A federal court has mandated an Illinois man and his entities to pay upwards of $20 million for conducting a Ponzi scheme in the commodity pool sector. Phillip Galles and his Chicago-based Tyche companies have been found liable for defrauding investors and violating regulatory laws, according to the Commodity Futures Trading Commission's (CFTC) announcement.

Court Penalizes Illinois Man $20 Million for Commodity Pool Scam

Galles, who portrayed himself as a managed futures hedge-fund magnate, falsely claimed extraordinary annual returns exceeding 200% for his firms, including Tyche Asset Management LLC and several affiliated entities.

These assertions, however, were a facade for a Ponzi scheme Ponzi Scheme A Ponzi scheme is a scam that looks to lure investors, ultimately paying profits to earlier investors with funds from more later investors.This form of fraud tricks victims into believing that products are instead generated from product sales or other means. In actuality, most investors are completely oblivious to the actual origin of incoming funds.One of the central attributes of a Ponzi scheme is the necessity of its ongoing nature, which is dependent on a steady flow of new contributions and A Ponzi scheme is a scam that looks to lure investors, ultimately paying profits to earlier investors with funds from more later investors.This form of fraud tricks victims into believing that products are instead generated from product sales or other means. In actuality, most investors are completely oblivious to the actual origin of incoming funds.One of the central attributes of a Ponzi scheme is the necessity of its ongoing nature, which is dependent on a steady flow of new contributions and Read this Term. The CFTC found that Galles had diverted investor funds for personal use rather than the promised commodity trading, resulting in 65 individuals suffering losses totaling $5,327,173.

“The CFTC cautions that orders requiring repayment of funds to victims may not always result in the recovery of lost money because the wrongdoers may not have sufficient funds or assets,” the Commission warned in the official statement.

Further exacerbating the situation, Galles and the Tyche entities lied to regulatory bodies. They falsely assured the National Futures Association (NFA), the body overseeing futures and derivatives regulation, of their non-engagement in soliciting or accepting funds, a claim repeated to NFA examiners in April 2023. This judgment penalises them financially and imposes a permanent trading ban on regulated markets to prevent future violations.

Federal Court Orders Illinois Man and His Entities to Pay Over $20 Million in Restitution and Penalties for Commodity Pool Ponzi Scheme. Learn more: https://t.co/lGMoDkXgex

— CFTC (@CFTC) November 15, 2023

CFTC Tightens the Regulatory Screw

According to the newest CFTF’s enforcement report for the fiscal year 2023, the Commission conducted a record number of cases, especially in the digital asset sector. The institution launched almost 100 actions against a range of malpractices, including Ponzi schemes.

A Ponzi scheme is a fraudulent investing scam that promises high rates of return with little risk to investors. The scheme generates returns for older investors by acquiring new ones. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. For both Ponzi schemes and pyramid schemes, the schemes collapse when the flood of new investors dries up and there isn't enough money to go around.

"At a time of great uncertainty and volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term, healthy U.S. commodity markets are paramount to ensuring a strong economy. The CFTC will continue to take all necessary action to protect customer funds and ensure fair prices for U.S. consumers. I thank the Division staff for their hard work over the last fiscal year," Rostin Behnam, the CFTC Chairman, commented.

For example, some time ago, the CFTC busted a $44 million Ponzi crypto investment scheme. The alleged perpetrators defrauded at least 170 investors, targeting investors since January 2021.