BULLETIN: Feds Make Criminal Bust In Alleged Forex Fraud; Nicholas Cox Of Integra Capital Management LLC Arrested In North Carolina; Allegations In Companion Civil Case Destroy Myth That Companies That Issue 1099s Could Not Possibly Be Operating Scams
The allegations in the case destroy a myth advanced by financial hucksters and shills that a company that issues 1099 tax forms could not possibly be operating a scam.
Nicholas Cox, 34, was indicted by a federal grand jury on Tuesday. He is charged with seven counts of mail fraud, one count of conspiracy to commit mail fraud and one count of conspiracy to commit money laundering, federal prosecutors said.
The announcement of the arrest was made in Washington by Assistant Attorney General Lanny A. Breuer and U.S. Attorney Anne M. Tompkins of the Western District of North Carolina.
Breuer is the head of the Justice Department’s Criminal Division, and the case was brought by elements of the interagency Financial Fraud Enforcement Task Force created by President Obama in 2009, officials said.
Cox, who was arrested in Denton, N.C., was one of the principals of Integra Capital Management LLC. An alleged Integra co-conspirator, Rodney Whitney, also was charged criminally, and already has pleaded guilty to conspiracy to commit mail fraud, wire fraud and money-laundering, prosecutors said.
Whitney also is a defendant in the CFTC action.
Integra’s scheme operated between September 2006 and January 2009, luring investors with tales about handsome “dividends,” prosecutors charged.
Cox and Whitney “provided false and fraudulent information, including prospectuses, contracts, tax forms, account statements and other documents, to current and prospective investors to obtain and misappropriate more than $3.29 million in investor funds,” prosecutors said.
They also lied about their experience and credentials, prosecutors said.
In September 2010, the CFTC said Whitney “distributed false account statements and false 1099 tax forms to Integra Capital’s customers, showing that their investments were profitable.
“Instead,’ the CFTC charged, “the defendants’ trading accounts consistently lost money.”
It is common for Forex fraudsters to claim that a company that issues 1099s could not possibly be operating a fraud. Similar claims are made in the universes of HYIP and autosurf fraudsters.
If the allegations in the Integra case are true, it means that, not only did a corrupt company issue 1099s, it also issued fraudulent 1099s that reflected gains that did not exist, thus potentially causing participants to pay taxes on phantom profits.
“At least” four of Integra’s customers received bogus 1099s, the CFTC said last year.
One of the 1099s showed a bogus gain of more than $226,000, the CFTC said. Another showed a bogus gain of $81,500. Still others showed bogus gains of more than $48,000 and more than $5,000.