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FBI and CFTC Go After Chicago Broker

CHICAGO (CN) - A "commodity pool" operator blew through $3.9 million of his clients' money while sending them bogus account statements claiming they were earning 1 to 2 percent monthly returns, the Commodity Futures Trading Commission claims in Federal Court. The CFTC sued Jay Nolan, 56, and his company, Lodge Capital Group, and federal prosecutors accused Nolan of criminal mail fraud.

The CFTC claims Nolan lost $2.3 million in bad trades, while taking $1.5 million in unearned management fees from at least five investors.

Nolan, from the North Shore suburb of Wilmette, began soliciting "pool participants" from his friends in 2005, according to the civil complaint. He obtained $3.9 million, putatively to invest in the Lodge Diversified Fund. He told investors the fund would "trade financial, metals and currency futures contracts," the CFTC says.

Nolan opened 10 commodity trading accounts in the fund's name at ADM Investor Services, and falsely informed investors that the fund was earning "approximately 12 percent to 20 percent" annually, the CFTC says.

He sent bogus monthly statements, including a November 2009 statement claiming that the total pool assets came to $6.3 million, the CFTC says, though at the time, the fund "had a negative return of approximately 95 percent."

In November 2009, "Investor A," who had given Nolan $2.97 million, called ADM to verify that his account balance was indeed around $5.6 million, as reflected in his recent statement, an FBI agent said in an affidavit for the criminal complaint. An ADM employee told the investor that "the Lodge Diversified Fund account contained approximately $170,000," and said that it had not written the false statement.

Nolan had promised investors that he collateralized the fund with "millions of dollars in government securities," held in a Harris Bank account, but that account contained only $100,000, according to the CFTC.

The CFTC says that one investor found that Nolan used investors' money to pay his country club dues.

Nolan finally admitted it was all a scam, and told the investors that "he was a 'crook' and knew that he would be going to jail," according to the CFTC complaint.

He was arrested in late November 2009 on criminal charges of mail fraud.

The FBI agent says in his affidavit that Investor A allowed the Bureau to record a telephone conversation with Nolan. In that call, the agent says, Nolan admitted that he had lost two-thirds of the money by 2006. Nolan said: "There was still a million left after the shit hit the fan. I was trying to earn the money back," according to the affidavit.

"Nolan also said that he didn't 'have any of the money,' but admitted that each month he had continued to take a 2 percent management fee," according to the affidavit. "Nolan admitted that there was a 'paper trail on everything,' and ... also stated 'there's no dispute here, I did it,' and that 'it's been my own personal nightmare since '06.'"

The Chicago Tribune described Nolan as "one of the original big-time brokers in the Chicago Board of Trade's Treasury bond pit of the 1980's," but that "(a)s with many of his fellow overnight millionaires from the Chicago financial-futures floor, good times gave way to bad."

The Tribune added that in the midst of a divorce during the late 1990s, Nolan's wife "pulled on her beaver-fur coat and drove her late-model SUV to a hotel in Lincolnshire, where she was found dead in a guest room."

Nolan, who is in jail, established Lodge Capital in 2002, and worked out of a "small one-room office," with an "unmarked door," according to the complaints.

The Commission seeks a restraining order to protect evidence and wants Nolan prohibited from trading commodities. It also demands civil penalties of at least $130,000 for each violation of the Commodity Exchange Act.

If convicted of mail fraud, Nolan faces up to 20 years in prison, a $250,000 fine, and mandatory restitution.

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