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UPDATE: The Flying Ponzi Commodities Pool Circus: Securities Fraud, Bank Fraud, and Tax Evasion
Written: June 18, 2012


Few dare -- but did Cilli succeed in pulling off the dramatic triple death spiral of securities fraud, bank fraud, and tax evasion?

This is an update of a “Street Sweeper” column that originally ran on October 5, 2011.

Victor E. Cilli, 45, of Hackensack, NJ, was arrested June 15, 2011, and charged in a criminal Complaint with one count each of securities fraud and of conspiracy to commit bank fraud.

Note: The charges and allegations contained in the Complaint are merely accusations and the defendant is considered innocent unless and until proven guilty beyond a reasonable doubt in a court of law

Background

As early as August 2006, it was alleged that Cilli was the sole owner and president of Progressive Investment Funds, LLC (“PIF”), which was a commodity pool operator (“CPO”) engaged in an investment trust that solicited funds for the purpose of trading commodity futures.  PIF was registered with the Commodity Futures Trading Commission and the National Futures Association .

PIF was the CPO of Progressive Managed Futures Fund LP (“PMFF”), a commodity pool operated for the purpose of trading commodity futures.  Cilli had sole trading authority over PMFF, which remained open until approximately February 2009.

Ponzi

The Complaint alleged that from at least January 2007 and through October 2007, Cilli engaged in a Ponzi scheme to defraud at least four commodity pool participants, who had a total investment of about $506,000. Although Cilli purportedly told the participants that he had realized trading profits, in reality, he traded about $263,000 and sustained some $200,168 in losses. Moreover, Cilli never disclosed to the pool participants that he had traded less than half of their money or that most of his trading had resulted in significant losses.

Also, Cilli misappropriated thousands of dollars in pool funds for personal expenses – including hair salon visits, skin care treatments, payments on his Harley Davidson motorcycle, and other personal entertainment, meals, and travel expenses. Although Cilli returned some funds to the investors, the payments were not from trading profits but allegedly constituted a Ponzi transfer of funds from other pool participants.

Flying High

From about 2002  through September 2006, Cilli and approximately 16 others conspired to defraud KeyBank, a financial institution based in Cleveland, OH.  The Complaint alleged that the conspirators  falsely represented to KeyBank that they would attend Tab Express International, Inc. (“Tab”), a pilot and flight crew training school in DeLand, Fla., and use the proceeds of student loans for educational expenses at Tab. Allegedly, the conspirators never intended to enroll at Tab, nor repayto KeyBank the principal or interest on the loan.

Some $600,000 of the loan proceeds from KeyBank were allegedly deposited into bank accounts solely owned and operated by Cilli, who then kicked back about $130,000 to his co-conspirators for signing up for the loans. The Complaint asserted that Tab retained approximately $900,000 of the total loan proceeds. To conceal his fraudulent conduct, Cilli allegedly maintained bank accounts in the names of Northeast Flight Training, Inc., which was not a flight training school; and United Charities of America, Inc., which was not a charitable organization. Both accounts were maintained by Cilli solely to perpetuate his frauds and fund his personal expenditures.

To date, KeyBank not been repaid any principal or accrued interest on the nearly $1.5 million in loans.

Guilty Plea

On October 4, 2011, Gilli pleaded guilty to a criminal Information charging him with one count of securities fraud, one count of conspiracy to commit bank fraud, and one count of tax evasion.

Beyond the allegations in the Complaint, the Information added that for calendar years 2003 and 2004, Cilli intentionally failed to provide the Internal Revenue Service with any information regarding the nearly $547,705 in proceeds that he received in connection with his conspiracy to commit bank fraud. The Information computed that such non-disclosure resulted resulting in a $158,674 tax loss to the United States.Cilli is scheduled to be sentenced in January 2012 and faces the following maximum penalties:

  • securities fraud: 20 years in prison and a $5 million fine;
  • conspiracy to commit bank fraud: 30 years in prison and a $1 million fine; and
  • tax evasion: 5 years in prison and a $100,000 fine.

UPDATE

On June 18, 2012, Cilli was sentenced to 36 months in prison plus  five years’ supervised release, ordered to pay $710,000 in restitution, and ordered to comply with the IRS in filing amended tax returns and pay more than $410,000 in taxes, penalties, and interest.


 
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