File
Members of a Jamaican investment club awaiting payment of their returns in this November 23, 2007 Gleaner photo. The authorities have been urging the schemes to register their operations with the Financial Services Commission.

Craig Carmin, Wall Street Journal

Reprinted with permission of The Wall Street Journal, Copyright (c)2008, Dow Jones & Company, Inc. All Rights Reserved.

In the end, after stealing millions of dollars from his parents and friends, Joel Nathan Ward finally confessed.

"I'm a financial serial killer," he scribbled in his personal diary. "I am just another ... con artist."

The diary was his undoing. He showed it to his wife, who showed his business partner, who showed the authorities.

Federal Bureau of Investigation (FBI) agents swarmed the California house where Mr. Ward was staying and eventually arrested him, opening a window in to one of America's fastest-growing investment scams: currency trading.

Currency trading - betting on the price of money itself - used to be the province of global banks, multinationals and other big-money financiers. But recently, new technology started letting in smaller investors, too.

It is spawning an industry of currency-trading shops across the United States. Much like day traders from the dot-com era, these so-called night traders take advantage of the currency market's round-the-clock operation to haggle over the yen, euro and dozens of other brands of money.

Most shops are legitimate. But loopholes in the regulatory regime also attract scammers.

Currency trading "has become the fraud du jour," says Michael Dunn of the Commodity Futures Trading Commission (CFTC), which regulates a portion of the trade.

Some swindles have reaped tens of millions of dollars.

In 2005, a California man, Richard Matthews Jr., pleaded guilty to wire fraud for a scam that netted more than US$30 million, enabling him to buy a 12-acre island off the coast of Belize.

Since the start of 2001, nearly 26,000 individuals have lost US$460 million in currency-related frauds, the CFTC says.

In August, Mr. Ward, a 49-year-old former carpenter, pleaded guilty to nine felony counts, including fraud and money laundering. He fleeced more than 100 clients out of more than $11 million, according to the U.S. attorney's office.

At his sentencing scheduled for next month, he faces the likelihood of at least 10 years in prison.

Mr. Ward isn't going quietly. In an unusual move, he is asking the judge to let him keep trading currencies to repay his victims. He maintains that, despite his history, there are people who have offered him money to keep trading.

"I'm not saying I shouldn't go to prison," Mr. Ward says, but "my first concern is for the victims."

Prosecutors oppose that idea, and there seems little chance the judge will go along.

But a number of Mr. Ward's victims are actually in favour. Among them is Russ Sharpe, who owns a marketing company in Oakdale, California.

"I've watched him trade," says Mr. Sharpe, who lost US$480,000. "He can exceed by vast measures what he has lost."

OWN FAMILY HURT

Mr. Ward's backers also include his now-former mother-in-law, Barbara Collett, who, along with her husband lost nearly us$100,000. (Mr. Ward and his wife recently divorced.)

Ms. Collett says more than half of Mr. Ward's victims support his restitution plan.

"The forgiveness is unbelievable," she says.

Oversight of currency trading improved a bit in 2000, when the Commodity Futures Modernisation Act clarified the CFTC's authority to prosecute unregulated currency trading conducted outside exchanges.

However, the CFTC can impose only civil penalties (such as fines), not criminal charges that lead to jail time.

There are other regulatory snafus. The CFTC can pursue frauds using so-called derivative investments like futures contracts. But trading in the spot market - that is, simply buying and selling currencies at current prices - is beyond its scope.

Even as scams spread, the CFTC's staff has shrunk. Its 106 employees in the enforcement division are down from 148 four years ago. The agency has fewer staffers today than at any time since its creation in 1974.

In a new effort to dial up enforcement, the CFTC has teamed up with the Justice Department and the FBI. Unlike the CFTC, those agencies are able to hit offenders with criminal charges.

Mr. Ward was one of their first big catches.

Mr. Ward's family, victims and former associates corroborate much of his story some elements aren't verifiable beyond his own word. But prosecutors and experts in fraud say Mr. Ward's case is characteristic of how boiler-room scams take shape and grow.

The classic recipe for a scam is simple: Find a market that is familiar to the armchair investor (say, real estate, or small-company stocks), but technically complex in some way. The scammer then plays the role of an expert.

Currency scams proliferated recently as the weakening U.S. dollar caught the eye of individual investors looking to profit from its fall.

ROOTS OF THE SCAM

Mr. Ward has the deep tan of someone who has spent his life in California's Central Valley. He claims his operation started as a legitimate business and became a fraud only after losses mounted.

"I had confidence I would make [the money] back anyway," he says.

Born in Modesto, California, Mr. Ward was a sharp student who graduated from high school a year early.

After job-hopping and working for his father's construction company, he ended up at an estate-planning firm in the late 1990s.

That got him interested in currency trading. "I didn't know how to break into it," he says, so in 1999 he took a weekend course. Over time, he gained expertise. Eventually, a school in Sacramento, California, called Learn:Forex, hired him to teach trading.

In 2001, he persuaded family and friends to give him US$250,000 to invest. That provided his first exposure to fraud, Mr. Ward says: He was scammed by someone else.

He had invested in Midland Euro, a currency fund based in Sherman Oaks, California, that later collapsed.

Eventually, a federal judge sentenced the head of Midland Euro to 20 years in prison.

"I was shocked," Mr. Ward recalls. "I had met the people, and they seemed like they knew what they were doing."

After that, he says, he decided to set up his own fund, instead of investing in other people's funds.

In March 2003, Mr. Ward launched the eponymous Joel Nathan Forex Fund. About a half-dozen investors put in a minimum of US$50,000 apiece.

In late 2004 he expanded his business by buying the school where he taught, Learn:Forex. He also began appearing at investing conventions in Las Vegas, New York and Chicago.

"He was on TV, on panels with important people," says Ms. Collett, then his mother-in-law.

By 2005, Mr. Ward was handling more than US$7 million of clients' money.

When Mr. Ward's business turned into a Ponzi scheme is a matter of dispute.

The U.S. attorney's office puts the date sometime in 2004.

Mr. Ward declines to discuss when he stopped being legitimate. He says only that he first dabbled in misappropriation after incurring an investment loss. Fearful it would hurt his reputation, he says, he faked some paperwork long enough to earn back the money.

'CONTROL OF EVERYTHING'

"I had control of everything," Mr. Ward says. "I was the trader. I controlled the reserves. I controlled the accounting. Midland Euro had the same problem. They didn't have any checks and balances."

Some successful trades quickly erased the losses. But he had crossed the line. He started dipping into the fund to pay for school expansion and to cover personal expenses.

"In my mind," he says, "I was borrowing money and would give it back."

In August 2006, Washington Mutual Bank contacted the U.S. attorney's office with suspicions about Mr. Ward's bank account, according to court documents. Christopher S. Fitzpatrick, a special agent for the Internal Revenue Service, found what looked like lulling payments - payouts designed to keep investors from getting suspicious - court documents show. This is a classic Ponzi manoeuvre: Small payments are made to longer-term investors, using money from new investors.

investigation started September 2006

The U.S. attorney's office started investigating in September 2006. It contacted the CFTC, which was already doing its own probe, having received an investor complaint.

Mr. Ward was starting to sweat. "Now we're talking about a full-blown Ponzi scheme," he says.

In November 2006, Mr. Ward says, he spent three days writing his diary confession. Around that time he also emailed his investors: "There are no funds left in JNF as all monies have been misappropriated," he wrote, referring to his Joel Nathan Fund.

A few weeks later, FBI agents searched the home where he was staying.

ADVANCED MATH

In February 2007, Mr. Ward laid out his restitution plan in another investor email.

"I believe I can average 20 per cent per month in earnings based on five per cent to 10 per cent risk factor," he wrote in the email.

"US$100,000 could turn into US$8 million in two years."

He was arrested in April.

Gene Myatt, a draftsman in Modesto who lost US$50,000, is another supporter of Mr. Ward's restitution plan.

"If Joel goes to prison, no investor will be cared for," he says.

Not all injured parties see it that way.

"He committed a crime, and he needs to pay for what he did," says David Rothell, a 36-year-old insurance broker in Bryan, Texas, who lost US$15,000.

One thing some victims still believe is that currency trading remains a lucrative trade. Oren Collett, Mr. Ward's former father-in-law, has been taking trading classes himself.

"I'm preparing to go live," he says.