Former commodities trader charged in multimillion-dollar fraud scheme

Federal prosecutors in New Jersey charged a Chicago man for orchestrating a sophisticated scheme that bilked victims out of more than $3.7 million.

Phillip Galles, 57, faces charges of wire fraud and commodities fraud, according to an indictment filed on Friday, February 16, 2024. The indictment alleges that Galles, a former commodities trader, engaged in a fraudulent scheme under the guise of his purported investment company, Tyche Asset Management, based in Chicago.

U.S. Attorney Philip R. Sellinger said, “Phillip Galles defrauded multiple victims by falsely posing as a successful hedge fund manager who would invest their money in commodity futures through his Chicago-based investment company Tyche Asset Management,” Sellinger stated. “In reality, Galles made virtually no real investments, spent time working as a dog walker and not a fund manager, and misappropriated over $3.7 million in victims’ money.”

The fake billionaire falsely told clients he owned a collection of 122 luxury cars and Picasso paintings and claimed ‘the a well-known owner of a professional sports team’ and a Kuwaiti sovereign-wealth fund wanted to invest in his fund.

According to court documents and statements made by prosecutors, Galles enticed investors by fabricating Tyche’s track record, claiming astronomical annual returns exceeding 100 percent through proprietary trading strategies.

However, investigations revealed that Tyche had made virtually no legitimate investments in commodity futures. Instead, Galles operated the company akin to a Ponzi scheme, using funds from new investors to repay earlier investors and finance personal expenses.

The indictment outlines instances where Galles misled potential investors, including meetings with an undercover agent in New Jersey posing as an investment manager.

During these encounters, Galles spun a web of lies, falsely boasting of Tyche’s purported success, inflating its assets under management, and fabricating endorsements from prominent entities.

These fabrications extended to Galles’ background, where he falsely claimed prestigious educational credentials.

In total, Galles is accused of defrauding more than a dozen victims of over $3.7 million. The charges he faces carry a maximum penalty of 20 years in prison and a fine of $250,000, or twice the gross gain or loss involved in the offense, whichever is greater.

The investigation leading to Galles’ indictment was credited to special agents of the U.S. Attorney’s Office, under the direction of Special Agent in Charge Thomas Mahoney in Newark, along with postal inspectors of the U.S. Postal Inspection Service in Newark, led by Postal Inspector in Charge Christopher A. Nielsen, Philadelphia Division.

The Commodity Futures Trading Commission and the National Futures Association were also acknowledged for their assistance in the case.

When one alleged victim, a Texas mortgage professional, sent Galles a $100,000 investment, the alleged conman transferred $19,300 for a personal credit card bill, $14,800 to a jewelry store, $10,000 to an earlier investor, $9,000 to a mattress store, $6,000 to a luxury car rental company and $3,200 to his girlfriend, filings say.

Another victim tried to recoup her $190,000 investment, but Galles told her ‘among other things, that he had switched banks, Tyche had been the victim of fraud, banks and wire payments were not working properly, and he was ill,’ the government says.

The Commodity Futures Trading Commission announced on November 15, 2023, that the U.S. District Court for the Northern District of Illinois entered an order of final judgment against Galles and the various Tyche entities he controlled: Tyche Asset Management LLC, Tyche Master Fund Ltd, Tyche Asset Trade LLC, Tyche Offshore Fund Ltd., Tyche Onshore Fund LP, Tyche PML Master Fund Ltd., Tyche PML Onshore Fund LP, Tyche Onshore Fund GP LLC, and Tyche Asset Trade LLC.

The order resolves the CFTC’s May 2023 action against Galles and the Tyche entities, finding them liable for fraudulently soliciting investments in a purported commodity pool, misappropriating pool participants’ funds; violating CFTC regulations governing the proper operation of commodity pools; and making false and misleading statements to the National Futures Association (NFA), a registered futures association, which is responsible for certain aspects of the regulation of futures and derivatives entities under the Commodity Exchange Act (CEA).

The order required Galles and the Tyche entities to pay $5,327,173 in restitution plus a $15,981,519 penalty. The order also imposes a permanent injunction against Galles and the Tyche entities, barring them from, among other actions, trading on CFTC-regulated markets and from engaging in conduct in violation of the CEA as alleged in the complaint.

Galles falsely claimed to be a managed futures hedge-fund magnate with billions of dollars under management at Tyche Asset Management LLC and its affiliated entities.

Galles claimed Tyche achieved extraordinary rates of return of more than 200% annually in recent years using sophisticated technology and strategies to trade commodity futures and options on CFTC-regulated markets.

However, Galles misappropriated participant funds and operated a Ponzi scheme.

Tyche used very little participant funds to place trades, and instead, Galles used the money to fund his lavish lifestyle and to promote his fabricated image as a hedge fund tycoon.

The November order said Galles and his companies defrauded 65 people who suffered $5,327,173 in losses.

The order also said that Galles lied in filings certifying Tyche was not actively soliciting or accepting funds from customers. In April 2023, Galles repeated the same lies to NFA examiners when they asked him about Tyche’s operations.

The CFTC cautions that orders requiring repayment of funds to victims may not always result in the recovery of lost money because the wrongdoers may not have sufficient funds or assets.