You would think that a former attorney would know how to keep out of trouble. But that was not the case for New Orleans resident Michael B. DePetrillo. Once describing himself on Twitter as a "Recovering Lawyer," DePetrillo is going to find himself with a whole lot more to recover from now that the CFTC is after him for Forex fraud.
His victims, however, are the ones who have the most to try to recover from. Through his Forex fraud, DePetrillo robbed them collectively out of $7.6 million.
The NOLA scam worked similarly to a Ponzi scheme
DePetrillo founded multiple companies as part of his scheme: NOLA FX Capital Management, LLC, NOLA FX Fund, LLC, and Meteor, LLC, both in Louisiana. NOLA was the public face of the operation, the name that was used to market to customers, beginning as early as July 2017, and continuing all the way into 2024.
The CFTC describes DePatrillo's scam as operating in a "manner akin to a Ponzi scheme." Here was how it worked:
- Investors agreed to deposit funds with NOLA FX Fund, LLC, which the firm would trade on their behalves with leverage. Client funds were all pooled together.
- NOLA generated false account statements, which it would regularly distribute to the investors. The false statements showed profits that did not exist, along with trades that had never taken place.
- NOLA did what it wanted with the money that was deposited. Some of it was used to make payouts to the investors. The rest was used for other purposes.
Of course, this is not a sustainable scam in the long run. But con artists like DePetrillo can maintain an illusion of profitability for wary investors for quite a while using this method. When investors find they can successfully withdraw some of their money, that reassures them that they are "safe." At that point, rather than cashing out the rest, they usually deposit more.
Over the course of the scam, DePetrillo successfully conned at least 40 participants out of their money, adding up to an estimated $7.6 million.
In addition to all of this, neither NOLA nor Meteor had ever registered with the CFTC. So, it was not legal for them to be functioning as commodity pool operators in the United States.
How DePetrillo used the stolen funds
So, you already know that one of the things DePetrillo did with the funds people invested was use them to pay out to those who scheduled withdrawals. But what happened to the rest of the money?
- Personal trading: Actually, DePetrillo did trade Forex in his own personal account. But he funded that account with his investors' money, with no intent of returning it to them or sharing the profits. He was trading solely for his own benefit with client funds.
- Personal expenses: The CFTC does not specify the nature of the "personal expenses." Typically, criminals seem to use money they gained through Forex scams on things like houses, cars, vacations, luxury items, etc. Perhaps more details will come out later about how DePetrillo spent the funds.
What is happening with the DePetrillo case?
At the time of this writing, several actions have taken place in the case of DePetrillo and NOLA:
- The CFTC announced a civil enforcement action on October 28, 2024. This included action against NOLA FX Capital Management, LLC and Meteor, LLC.
- The US Attorney's Office, Eastern District of Louisiana, also filed a criminal action against DePetrillo.
What can we learn from the NOLA Forex scam?
While there has not been as much information released about the NOLA Forex scam as there has been about some others, there has still been enough that we can offer up some lessons and recommendations from this case that can help traders stay safe.
1. Be wary of companies that are not registered with the CFTC
Even without knowing anything about how this company was marketing itself, we can say that there was one simple red flag that should have alerted investors as to the danger of trading with NOLA FX. The company was not registered with the CFTC, yet it was doing business with US customers.
NOLA FX was breaking the law by operating in this manner, specifically the Commodity Exchange Act. The CFTC explains:
Registration and examination of intermediaries is conducted on behalf of the CFTC by the National Futures Association (NFA) under the supervision of the CFTC.
So, it should not be a huge surprise that NOLA FX was also breaking other laws and scamming traders.
If you are thinking about investing with a Forex firm, here are some steps you should take:
- Go to the NFA BASIC database.
- Search for the entity in question. You can look up an entity using the firm name, NFA ID, an individual's name, or the name of a pool. Just type it in and click on "search" to pull up any relevant records.
- If the entity is registered with the CFTC/NFA, you will be able to view their registration record. You also will be able to see if any disciplinary actions have been taken against that entity in the past, as well as their current registration status.
The CFTC states:
While registration and a clean disciplinary record won't protect you from fraud, most scams involve unregistered entities, people, and products.
"But wait," you might be thinking. "What if the company I am interested in trading with is not based in the US at all?"
The CFTC answers this question, saying:
If you live in the United States, foreign entities that solicit you to trade are generally required to register with the CFTC; however, some non-U.S. firms are exempt from registration.
So, you would need to look up the rules concerning that specific firm and situation to find out whether it is exempt, if you do not see a registration active for that firm.
2. Being able to withdraw is not a guarantee of safety
Another important takeaway from this case, as with others that involve Ponzi-style schemes, is that being able to make a withdrawal does not prove that your money is safe.
Obviously, if you cannot withdraw your money, that is bad. But you should exercise caution in situations where you are able to withdraw, but are working with a relatively unknown company, or one where there are some other red flags (i.e., lack of registration, dodgy marketing tactics, or even just a gut feeling that something is "off").
Maybe you schedule a withdrawal as a "test" since you are feeling anxious. The withdrawal goes through, so you think, "Okay, maybe it is safe to add more."
But stop for a moment and think about this. Why do you feel so anxious in the first place? Could it be that your anxiety is your mind trying to tell you something? Maybe your unconscious brain has picked up on some red flags, or maybe you are even consciously aware of them.
The point is, you wouldn't be conducting a "test" to see if you can withdraw your money if you did not already have ample reason to be concerned that you are dealing with a scam.
So, in that situation, you should not make any further deposits. And you should strongly consider withdrawing all your money. It is better to be safe than sorry. There are always other firms you can invest with.
Summary
Michael B. DePetrillo managed to scam at least 40 people out of a collective $7.6 million through his Forex scam.
While he got away with this for so long in part because he ran his operation like a Ponzi scheme, his lack of registration with the CFTC was a glaring red flag. Had his investors been more cautious, they probably would have noticed additional red flags too.
No matter how excited you feel about a Forex investment opportunity, try to rein in your enthusiasm and evaluate red flags cautiously and objectively. In the long run, you will be glad that you did.
