BULLETIN: FLORIDA — AGAIN: CFTC Says Civil, Criminal Charges Filed Against Miami Resident Oscar Hernandez In Alleged Commodity-Pool Ponzi Scheme In Which A Customer Was Check-Waving Cheerleader

BULLETIN: Civil and criminal charges were filed in Florida today against Miami resident Oscar Hernandez, amid allegations he was operating a $3 million Ponzi scheme through Midway Trading Company LLC and Conquest Investment Group Inc., the CFTC said.

The office of U.S. Attorney Wifredo A. Ferrer of the Southern District Of Florida said Hernandez has been charged criminally with fraud and conspiracy.

In its complaint, the CFTC painted a picture of a noxious financial fraud that proliferated in part because a Hernandez customer led cheers for the scheme. The customer displayed copies of checks presented him by Hernandez, and the checks became a form of social proof that Hernandez was on the up-and-up, according to the complaint against Hernandez.

The customer ultimately persuaded about eight others to invest with Hernandez, which caused at least $1 million more to flow to the Hernandez Ponzi, the CFTC alleged.

The scheme operated between 2005 and 2009, netting more than $3 million. Hernandez and the firms “misappropriated approximately $1.8 million of participants’ funds for personal use, including car, mortgage, and credit card payments, and used misappropriated funds for so-called profit payments to participants,” the CFTC said.

Investors were told Hernandez had developed a “special program” to trade futures and that annual returns of 180 percent were possible, the CFTC said.

The CFTC, the FBI and federal prosecutors in the Southern District of Florida cooperated in the probe, the CFTC said.

“By late 2008, Defendants made payments only intermittently, not monthly,” the CFTC charged. “Participants received their last payments in early 2009, and have not received a monthly payment or the return of their principal since that time.”

Neither Hernandez nor the companies was registered with the CFTC “in any capacity,” the agency said.

A Hernandez customer named Omar Aguilera began trading with Hernandez with $50,000 in 2005, according to the CFTC. By 2007, Aguilera and his wife upped their stake to $1 million with borrowed money.

“Aguilera began to recommend the investments that Hernandez was making through Midway and Conquest to many of his friends and relatives, showing them copies of the checks he had received as proof of the profits he was earning,” the CFTC said. “Aguilera repeated what Hernandez had told him — that he would use any funds they invested for futures day trading, and that the investment carried no risk.”

Over time, the scheme spread by word-of-mouth — to the point where “some participants invested without ever talking to Hernandez,” the CFTC said. “Early participants in the scheme received considerable ‘returns.'”

But “the checks that Hernandez sent to Aguilera from the Midway and Conquest bank accounts were not profits from futures trading, but were funds that Hernandez had received from other participants and deposited in the Midway and Conquest bank accounts,” the CFTC charged. “Hernandez used only a portion of the funds he obtained from participants to trade futures in the Midway and Conquest trading accounts, losing approximately $1.3 million in the process, and used the remainder either to pay off obligations to other participants, or to pay for his own personal living expenses.”

When the Ponzi collapsed, Hernandez told “a variety of false stories,” the CFTC said.