Fabio Bretas de Freitas, CEO of Phy Capital Investments, the investment management firm, has been ordered to pay up $17.2m for essentially running a Ponzi scheme.
The U.S. Commodity Futures Trading Commission (CFTC) has announced a default judgment where Bretas de Freitas was found guilty of fraud and misappropriation of client funds.
From March 2016 to May 2019, the Phy Capital Investments CEO fraudulently solicited clients and prospective clients to trade commodity interests. Bretas de Freitas claimed the company had developed a proprietary software called SoPhyA. This piece of tech was claimed to have achieved profits of 49% on futures trading from February 2016 through November 2017 for one of Phy Capital Investments’ commodity pools.
However, while over $6.89m was invested into the company, only $155,000 was ever put into any trading accounts. The rest was either misappropriated for non-trading uses or returned to other clients in a manner akin to a Ponzi scheme.
Bretas de Freitas was also found guilty of having lied to the National Futures Association (NFA), the self-regulating organization for the derivatives industry. He had told the NFA that one of the defendants’ commodity pools was a private equity fund created to develop intellectual property sold to other businesses. Bretas de Freitas even created a fake email account to keep the trade organization off his trail, pretending it belonged to a purported lender to the pool.
Having been found guilty, Bretas de Freitas must now pay a civil monetary penalty of over $12,6m, pay $4.62m in restitution and prejudgment interest to Phy Capital clients, to disgorge over $5,75m in ill-gotten gains.
Bretas de Freitas is now also permanently banned from ever trading in CFTC-regulated markets again.
But the story is not over for Bretas de Freitas. He is also awaiting sentencing in a court in the Southern District of New York after having pleaded guilty to charges of conspiracy to commit wire fraud and commodities fraud.
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