Virgin Islands-Based Investment Adviser Faces SEC Fraud Charges Involving Alleged Kickbacks

The Securities Change Commission is charging TAG Virgin Islands owner James S. Tagliaferri with securities fraud. The investment adviser is accused of getting kickbacks from putting investors’ funds in companies that were being thinly traded in and then employing a Ponzi-like scam to give clients their supposed “returns.”

According to the SEC’s Enforcement division, Tagliaferri allegedly exercised his discretionary authority over his clients’ accounts to buy promissory notes that were put out by certain private companies. TAG was given millions of dollars in compensation, including cash in return for financing these companies-a conflict that investors didn’t know about. When it was time to pay these investors, Tagliaferri then used other clients’ funds to meet these obligations.

Specifically, contends the regulator, after 2007 the Virgin Islands-based investment adviser began placing TAG clients’ money in securities that were highly illiquid, including in promissory notes put out by different private companies that actually were holding companies, as well as $40M of investor funds in notes in International Equine Acquisitions Holdings, Inc.

The SEC’s securities fraud order says that TAG got $3.35M and about 500,000 stock shares of a microcap company in exchange for placing investments with these companies. Such compensation is a conflict of interests that investors must know about.

Tagliaferri also allegedly defrauded investors by putting their money in public companies that were thinly traded to raise a minimum of $80M to pay principal or interest owed to other clients on promissory notes. In its securities case, the SEC is accusing him violating sections of both the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940.

Meantime, the US government is also going after Tagliaferri. In a 15-count criminal indictment, prosecutors are claiming that he invested over $120 million of funds at TAG Virgin Islands LLC to commit securities fraud. The allegations are related to the ones noted in the SEC’s civil claim. The criminal charges against Tagliaferri included eight counts of violating the Travel Act and seven counts of fraud.

U.S. charges adviser in fraud tied to microcaps, NY horse firm, Reuters, February 21, 2013

Read the SEC order (PDF)

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