Investor Fraud

Defendants Ordered to Pay $14 Millions Over Alleged Prime Bank Scheme

Published on: June 22, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A U.S. District Court in Indiana entered a permanent injunction against several defendants charged by the SEC over their alleged involvement in a $32 million prime bank scheme. They were also ordered to pay $14 million in disgorgement, plus other sanctions

The SEC issued a release saying these defendants, including First National Equity LLC, P.K. Trust & Holding Inc., Worldwide T&P Inc. and several individuals, had raised approximately $32 million using while using misrepresenting and omissions to sell interests in a purported system to trade of various financial instruments, including notes.

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“High Yield” Investment Scam Costing Investors Over $50 Million Results in Conviction of Four

Published on: June 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury in Denver found four participants guilty of securities fraud and other charges in connection with a “high-yield investment scheme” in which hundreds of investors lost $56 million.

Norman Schmidt, of Denver was found guilty of conspiracy to commit securities fraud, mail fraud, and wire fraud in addition to money laundering. Charles Lewis, of Littleton, Colo., was found guilty of conspiracy, mail fraud, wire fraud, securities fraud and money laundering. George Alan Weed, of Benton, Ill., was convicted of mail fraud, wire fraud, and securities fraud, and Michael Duane Smith, of Colbert, Wash., was convicted securities fraud. Schmidt is seeking appeal.

Two others have pleaded guilty in the scheme: Janice McClain Schmidt, of Denver, sentenced to nine years in prison, and George Beros of Shaker Heights, Ohio, who awaits sentencing. One other alleged participant in the fraud, Peter A. W. Moss, was indicted but is apparently in the United Kingdom. The U.S. Attorney’s Office is attempting to extradite him.

North Cove Ventures LLC and Former Connecticut State Senator DiBella Found Liable For Aiding And Abetting Fraudulent Investment Scheme

Published on: June 5, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury has found former Connecticut State Senator William A. DiBella and consulting firm North Cove Ventures LLC liable for aiding and abetting a fraudulent investment scam.

The scheme involves former Connecticut State Treasurer Paul Silvester, who had invested $75 million in state pension funds with private equity firm Thayer Capital Partners. The former state treasurer allegedly fixed it so that Thayer would pay Mr. DiBella a percentage of the investment even though he didn’t do anything to warrant being paid.

The SEC says that in November 1998, Silvester asked Thayer to hire DiBella. The private equity firm allegedly consented to the hire and paying DiBella the percentage fee even though he did no work for it. Silvester allegedly added at least another $25 million to the pension fund’s investment just to get a larger fee for DiBella, who ended up receiving nearly $375,000.

Former Reagan Budget Head Stockman Charged With Securities Fraud

Published on: May 27, 2007 | by Shepherd Smith Edwards & Kantas, LLP

David A. Stockman was chief architect of President Ronald Reagan’s economic plan (a plan dubbed “voodoo economics” by George H.W. Bush). Stockman then became a high-profile Wall Street money man, but was indicted Monday on charges of conspiracy, securities fraud and obstruction of justice.

Stockman, 60, who faces the prospect of three decades in prison, is accused of defrauding investors and banks during his tenure as head of Collins & Aikman, a large auto-parts maker that descended into bankruptcy in 2005.

First elected to the House of Representatives at age 30, after serving only two terms in the House, Stockman was then named Reagan’s first director of the Office of Management and Budget. He was the highly visible spokesman for the “trickle-down” economic theory of the Reagan administration. However, private conversations over budget with a journalist caused Reagan to, as Stockman states, take him to the “woodshed”. He soon matriculated to the New York world of investment banking.

When Asked the Fate of $134 million of Investors’ Funds Ex-professor Claims “Amnesia.”

Published on: May 14, 2007 | by Shepherd Smith Edwards & Kantas, LLP

After $134 million was found missing from the funds he managed, a flamboyant former professor is now claiming amnesia after being charged with lying to federal investigators. The U.S. Attorney’s office in Charleston, South Carolina, said Al Parish, 49, made false statements and provided false documents to the Securities and Exchange Commission. The former Charleston Southern University professor then surrendered to FBI agents.

Last week, the SEC reported that Parish had been charged with civil fraud, saying he provided false statements to over 300 investors indicating that the five funds he managed were trading profitably. The SEC said that after it tried to contact Parish, “he checked into a local hospital claiming to have amnesia.”

While his attorney said Parish had remained in the area since the civil case began and would not flee, prosecutors argued that Parish is a flight risk because of the large amount of missing funds involved in the case and should therefore be held without bail. The judge agreed ordering Parish to be held without bail. If convicted, Parish faces up to five years in prison and a $250,000 fine.

Edward Jones Issues Settlement Checks To Customers as Ordered by SEC for Kickback Scheme

Published on: May 2, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Edward Jones is now sending checks and making electronic payments to its current and former customers as part of its settlement of revenue sharing claims. The Securities and Exchange Commission announced the distribution of $79 million from the “Fair Fund” (also known as the “Edward Jones & Co., L.P. Qualified Settlement Fund”) as compensation to victims of Edward Jones’ practices according to the settlement reached. These payments do not compensate Jones’ clients for any losses caused by any other unfair sales practices.

According to the SEC, Edward Jones failed to adequately disclose kickbacks the firm received from various mutual fund companies, known as the “Preferred Fund Families.” The Preferred Families mutual funds are American Funds; Federated Investors; Goldman Sachs Group; Hartford Mutual Funds; Lord Abbott Funds; Putnam Investments; and Van Kampen Investments. The SEC’s order is available on the SEC website.

Edward Jones’ kickback scheme impacted approximately 2.1 million of its customers who purchased shares of the Preferred Fund Families between January 1, 1999 and December 31, 2004. The firm told the public and its customers it was promoting the sale of the Preferred Families’ mutual funds because of the funds’ long-term investment objectives and performance. However, Edward Jones failed to disclose that it received tens of millions of dollars of undisclosed revenue sharing payments from the Preferred Families each year for selling their mutual funds.

Enron Litigation Continues With Actions by Stockholders and Regulators of Accounts.

Published on: March 28, 2007 | by Shepherd Smith Edwards & Kantas, LLP

As class actions against investment firms face dismissal, attorneys for investors plan to go forward with claims for individual shareholders against those same firms. After the U. S. Court of Appeals for the Fifth Circuit decided that cases in Houston against Merrill Lynch and other investment banking firms could not go forward as class actions, the door was left open for victims of Enron stock fraud to file their own claims in court or arbitration against these investment firms.

The class actions stopped the clock for filing individual claims against the defendants until appeals are completed. Also, through the class actions substantial information was learned regarding the role of these investment firms in the Enron debacle.

Meanwhile, that same Court of Appeals affirmed a district court’s order allowing Texas accounting regulators to gain access to confidential discovery material in the Enron Corp. shareholder litigation (Newby v. Enron Corp., 5th Cir., No. 05-20462, 3/16/06). The massive amounts of discovery material related to the Enron litigation led to a stipulation by parties that discovery be housed on a Web site. The district court overseeing the litigation issued a confidentiality order covering the deposition transcripts and other material, barring disclosure except to parties, their counsel, witnesses, a depository administrator, a court-appointed mediator, and a few others.

In Alleged $194 Million Scam, Florida Hedge Fund Operators Of KL Financial Group Face Fraud And Other Criminal Charges

Published on: January 17, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In Florida, three people were charged with fraud and other criminal offenses in connection with a scam that allegedly lost almost $195 million of investors’ money.

Jung (John) Bae Kim, his brother Yung Kim, and brother Won Sok Lee were named as the defendants in a 35-count indictment that was unsealed in the U.S. District Court for the Southern District of Florida. While John Kim has been arrested, the other two men are still fugitives.

Charges in the indictment include money laundering, multiple counts of mail and wire fraud, conspiracy to commit mail and wire fraud, and conspiracy to commit money laundering. KL Group LLC, KL Triangulum Management LLC, and KL Florida LLC, the three hedge fund-adviser companies owned and operated by the three defendants, were also named in the indictment. The charges against the three companies were related to the alleged investment fraud conspiracy only.

N.Y. Attorney General’s Office Sues UBS Financial Services, Inc.

Published on: January 4, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The New York Attorney General’s Office is suing UBS Financial Services, Inc. for defrauding thousands of its customers. The lawsuit provides detailed information about a scheme where UBS moved clients from regular brokerage accounts to UBS’s “InsightOne” brokerage program, even though these investors were actually not well-suited for the program. UBS is a leading brokerage firm in the United States.

With InsightOne, brokerage customers had to pay an asset-based fee instead of a per-transaction commission. Asset-based fees, however, are not appropriate for investors who hardly ever trade securities or hold no-load mutual funds, a large amount of cash, or similar assets. UBS is being accused of falsely promoting InsightOne as being a brokerage program that offers personalized advice and other types of financial planning services.

Instead of discouraging investors who were inappropriate for InsightOne from joining the program, the N.Y. Attorney General’s Office says that UBS:

SEC Files Emergency Action Against BMG Advisory Services Inc. And Ethan Thomas Company To Stop Alleged $2 Million Senior Citizen Investor Fraud Case

Published on: December 7, 2006 | by Shepherd Smith Edwards & Kantas, LLP

On November 30, The Securities and Exchange Commission made moves to stop what it is calling an “ongoing $2 million fraud” against the elderly by filing an emergency action in the U.S. District Court for the Eastern District of New York. The SEC says that Peter Dawson and his two companies, Ethan Thomas Co., Inc. and BMG Advisory Services Inc., misappropriated investor funds and fraudulent solicitations from elderly investors, including an 85-year old woman, an Episcopal priest, and a retired, legally blind NY City firefighter.

The commission says that Dawson acquired over $2 million from no less than seven investors, and that he told his elderly clients that they should mortgage their home, surrender their variable annuity policies, and transfer the proceeds to Ethan Thomas, where Dawson could manage these assets through BMG. The SEC is accusing Dawson of making misleading and false statements to these clients regarding their funds and of promising each of them a 12-15% return on every investment.

The SEC says that Dawson authorized-to himself and his wife-payments of up to $17,378.08 from a BMG account between March and April 2006. Later that year, he authorized an additional $53,326 to himself and an additional $68,015 to his wife. He neglected to pay his clients’ mortgages, and when some of his clients found out, they called him to find out why. Dawson closed down his BMG office and unsuccessfully tried to commit suicide.