Another day, another Ponzi - Kramer's $40 Million Forex Fraud

MARCH 26, 2009

The U.S. Commodity Futures and Trading Commission ("CFTC") has charged a foreign exchange trading firm (Barki, LLC) and its principle Bruce Kramer with running a Ponzi scheme. The charges include:

*Solicitation of at least $40 million to trade leveraged foreign currency contracts

*Misappropriating of at least $30 million to pay false profits and for personal expenses

The court filing can be read here.

The CFTC said the beginning in June 2004 and up until last month, Mr. Kramer solicited approximately $40 million from 79 investors (mostly from the Charlotte, NC area) to trade leveraged foreign currency contracts with the promise of returning at least 3% to 4% per month. The charges further allege that Mr. Kramer sustained trading losses of at least $10 million and used $20 million to fuel his Ponzi scheme payouts.

Some of the personal expenses used by Kramer included the purchase of a million dollar 48-acre horse farm in Midland, North Carolina, a race horse, a Maserati, a 6,000 square foot home, other luxury cars, artwork and on throwing extravagant parties. Only $575,000 remains.

Mr. Kramer committed suicide on February 25, 2009 and his fraud only came to light after his death. This seems quite similar to the way the Madoff scandal played out - only instead of killing himself Madoff turned himself in. The Kramer situation is also similar to the Madoff scandal in that recovery of assets are being sought from Mr. Kramer's wife (Rhonda).

Rhonda Kramer's attorney, James Wyatt, said Ms. Kramer has cooperated fully with authorities and had nothing to do with the alleged fraud.

In the same way that questions were raised as to how the SEC failed to detect Madoff's fraud during prior audits, similar questions can be raised over the CFTC's oversight of situations such as Kramer. In light of these regulatory shortcomings across multiple agencies, the new hedge fund regulatory structure should include liability and responsibility requirements not just for hedge funds and investors but for regulatory agencies as well.

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