You might have become well aware of a case that Finance Magnates covered extensively a couple of years ago. A Ponzi scheme run by George Daskaleas allegedly defrauded Greek investors by convincing them that he had successfully been trading on the foreign exchange market. Unlike Bernie Madoff, he didn’t manage to conceal the scheme over multiple decades.
The main reason we covered the story at the time was a claim by the defrauded investors that the broker where the profits were allegedly realized confirmed the balances on the accounts of George Daskaleas and his company GStar FX Inc.
Earlier this week, an appeal case was filed with the England and Wales Court of Appeal. According to the filing, the brokerage in question, IKON, is once again listed as a defendant. The claimants allege that the company facilitated Daskales in his effort to attract investments to his company GStar FX.
According to the claimants, Simetra Global Assets and Richcroft Investments, the broker provided statements that confirmed that the company controlled by Daskaleas, GStar FX, held $292 million. According to the company, the statements produced to the investors merely confirmed demo account balances.
In the original judgment made by the England and Wales High Court, as well as in the US, the case was dismissed as the judges outlined that an initial allegation on part of the claimants to have deposited over $202 million into IKON proved to be false. The court mentions that the evidence provided by one major investor, Ioannis Litinas, is inconclusive and “wholly unconvincing throughout.” Litinas claims to have ultimately lost almost $19 million from his investment into GStarFX, a company controlled by Daskaleas.
The complex corporate structure where Daskaleas and Litinas shared ownership of the companies claiming to be defrauded was exposed in a case which was also dismissed in the US. The appeal filed with the UK court alleges that the original judgment on the case didn’t go into enough details.
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While a case against Litinas is still pending in Greece, the appeal in the UK is likely to take at least another year and a half to get resolved. While the judge on the original case states that the evidence provided by Litinas is “wholly unconvincing,” the case in his home country could be dismissed if it doesn’t get into court after ten years. According to information obtained by Finance Magnates, there are still four years remaining for that to be the outcome.
Demo Accounts Confirmations
While IKON didn’t specifically outline whether the accounts are real or demo, an audit conducted by Grant Thornton Greece confirmed the balances, however didn’t delve into the matter of whether the balances were linked to real money accounts.
An IKON employee highlighted the dangers of confirming demo account balances in an email correspondence with the CEO of the Group at the time, Diwakar Jagganath. Ultimately the audit of the accounts was considered to be a “systems audit” and not a financial audit.
Ultimately Jagannath did contact Daskaleas and voiced the above-mentioned concerns via email. The judge did dismiss the case against Jagannath and all of the IKON companies named by the claimants.
Vigilance is Key
The difficulty of catching perpetrators of Ponzi schemes on time can be highlighted by the numerous reports which Finance Magnates continuously covers on its website. No regulator has proven to be ahead of the game when it comes to identifying potential perpetrators.
That said, brokers must remain vigilant when it comes to their clients, especially at a time when regulators are increasing their scrutiny over the industry. While the appetite to increase deposits may be tempting in these difficult times for the brokers, it is compliance that should be on the mind of all firms at all times.