Securities Fraud

Ex-Financial Adviser Dawn Bennett Faces SEC and Criminal Charges Over Alleged $20M Investor Fraud

Published on: August 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed charges against ex-financial adviser Dawn Bennett accusing her of bilking investors, making Ponzi-like payments, and spending clients’ funds on herself. According to the regulator, Bennett and her DJB Holdings LLC raised over $200M through the sale of notes issued to at least 46 investors by the luxury sports apparel company. Many of her victims were unsophisticated and older investors.

During the sales, Bennett allegedly claimed that the notes were safer than they actually were, as well as that her firm could pay yearly returns of up to 15%. Investors were purportedly told that their money would go toward company use but instead she paid back earlier investors in a Ponzi-like manner and used some of the funds to pay for her expenses. Meantime, contends the SEC’s complaint, Bennett hid the alleged fraud, lied to regulators, used sham promissory notes instead of actual convertible notes, and inflated her net worth.

Now, the Commission has charged Bennett and her company with violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The regulator wants disgorgement, interest, and penalties for the alleged senior financial fraud.

Securities Fraud: Ponzi Scammer Tim Duncan Must Pay $1. 3M, Former ArthroCare CEO is Convicted Again in $750M Scheme, & Former Summit Wealth Management CEO is Sentenced to Eight Years

Published on: August 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Federal Judge Orders Tim Durham to Pay $1. 3M in Securities Fraud Case

Five years after he was convicted of securities fraud, businessman Tim Durham has been ordered by a federal judge to pay $1.3M in the US Securities and Exchange Commission’s civil case against him. Durham bilked over 5,000 investors in his Ponzi Scam involving his company Fair Finance. He is serving 50 years behind bars.

The Commission had wanted the judge to order Durham to pay back over $200M in ill-gotten gains. Instead, Judge Jane Magnus-Stinson ordered him to pay a $130K penalty for each criminal conviction, of which there were 10. After Fair Finance shut down in 2009, its bankruptcy trustee repaid investors $18M.

Ex-ArthroCare CEO is Convicted in $750M Scam For a Second Time
Michael Baker, the ex-CEO of ArthroCare Corp., has been convicted once again in a $750M securities fraud. An earlier conviction for the same scheme was vacated last year by the 5th U.S. Circuit Court of Appeals.

NASAA Survey Finds That Number of Senior Financial Fraud Incidents is Growing

Published on: August 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A new survey conducted by the North American Securities Administrators Association found that there was been an increase in senior financial fraud incidents, with 97% of incidents going unreported until serious harm has occurred. The survey respondents, all state securities regulators, noted a 29% rise in complaints or cases involving older investors who were bilked or exploited.

The Pulse Survey took place between July 24 to August 4, 2017. Among other findings:

· Three-fourth of regulators that put into effect the Model Act to Protect Vulnerable Adults from Financial Exploitation were able to stop funds from going to fraudsters who had targeted older investors.

Investment Adviser Accused of Bilking Pro Athlete

Published on: August 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has brought investment adviser against Jeremy Joseph Drake. He is accused of bilking a known professional athlete and his wife, making about $900K in compensation in the process. At the time of the purported financial fraud, Drake worked with HCR Wealth Advisers.

According to the regulator’s complaint, the couple entrusted over $35M of their assets to Drake to manage. As their investment adviser, he owed them a judiciary obligation.

The investment adviser fraud allegedly went on for over three years, during which time he allegedly told the couple that they were receiving a .15 to .20% fee rate on assets under management when they were actually paying a 1% fee. As a result, the athlete and his wife ended up paying $1.2M more in management fees than what they were told they had paid.

FINRA Cases: Hallmark Investments is Expelled For Fraud and FSC Securities Must Pay $592K Over Exchange-Traded Fund Sales

Published on: August 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Investment Firm and Its CEO Are Expelled and Barred for Inflating the Price of Shares Before Selling Them

The Financial Industry Regulatory Authority has expelled Hallmark Investments and barred Steven G. Dash, who is the firm’s CEO, over a securities scam that involved selling stocks at inflated prices. According to the self-regulatory organization, Hallmark, Dash, and firm representative Stephen P. Zipkin used an outside broker-dealer and engaged in manipulative trading, as well as in trade confirmations that were misleading, to sell almost 40,000 shares of stock to 14 customers at prices that were fraudulently inflated. Zipkin has been suspended by FINRA for two years and he will have to pay over $18K in restitution.

Hallmark purportedly employed a trading scam to sell the Avalanche shares that they owned at $3/share. Meantime, the prices for Avalanche were selling at the public offering price of $2.05/share and Hallmark sold other Avalanche shares to other customers for as low as 80 cents/share. Also, the investment firm, Zipkin, and Dash failed to tell customers that Hallmark owned the shares they were buying or that it was marking up the transactions (or that the shares could be bought for less on the open market) even as it sold the shares to others at lower prices.

Ex-Investment Banker is Sentenced for Tribal Bond Fraud

Published on: August 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Jason Galanis, an ex-investment banker, who is already serving eleven years behind bars for stock rigging, has been sentenced to five years in prison for fraud involving a Native American tribal bond. He must forfeit over $43M and pay nearly $44M of restitution.

In the tribal bond scam, Galanis and his father John Galanis are accused of convincing Oglala Sioux Tribe affiliate Wakpamni Lake Community Corp. of issuing $60M in municipal bonds. The two of them and others then misappropriated the proceeds from the bonds, including $8.5M for Jason personally. Meantime, bond investors were left with worthless securities while the tribal corporation had no means of paying the interest payments that it owed on the bonds.

According to the prosecution, the bond scam bilked Galanis’ tribal bond clients and the investing public while “defrauding the Native American tribe into issuing bonds.” Galanis and his co-conspirators sold the bonds, which were illiquid, to pension funds, and stole the profits. Meantime, they allegedly hid conflicts of interest and the fact that the bonds were not liquid.

Ex-Hedge Fund Manager Martin Shkreli is Convicted of Securities Fraud

Published on: August 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A jury has found former pharmaceutical CEO and hedge fund manager Martin Shkreli guilty of securities fraud in connection with his two hedge funds, MSMB Capital and MSMB Healthcare, as well as of conspiracy to commit securities fraud involving shares of the drug company Retrophin, which he founded.

Prosecutors had said that Shkreli misled investors, losing their money on bad stock picks while scheming to try recover millions of dollars of these losses. At one point, Shkreli claimed he had $40M in one hedge fund when it had only $300 in the bank.

That said, prosecutors experienced some challenges in proving their criminal case against the ex-hedge fund manager. For example, during the trial, a number of rich Texan financiers admitted that Shkreli’s scam made them money, sometimes even double or triple of what they invested, when Retrophin’s stock went public.

Securities Fraud: Ex-Gerova Financial Head is Sentenced to Six Years, Black Elk Claims Reinsurer Aided Platinum Fund Scam, and Bank of Tokyo-Mitsubishi Is Accused of Spoofing

Published on: August 4, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Gerova Financial Group Head is Sentenced in $72M Fraud

Gary Hirst, the former president of Gerova Financial Group who was convicted of securities fraud and wire fraud last year, has been sentenced to six years behind bars. Hirst defrauded Gerova shareholders when he secretly gave away almost $72M of company stock to co-conspirators and himself.

He and his co-conspirators are accused of issuing huge quantities of stock and bilking stockholders and the investing public in order to earn millions of dollars in ill-gotten gains. Hirst and one of the co-conspirators, Jason Galanis, had gained enough control of Gerova that they could engage in transactions to enrich themselves and others even as they worked to conceal the scam.

Four Ex-Brokers Accused of Fraud that Allegedly Targeted Federal Retirees

Published on: July 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed charges against four former brokers for allegedly persuading federal employees to roll over holdings from federal retirement accounts into variable annuity products that charged higher fees. Their targets were Thrift Savings Plan (TSP) participants. The plan is administered by the Federal Retirement Thrift Investment Board, which is an independent government agency.

According to the regulator’s broker fraud case, then-brokers Jonathan Cooke, Christopher Laws, Brandon Long, and Danny Hoode promoted the VA products under the Federal Employee Benefits Counselors because they wanted the high commissions. Their alleged victims were federal employees who were 59 ½ years of age and older and with TSP account holdings that could be moved over into variable annuities, tax-free, in certain plans at annuity carriers.

Ex-Brokers Made High Commissions From the Alleged Elder Investor Fraud

SEC Cases: Charges Filed Against Massachusetts Man Accused of Misappropriating Investor Funds to Pay Rent of Fiancée’s Restaurants & $2M Offering Fraud Allegedly Targeted 70 Non-Accredited Investors

Published on: July 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Businessman Accused of Taking Investors’ Money That Was Supposed to Go Toward Fighting Cancer
In a complaint brought by the SEC, the regulator has filed securities fraud charges against Patrick Muraca, a Massachusetts businessmen, accusing him of misappropriating investments that were supposed to go toward helping to develop cancer diagnostic tests. Instead, Muraca, who raised almost $1.2M through MetaboRX LLC and NanoMolecularDX LLC, allegedly transferred $400K of these funds to pay the rent of his fiancées restaurant businesses as well as for other purchases.

Now, the regulator is charging Muraca and his companies with Securities Act of 1933, Section 17(a) violations and Securities Exchange Act of 1934 Section 10(b) and Rule 10b-5 violations. The SEC wants disgorgement of ill-gotten gains, interest, and penalties.

Meantime, prosecutors have brought related criminal charges against Muraca.