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Securities and Exchange Commission v. Forte

February 24, 2009

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
JOSEPH S. FORTE AND JOSEPH FORTE, L.P., DEFENDANTS.
COMMODITY FUTURES TRADING COMMISSION, PLAINTIFF,
v.
JOSEPH S. FORTE, DEFENDANT.



The opinion of the court was delivered by: Diamond, J.

MEMORANDUM

Having consented to a freeze of his assets after the Government sued him for securities fraud, Defendant Joseph S. Forte asks me to release funds so that he can pay various expenses. I deny his request.

I. Background

A. The Government's Allegations On January 7, 2009, the Securities and Exchange Commission and the Commodity Futures Trading Commission filed related actions, charging that Defendant had violated myriad securities laws through his operation of a "Ponzi" scheme from 1995 to 2008. (No. 09-63, Doc. No. 1; No. 09-64, Doc. No. 1.) The Government based its allegations largely on statements Defendant purportedly made to investigators. See, e.g., No, 09-63, Doc. No. 1 ¶¶ 17, 22, 27. As alleged, Defendant fraudulently solicited and accepted approximately $50 million from at least 76 investors through the sale of securities in the form of limited partnership interests in Joseph Forte, L.P. (No. 09-63, Doc. No. 1 ¶ 1; No. 09-64, Doc. No. 1 ¶ 1.) Defendant acted as an unregistered commodity pool operator for Forte, L.P., purportedly representing to investors that the Limited Partnership would trade in futures contracts, including S&P 500 stock index futures. (No. 09-63, Doc. No. 1 ¶ 2; No. 09-64, Doc. No. 1 ¶ 2.)

Contrary to those representations, Defendant invested only a small fraction of the $50 million in commodity futures. (No. 09-63, Doc. No. 1 ¶ 3.) Those investments were, apparently, less than successful: from 1998 through 2008, Defendant sustained trading losses of more than $3 million. (Id. ¶ 3.)

From 1995 through 2008, Defendant used between $15 and $20 million in pool participant funds to provide returns to other investors. (Id. ¶ 3, 22.) To conceal his alleged fraud and trading losses, Defendant falsely represented to investors that the pool was achieving annual returns of 20% to more than 36%, and that as of September 2008, the pool had increased in value to more than $154 million. (Id. ¶ 4, 18, 24.) Defendant reported paying himself more than $28 million in management and incentive fees during this period; the actual amount Defendant has admitted receiving is between $10 and $12 million. (No. 09-64, Doc. No. 1 ¶ 4.)

B. Procedural History

On January 7, 2009, the Government filed Emergency Motions for a Preliminary Injunction and an Order Freezing Assets, asking me to freeze "any funds or other assets presently held by [Joseph Forte or Forte, L.P.], under their control or over which they exercise actual or apparent investment or other authority, in whatever form such funds or other assets may presently exist and wherever located." (No. 09-63, Doc. No. 2 ¶ I; No. 09-64, Doc. No. 2 ¶¶ II-III.) The Government sought the asset freeze to preserve any remaining funds for: (1) the equitable remedy of disgorgement; and (2) the payment of civil penalties. (No. 09-63, Doc. No. 1 at 8; Tr. Feb. 9, 2009 at 9-11.)

Defendant, who chose to proceed pro se, did not dispute the Government's allegations. Rather, he consented to the requested preliminary injunction and asset freeze. (No. 09-63, Doc. Nos. 3-4; No. 09-64, Doc. No 3.) After conducting a hearing, I entered the preliminary injunction and asset freeze Orders. (No. 09-63, Doc. No. 5; No. 09-64, Doc. No. 4.)

Paragraph XI of the Consent Order in the SEC matter provides that nothing in that Order shall preclude Defendant "from petitioning the Court to release funds to him for living expenses, or . . . [preclude] the [SEC] from opposing any such request." (No. 09-63, Doc. No. 5.) On February 2, 2009, Defendant asked me to release funds so that he could pay monthly expenses, which he described as follows:

Car insurance - 200

Water – 50

Heat & electric – 800

Phones – 300

Credit cards ...


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