Securities Fraud

Ex-Georgeson Employees Accused of Trading Bribes for Information Are on Trial for Fraud

Published on: February 27, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Four ex-Georgeson LLC employees are now on trial for fraud. Michael Sedlak, Charles Garske, Donna Ackerly, and Richard Gottcent are accused of bribing an Institutional Shareholder Services (ISS) employee for information about the way Georgeson’s investor clients vote on shareholder proposals. Georgeson is a proxy solicitation firm. ISS is registered with the US Securities and Exchange Commission as an investment adviser.

According to prosecutors, the ISS employee, Brian Bennett, was given $14K in bribes in the form of tickets to different events, including a U2 concert and Boston Red Sox baseball game, as well as for meals and an airline ticket. Assistant U.S. Attorney Eric Rosen told a federal jury that the purpose of procuring the information was to obtain an illegal advantage in their work, which involved representing companies when there are shareholder votes. Rosen said that the defendants were “not entitled” to these “secrets” that they purchased.

It is the job of proxy advisory firms to give information and recommendations to institutional investors about proposals that publicly traded company shareholders are expected to vote on. These firms collect information about institutional investors’ holdings and public votes and they share that information with publicly traded companies. This allows proxy solicitors and their clients to assess how certain shareholder votes on proposals will likely go, which can help clients figure out how they might affect certain shareholder votes.

Ex-Wells Fargo Broker Barred for Alleged $180K Elder Financial Fraud

Published on: February 26, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred Jeffrey Palish, an ex-Wells Fargo (WFC) broker in the wake of allegations of senior investor fraud. The regulator is accusing him of stealing over $180K from an elderly client with no plans or means of paying her back.

Palish was let go by the firm last year after an internal probe found that he had made misstatements about these transactions. He was arrested last week in New Jersey and charged with theft by deception involving over $75K.

According to prosecutors, Palish may have stolen at least $600K from elderly clients and failed to pay back a $100K loan from two clients. NorthJersey.com reports that Palish took clients’ money by selling their stock holdings and putting the funds from those sales into a bank account in which he deposited checks from clients. He also is accused of making more than three dozen unauthorized wire transfers of about $300K in total to pay his credit card bills.

Investor Fraud: Strong Investment Management Faces Allegations of Cherry Picking, a $2.5M Financial Scam Leads to Convictions, and a Former Investment Adviser Is Sentenced to Serve Prison Time

Published on: February 22, 2018 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accused Investment Adviser of Profiting from Cherry Picking

The US Securities and Exchange Commission has filed a civil fraud case against Strong Investment Management, which is a California-based investment adviser, and its president/owner Joseph B. Bronson. The regulator is accusing them of running a cherry picking scam that defrauded the firm’s clients.

The Commission contends that Bronson used Strong’s omnibus account to trade securities but would wait to see how they performed during the day before distributing them to certain client accounts. Meantime, Bronson purportedly made healthy profits at cost to clients by cherry picking the trades. He is accused of giving himself trades that were profitable while sending unprofitable ones to firm clients.

The SEC’s complaint contends that in Forms ADV, Bronson and Strong misrepresented trading and allocation practices by falsely stating that every trade would be allocated according to the terms of pre-trade allocation statements with no preference granted to any account. Bronson’s brother, ex-Strong chief compliance officer John B. Engebreston, is accused of not fulfilling his job by failing to make sure that Strong’s policies and procedures for trade allocation were followed. He also is accused of “repeatedly” ignoring “red flags” when it came to Strong’s allocation practices.

Insider Trading: Two Former Executives Accused of Making Illegal Profits from Emeritus Stock Trading Settle SEC Charges, More Final Judgments Reached Against Circle of Amateur Golfers, and Investment Adviser Gets Six Months in Prison

Published on: February 22, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Medical Products Executives Settle Insider Trading Charges

The US Securities and Exchange Commission announced that insider trading settlements have been reached with two ex-In Home Medical Solutions LLC officers, who are also board members. Todd M. Lavelle and Ara Chackerian are accused of illegally trading in Emeritus Corp. based on inside information.

The regulator contends that LaVelle and Chackerian purchased Emeritus securities after learning about the upcoming merger between the company and Brookdale Senior Living Inc. However, they did this before the deal was disclosed to the public. On the day of the announcement of the merger, they sold their Emeritus shares, allegedly making more than $25K and $157K, respectively, in illegal profits.

LaVelle, who is settling the case but without denying or admitting to the allegations, will pay over $25K in disgorgement, more than $2,600 in prejudgment interest, and an over $25K civil penalty. Chackerian, who is also settling without denying or admitting to the findings, will pay over $157K of disgorgement, the same amount as a civil penalty, and more than $18,600 of prejudgment interest.

BitFunder and Its Founder Face Fraud Allegations

Published on: February 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed fraud charges against BitFunder and its founder John E. Montroll. According to the regulator, both of them ran an unregistered securities exchange and committed fraud against those who used the exchange by misappropriating bitcoins and not disclosing a cyberattack in which more than $6,000 bitcoins, worth about $775K, was stolen.

Montroll is accused of selling purported investments that were actually unregistered securities and then misappropriating money from the investments. The offerings were “shares” of “Ukyo.Loan,” also known as “Ukyo Notes.” Buyers were told that money from the sales would go toward private investments and he promised them a .05% daily interest rate.

Instead, Montroll allegedly used some of the proceeds to cover his business and personal expenses and to “replenish” the bitcoins he is accused of misappropriating from an earlier offering. Also, after the cyberattack, Montroll allegedly made it appear as if BitFunder was profitable even though it had a bitcoin deficit.

SEC Cases: Atlanta Fund Manager is Accused of Misusing Investors’ Funds and Final Judgments are Reached in $1.95M Matched Trades Scam and in REIT Fraud Case Against Ex-ARCP CFO Brian Block

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

SEC Accuses Atlanta Man of Misusing Over $1.2M in Investor Funds

In an enforcement action, the US Securities and Exchange Commission is accusing Timothy S. Batchelor of misusing over $1.2M in investor monies. The funds were supposed to go toward the development of a submarine vessel and to businesses involved in national security.

According to the regulator’s complaint, of the $2.4M that Batchelor raised from investors through the Specter Ventures Fund II, he improperly spent half of the money, including almost $250K to buy new cars and about $225K to cover student loans. He allegedly moved thousands of dollars in investor monies to his own relatives. Batchelor also is accused of trying to conceal his actions by faking a document that misrepresented unauthorized expenditures as a loan.

FINRA Cautions Investors About Scams Involving the Impersonation of the SRO

Published on: February 10, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is warning investors to watch out for financial schemes in which the fraudsters are pretending to be the self-regulatory organization. FINRA released its Investor Alert noting that there have been scammers using its FINRA logo and name. In some instances they are even forging the signature of FINRA president and CEO Robert W. Cook to try and solicit funds for fraudulent investments. Use of FINRA’s name appears to be geared toward making the scheme appear legitimate.

For example, an investor contacted the SRO to report one instance that purportedly involved the fraudster sending a letter that was supposedly from Cook and guaranteeing a proposed investment. The letter, however, had a number of errors, including mistakes involving FINRA’s name and its leadership titles. Another alleged fraud involved e-mail pitches, again purportedly from Cook. The correspondence told targets that their outstanding inheritance fund had been “approved for release.” They were instructed to go abroad (beyond the jurisdiction of US authorities or regulators) to obtain this money. Meantime, the targets were asked to share certain personal data.

A regulator imposter fraud might ask the victim to pay an advanced fee. In such scams, investors are asked to pay certain fees related to the purchase of stock shares that, in truth, are not doing well or are “virtually worthless.” However, upon sending the funds, investors rarely see the money returned to them or the funds that a stock buyback was supposed to render. The fraudster may even ask for more money.

Securities Firm News: Rabobank NA to Pay Almost $369M After Pleading Guilty to Felony Conspiracy, Alabama Supreme Court Says Lawsuit Against Sterne Agee Can Proceed, and Maryland Wealth Management Firm is Accused of Fraud

Published on: February 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Rabobank NA Admits to Anti-Money Laundering Deficiencies, Will Pay Nearly $369M

Rabobank National Association, a subsidiary of Rabobank UA (RABO), has pleaded guilty to felony conspiracy for obstructing the Department of the Treasury’s Office of the Comptroller of the Currency’s examination of the bank while hiding that its anti-money laundering program had certain deficiencies. Now, the firm will pay almost $369M for not preventing illicit funds from going through the bank.

With its guilty plea, Rabobank is admitting that it conspired with a number of its ex-executives to try defrauding the US by “unlawfully impeding” the OCC’s efforts to regulate the California subsidiary, including obstruction of an OCC examination of the bank’s branches throughout the state. Rabobank acknowledged that because of deficiencies in its AML program, the bank made it possible for hundreds of millions of dollars from Mexico and other places to be deposited in its rural bank branches and then allowed to money to move via checks, wire transfers, and withdrawals. Federal regulators were not notified even though they should have been.

During a 2012 OCC examination, Rabobank executives purposely tried to “hide and minimize” its AML program deficiencies so as to avoid new sanctions. Rabobank was already sanctioned in ’06 and ’08 for failures that were “nearly identical” to the ones at issue now. Late last year, ex-Rabobank VP George Martin reached a deferred prosecution deal with the US government for aiding and abetting the bank in not having an AML program that met Bank Secrecy Act requirements.

Securities Fraud Cases: Businessman Accused in Jay Peak Resort-Related Investment Scheme Must Pay Back Over $81M in Investor Money, Former State Street VP Faces Another Criminal Charge, and Lawyer Pleads Guilty in $20M Stock Scam

Published on: February 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Businessman Settles SEC Case Over Immigrant Visa-Related Investor Scam

Ariel Quiros, a businessman accused of defrauding foreign investors seeking to earn US residency through the EB-5 Immigrant Investor Program, has agreed to the settle the Securities and Exchange Commission’s case against him. As part of the settlement, which a court still has to approve, Quiros will be held liable for over $81M in disgorgement of ill-gotten gains and a $1M penalty. He also has to forfeit about $417K.

Over 700 investors from at least 75 nations invested with Quiros. Their funds were supposed to go toward “construction projects at the Jay Peak Resort and a proposed (nearby) biomedical research facility,” said the SEC. Instead, contends the regulator, Quiros misused over $50M to buy another ski resort and pay for his own spending, including the purchase of two luxury condos. He also failed to direct about $30M to the construction projects, which was necessary for these investors to become US residents.

Now, Quiros must give up the two condos and the resort that he bought using investors’ funds, as well as surrender his ownership stake in Jay Peak and many other properties.

Two Former Morgan Stanley Investment Advisers Accused of Fraud Plead Guilty

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

In the criminal case brought against them, two ex-Morgan Stanley (MS) investment advisers, James S. Polese and Cornelius Peterson, have pleaded guilty to the criminal charges against them. Polese was charged with conspiracy, aggravated identity theft, investment adviser fraud, and multiple counts of bank fraud. Peterson is charged with conspiracy, investment adviser fraud, and bank fraud.

In a parallel civil case, the US Securities and Exchange Commission claims that beginning in 2014, the two men defrauded three clients of almost half a million dollars. The allegations include:

*Stealing almost $450K from one client and using the funds to make their own investments and pay for Polese’s credit card bills and the college tuition of his children.
*Using a client’s assets to obtain loan financing for an entity in which they were investors.
*Investing client monies in a venture in which they both had a financial stake without telling the client.
*Getting a loan with unfavorable terms for a client.
*Charging one client advisory fees that were 50% more than what he told her they would be.