has fled the country, these charges against him will persist and so will our efforts to bring him back to face them.”
USPIS Inspector-in-Charge Bartlett said: “Over the past five years Postal Inspectors have investigated hundreds of investment fraud schemes. In each case there are misrepresentations made to investors and the misuse of funds entrusted to the companies. As alleged here, Mr. Chay betrayed the trust of his clients when he misappropriated their investments to fund his lavish lifestyle.”
According to the allegations in the Indictment unsealed yesterday in Manhattan federal court and other court documents:
In approximately 2007, CHAY began operating the first of several unregistered commodities pools operating under the name “4X Solutions,” collectively referred to in the Indictment as the “4X Entities,” and began to solicit investors. CHAY represented to investors, orally and through written materials, that he had “been successfully trading the 4x for 15 years. During this period [CHAY’s] clients have never experienced a month that did not make money.” CHAY also caused monthly account statements to be sent to investors, which represented that the 4X Entities were producing steady returns. By 2011, the 4X Entities purported to have more than $16.5 million in assets under management.
In fact, CHAY did not invest the money as promised, and to the extent that he did invest it at all, he lost it. Between 2007 and 2011, CHAY lost approximately $2.3 million in forex and other commodities and securities trading, even as he continued to represent to investors and potential investors that the 4X Entities were profitable and that “[w]e have never had a loosing [sic] month.” Materials distributed to investors also claimed that “[t]here is no risk in this activity.” CHAY perpetuated the fraud by disseminating fraudulent account statements that represented that investors were receiving consistent positive returns, and by using new investors’ funds to pay purported returns to existing investors. He also misappropriated a significant portion of the funds invested in the 4X Entities for his personal use, including to pay his personal expenses and to maintain a lavish lifestyle, which he flaunted to potential investors. For example, CHAY drove a different luxury car virtually every time he met with one particular investor. CHAY also misappropriated investor funds for other purposes, including more than $150,000 to pay for his deceased wife to be cryogenically frozen.
In October 2011, during the course of the investigation, CHAY departed from New York to Lima, Peru, and has not returned to the United States.
CHAY, 38, formerly of New York, New York, is charged in the Indictment with commodities fraud (Count One), wire fraud (Count Two), and mail fraud (Count Three). The mail and wire fraud charge each carries a maximum term of 20 years in prison, and the commodities fraud charge carries a maximum term of 10 years in prison. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Separately, the United States Commodities Futures Trading Commission (“CFTC”) has sued CHAY and 4X Solutions, Inc., in an action filed in United States District Court for the Southern District of New York. CHAY has not appeared in that case, and the Clerk of Court has issued a certificate of default against CHAY.
Mr. Bharara praised the investigative work of the USPIS. He also thanked the CFTC for its assistance.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Matthew L. Schwartz and Katherine Reilly are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.