Securities Fraud

Securities Cases: Stephens Inc. to Pay $900K Fine, FINRA Bans Ex-Wells Fargo Broker, And Former State Street Executive is Accused of Charging Hidden Fees

Published on: June 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Files Fraud Charges Against Former State Street Executive
The U.S. Securities and Exchange Commission is filing fraud charges against ex-State Street Corp. (STT) executive Ross McClellan. According to the regulator, McLellan was one of a number of people who purposely charged hidden markups on certain transactions to customers, making the bank $20M in extra revenue.

Addressing the charges, McLellan’s lawyer claims that his client did not commit any securities law violations and that all banks charge client markups on bond transactions to make money. The attorney also noted that it was State Street and not the bank that profited from the charges.

The U.S. Department of Justice has charged McLellan with securities fraud, conspiracy, and wire fraud.

Ex-Wells Fargo Broker to Be Barred
Christopher John Pierce, a former Wells Fargo & Co. (WFC) broker, will be barred from working with any FINRA-registered firm and associating with any member of the self-regulatory organization. Pierce agreed to the bar after he was accused of stealing money from the accounts of banking customers.

SEC Files Fraud Charges in Native American Tribal Bonds Scam

Published on: May 13, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is charging John Galanis, his son Jason Galanis, and five other people with fraud involving a multimillion-dollar tribal bonds scam. The SEC claims that Jason ran the scheme to obtain a “source of discretionary liquidity.”

He and his father allegedly persuaded a Native American tribal corporation affiliated with the Wakpamni District of the Oglala Sioux Nation to put out limited recourse bonds that the two of them had structured. Jason then acquired two investment advisory firms and appointed officers to coordinate the purchase of $32 million in bonds. He used client money to purchase the bonds.

Investors were told that the bond proceeds would be invested in annuities to make enough money to pay back bondholders and to benefit the tribal corporation. Instead, the money went to a bank account owned by a company that Jason and his associates controlled. The funds were allegedly misappropriated to make luxury purchases and to pay lawyers representing Jason and his dad in a criminal case involving unrelated stock fraud charges.

The SEC wants disgorgement, interest, penalties, and permanent injunctions. Also named in the complaint are Devon Archer, Bevan Cooney, Hugh Dukerley, Gary Hirst, and Michelle Morton. They face charges of violating federal securities laws’ antifraud provisions and other rules.

Turing Pharmaceuticals Founder May Face More Securities Fraud Charges

Published on: May 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Martin Shkreli, the founder of Turing Pharmaceuticals AG, has asked a judge to wait before scheduling his criminal trial on charges of securities fraud. Shkreli, 33, says he may be subject to more charges.

He is accused of bilking investors of Retrophin Inc., which is a drug company that he also ran, and certain hedge funds. He allegedly used up to $11M of assets from that company to repay hedge fund investors who lost money.

Shkreli also is accused of lying to investors regarding the amount of money he oversaw and about his track record as a money manager. Now, Shkreli may face charges involving the distribution of stock in Retrophin, as well as a private placement deal that helped to finance the company. Also charged over the alleged securities scam is ex-corporate attorney Evan Greebel, who allegedly aided Shkreli with his scam and helped him hide the fraud.

NOVA Bank Executives Convicted Over Scam to Defraud Government of Over $13M

Published on: April 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-NOVA Bank CEO and president Brian Hartline and Barry Bekkedam, the bank’s former chairman, have been convicted of defrauding the government when trying to get over $13M in Troubled Asset Relief Program (TARP) funds.

By 2008, bad loans and investments had placed the bank at risk of failure. To try to save the bank, parent company NOVA Financial Holdings applied for about $13.5B in TARP funds. NOVA Bank then received approval for the money as long as it raises $15M from investors.

To make the bank appear more financially healthy, Hartline and Bekkedam made it seem as if outsiders were sending funds to NOVA Bank when, in truth, the bank was recycling its own cash. For example, Nova wired $5M to the account of a Florida businessman, who then wired the money to an account for investments in the parent company. In 2009, Hartline and Bekkedam persuaded two other people to make “investments” with the use of loans from the bank. They told employees to lie to the US Treasury Department about this new money.

Broker News: J.P. Morgan Firms to Pay $1M Fine, FINRA Bans Broker For Money Laundering, and Former Maine Broker Gets 3-Years in Prison for Fraud

Published on: April 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Two J.P. Morgan Firms Fined over Deficiencies
J.P. Morgan Securities and J.P. Morgan Clearing Corp. have been fined $775K and $250K respectively for several deficiencies. J.P. Morgan Securities is a broker-dealer of the bank JPMorgan Chase (JPM). .J.P. Morgan Clearing is the custodian, clearing, lending, and settlement arm of the bank. The fines were imposed by FINRA.

According to the self-regulatory organization, the firms committed a number of breaches that violated FINRA and SEC rules. The alleged violations by the brokerage firm mostly affect clients of J.P. Morgan Private Bank and JPMS Heritage Private Client Services, which are two JPMS Global Wealth Management businesses.

From 9/07 to 2014, JPMS purportedly did not send letters to clients confirming modifications to their investment goals within 30 days of the changes. JPMS also allegedly did not collect and check the outside brokerage account statements of nearly 2,000 representatives from ’12 – ’13. Morgan Clearing Corp. is accused of, from ’11-’13, not sending out yearly privacy notices to hundreds of thousands of account holders at the broker-dealers where it provides clearing and custody.

Broker Banned by FINRA for Money Laundering
The Financial Industry Regulatory Authority said that it is barring James Van Doren. The broker was sentenced to 15 months behind bars for a money laundering scam.

According to FINRA, Van Doren took part in unethical behavior by helping to make it possible for a childhood friend and business associate to avoid certain legal duties. The former broker invested in a number of real estate deals with the friend’s company and helped conceal assets when the company couldn’t fulfill its duties.

He also accepted $244K from the friend to hide the assets that his creditors were looking for. He eventually returned most of the funds to the friend while keeping some for financial losses he sustained.

Securities Fraud: Ex-SWS Financial Services Broker Faces Improper Trading Charges, Ex-Fox Commentator Settles Penny Stock Scam Case, and Former Investment Adviser Gets 7-Years in Prison

Published on: April 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Accuses Ex-Broker of Unsuitable Trading Involving Mutual Funds
David Randall Lockey, a former broker, is facing Financial Industry Regulatory Authority charges for allegedly engaging in improper trading of customer accounts while associated with SWS Financial Services Inc. He is no longer with that firm, now called the Hilltop Securities Independent Network. According to the regulator, Lockey took part in “unsuitable short-term trading and switching” involving unit investment trusts and mutual funds in four accounts between ’12 and ’14.

Lockey purportedly made about $75,730 for himself and the firm while engaging in improper trading. Meantime, three of the four customers whose accounts he used sustained losses of $15,699. The fourth customer made a gain of almost $5,000.

FINRA said Lockey has not been registered with any broker-dealer since 2014.

Ex-TV Commentator Settles Penny Stock Fraud Charges with the SEC
The U.S. Securities and Exchange Commission is charging former FOX commentator Tobin Smith with fraud. According to the regulator, Smith, who is also a market analyst, and his NBT Group fraudulently promoted a penny stock to investors.

The SEC said that both Smith and his firm received payments to prepare and distribute e-mails, articles, blogs, and other communication promoting IceWEB Inc. stock. They purportedly failed to fully disclose they were receiving the compensation.

The investors were not made aware of that part of what Smith and NBT were paid was linked to a sustained rise in the data storage company’s share price. The Commission said that marketing materials the investors received included misleading and false statements put there to artificially up the share price and trading volume of IceWEB stock. For example, payment for promotional efforts was $300K and IceWEB stock. NBT could also make over $250K if marketing campaigns proved successful.

California Venture Capitalist to Disgorge $4.875M to Settle Institutional Investor Fraud Charges

Published on: April 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The SEC and G. Steven Burrill have reached an agreement to settle charges accusing the biotech venture capitalist of taking money from a fund overseen by his firm to pay for his expensive lifestyle and help support his other businesses. Burrill is accused of hiding from investors that he siphoned money from Burrill Life Sciences Capital Fund III while claiming that the cash was going toward management fees. In truth, claims the regulator, Burrill used the money to pay for private jets, lavish vacations, gifts, and other items. The investors of the fund include public companies, state pension funds, and others.

Burrill and his Burrill Capital Management have consented to disgorge $4.785M that he is accused of stealing plus pay a $1M penalty. He also will be barred from the securities industry. Commenting on the case, SEC Enforcement Division Director Andrew J. Ceresney said that despite having registration exemption, Burrill and other venture capital advisers have a fiduciary obligation to clients. Ceresney accused Burrill of prioritizing his own interests over that of his clients.

Also settling SEC charges are Burrill Capital Management controller Helena C. Sen and chief legal officer Victor A. Hebert. Hebert is accused of agreeing to call in more money from fund investors even while knowing that the cash would be spent on unrelated expenses. Sen is accused of, along with Burrill, at least twice delaying payment distributions that fund investors were owed so that Burrill’s personal spending and the salaries of Sen and Hebert would continue to be paid. It was in 2013 that the fund’s Investment Committee noticed that all of the capital that had been committed was already spent.

Two Ex-State Street Executives Face Criminal Charges Involving Institutional Investor Fraud

Published on: April 5, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Federal prosecutors are charging Ross McClellan and Edward Pennings with securities fraud and wire fraud. McLellan was formerly with State Street Corp.’s (STT) brokerage firm unit in the US and Pennings worked for the bank in London. According to the government, the two men secretly charged six clients excess commissions for billions of dollars of securities trades. The clients included government pension funds in Britain and Ireland and a sovereign-wealth fund in the Middle East.

The two former State Street executives allegedly charged clients the trading commissions in addition to the fees that the latter had already agreed to pay and even though they specifically were not supposed to charge them commissions. The men purportedly ran their scam from 2/10 through 9/11, allegedly making millions of dollars in the process.

Although State Street wasn’t officially named in the criminal indictment, The Wall Street Journal reports that the firm’s senior vice president, Carolyn Cichon, verified that two of the bank’s former employees were involved in the matter. It was in 2014 that the U.K. Financial Conduct Authority fined State Street’s unit in that country $32.4M for charging clients $20.2M in excess commissions.

Unregistered Investment Adviser Accused of $53M Ponzi Scam Involving Pre-IPO Companies

Published on: March 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

New Jersey adviser John Bivona is facing U.S. Securities and Exchange Commission charges accusing him of raising over $53M from investors in a Ponzi-like scam that involved the selling of investments in pre-IPO tech companies. However, contends the SEC, instead of investing the funds as intended, he used investor money to pay taxes, legal fees, a car loan, a vacation house mortgages, and cover his nephew’s credit card bills.

The regulator, in its complaint, said Bivona funneled millions of dollars into earlier funds that he and his company managed, while at least $5.7M went to family members, including nephew Frank Mazzola, who also is dealing with SEC charges for a previous investment scam.

The Commission alleges that Bivona raised the money through Saddle River Advisors, which has not registered with the regulator since 2013, and SRA Management. Because he purportedly took the money for his own spending, to pay family bills, and keep different funds running, his firms often never had enough money to buy the shares investors had been promised.

The SEC believes that Bivona was able to keep his Ponzi scam going because he kept transferring funds between over a dozen bank accounts associated with a number of entities. Meantime, investors never received financial statements they were promised.

In its press release announcing the charges, the SEC linked to one of its bulletins that identifies the possible warnings signs that the unregistered offering you are thinking of investing in may be a scam. The Commission noted that unregistered securities are

SEC Charges New York Man With $95M Institutional Investor Fraud

Published on: March 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is charging Andrew W.W. Caspersen and shell entity Irving Place III SPV, LLC with defrauding two institutional investors, including a non-profit charitable affiliate of an investment limited partnership. Caspersen is a securities professional associated with a registered brokerage firm. He also is one of the sons of deceased financier Finn Caspersen. According to the SEC, Caspersen offered the two clients promissory notes that were issued by the shell entity, which he controlled. However, Irving Place III SPV, LLC lacked any business operations that were legitimate.

The regulator contends that the New York securities professional obtained $25M from an institutional client last November by falsely representing that about $900 million of Irving Place III SPV’s assets would be securing the investment. According to USA Today, Caspersen told the investor, which was a charitable foundation, that he wanted to invest in an $80M credit facility that he said his firm had established to facilitate investments in the secondary market for private equities.

The promissory note promised 15% yearly interest that was payable quarterly. The note was supposed to be totally redeemable within 90 days upon notice. After receiving the money, Caspersen allegedly took the money for his own use. He later used similar misleading and false statements to solicit another $20M from that investor and $50M from a NY private equity firm. This was after purportedly losing most of the $25M through high-risk options trading. Both times he was unsuccessful in obtaining the founds. In fact, the charitable foundation became suspicious and demanded that he return the $25M, which has yet to happen.