The tactics employed by the perpetrators of investment frauds had undergone little change in the past century. However, there is no dearth of unsuspecting investors who fall prey to such Ponzi schemes. The reason is that crooks have a clear understanding of the human psychology. Whileon Chay, a New York resident, is one such scammer who successfully capitalized on the greed and crowd behavior.
Contents
- 1 4X Solutions’ investment scheme
- 2 Chain of entities
- 3 Mode of investments
- 4 Trading performance gimmicks
- 5 Misappropriation of funds
- 6 Indictment
4X Solutions’ investment scheme
Beginning 2007, Whileon Chay, through his firm 4X Solutions Inc (not to be confused with British VPS provider by 4X Solutions Ltd), started offering an investment scheme to investors. The company was not registered with the CFTC in any capacity. Chay and his wife were the only executives and shareholders of 4X solutions. According to the scheme, the investorsâ funds would be pooled together and used to trade currencies, gold and other commodities. To effectuate the bogus scheme, Chay made false representations (verbal and written) about the historical performance of the trading activity.
Furthermore, to convince investors, Chay claimed that he would use only a portion of the pooled investorsâ funds to trade in the Forex market, while he would invest the rest in physical gold. Chay also stated that in such a scenario, any downside in the price of gold would be hedged so that the overall asset value continues to grow irrespective of fluctuations in the market. The marketing materials given to some other investors indicated that currency risk is hedged using precious metals. To prospective investors, Chay asserted that the strategy employed to trade the Forex market was so good that it enabled them to earn profits quite easily and safely even during adverse market conditions. Chay also boasted that 4X Solutions did not suffer even a single losing month in the past 14 years and so that was a safe haven investment with the prospects of earning 24% to 36% per year. The high pressure sales pitch coupled with material misrepresentations enabled Chay to receive deposits to the tune of about $4.8 million from 19 investors.
Chain of entities
To hide the fraud from investors and law enforcement agencies, Chay established numerous companies across the US. This includes 4X Solutions, Inc., (Nevada), Ark Atlantic Corporation (Panama), Golden Gateway International, S.A (Panama), The Globe Gateway, Inc. (Las Vegas) and Zheng Formulas LLC (Nevada). The entities were referred to as investment firms engaged in the trading of currencies, gold and other commodities. Chay was the organizer, officer and manager of all the entities. Additionally, Chay opened and maintained several corporate bank accounts in the name of the 4X companies.
Mode of investments
Chay mostly instructed the investors to make deposits through a check payable to one of the 4X entities. Sometimes, he directed the investors to make a wire transfer to one of the corporate accounts held in the name of the 4X entities. At a later stage, when Chay became aware of the fact that Federal investigators are examining the business of the 4X entities, he advised clients to make payments in the form of gold coins or bars.
Trading performance gimmicks
Chay had numerous trading accounts in the name of 4X entities at several Futures Commission Merchants (FCMâs) registered with the CFTC. In all, a sum of $2.995 million was deposited in the trading accounts. The trading accounts authorized only Chay and his wife to trade on behalf of the 4X entities. The trading accounts were corporate proprietary accounts and did not represent the forex investor pool in any manner.
Chay, who did not have any successful record, lost as much as $1,985,754 trading Forex and Forex options. Chay withdrew the remaining $1 million to the corporate bank accounts of 4X entity. The last Forex trading account of Chay was closed on November 4, 2010, and the remaining balance of $11,854 was transferred to the 4Xâs corporate bank accounts. A sum of $11,785 was later transferred to his personal account. Chay, however, never declared the trading losses to the prevailing and prospective investors. In fact, the account statements, fabricated by Chay and sent by mail as well as provided online to clients, continued to show a positive appreciation in the net balance. By 2011, the value of assets (calculated using the account statements of the clients), which were purported to be under the management of 4X entities was $16.5 million.
In this regard, a letter sent to the investors of Ark Atlantic claimed that Chay never had a losing month in the past 15 years and for the past four years the clients were making consistent returns of 2.2% on a monthly basis.
Misappropriation of funds
Chay deployed only about $2 million in trading currencies. None of the investorsâ funds were used to purchase physical gold as it was claimed while presenting the scheme to the prospective investors. About $1,731,600 was used to pay purported profits to some of the investors. The rest of the money was used to pay Chayâs personal expenses, including but not limited to luxury resorts,
Indictment
Based on several complaints from investors, on April 8, 2013, the CFTC filed an equitable relief and civil monetary penalty against 4X solutions. While the case was under investigation, Chay was believed to have fled to Lima, Peru. Neither he nor any lawyer responded to the court notice. Thus, on January 29, 2016, the honorable court of New York ordered 4X solutions and its principal Whileon Chay to disgorge $2,745,226 and pay a civil monetary penalty of $8,235,678. The US authorities, based on an extradition treaty with Peru, are currently trying to nab Chay, who is now a criminal fugitive. The CFTC warned that even if Chay gets arrested, investors may not see most of their money as the fraudster would not have enough funds or assets for liquidation.
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