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Ex-currency traders in Boston accused of fraud

By Bob Salsberg
Associated Press / October 28, 2010

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BOSTON—A federal indictment charges the co-founder of a now-defunct company that traded in foreign currency with defrauding investors out of more than $30 million through a series of misrepresentations.

The U.S. attorney's office in Massachusetts said Craig Karlis, 50, of Hopkinton, Mass., was arrested Thursday. Karlis faced nine counts of wire fraud and two tax-related charges.

Karlis' former business partner, Ahmet Devrim Akyil, was also named in the indictment. Authorities said Akyil left the U.S. for Turkey in 2009 and remains at large.

Karlis and Akyil were also named in a lawsuit brought Thursday by the Securities and Exchange Commission.

Messages left Thursday with lawyers representing Karlis in both the criminal and civil cases were not immediately returned. A message left Thursday at a number listed for Karlis was also not immediately returned.

Karlis and Akyil formed Boston Trading and Research LLC in 2007, prosecutors said. The company recruited customers to invest money that would be traded in the foreign currency exchange market, in which traders seek to make money by buying foreign currency and selling it a higher exchange rate.

According to the indictment, BTR had about 1,200 customers by mid-2008 with more than $35 million under management. By the time the company notified investors in an e-mail that it had suspended trading in September 2008, it had lost about 90 percent of the invested funds, prosecutors said.

Karlis and Akyil "diverted customer money for their own use and concealed the misappropriation and self-dealing from customers by manipulating the computerized customer platform and the e-mailed account statements," the indictment states.

Among the misrepresentations allegedly made by the men was that the company's trading platform was designed to automatically shut down if a customer's account lost more than a pre-set percentage of its value -- generally 30 percent.

Prosecutors said customers were also misled to believe that BTR was compensated by a percentage of profits from the trading, when in fact Karlis and Akyil used millions from customers' accounts to pay the company's operating expenses, as well as personal expenses, such as houses, cars and jewelry.

The indictment alleges that Karlis concealed from a federal tax document the ownership of a second home he bought with $600,000 from a customer account, and that he did not file a 2008 tax return, thus failing to report about $1.3 million in income he received from the company that year.

The SEC lawsuit alleges that BTR falsely promised investors that it had a system in place to minimize losses.

"The bait was the promise by Akyil and Karlis to limit investor risk, and the switch was the theft and unauthorized trading that cost investors 90 percent of the invested funds," said Robert Khuzami, head of the SEC's Division of Enforcement, in a statement.

Court documents show an arrest warrant was issued for Akyil on Oct. 6. Christina DiIorio-Sterling, a spokeswoman for the U.S. Attorney's office, said Karlis will remain in custody at least until a hearing Friday in Boston.

If convicted, the men could face up to 20 years in prison and fines of up to $250,000 on each of the wire fraud charges, while Karlis could face up to four more years in prison on the tax charges.

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