Investor Lawyers Blog

BitFunder and Its Founder Face Fraud Allegations

Published on: February 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed fraud charges against BitFunder and its founder John E. Montroll. According to the regulator, both of them ran an unregistered securities exchange and committed fraud against those who used the exchange by misappropriating bitcoins and not disclosing a cyberattack in which more than $6,000 bitcoins, worth about $775K, was stolen.

Montroll is accused of selling purported investments that were actually unregistered securities and then misappropriating money from the investments. The offerings were “shares” of “Ukyo.Loan,” also known as “Ukyo Notes.” Buyers were told that money from the sales would go toward private investments and he promised them a .05% daily interest rate.

Instead, Montroll allegedly used some of the proceeds to cover his business and personal expenses and to “replenish” the bitcoins he is accused of misappropriating from an earlier offering. Also, after the cyberattack, Montroll allegedly made it appear as if BitFunder was profitable even though it had a bitcoin deficit.

Texas Securities Cases: Two Dallas Men Ordered to Halt $4M Oil and Gas Offering Amidst Fraud Allegations, DavorCoin is Barred from Offering investments, and Austin Cryptocurrency Investment Firm is Told to Stops Securities Sales

Published on: February 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

State Regulator Orders Cessation of $4M Oil and Gas Offering

In an Emergency Cease and Desist Order, the Texas Securities Commissioner has ordered Parker R. Hallam and Jason A. Gilbert, two Dallas residents, to stop their efforts to raise $4.4M in an oil and gas offering. The two men are accused of fraud allegations.

Hallam and Gilbert have been offering investors interest in a well project that would be based in Kansas. They reportedly intend to take $1M of investor funds as a management fee payment to SourceRock Energy Phoenix Prospect LP, which is the company that they do business as. Meantime, the rest of the funds would go toward leasing and building the well field. The two men have not, however, told investors that drilling costs are estimated to be at just around $750K.

Hallam also is accused of failing to tell investors that in 2016, the US Securities and Exchange Commission sued him and others over their alleged involvement in an $80M oil and gas fraud. Also, according to the Texas securities regulator, Gilbert failed to disclose that the Internal Revenue Service previously filed $548K in tax liens against him. The government agency also filed liens against Hallam, who has yet to pay nearly $143K of what he owes.

Fund Manager Accused of Losing $178M in Residential Mortgage-Backed Securities is Barred from the Industry

Published on: February 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Walter A. Morales III, a money manager who for years worked with high net worth individual investors and pension funds, is now barred from the securities industry. Morales resolved the US Securities and Exchange Commission’s 2012 civil lawsuit accusing him and his Commonwealth Advisors of fraud and mismanagement this week.

The regulator contends that of the approximately $750M that his clients invested through him, Morales and his firm lost over $178M in subprime and residential mortgage-backed securities (RMBSs). According to the Commission, Morales lied about heavy mortgage-backed securities losses to clients and instead tried to conceal them through trades involving his different hedge funds while touting prices that were fraudulent.

The regulator claims that Walters and his investment adviser firm recommended that the hedge funds buy into Collybus, a collateralized debt obligation (CDO) that was considered among the most high risk of such investments and the lowest of tranches. MBSs were sold into CDOs at outdated prices even while Morales was purportedly aware that the market for RMBSs had since dropped. When the CDOs kept doing poorly, Commonwealth employees were directed to engage in manipulative trading among the hedge funds they advised to hide a $32M loss sustained by one of the funds that invested in Collybus.

Massachusetts Securities Regulator Charges Investment Advisor with Defrauding Investors, including Seniors, in 26-Year-Long $1M Real Estate Scam

Published on: February 15, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin has filed charges against investment adviser Thomas Riquier for allegedly defrauding investors of at least $1M in a real estate scam that has gone on for more than a quarter of a century. According to the administrative complaint, Riquier solicited funds from people, mostly older investors (some of them his firm’s clients), to buy property that was then to be sold at a profit. His employer, United Planners Financial Services of America, is charged with failure to supervise.

In its investment adviser fraud case, the regulator claims that investors’ money was used instead to buy property already belonging to Riquier. The property has yet to be improved or sold. It has not rendered any returns for investors. The state regulator notes that because the alleged scam has been going on for so long—26 years—a number of investors have passed away. The rest of them have yet to make money from the venture.

Riquier is also accused of soliciting over $830K in private loans from clients. Galvin said that this violates federal and state laws.

Barclays Faces New Criminal Fraud Charge Over $3B Qatar Loan

Published on: February 15, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In the UK, the Serious Fraud Office is charging Barclays Bank (BARC) with engaging in illegal financial assistance when it gave Qatar Holdings LLC a $3B loan in 2008 so that the latter could acquire shares in Barclays Plc. British prosecutors had previously charged Barclays Plc. and four bank executives with conspiring to commit fraud and providing unlawful financial assistance.

In Britain, public companies are usually not allowed to lend out funds to be used to buy their own shares. Barclays has come under fire for the way it handled investments made by Qatar’s sovereign wealth fund, as well as by a group of investors. The money lent to Barclays is believed to have helped the British Bank avoid getting a tax bailout during the global financial crisis. Such assistance would have likely lead to greater oversight over Barclays and closer examination of how much the bank’s executives were making at the time.

Barclays denies the charges against Barclays Plc. and Barclays Bank, which is its operating arm. Prosecutors, however, believe that the loan funds were put back into the bank to give it the capital it needed.

SEC Cases: Atlanta Fund Manager is Accused of Misusing Investors’ Funds and Final Judgments are Reached in $1.95M Matched Trades Scam and in REIT Fraud Case Against Ex-ARCP CFO Brian Block

Published on: February 14, 2018 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accuses Atlanta Man of Misusing Over $1.2M in Investor Funds

In an enforcement action, the US Securities and Exchange Commission is accusing Timothy S. Batchelor of misusing over $1.2M in investor monies. The funds were supposed to go toward the development of a submarine vessel and to businesses involved in national security.

According to the regulator’s complaint, of the $2.4M that Batchelor raised from investors through the Specter Ventures Fund II, he improperly spent half of the money, including almost $250K to buy new cars and about $225K to cover student loans. He allegedly moved thousands of dollars in investor monies to his own relatives. Batchelor also is accused of trying to conceal his actions by faking a document that misrepresented unauthorized expenditures as a loan.

Deutsche Bank Securities Will Pay Back Customers Over $3.7M for Commercial Mortgage-Backed Backed Securities Sales

Published on: February 13, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In a civil settlement reached with the US Securities and Exchange Commission, Deutsche Bank Securities will repay commercial mortgage-backed securities customers more than $3.7M over allegedly false and misleading statements related to their purchase of these investments. The firm and its ex-CMBS trading desk head trader Benjamin Solomon agreed to resolve the charges against them but without denying or admitting to regulator’s findings.

According to the SEC’s probe, when selling the CMBSs, Deutsche Bank (DB)’s salespeople and traders made statements that were false and misleading. This caused customers to pay too much for the securities because they were not given accurate information about how much the firm had paid for them. Deutsche Bank also is accused of not having properly designed procedures for surveillance and compliance that could stop and identify the types of wrongful behaviors that would cause commercial mortgage-backed securities buyers financial harm while allowing the firm to profit.

To resolve the CMBS fraud charges, Deutsche Bank will pay customers back all profits on the securities’ trades in which a misrepresentation was made. That figure is over $3.7M, including $1.48M of disgorgement. The bank will also pay a $750K penalty.

FINRA Cautions Investors About Scams Involving the Impersonation of the SRO

Published on: February 10, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is warning investors to watch out for financial schemes in which the fraudsters are pretending to be the self-regulatory organization. FINRA released its Investor Alert noting that there have been scammers using its FINRA logo and name. In some instances they are even forging the signature of FINRA president and CEO Robert W. Cook to try and solicit funds for fraudulent investments. Use of FINRA’s name appears to be geared toward making the scheme appear legitimate.

For example, an investor contacted the SRO to report one instance that purportedly involved the fraudster sending a letter that was supposedly from Cook and guaranteeing a proposed investment. The letter, however, had a number of errors, including mistakes involving FINRA’s name and its leadership titles. Another alleged fraud involved e-mail pitches, again purportedly from Cook. The correspondence told targets that their outstanding inheritance fund had been “approved for release.” They were instructed to go abroad (beyond the jurisdiction of US authorities or regulators) to obtain this money. Meantime, the targets were asked to share certain personal data.

A regulator imposter fraud might ask the victim to pay an advanced fee. In such scams, investors are asked to pay certain fees related to the purchase of stock shares that, in truth, are not doing well or are “virtually worthless.” However, upon sending the funds, investors rarely see the money returned to them or the funds that a stock buyback was supposed to render. The fraudster may even ask for more money.

Ex-Morgan Stanley Executive is Sentenced in Multimillion-Dollar Fraud That Targeted Widow

Published on: February 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Gregory Walsh, a former Morgan Stanley (MS) Assistant Vice President, is sentenced to two years in prison and three years’ supervised release. Last year, Walsh pleaded guilty to conspiracy to commit mail fraud and wire fraud that involved defrauding a firm client of $4.8M.

Court documents state that in 2011 Walsh and his brother, ex-Bank of Oswego VP Geoffrey Walsh, convinced a Morgan Stanley client who was newly widowe, to lend Geoffrey over $1.1M to buy three condos in Palm Springs that would be put in her name and then sold. Instead, Geoffrey made his business the title owner of the properties and did not give the widow the documentation for the title or loan. He then sold two of the properties without her consent or knowledge and used the money for his own expenses instead of giving her the funds. When Gregory Walsh discovered what his brother had done, he did not tell his client.

In 2013, the brothers sought $2M from her for a real estate development project. Gregory did not tell the widow that his brother was involved when she asked. He then withdrew funds from her Morgan Stanley account without her consent or knowledge. In 2013, $1.7M of that money was used to pay off a credit line at Bank of Oswego for Geoffrey, who spent the rest of her funds that had been withdrawn.

Securities Firm News: Rabobank NA to Pay Almost $369M After Pleading Guilty to Felony Conspiracy, Alabama Supreme Court Says Lawsuit Against Sterne Agee Can Proceed, and Maryland Wealth Management Firm is Accused of Fraud

Published on: February 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Rabobank NA Admits to Anti-Money Laundering Deficiencies, Will Pay Nearly $369M

Rabobank National Association, a subsidiary of Rabobank UA (RABO), has pleaded guilty to felony conspiracy for obstructing the Department of the Treasury’s Office of the Comptroller of the Currency’s examination of the bank while hiding that its anti-money laundering program had certain deficiencies. Now, the firm will pay almost $369M for not preventing illicit funds from going through the bank.

With its guilty plea, Rabobank is admitting that it conspired with a number of its ex-executives to try defrauding the US by “unlawfully impeding” the OCC’s efforts to regulate the California subsidiary, including obstruction of an OCC examination of the bank’s branches throughout the state. Rabobank acknowledged that because of deficiencies in its AML program, the bank made it possible for hundreds of millions of dollars from Mexico and other places to be deposited in its rural bank branches and then allowed to money to move via checks, wire transfers, and withdrawals. Federal regulators were not notified even though they should have been.

During a 2012 OCC examination, Rabobank executives purposely tried to “hide and minimize” its AML program deficiencies so as to avoid new sanctions. Rabobank was already sanctioned in ’06 and ’08 for failures that were “nearly identical” to the ones at issue now. Late last year, ex-Rabobank VP George Martin reached a deferred prosecution deal with the US government for aiding and abetting the bank in not having an AML program that met Bank Secrecy Act requirements.