Ponzi Scams

Ex-Merrill Lynch Adviser, Already Jailed for Massachusetts Securities Fraud, Now Indicted Over Ponzi Scam

Published on: March 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Even as she serves her 33-month sentence for securities fraud, Jane O’Brien, a former Merrill Lynch (MER) broker, has now been indicted for her alleged involvement in a Ponzi scam that purportedly ran for nearly two decades. The U.S. Attorney’s Office for the District of Massachusetts says that O’Brien is facing criminal charges for mail fraud, investment adviser fraud, and wire fraud involving the misappropriation of $1.3 million in client monies.

Per the indictment, between 1995 and 2013 and while she worked at Citigroup (C)’s Smith Barney and then later with Merrill, O’Brien persuaded a number of clients to withdraw money from brokerage accounts and their banks. She got their permission to invest the funds in private placements. However, instead, the 61-year-old allegedly used the money to repay other investors and cover her personal expenses.

O’Brien is also accused of making misrepresentations to clients, providing them with materially false statements, “making lulling payments,” and offering false assurances that their money was secure. She even in one instance, allegedly, got a client to invest in “Crooked Arrows,” a Hollywood film, in return for a promised 25% return, which did not happen.

Madoff Ponzi Scam Victims Win Right to Appeal for Interest

Published on: January 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A group of investors that were victimized in the Bernard Madoff Ponzi scam has won the right to appeal directly to a federal court about a bankruptcy ruling that prevents them from factoring in the amount of time they invested with the financial fraudster as interest that they want back. According to the US Court of Appeals in New York, the plaintiffs met the criteria for a “direct appeal” so that they won’t have to go through the district court first.

U.S. Bankruptcy Judge Burton R. Lifland had said that “time-based” calculations might not be fair to creditors who are last in line for payments and that this could give a windfall to claims by traders even though they weren’t victims of Madoff’s scam. Lifland recently passed way.

Madoff’s victims want bankruptcy trustee Irving Picard to put aside about $1.4 billion to pay back interest they say they are owed. They believe that factoring in time when equating damages allows for inflation to be considered.

Family Pleads Guilty to $10M Massachusetts Ponzi Scam

Published on: January 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Steven Palladino, his wife Lori, and son Gregory have pleaded guilty to their involvement in a Massachusetts Ponzi scam that cost at least victims over $10 million, much of which can never be recovered. Defrauded investors included friends, acquaintances, and a veteran’s group.

In Suffolk Superior Court this week, Palladino pleaded guilty to criminal charges that implicated him as the lead player in the financial scheme, which he ran through Viking Financial Group. Lori and Gregory also entered their guilty pleas to charges related to the fraud.

Prosecutors claim the Palladinos promised high returns from high-interest, low-risk loans. The family used investors’ money to pay for a fancy lifestyle, including jewelry and expensive cars. Palladino also reportedly used some of the money for his mistress.

SEC Goes After Alleged Ponzi Scammers

Published on: November 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is pursuing securities fraud charges against Wendy Ko and Yin Nan Wang and certain entities over their alleged involvement in a Ponzi-like scam. The regulator is asking for an asset freeze against Velocity Investment Group, its managed funds, and Rockwell Realty Management, Inc. These entities are controlled by Wang and Ko.

The SEC claims that the two of them offered and sold over $150 million securities as unsecured promissory notes through Velocity and its unregistered investment funds. The offerings promised a substantial investment return rate. That said, to fulfill these interest obligations the funds needed to make returns higher than the market average.

Wang purportedly ordered that an accountant be given financial information that included material overstatements of fund receivables. He also is accused of publishing false financial data on a website.

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams

Published on: October 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The US Supreme Court has just listened to oral argument about how the Fifth Circuit appeals court interprets the breadth of the Securities Litigation Uniform Standards Act’s (SLUSA), which precludes the majority of state class action cases involving plaintiffs claiming misrepresentations related to the buying or selling of a security that it covers. The case stems from Allen Stanford’s $7B Ponzi scam, in which one of his banks put out certificates of deposit that were supposedly safe, liquid investments when, in reality, the investments did not exist. The bank used money from new CD sales to issue redemption payments and interest on older CDs.

Following the discovery of the Stanford securities shame, two sets of investors filed securities fraud cases in Louisiana court against several Stanford companies and employees contending law had been violated. The defendants got the cases sent to federal court.

The securities lawsuits were then sent to the Northern District of Texas, which threw out the fraud lawsuits on the grounds that SLUSA precluded them. That court said that the CDs weren’t covered but that the investors had alleged misrepresentations having to do with securities that were covered. The Stanford bank had claimed it invested in securities that were issued by multinational companies and solid governments and led investors to think investments SLUSA-covered securities at least partially backed the CDs. he Fifth Circuit then reversed that decision.

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges

Published on: August 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

UBS Settles Unregistered Assistant Allegations for $4.5M

UBS AG (UBS) has agreed to pay $4.5 million to settle state regulator allegations that its assistants may not have been licensed in the states where they conducted business. The New Jersey Bureau of Securities, which led the securities case, contends that for about six years, the financial had “client service associations” that lacked the necessary state registrations take orders.

An unknown amount of unsolicited trades were reportedly involved in these transactions between 2004 through 2010 when UBS had about 2,277 sales assistants on staff. The fine will be divided between the 50 States, DC, Virgin Islands, and Puerto Rico. By settling, the Zurich-based bank is not denying or admitting to the allegations. However, in late 2010 it modified its order-entry system so that employee state-registration statuses could be validated.

Two Investors’ Securities Fraud Lawsuit Against SEC Over Stanford Ponzi Scam is Dismissed

Published on: August 16, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A federal judge has dismissed the securities fraud lawsuit filed by two investors against the Securities and Exchange Commission for failing to report that Allen Stanford was running a $7.2 billion Ponzi scam. According to U.S. District Judge Robert Scola, a Federal Tort Claims Act exemption that does not allow claims from deceit or misrepresentation shields the SEC from such a claim.

The plaintiffs are George Glantz and Carlos Zelaya. They contend that they collectively lost $1.6 million because of Stanford and they wanted class action securities status for investors that the latter bilked.

They argued that following four exams between 1997 and 2004 the regulator considered Stanford’s business a fraud yet did not notify the Securities Investor Protection Corp., which provides compensation to those victimized by brokerages that fail. The SEC did not sue Stanford until 2009. While Scola previously had allowed this securities fraud case against the Commission to move forward, finding that the regulator breached its duty to report Stanford’s wrongdoing, now, he says that the FTCA exemption does not give him jurisdiction over this.

Investors Claim They Lost $300M in Ohio Ponzi Fraud Lawsuit

Published on: August 10, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In Ohio, investors are suing Glen Galemmo for allegedly running a Ponzi scam. The securities fraud lawsuit claims that approximately 100 to 200 investors lost more than $300 million. Galemmo is now named in two complaints related to these claims. His wife, Kristine Galemmo, is also being sued, as are his business partner Edward Blackledge and numerous investment funds, LLC, and companies. Plaintiffs are grouped as the Galemmo Victims Fund I and II.

The Cincinnati money manager ran Galemmo Investment Group, Queen City Investment Fund, and other entities for over a year. However, last month, he sent out a mass email to investors explaining that Queen City Investments, which he owns, was stopping operations. He told them not to come to the building because they would not be let in and that his lawyer had told him to avoid contact with them. He said that their inquiries should go through the IRS.

According to the complaint, Galemmo claimed to have over $20 million in assets under management. When the S & P 500 was declining between ’06 and ’11 he purportedly said that he’d made earning returns of 432% by investing in individual stock.

Texas Securities Case: SEC Alleges Ponzi Scam Involving Virtual Currency Bitcoin

Published on: July 28, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is suing Trendon Shavers and his company Bitcoin Savings & Trust, accusing the two of them of running a Ponzi scam involving Bitcoin. In its Texas securities fraud case, the regulator contends that Shavers offered and sold the denominated investments online with the use of the names “pirateat40” and “Pirate,” purportedly raising at least 700,000 Bitcoin in BTCST investments.

Bitcoin is a virtual currency that is traded on online exchanges. Based on its average price in 2011 and 2012 when Bitcoin was on the market, the virtual currency at issue was worth over $4.5 million. Today, their value is greater than $60 million.

The SEC believes that Shavers told customers they could make up to 7% weekly interest due to BTCST’s “Bitcoin market arbitrage activity,” when actually BTCST was a Ponzi scheme that involved Shavers using Bitcoin from new investors to cover purported investor withdrawals on outstanding investments and interest payments. He also allegedly used investors’ Bitcoin to engage in day trading in his account while trading in some of their Bitcoin for US dollars to cover his own expenses.

Courts Nationwide Dismiss More Securities Actions: Madoff Trustee’s Case, Equinox Investor’s Class Lawsuit, K-Sea Transportation Litigation, & Shareholder Derivative Complaint is Thrown Out

Published on: June 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Trustee Can’t Sue Investment Banks for Aiding Madoff Ponzi Scam

The U.S. Court of Appeals for the Second Circuit affirmed a lower court ruling that trustee Irving Picard cannot sue the investment banks accused of allegedly aiding and abetting the Madoff Ponzi scam for billions of dollars because the doctrine in pari delicto bars him. Per the doctrine, one wrongdoer can’t recover from another wrongdoer.

Picard sued UBS AG (UBS), JPMorgan Chase & Co. (JPM), HSBC Bank plc, and UniCredit Bank Austria AG, claiming they disregarded warning signs of Madoff’s fraud as they received significant fees. Because Picard is now in “Madoff’s shoes” as the debtor’s representative of Bernard L. Madoff Investment Securities, the court said that he cannot proceed with lawsuits against the parties that took part in the fraud.