The U.S Federal Bureau of Investigation (FBI) has revealed that the former owner and Chief Executive Officer of Millennium Capital Exchange, Inc., Stafford S. Maxwell, was sentenced to almost four years in prison for orchestrating a multi-million dollar foreign exchange market Ponzi scheme.
According to United States Attorney John Horn, in March 2007 Maxwell incorporated and owned Millennium Capital Exchange, Inc., as an FX trading firm. From about 2008 to January 2012, Maxwell solicited investments with promises of high fixed rates of return to be generated from successful trading. Maxwell falsely stated that he possessed excellent forex trading skills and that he had a long history of forex trading success.
“With false promises of trading success, Maxwell defrauded investors across the country out of more than $2 million,” said Horn. “To those tempted by investment schemes that seem too good to be true—be cautious—because promises of high rates of return are often red flags for fraud.”
According to documents presented to the court, Maxwell often assured investors that they would earn an annualized rate of return on their investments from approximately 48% to 72%! (An obvious warning sign to anyone with a minimal understanding of trading or basic math.)
The trading strategy Maxwell claimed to use was to place “stops” and “floors” on trades to ensure that the gains would be large, but that the losses would be small. He additionally claimed that past investors had realized significant gains based on his trading and that he had reserve funds enabling him to cover any possible trading losses.
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According to the FBI however, Maxwell had little success executing forex trades and lost almost all the money that he traded on. He was also unable to pay investors the promised investment dividends as he possessed no reserve fund to cover trading losses.
Britt Johnson, Special Agent in Charge, FBI Atlanta Field Office, stated: “The FBI continues to see such investment based fraud cases that offer their investors high rates of returns with minimum or no risk. While many of the victim investors are still trying to recover financially, it is hoped that they find some solace in today’s sentencing of Mr. Maxwell to federal prison.”
According to Millennium’s business model, Maxwell was supposed to use the invested funds to trade through accounts at an unnamed financial firm in Geneva, Switzerland. Based on his false representations, investors wired Maxwell over $2 million, expecting that the funds would be traded in the Swiss accounts.
After receiving money from investors, however, Maxwell diverted approximately half of the money for other improper purposes. Firstly, in an effort to perpetuate the scheme and make it appear that he was a successful forex trader, Maxwell used the money received from new investors to pay “dividends” to older investors- the very definition of a Ponzi scheme.
Secondly, Maxwell used the money received from investors to pay his own personal living expenses. In the end, Maxwell spent or lost almost every dollar invested with him.
On March 17, 2015, Maxwell was indicted on 10 counts of conspiratorial and substantive wire fraud. He pleaded guilty to all the charges on June 29, 2015. On Wednesday, Maxwell was sentenced to three years, nine months in prison and was ordered to pay approximately $1,434,628 in restitution to his victims.