Securities Fraud

SEC Accuses Ex-COO of Penny Stock Fraud

Published on: June 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has brought penny stock fraud charges against Diana P. Lovera, the ex-COO of Oxford City Football Club, Inc. Lovera faced criminal charges in a parallel case and she has already pleaded guilty to conspiracy to commit mail fraud and wire fraud.

According to the SEC’s Complaint, from about 7/2013 to 7/2015, Lovera and others at the penny stock company used a boiler room and exercised pressure tactics to raise about $6.6M from over 150 investors. They sold millions of unregistered Oxford City stock shares. Many of the investors involved were unaccredited.

The regulator is accusing Lovera of making misstatements about Oxford City’s assets, potential for profit, business plan, and management composition. She also allegedly falsely told potential investors that they could “lock in” a reduced share price by using Oxford City’s voice verification “system.” She touted the system as having the ability to link the personal information of investors to an SEC filing.

Jury Selection Underway in Securities Fraud Case Against Ex-Hedge Fund Manager and Pharmaceutical CEO Martin Shkreli

Published on: June 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

At the Federal District Court in Brooklyn, former hedge fund manager Martin Shkreli is on trial for multiple counts of securities fraud and wire fraud. Just this Monday, over 120 potential jurors were dismissed for various reasons. A number of them, through their statements, revealed that they could not be impartial, with some blaming Shkreli for problems involving the pharmaceutical industry, including that his actions had directly impacted them and/or their loved ones.

For example, one potential juror said that both of his parents now struggle to pay for their daily medical care after Shkreli raised the price of Daraprim from $13.50/pill to $750/pill overnight. The drug is used to treat parasites and has also been used for babies and AIDS patients suffering from infection. At the time of the price hike, Shkreli was running Turing Pharmaceuticals.

This criminal securities fraud case, however, is not about his time at Turing. Shkreli is accused of using the assets of Retrophin, a biotech company, in a Ponzi-like fraud when he was its CEO and of robbing investors of over $11M.

US DOJ Sues for Assets That May Have Been Stolen from 1MDB Fund

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

Prosecutors in the US have filed lawsuits to seize assets that may be connected to an alleged financial fraud involving the 1Malaysia Development Bhd. (1MDB), which is a Malaysian state fund. The Justice Department is looking to recover $540M in property, assets, and other items. 1MDB was launched by Malaysian Prime Minister Najib Razak to help economic growth. The fund borrowed over $13B with little result to date.

It was in 2013 that The Wall Street Journal reported that almost $700M from the 1MDB fund, which was heavily in debt,had been moved to Prime Minister Najib’s personal bank account. Najib and 1MDB have denied wrongdoing and authorities in Malaysia have cleared him in their probe, which it has since closed.

The US government, however, claims that investors were bilked of billions of dollars in the financial fraud. Investigations into the alleged multi-billion dollar fraud are also ongoing in a number of countries, including Singapore, Luxembourg, and United Arab Emirates.

Investor Fraud: Massachusetts Adviser Sentenced in Cherry Picking Scam, Jury Convicts Indiana Man Accused of Bilking 22 Clients, Lawyer Accused of Bilking EB-5 Immigrant Program Investors, and Fake Fund Manager Will Go to Prison

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

Investment Advisory Firm Founder Gets 2-Year Prison Term, Will Pay $1.3M for Fraud
Michael J. Breton, a Massachusetts investment adviser, has been sentenced to two years behind bars for running a cherry picking scam that allowed him to bilk clients. Breton, the founder of Strategic Capital Management, admitted to keeping profitable trades for himself while making unprofitable ones for customers. Breton has been ordered to pay them $1.3M in restitution.

The cherry picking scheme went on for six years, bilking 30 investors. According to regulators and prosecutors, when certain companies were slated to announce earnings announcements, Breton would purchase securities through a master account or via block trading. When the earnings news would raise a stock’s price, Breton would keep the trades. When an earnings announcement would cause a stock’s price to go down,
he would disburse these trades to clients.

Jury Convicts Indiana Investment Advisor of Securities Fraud
This week in Pittsburgh, a jury convicted Bernard Parker of mail fraud, securities fraud, and of filing false tax returns. Parker, who was the principal of Parker Financial Services, is accused of bilking 22 clients of over $1.2M and falsifying his US tax returns by not including over $790K in income.

UK Files Criminal Charges Against Barclays With Fraud Involving Qatari Investors

Published on: June 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The United Kingdom’s Serious Fraud Office has charged Barclays (BARC) and four of its ex-executives with criminal fraud involving money used to rescue the bank during the height of the 2008 financial crisis. The government has been investigating the ways in which Barclays sought out Qatari investors to help it stay afloat during that time so that the bank wouldn’t need a bailout. Barclays is also under investigation in the US by the Securities and Exchange Commission and the Department of Justice over payments that Barclays made to Middle Eastern officials.

During two emergency cash calls in 2008, investors put in $15B total, with Barclays stating in filings that it paid £322 million in “advisory services” to them. Shareholders were at first not apprised of this agreement between the bank and Qatari investors. Also, in 2008, Barclays issued a $3B loan facility to Qatar.

In the UK, it is against the law for a company to give money to a party in exchange for the latter’s purchase of company shares. Barclays has denied that the $3B loan was for the purchase of shares by investors. It also has argued that payments it received for advisory services were for actual business purposes. However, the Serious Fraud Office is alleging that the $3B loan to Qatar just weeks after getting funding from investors could be considered a fraudulent capital increase in a scam by Barclays to lend itself funds.

Market Rigging: NJ Stock Promoters Face SEC Charges, Another Pleads Guilty to Criminal Charges, and Engineer is Accused of Manipulating Fitbit’s Stock

Published on: June 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Stock Promoters Accused in Pump-and-Dump Scam
The US Securities and Exchange Commission has filed fraud charges against James M. Farinella, his Integrated Capital Partners Inc., Anthony Amado, and his Equity Awareness Group with fraud over the alleged inflation and manipulation of a microcap company’s share price. As a result of the alleged pump-and-dump scam, the fraud made over $1M.

According to the regulator, Farinella and his consulting firm controlled almost the whole public float of stock in Pazoo Inc. Farinella paid Amado’s company to promote the microcap issuer and take part in matched trading to make it appear as if there was market activity for the stock. Amado and one of his employees, Carlo Palomino, are accused of enacting the scam, which allowed Farinella to make over $1M when dumping the Pazoo shares.

New Jersey prosecutors have filed criminal charges against Farinella over the microcap fraud allegations.

Securities Fraud: Ex-American Reality Capital Properties CFO is On Trial, Abu Dhabi Investor’s Lawsuit Against Citibank is Revived, and Drivers File Class Action Case Against Juno

Published on: June 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former REIT CFO’s Criminal Trial is Under Way
Brian Block, the ex-American Realty Capital Properties CFO, is on trial over his alleged involvement in accounting errors that led to the former Nicholas Schorsch-controlled real estate investment trust’s release of inaccurate financial statements during the first two quarters of 2014. As a result of the inaccuracies, ARCP overstated its adjusted funds from operations (AFFO) by about $12M for the end of that first quarter and by about $10.9M for the second quarter while understating its net losses.

This week, Lisa McAlister, a key witness and ARCP’s ex-chief accounting officer gave testimony. She suggested that Schorsch, the REIT’s CEO and chairman at the time, instructed Block on how to distort the number in the books. Block was McAlister’s boss at ARCP.

McAlister said that she was in the room when Schorsch advised Block on how to hide the fraudulent accounting. McAlister said that Schorsch, who has not been charged with wrongdoing in the accounting mistakes, was instructing Block on how to compensate for a 3-cent shortfall in ARCP’s targeted AFFO/share by fudging a certain line item.

McAlister has already pleaded guilty to fraud charges over ARCP’s accounting irregularities.

$70M Ponzi Scam Leads to 5-Year Prison Term for Texas Man Who Bilked Christian Investors in Affinity Fraud

Published on: June 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Stephen J. Hatch, the mastermind of a $70M Arizona Ponzi scam, has been sentenced to five years in prison. Hatch, who pleaded guilty to fraud, targeted Christian investors, causing many of them to lose their life savings.

As part of his plea deal, the Texas man agreed to pay back $1M to investors. Meantime, prosecutors agreed to not file criminal charges against Hatch’s children.

Many of his victims were family members and friends. Hatch persuaded 110 investors to back various real estate properties by promising double digit returns on land deals.

Jury Finds One Former Nomura Trader Guilty, Acquits Another in RMBS Fraud Case

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

A jury has found Michael Gramins guilty of conspiracy to lie about mortgage bond prices. Gramins was one of three ex-Nomura (NMR) residential mortgage-backed securities traders charged with fraud and accused of defrauding clients of millions of dollars.

Aside from the guilty RMBS fraud verdict for conspiracy, Gramins was found not guilty of six fraud counts. The jury did not arrive at a verdict on two other charges against him.

Meantime, ex-Nomura trader Tyler Peters was acquitted on all of the criminal fraud charges against him. Although jurors cleared former Nomura trader Ross Shapiro of eight fraud counts, they were unable to arrive at a verdict regarding one conspiracy count against him. It wll be up to prosecutors to decide whether they want to retry Gramins and Shapiro on the counts that were not resolved.

Institutional Investor is Lead Plaintiff In Securities Case Claiming $300M in Shareholder Losses

Published on: June 12, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Arkansas Teacher Retirement System is now the lead plaintiff in the class action securities fraud case against Babcock & Wilcox Enterprises. The energy company is accused of hiding significant losses. When Babcock & Wilcox finally disclosed that it was having problems, shareholders lost $300M after the stock price fell.

Prior to that disclosure, the company had admitted to losses involving just one plant that it was constructing in Europe. However, last February 28, the company disclosed that the losses had impacted other projects.

The class action securities case alleges misrepresentation and fraud. It names Babcock & Wilcox, CFO Jenny Apker, and CEO Jim Ferland as defendants. The plaintiffs are accusing them of involvement in a scam to fool the market while engaging in conduct to artificially raise the company’s share price through the concealment of issues in its waste-to-energy business. Business Journal reports that investors are referring to B & W’s eventual admission that up to seven of its projects in Europe had collectively suffered $140M in losses last year.