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Feds question whether fees were proper in commodities case

In our previous post, regarding fraud charges against certain real estate developers, the crux of the charges against the developers was that they had charged improper fees to their partners.

In this post, let's look at a recent New Jersey case where the issue also turns on the question of whether fees were improper. The case involves the head of two out-of-state investment companies who allegedly paid fees to himself beyond what he had told clients he would do.

The Commodity Futures Trading Commission (CFTC) has brought investment fraud charges in the case.

According to federal authorities, there were about 12 investors who put up a total of nearly $1.4 million with a New Jersey man. The money was to be invested in two commodities-trading pools, using an automated program for the trading of futures contracts.

Authorities alleged, however, that the New Jersey man misappropriated the money. He did this, they contend, by paying himself more in various fees than he had led investors to believe.

There were at least three different types of fees involved: administrative fees, management fees and incentive fees. But it is the incentive fees that are of particular concern to the CFTC.

The New Jersey man had disclosed to investors that there would be an incentive fee on newly generated profits. But the CFTC claims that the man continued to charge the fees even after the funds started losing money during the Recession in 2009.

The CFTC also asserts that the man took other money from the investment pools he oversaw, for expenses not related to the investments. Overall then, authorities charge, he took about $191,000 that he was not entitled to.

Source: Star-Ledger, "N.J. man charged with investment fraud," Ed Beeson, September 30, 2013

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