PatrickPretty.com

Day: July 29, 2010

  • CFTC: Convicted Felon Was Running Texas-Based Forex Firm; Robert Mihailovich Sr. And Robert Mihailovich Jr. Charged In Case That Alleges Pattern Of Marketing, Webinar Deception

    Investors turned over more than $30 million to a felon who hid his conviction and even managed to persuade clients to give him power of attorney, the CFTC said.

    Robert Mihailovich Sr. was released from federal prison on June 27, 2007, after serving 21 months for mail fraud, the CFTC said. On Oct. 14, 2008 — while on court-supervised probation — Mihailovich Sr. formed a Texas-based company known as Growth Capital Management (GCM) with his son and namesake, Robert Mihailovich Jr., listed as president.

    Now both father and son are charged civilly with misleading investors and regulatory agencies about GCM’s business practices.

    Mihailovich Jr. is accused of making false statements in regulatory filings and not disclosing that his father was a principal in the firm. Meanwhile, Mihailovich Sr. is charged with fraudulent solicitation.

    Together the father, son and company “fraudulently solicited and accepted more than $30 million from approximately 93 customers,” the CFTC said. Both men reside in Rockwall, Texas.

    Mihailovich Sr. did not disclose his felony conviction to investors, the CFTC charged.

    “There was no disclosure in GCM’s filings concerning Mihailovich, Sr. and/or his involvement with GCM,” CFTC alleged.

    But Mihailovich Sr. “directed the day-to-day business of GCM” and “solicited most, if not all, managed account customers to trade commodity futures and forex,” CFTC charged.

    Mihailovich Sr. used claims about an “electronic trading system” to woo customers on the Internet, the CFTC said.

    Webinars and sales presentations were conducted on Saturdays.

    “Mihailovich, Sr. presented the GCM electronic trading system by employing graphs that purportedly showed trading in live commodity futures accounts and forex accounts,” the CFTC charged. “Mihailovich, Sr. claimed that his GCM electronic trading system virtually guaranteed substantial profits and minimized the risk of loss trading commodity futures and forex. His recurring theme and reassurance was that trading using GCM’s electronic trading system was protected at all times from loss.”

    Actual trading accounts managed and controlled by Mihailovich Sr., however, realized net losses, CFTC said.

    One GCM customer told investigators that Mihailovich Sr. also used a “mass sub-algorithm” to make manual trades and gain extra profits.

    Numerous misrepresentations were made to clients, including a claim that a $1 million investment would result in a $1 million profit and that “it does not matter what the markets do during the trading day for the computerized trading software to make an account profitable,” the CFTC charged.

    Some customers were falsely told that GCM had not closed a trade at a loss since 2000 and that Mihailovich Sr. “had over twenty years of continuous trading experience,” the CFTC charged.

    “Defendants’ marketing materials stated that their software ‘has never closed a managed position at a loss. Not on Forex . . . Not on Bond positions . . . Not on the S&P . . . Or even on the many other types — commodities, stocks and indexes — it has managed over the years,’” CFTC alleged.

    Meanwhile, the agency said Mihailovich Sr. tried to have his felony conviction overturned by claiming ineffective assistance of counsel, “but that petition was denied.”

    Despite claims of safety and assurances that the firm did not lose clients’ money, “approximately half of Defendants GCM’s and Mihailovich, Sr.’s customers lost money from their investments, and overall, their trading resulted in net losses of approximately $2.2 million in customer accounts,” the CFTC alleged.

    “From June 2008 through June 2009, GCM’s and Mihailovich, Sr.’s trading of forex on behalf of customers resulted in overall realized losses of approximately $711,000,” the agency said. GCM and Mihailovich, Sr. received approximately $241,000 in performance and management fees related to this trading.”

    “Between September 2008 and through November 2009, GCM’s and Mihailovich, Sr.’s trading of S&P e-mini futures resulted in realized net losses totaling approximately $1.5 million,” the CFTC said. “GCM and Mihailovich, Sr. received approximately $147,000 in performance and management fees related to this trading.”

    “Despite these mounting losses, GCM and Mihailovich, Sr. continued to solicit new customers by highlighting the profit potential of investing with GCM using GCM’s proprietary trading software, without disclosing the fact that many of their customers lost most, if not all, of their investment,” the CFTC charged.

    Read the CFTC complaint.

  • REPORT: Pyramid Schemes Plaguing China; One Anti-Pyramid Activist Stabbed While Trying To Assist Victim, Another Bitten Repeatedly; Cult-Like Behavior In Spotlight

    An anti-pyramid scheme activist in China was stabbed by both the perpetrator of the scheme and the victim, according to the state-run Xinhua News Agency. The wounds were not fatal, but demonstrate the dangers that confront citizens actively engaged in efforts to help an estimated 10 million Chinese caught up in schemes that use promises of riches and techniques described by independent media as brainwashing to maintain control over investors.

    Separately, an activist with the same group has scars on his arm after being bitten by victims, the news agency reported.

    Quoting government statistics, the news agency reported that the State Administration of Industry and Commerce broke up 10,980 pyramid schemes between 2006 and September 2009.

    In early July, the government made 130 arrests and broke up 29 pyramid schemes in Guangxi Zhuang, an autonomous region that shares a border with Vietnam.  In the capital city of Nanning, 1,306 participants were found in the apartments of pyramid-scheme organizers, the news agency reported.

    A private group known as the China Anti-pyramid Selling Association began its efforts to assist victims in 2006, according to the news agency. A cartoon that accompanies the agency’s story on China’s pyramid plague depicts a man tugging mightily on a rope to help victims scale a cliff to flee from a pyramid schemer holding up a box of worthless products in a valley of pending misery below. A woman is assisting the man, pulling with all her might to help a victim escape the huckster. One woman is clinging to a fellow victim’s shirt as she, too, seeks to flee.

    The cartoon depicts the valley pitchman sanding in front of a blackboard. One man enthralled by the pitchman’s virtuoso performance is holding a wad of cash and reaching toward both the pitchman and the sky. Meanwhile, a woman who may be a doubter appears to be trying to keep her purse secure as she processes information and strains to get a closer look at details. In the deep background of the cartoon, one of the pitchfest attendees is shown with a dumbfounded look on his face — as though he is trying to process too much information from conflicting images in the incongruous scene.

    Experts say pyramid schemes are all about incongruity. Prospects are separated from their money by practiced hucksters who employ razzle-dazzle, groupthink, mathematical sleight-of-hand, envy, jealousy, appeals to faith and greed — and anything that “works” to keep cash flowing to the schemes.

    Also in the news agency’s story today is a photo of police breaking up a pyramid scheme in Anhui province last month.

    Read today’s story by the Xinhua News Agency. (The powerful cartoon is on the third page of the story.)

    Read a September 2009 story in USA Today about pyramid schemes in China. The newspaper reported that many of the schemes have morphed into “bizarre, cult-like underworlds” that have “bankrupted countless young Chinese of modest means.”

    View an editorial and video package from CNN that shows police in China dealing with pyramid schemers by exposing them to public humiliation. The CNN package was produced in November 2009.