Commodity Pool Operator Arrested, Charged with Defrauding Investors in Two Schemes

NEWARK, NJ—A commodity pool operator and day trader based in Hackensack, N.J., was arrested today for allegedly directing two schemes to defraud individual investors and a financial institution of approximately $2 million, U.S. Attorney Paul J. Fishman announced.

Victor E. Cilli, 45, of Hackensack, was arrested this morning in New York by special agents of the FBI. He is charged by Complaint with one count of securities fraud and one count of conspiracy to commit bank fraud, and is scheduled to make an initial appearance this afternoon before U.S. Magistrate Judge Mark Falk in Newark federal court.

According to the criminal Complaint unsealed today:

Beginning in August 2006, Cilli was the sole owner and president of Progressive Investment Funds, LLC (PIF), 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 (CFTC) and the National Futures Association (NFA), and 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.

Beginning as early as January 2007 and through October 2007, Cilli engaged in a Ponzi scheme to defraud at least four commodity pool participants of approximately $506,000. Though Cilli returned some funds to the investors, the payments were not from actual trading profits but from funds of existing pool participants. Cilli made false and misleading statements to the pool participants claiming that he had made money for them when, in fact, most of his trading resulted in losses. Of the $506,000 invested, Cilli traded approximately $263,000, losing approximately $200,168. 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.

Cilli also 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.

Beginning as early as 2002, and through September 2006, Cilli and approximately 16 others conspired to defraud KeyBank, a financial institution based in Cleveland, Ohio, of more than $1.5 million by falsely representing 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.

Based upon prior agreements between Cilli and his co-conspirators, they never intended to enroll at Tab, nor repay principal or interest on the student loans to KeyBank. After KeyBank disbursed the loan proceeds to the school, approximately $600,000 of the loan proceeds were deposited into bank accounts solely owned and operated by Cilli. Cilli then made kickback payments totaling approximately $130,000 to his co-conspirators for signing up for the loans. Tab retained approximately $900,000 of the total loan proceeds. KeyBank has, to date, not been repaid any of the principal or accrued interest on the loans.

To conceal his fraudulent conduct, Cilli 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.

The securities fraud charge carries a maximum potential penalty of 20 years in prison and a $5 million fine. The conspiracy to commit bank fraud charge carries a maximum potential penalty of 30 years in prison and a $1 million fine, or twice the gross gain or loss from the offense.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward; and IRS – Criminal Investigation, under the direction of Special Agent in Charge Victor W. Lessoff, for the investigation leading to today’s arrest. Fishman also thanked the CFTC, Eastern Regional Office in New York, under the direction of Regional Counsel Stephen J. Obie. He also credited the NFA, New York Office, under the direction of Director Cheryl Tulino, for its assistance.

The government is represented by Assistant U.S. Attorney Aaron Mendelsohn of the U.S. Attorney’s Office Economic Crimes Unit in Newark.

The charges and allegations contained in the Complaint are merely accusations and the defendant is considered innocent unless and until proven guilty.

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.

Anyone who has information which may be relevant to this case is encouraged to contact the Newark Division of the FBI at 973-792-3000.

Defense counsel: (for initial appearance only) Francis P. Crotty Esq., Franklin Lakes, N.J.