The top US futures market regulator on Thursday announced that it received a New York federal judge’s blessing to fine operators of Algointeractive hedge fund more than $1 million for fraud and failing to register with the CFTC.
The charges stem from an incident in April 2018, when the CFTC says Algointeractive misrepresented its founders’ experience, track record, and amount of assets under management.
The complaint also charges Kevin Whylie and Matthew Zecchini, both are NY residents, with making a series of materially false claims through various means, including a website, social media, newsletters, and verbal communications. As also alleged, the defendants assured the victims that they were pooling their funds for the purported purpose of investing in, among other things, futures contracts, while he was running a Ponzi scheme.
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“The Consent Order requires Whylie to pay a $100,000 civil monetary penalty, and the Default Order requires Zecchini and Algointeractive to pay, jointly and severally, a $721,650 civil monetary penalty. The Orders also require the Defendants to pay $240,550 total in restitution to pool participants,” the CFTC added.
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To create the illusion of stability, Whylie and Zecchini allegedly prepared and distributed false account statements to fund participants, telling investors that their strategy offered a safe investment with steady and guaranteed returns, according to the complaint. This included “documents, including monthly participant account statements and monthly expense charts that inflated and misrepresented Algointeractive’s assets and trading returns.”
The US derivatives regulator alleged in its complaint the money sent to Algointeractive was not used to purchase or trade futures contracts on its clients’ behalf. Prosecutors said that instead of buying the financial assets, they spent the money on company expenses, investment activities and for their own personal use and benefit.
In addition to the fine, the Commodity Futures Trading Commission order also restricts Whylie and Zecchini registration as a commodity pool operator and commodity trading advisor for several years.