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Date: May 3, 1996

Location: West Windsor

Title: The Silent Growth and Sudden Death of Sigma and The Savid Group

Author: Mukul Pandya

Subject: A federal lawsuit charges a high-flying futures and derivatives trader with fraud.

The day before Chuck Kohli, president of Sigma, a currency futures and derivatives trading firm in WestWindsor, closed his company, he behaved oddly. Normally a cocky, flamboyant man, on April 11 he had trouble looking people in the eye. Four clients came around noon to see the 34-year-old executive and his partner, N. Ramchandran, 47, in Sigma”s plush offices of Sigma. The investors wanted to withdraw money from their accounts. Kohli promised to pay them the next day, but he would not meet their gaze.

Ramchandran, too, looked tense that afternoon. An investor asked about his daughter, who had just been accepted to a prestigious school, but Ramchandran seemed unexcited. Another customer had brought along a garland made of currency notes picked up during a recent trip to India. He asked Kohli: “Is our money safe? I can”t give you this unless you tell me it is.” Everything”s fine, Kohli replied. So the man hung the wreath of blue-and-green rupee notes around Kohli”s neck. “He looked like a young prince,” recalls an onlooker.

The same day, Kevin Hart, a lawyer at Stark & Stark in Lawrence, who represents Sigma, called the Commodity Futures Trading Commission, which oversees the activities of futures markets. Hart asked federal regulators to come to Sigma”s offices the next day. CFTC officials already had their eye on the company. They had been tipped off a few days earlier by a journalist who suspected Sigma was running a scam.

On April 12, federal agents descended on the offices of Sigma and its associate companies, including The Savid Group, Vol Partners, L.P., and Geronimo, Inc. In the presence of Stark & Stark lawyers, CFTC officials seized Sigma”s financial documents. Soon the company was closed. Kohli, too, was nowhere to be found. “We felt lost and violated,” says a distraught customer. As the numbing shock wore off, it was replaced by embarrassment and then outrage. “I feel like the village idiot,” storms an executive. A teacher feared she had lost $400,000 (BUSINESS, April 19).

Events have moved swiftly during the past two weeks, and more information has come to light about Sigma and its principals. Before the company closed down, it claimed to be managing more than $265 million for clients. Some 125 people-some of whom had invested around $2,500 while others ponied up as much as $8 million-invested in Sigma”s portfolios which claimed annual returns of up to 106%. After Sigma”s shutdown, clients have been clamoring to learn the fate of their investments.

Meanwhile, the CFTC has acted-and fast. On April 17, the agency sued Sigma, Kohli and Ramchandran in federal court in Trenton, accusing them of cheating their customers. Sigma should have had $68 million in assets, according to reports that were distributed to clients in February. Instead, the company has $840,397: $223,000 in the bank and $617,397 in other accounts. “Kohli and Ramchandran were making representations to clients that were not true,” says Dennis Klejna, director of enforcement in the CFTC”s Washington office. “That”s fraud.” The lawsuit also says traders who deal in currency futures must be registered with the National Futures Association, an industry organization. Neither Sigma, Kohli nor Ramchandran have ever been registered with the association.

The big question that investigators and investors are now asking is: where did all those millions of dollars go? Did Kohli gamble the cash away on bad bets on currency movements? Did he or his associates steal it in an elaborate Ponzi scheme? If the money was stolen, is it still in the country or has it been transferred to a so-called safe haven? Kohli, who knows the answers, has said nothing so far-nor has his Washington lawyer, Burton Finkelstein. Ramchandran”s lawyer, Michael Himmel of Greenbaum, Rowe, Smith in Woodbridge, claims his client is innocent. “Ramchandran was not a trader,” he says. “He was just the computer guy. We don”t know if there were any improprieties, but if there were, Ramchandran did not commit them.”

The truth should emerge over the coming months as the federal case moves forward. As a step in that direction, Judge Anne Thompson-who has frozen the assets of Sigma, Kohli and Ramchandran-has named John Manley, a partner in the Parsippany office of the accounting firm Deloitte & Touche, to be the receiver. Manley on April 27 took charge of Sigma”s offices. Over the coming weeks, he will pore through the company”s records and begin liquidating its assets. Manley will also look into distributing whatever money is left among the investors, according to the court”s direction.

Meanwhile, Szaferman, Lakind, Blumstein, Watter & Blader, a law firm in Lawrence, is trying to bring investors together to become part of the federal case. Scott Borsack, a lawyer with the firm, sued Sigma on behalf of one client-Alfonse and Sandra Dello Russo and Dello Russo Investment Group L.P.-in state court, but with the filing of the federal case, this litigation has been halted. Borsack is now collecting information about Sigma”s clients. The law firm has also set up a Sigma Hot Line-it got 30 phone calls an hour in the days after the closure. Borsack has been in contact with some 113 investors from Maine to California and New York to Florida. “So far, investors are not a party to the federal action,” Borsack says. “Our next step will be to get a seat at the table in the federal court.” The clients he has spoken to so far have invested at least $45 million.

How could Sigma, which did not advertise and sought clients mainly through word of mouth, attract such massive sums? After all, many investors were hardly novices. They included college professors, accountants and real estate executives, and they gave Kohli and Ramchandran hundreds of thousands of dollars.

The reason was that many customers understood little of what Sigma was doing. The company”s promotional literature, published in October 1994, says Sigma offered clients a choice of six portfolios. The currency derivative portfolio, for example, was “an aggressively managed currency arbitrage portfolio designed to offer participation in the foreign exchange currency market through options on individual currencies.” Sigma bragged that it had an “average five-year return of 106%.”

Kohli and Ramchandran claimed similar success for other portfolios. Month after month, customers saw statements that reflected gains of 7% to 9%. If anyone wanted to withdraw money, he gave Sigma a month”s notice and got his cash out. Certified financial statements, or more detailed trading records, however, were another matter. If anyone asked for those, Sigma would clam up. Some investors long demanded audited statements without ever receiving them. Sigma did not single out clients for such secretive behavior. A broker who wanted to negotiate a lease for Sigma gave up when the company refused to give financial information to its potential landlord.

If such furtiveness prompted doubts, however, these were soon quelled by Sigma”s high-rolling style. Its lavish office had a trading floor where traders worked 24 hours a day. Visitors saw a high-tech room fitted out with computers where trades scrolled ceaselessly across screens. Sigma executives were also extravagant. Kohli, for instance, traveled only by limousine. The company had a reputation for partying hard. “I once saw Sigma traders at a bar at 1:00 a.m.,” says a local professional. “One was so drunk, he did not recognize me though he knew me. I heard two traders bragging that they did not own apartments.” This Bonfire of the Vanities image helped attract more investors to Sigma.

Among them was Dennis Leonardi, a 43-year-old accountant from Staten Island. In a declaration filed in the federal court, Leonardi says he heard about Sigma in 1992 from a client who claimed to have earned an annual return of more than 100%. Soon Leonardi was introduced to Kohli and Ramchandran. During the first meeting, Kohli told Leonardi that he was “the brains, the genius of the operation.” Kohli also assured him that investing in Sigma was risk-free, because only 20% of the funds would be used for trading. The rest would be kept at various clearing houses. In addition, Kohli gave Leonardi a videotape titled Decade of the Derivatives, which showed him teaching trading strategy in a state college. Leonardi invested in Sigma in 1993. As his returns appeared to mount, he added investments from his retirement and pension accounts, his wife”s money, funds from his children”s college accounts as well as cash from other family members.

Inspiring such confidence took more than just the promise of high returns and a shiny corporate image. A crucial factor was the men behind Sigma. Though both Kohli and Ramchandran have roots in India, both have very different backgrounds. Kohli came to the U.S. from India as a child, the eldest son among three children. His father moved to Princeton in the 1960s, eventually becoming a senior executive in a Central New Jersey company. Friends remember him as a “hard-drinking, bridge-playing man.” Kohli”s mother, a gracious, soft-spoken woman, is said to be related to a royal family in Northern India. “The family resembled characters in a Merchant-Ivory film,” says an acquaintance. Young Chuck-short for Chuckles-went to Princeton Day School and then to Princeton High. As Kohli grew up, however, traumatic events occurred. His father left his company amid rumors of unpaid debts, and eventually moved back to India, leaving the family behind in New Jersey. The Kohli household was suddenly plunged into dire straits. The tragedy deepened when Kohli”s father died in a car accident near New Delhi.

Kohli, meanwhile, studied briefly at Columbia University and later worked on Wall Street in the 1980s at Citicorp. By 1985, he launched Sigma and The Savid Group. In Sigma”s promotional literature, Kohli claimed he was “an economist by training with a degree from Columbia.” This was untrue; he did not graduate from the school. Meanwhile, however, things seemed to be settling down on the family front. Two years before starting Sigma, he married Kymberly, whom friends describe as a self-effacing woman. “They were an odd couple,” observes a friend. “He was Teflon-smooth, very flashy, and smoked Russian cigarettes,” says a friend. “She was almost faceless, not a high-roller at all. They hung out with some strange people. One friend was a minor pop singer.” The couple bought a home in Lawrenceville. The broker who helped negotiate the deal was Linda Ramchandran.

Ramchandran studied engineering at Stanford and later did his MBA at Babson. He worked for Digital Equipment, and later for PA Management Consultants and for Price Waterhouse. By the early 1990s, he was running his own company, Paradigm Strategy, from his home in Lawrence. Ramchandran was ready, though, for a bigger challenge. That was when Sigma beckoned.

Ramchandran first designed software for Sigma”s trading. Soon, however, he joined Sigma full-time and by 1992 he had become a principal of the company. The two men presented a contrast of styles. While Kohli was young, flamboyant and aggressive, Ramchandran was older, measured and soft-spoken. Investors who were wary of one grew comfortable with the other. As word of Sigma”s successes spread, clients heard the same message over and over from Kohli and Ramchandran: that only 20% of the money was used for trading. “Chuck and Ramchandran told us that the likely maximum loss in any month would be 3% to 4%,” says a customer. “If they lost money in two consecutive months, they said they would stop trading. That was their song.”

By 1993, Sigma was growing rapidly but Kohli”s home life began to crack. The couple bought a home in Florida and Kymberly moved there with their two children. She complained about Chuck”s violent rages. In divorce documents filed in Florida Kymberly accused her husband of destroying office equipment and even hitting her, though Kohli denies this. Kohli”s marriage broke up in March. According to The Times of Trenton, he agreed to a settlement of more than $1 million, with $600,000 in cash and a monthly alimony of $20,000.

In March, while Kohli struggled with his divorce, investors were getting restless to withdraw money as the tax deadline loomed. Sigma said the March returns were delayed, but then announced a new product whose returns would be four-to-one. Unsuspecting clients like Leonardi sent in $500,000 more. In March alone, Sigma raised $4.7 million.

In early April, Stark & Stark hired David Smith, an accountant with Amper, Politziner & Mattia in Flemington, to prepare March investor statements for Sigma”s clients. The reason is unclear. Kohli”s massive divorce settlement may have forced the issue. On April 3, Smith started going through Sigma”s databases. He found that instead of having $68 million, the company had just over $800,000. After that, it was just a matter of time before the CFTC was called in and Sigma was closed down.

So where did the money go? One possibility is that Kohli may have lost it in misguided investments, much like the Barings trader who brought down the British investment bank. Many, however, don”t buy that. The CFTC and other federal agencies are looking for signs of theft, and if they find it, a new, criminal dimension could be added to the civil lawsuit. One of Kohli”s former friends blames the Sigma tragedy on Kohli”s excessive hubris. “Chuck thought he was Icarus,” the friend says. “He believed he could fly.” Now, however, his wings seem to have melted. u