Current Investigations

Criminal Securities Fraud: Another Ex-Wilmington Trust Executive Gets His Prison Term, Former Rock Capital Trader in $13.7M Fake Profits Scam to Serve 5-Year Sentence, and Ex-NJ Financial Adviser Who Defrauded Customers Waits for Jury Verdict

Published on: January 29, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wilmington Trust VP is Sentenced to 21-Months for Bank Fraud

A federal judge has sentenced Joseph Terranova, a Former Wilmington Trust Corp. VP and commercial real estate manager, to 21 months in prison. Terranova’s sentence comes almost five years after he pleaded guilty to conspiracy to commit bank fraud related to a securities fraud that involved hiding from investors and regulators that commercial real estate loans that were past due.

Terranova is one of several Wilmington Trust executive to receive a sentence for the bank fraud, which involved fraudulent actions to hide hundreds of millions of dollars in delinquent loans. When the bank’s debt burden became public knowledge, it almost failed and was sold at a severely reduced price to M & T Bank Corp. in 2011. Meantime, bank stockholders sustained serious losses.

Texas Real Estate Developer Faces SEC Charges Over Alleged Multimillion-Dollar Ponzi Scam

Published on: January 28, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against Phillip Michael Carter, Bobby Eugene Guess, Richard Tilford, and several entities accusing them of operating a multi-million dollar offering fraud. The regulator contends that the three men raised nearly $45 million from more than 270 investors in the US through the sale of high-yield, short-term promissory notes that were touted to prospective buyers as low-risk.

According to the SEC, investors thought they were getting involved in actual real estate development companies but instead ended up buying securities from entities with no assets. Carter, who is the principal of North Forty Development LLC and Texas Cash Cow Investments, is accused of then misappropriating $1.2M in investor funds for his own expenses, including a personal IRS tax lien and to operate a luxury hunting ranch. He also allegedly made over $3M in Ponzi payments that were issued to investors.

Now, the defendants are accused of offering and selling unregistered securities, violating the Exchange Act and the Securities Act, and acting as unlicensed brokers. The entities that are relief defendants in the case include:

Royal Alliance and Former Broker Are Ordered to Pay $4.2M To Widow Who Was Victim of Investor Fraud

Published on: January 17, 2019 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) panel has found that ex-Royal Alliance Associates broker stole money from Cathy Carter, a 54-year-old widow suffering from a brain injury. Former broker Gary Basralian has already pleaded guilty to defrauding clients of at least $2M and using the funds on himself.

Now, FINRA has announced two awards holding Royal Alliance and its former broker liable for the fraud. The self-regulatory authority is ordering both of them to pay the widow $2.1M and $500K for legal fees each.

Basralian resigned from Royal Alliance in 2017. FINRA barred him from the securities industry last March.

Puerto Rico Oversight Board Seeks to Invalidate Over $6 Billion of General Obligation Bonds

Published on: January 15, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Oversight Management Board for Puerto Rico (the Board) is asking a federal district court judge to invalidate over $6 Billion in general obligation (GO) bonds by disallowing any claims brought by the bonds’ holders. The legal action, brought by the Board and the island’s unsecured creditors’ committee, focuses on GO debts that the U.S. territory sold in 2012 and 2014.

The Board and the committee contend that the debt at issue violates Puerto Rico’s Constitution, including the balanced budget clause as well as the debt service limit provision. According to Law360, both parties claim that previous administrations of the island’s government engaged in different “accounting gimmicks” to get around these provisions.

For example, the petitioners maintain that bonds issued through the Puerto Rico Public Buildings Authority were an attempt to get around the 15% debt service limit when, in fact, the bonds should have been factored into that limit. If that had been done, the Board and committee are now arguing, then bonds issued after March 2012 should be rendered invalid and taken off the balance sheet of what the island owes.

Big Banks End 2018 Holding At Least $1.6B of Unsold Loans Involving Leveraged Buyout Debt

Published on: December 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg, market woes have left Goldman Sachs Group Inc. (GS), Barclays Plc (BARC), Bank of America Corp. (BAC), and other Wall Street banks unable to get rid of at least $1.6B of “unwanted leveraged buyout debt” as investors continue to run from high-risk assets in the wake of fears about the global economy. A leveraged buyout (LBO) involves the acquiring of a company using borrowed funds. The assets of the company that is acquired, as well as the acquiring company’s assets, usually serve as collateral. LBOs make it possible for companies to get involved in big acquisitions without having to use a lot of capital.

Bloomberg reports that as of the 22nd of December, at least four loan sales involving acquisitions and buyouts had yet to “clear the market” leaving banks with no choice but to retain the debt on their books, including:

· A group led by Goldman Sachs in charge of the financing for First Reserve’s acquisition of pipeline operator Blue Racer was expected to end the year holding a $516M loan.

Puerto Rico Consultant McKinsey & Company’s Ownership of $20 Million of Puerto Rico Bonds Raises Conflict of Interest Concerns

Published on: December 21, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. House of Representatives, lawmakers have introduced a bipartisan bill that would require advisers and others contracted to help with the debt restructuring proceedings in Puerto Rico to abide by stronger reporting requirements. The move comes in the wake of an article in The New York Times reporting that McKinsey & Company, one of the advisers to the island’s federal oversight board, had bought millions of dollars of Puerto Rico bonds at a huge discount but did not disclose the purchases.

McKinsey, claims that it has satisfied all disclosure requirements. The company contends that it was MIO Partners, its investment division, that purchased about $20 million of Puerto Rico bonds. The consulting firm maintains that MIO Partners is separate from the consulting arm and McKinsey consultants having no control over MIO Partners or involvement in any of its investments.

Under the proposed bill, called the Puerto Rico Recovery Accuracy in Disclosures Act, consultants and others hired by the fiscal oversight board must submit verified disclosures noting any connections they might have before they can receive payment for their services. These disclosure requirements already apply to other bankruptcies, but they have not been part of the island’s bankruptcy proceedings so far. Because the U.S. territory is not a municipality, it was unable to file for Chapter 9 bankruptcy protection and instead sought relief under the 2016 Puerto Rico Oversight Management and Economic Stability Act (PROMESA).

Financial Firm News: Goldman Sachs Faces Criminal Fraud Charges in Malaysia and UBS is Fined $15M Over Poor Anti-Money Laundering Detection Systems and Multibillion-Dollar Fraud Involving 1MDB Fund Leads to Criminal Charges for Goldman

Published on: December 20, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Prosecutors in Malaysia have filed criminal charges against a number of Goldman Sachs Group Inc. (GS) units and several people over a massive multibillion-dollar bond fraud involving the sovereign wealth fund the 1Malaysia Development Berhad (1MDB). The individuals charged including former Goldman managing directors Roger Ng Chong Hwa and Tim Leissner, financier Jho Low, who is accused of masterminding the fraud, and ex-1MDB general counsel Jasmine Loo Ai Swan.

Malaysia Attorney General Tuan Tommy Thomas said that the criminal charges are related to fake and misleading statements issued in order to steal $2.7B from the proceeds of three 1MDB subsidiary issued-bonds. The bonds, which Goldman organized and underwrote, were valued at over $6B.

The defendants are accused of conspiring together to bribe public officials in Malaysia so as to allow for Goldman’s involvement with the bonds. The investment bank earned about $600M in fees for its work with the Malaysian sovereign fund.

Merrill Lynch to Pay $300K to Settle Inadequate Supervision Allegations

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

The Financial Industry Regulatory Authority (FINRA) is ordering Merrill Lynch to pay $300K after finding that it did not properly supervise former broker Eva Weinberg, who went to prison for defrauding former NFL football player Dwight Freeney. Merrill, which is now a wholly-owned Bank of America (BAC) subsidiary, consented to the fine and censure imposed for not properly investigating and overseeing Weinberg even after the firm had internally flagged three of her emails and a $1.7M default judgment had been rendered against her in a civil case. (It should be noted that this case is not listed on her BrokerCheck record but was reported by InvestmentNews.)

What Weinberg’s BrokerCheck record does state is that she began working in the industry in 1988, but then in 2004 she took several years away to work at a real estate company owned by a man named Michael Stern, who is also now in prison for defrauding Freeney. Even before Freeney, however, Stern already had a criminal record.

FINRA said that when Weinberg applied to Merrill for employment in 2009, she did not mention the years she had spent working for Stern. The broker-dealer went on to hire her in their Miami office where she worked with professional athletes, including Freeney. She is the one who introduced the former NFL player to Stern.

FINRA Suspends Ex-Securities America Broker

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

The Financial Industry Regulatory Authority (FINRA) has suspended former Securities America broker Michael D. Jackson for six months following allegations that he traded options in one client’s account without telling the brokerage firm. Securities America has since fired Jackson.

According to the self-regulatory authority (SRO), in 2016, the ex-Securities America broker recommended that one customer set up an account at different firm to trade options. The customer followed his instructions. Over several months, Jackson allegedly:

Put in orders for over 42 options transactions sets—that’s over 100 orders—in the new account.

Ex-UBS Puerto Rico Broker Jose “Whopper” Ramirez Pleads Guilty to Bank Fraud

Published on: November 21, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Jose G. Ramirez-Arone Jr. (also known as Jose G. Ramirez, Jr.), a former UBS Financial Services of Puerto Rico (UBS-PR) broker, has pleaded guilty to criminal charges accusing him of defrauding investors while making over $1 million in improper commissions through the sale of Puerto Rico closed-end funds. Ramirez-Arone is scheduled to be sentenced next year.

The former UBS broker, known to many on the island as “Whopper,” and UBS Puerto Rico have together been the subject of dozens of Financial Industry Regulatory Authority (FINRA) arbitration complaints brought by customers claiming they sustained massive investment losses because not only did UBS and Ramirez-Arone sell the customers Puerto Rico bonds while misrepresenting the risks, but also, the finer broker recommended that they borrow money to purchase even more of these securities when they could not afford them.

Ramirez-Arone was one of the top-selling brokers at UBS Puerto Rico. In his guilty plea, Ramirez-Arone admitted that he was involved in a scam to help his UBS customers fraudulently obtain non-purpose credit lines, which was a violation of the firm’s policy. The credit lines came from UBS Bank USA, which is a UBS Financial Services subsidiary based in Utah. According to the U.S. Department of Justice, Ramirez-Arone took advantage of the low interest rates at UBS bank to convince his customers to buy additional shares of UBS’s Puerto Rico closed-end funds (CEFs). The former UBS broker acknowledged being a part of a scheme that involved recommending to different clients that they take money from the UBS Bank credit lines to invest to in the UBS Puerto Rico closed-end bond funds. Since using a “non-purpose” loan to buy additional securities is not allowed, Ramirez-Arone admitted advising customers to misrepresent on their credit line application what they intended to use the credit line and having the clients take the borrowed money to their retail bank and then bring the money back to UBS to buy more securities.