Criminal Justice News

Wednesday, August 08, 2012

Two New Jersey Men Plead Guilty in Connection with $3.5 Million Fraud Through Foreign Currency Investment Ponzi Scheme

CAMDEN, NJ—Two men claiming to run New Jersey-based hedge funds using a secret computer program to invest in foreign currency today admitted to defrauding victims out of more than $3.5 million, U.S. Attorney Paul J. Fishman announced.

Carmelo Provenzano, 29, of Garfield, New Jersey; and Daniel Dragan, 41, of Lebanon, New Jersey, pleaded guilty to separate informations charging them with wire fraud conspiracy before U.S. District Judge Jerome B. Simandle in Camden. A third co-conspirator, George Sepero, has been indicted by a grand jury in connection with the scheme and is awaiting trial.

According to documents filed in this case and statements made in court:

Beginning in 2009, Dragan and Provenzano claimed to run a series of hedge funds in New Jersey, luring investors with the prospect of extraordinary profits in foreign currency trading. The defendants made numerous misrepresentations and omissions to induce their victims to invest in “Caxton Capital Management” and “CCP Pro Consulting Inc.” Dragan and Provenzano claimed they and their conspirators owned and controlled a proprietary computer algorithm for trading foreign currencies; that they had used the algorithm to achieve returns of more than 170 percent in the prior two years; and that any investment funds would be highly liquid and could be withdrawn on a few days’ notice.

Relying on these and other misrepresentations, investors sent the defendants a total of more than $3.5 million. Dragan and Provenzano invested little or no money in foreign currency or any other investment vehicle, instead diverting the vast majority of victims’ investments to pay prior victims in Ponzi-scheme style and to finance extravagant personal expenditures.

Dragan and Provenzano spent investor money on credit card bills averaging approximately $25,000 per month; bar tabs of $18,241—including a $4,000 tip—and $14,034 on separate nights at Drai’s Hollywood nightclub in Los Angeles; and flights to Paris and elsewhere. Provenzano bought a luxury Range Rover Sport SUV costing more than $71,000, with a down payment of more than $65,000.

The defendants furthered the scheme by e-mailing victims fake statements showing their principal had been invested in the foreign currency markets and was achieving substantial results. Many of these e-mails were purportedly sent by an individual named “Mel Tannenbaum,” a fictional character of Provenzano’s invention.

The defendants also e-mailed to several investors “screen shots” of a computer-based trading program, which they claimed represented the investors’ funds being traded in the currency markets. In reality, the shots reflected trading in fictional accounts set up by the conspirators to dupe investors.

The wire fraud conspiracy count to which Dragan and Provenzano pleaded guilty carries a maximum potential penalty of 20 years in prison and a fine of $250,000 or twice the gain or loss from the offense. Provenzano’s sentencing is scheduled for November 16, 2012, and Dragan’s sentencing is scheduled for November 20, 2012.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward in Newark, for the investigation leading to today’s guilty pleas. He also thanked the Commodity Futures Trading Commission’s New York Regional Office, under the direction of David Meister.

The government is represented by Assistant U.S. Attorneys Christopher Kelly and Zach Intrater of the U.S. Attorney’s Office Economic Crimes Unit and Evan Weitz of the Office’s Asset Forfeiture Unit in Newark.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

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