Investor Lawyers Blog

Securities Fraud: Investment Manager is Accused of Bilking Retired Teacher of $950K, Ex-U. Va Football Player is on Trial in $9M, and Former Investment Adviser Pleads Guilty

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

Wyoming Investment Manager Indicted for Allegedly Bilking Retired Investor
Tyris D. Maxey has been indicted on multiple counts of wire fraud and he was arrested this week. Maxey, a Wyoming investment manager, owns RB Mister Enterprises LLC. He allegedly convinced a retired school teacher to give him about $950K to invest and then using almost all of the funds on his own expenses.

Meantime, any investments he made with the investor’s money experienced “heavy losses.” Funds that he gave to the investor, which he claimed were returns, were actually the same funds that the teacher had given him to invest.

Maxey pleaded not guilty to the criminal charges of financial fraud.

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.

Securities News: Citigroup Settles Libor Lawsuit for $130M, Apollo Global is Sued for Fraud, and Ex-MSD Capital Analyst is Sentenced After Insider Trading

Published on: August 10, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup to Pay Plaintiffs Suing Over Libor Rigging

Citigroup Inc. (C) will resolve a private US antitrust lawsuit alleging Libor manipulation by paying plaintiffs $130M. The litigation was brought by “over-the-counter” investors who engaged in direct transactions with banks that belonged to the panel that determines London Interbank Offered Rate.

As part of the proposed preliminary settlement, the bank will pay the money to a fund for future class members. It also will cooperate with the lawsuits brought against other banks also accused of involvement in Libor rigging. Despite settling the case, however, Citigroup is not admitting or denying any wrongdoing.

Madoff Ponzi Scam Caused Investors to Pull $363B in Investments, Reports Study

Published on: August 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to a new study recently published in The Review of Financial Studies, the Bernie Madoff Ponzi Scam not only bilked over 10,000 investors of billions of dollars, but it also caused many in the investing public to stop trusting the financial industry. The study is called Trust Busting: The Effect of Fraud on Investor Behavior.

Researchers were able to track the impact of the Madoff fraud outside of the investors who were directly impacted because Madoff, who is Jewish, worked primarily with rich, older Jewish investors. Assistant Professor of Applied Economics and Management at Cornell Scott Yonker, who is a co-author of the study, describes the Madoff Ponzi Scam as an affinity scam in that it targeted investors who had similar backgrounds. That said, his victims included retail investors, wealthy investors, famous investors, celebrities, and various entities and financial funds.

The study found that once the Madoff Ponzi scheme became public knowledge, investors who either personally knew his victims or lived in the areas where his victims lived withdrew $363B from their financial advisers and placed their funds in banks instead—that’s almost 20 times more than the $17B that Madoff has been ordered to pay in restitution to his investors.

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.

Aurelius Capital Files Lawsuit Seeking To Have Puerto Rico Bankruptcy Case Dismissed

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

In the United States District Court in San Juan, the hedge fund Aurelius Capital has filed a lawsuit seeking to have Puerto Rico’s bankruptcy case dismissed. Aurelius Capital is the holder of more than $470 million of Puerto Rico General Obligation bonds (“GO Bonds”). All Puerto Rico GO bonds were supposed to have been guaranteed under the Commonwealth’s constitution. Now, however, GO bonds are subject to a five-year plan that could force bondholders to take substantial reductions on what they are owed upon repayment.

Puerto Rico filed for Title III bankruptcy protection in May. Although bankruptcy protection was not originally available to Puerto Rico, under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), the law was changed to allow for Puerto Rico to file a bankrupt-like procedure if it could not resolve all of its debt with bondholders.

As with other bankruptcies, the island has been granted a “stay” from creditors. Now, Aurelius wants the federal court to lift the stay, which has prevented it and other creditors from suing the Puerto Rican government.

Texas-Based Oil and Gas Company CEO Accused of Misappropriating Investor Funds

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

William Alexander Swell and his 7S Oil & Gas, which is a Texas-based oil and gas company, will pay $750K for allegedly misleading investors about commissions and administrative costs and for misappropriating a significant amount of their money. According to the US Securities and Exchange Commission, the oil and gas company and its CEO raised nearly $7M from at least 70 investors in the US via unregistered offerings in oil and gas projects. Securities were sold to investors as units in eight of these joint venture projects. All of the projects were based in Texas.

In its complaint, the regulator accused Sewell and 7S of bringing in investors through sales agents and YouTube videos, one of which guaranteed “some type of return.” Meantime, offering documents in the alleged Texas securities fraud purportedly stated that no more than 10% of investor funds would go toward marketing costs, commissions, and salaries, while 85% would be used on oil and gas operations.

Instead, the SEC is claiming, sales agents received up to 35% in commissions from investor proceeds while only 57% maximum of investor money went to the wells. Sewell and 7S are accused of using over $90K of investor funds on entertainment bills, his children’s school tuition, and other personal expenditures. “Sham ‘royalty payments’” were allegedly issued to some investors to make it appear as if they were getting a return on their investments.

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.

Massachusetts Files Criminal Charges Against Charges Hedge Fund Manager Over Multi-Million Dollar Ponzi-Like Scam

Published on: August 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Prosecutors in Massachusetts have filed charges against hedge fund manager Raymond Montoya for allegedly bilking investors of millions of dollars in a Ponzi-like scam. The criminal charges against him include wire fraud and mail fraud, and they come two months after state regulators brought their own charges against him.

Montoya ran the hedge fund RMA Strategic Opportunity Fund LLC. He is accused of misusing millions of dollars of investors’ funds to pay back earlier investors, as well as to pay for his son’s mortgage along with luxury items and expenses. The criminal complaint stated that Montoya told investors that RMA held about $4B in assets under management and employed proprietary software to predict stock price changes.

In reality, contend prosecutors, the hedge fund manager oversaw less than $100M and invested just part of victim’s funds.