Securities Fraud

Ex-F-Squared CEO on Trial Against SEC in Exchange-Traded Fund Fraud Case

Published on: September 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In federal court in Boston, Howard Present, the former CEO and co-founder of F-Squared Investments Inc. is on trial over civil exchange-traded fund fraud charges brought against him by the US Securities and Exchange Commission. Present is accused of lying about the firm’s flagship product, the AlphaSector model portfolio, to investors and making millions of dollars in the process.

According to the regulator, starting in 2008, Present touted the AlphaSector as having a successful track record going as far back as 2001. F-Squared claimed that this performance was based on a strategy developed by a multibillion dollar wealth manager when, in reality, it was based on an algorithm that had been applied to historical market information by the manager’s intern, who was a college student at a time. Also, the track record was hypothetical and not historical.

The regulator believes that there was a mistake in the hypothetical figures that caused a substantial inflation of investment performance that was used when creating marketing materials for the AlphaSector. The DEC contends that even though Present knew about the inaccuracies, he did not order a correction and continued to use the inflated performance numbers.

When F-Squared started marketing the strategy to possible clients, rather than stating that the potential performance of the strategy was set up in 2008, Present claimed that actual investment history had been used calculate the track record. A press release was even issued claiming that $100M in client money had been dedicated to the investment strategy for the past several years when the actual monetary figure for that was zero.

NJ Investment Adviser Allegedly Used Investor Funds to Pay Gambling Bills, Radio Host is Accused of Bilking Investors of Over $5M in Ticket Resale Scheme, & Pennsylvania Man Pleads Guilty to Felony Charges

Published on: September 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

NJ Investment Adviser Accused of Stealing Over $1M from Clients
The US Securities and Exchange Commission has brought investment adviser fraud charges against Scott Newsholme, a New Jersey-based financial adviser and tax preparer, accusing him of stealing over $1M from clients so he could support his lifestyle and support his gambling. According to the regulator, Newsholme generated fake account statements and “doctored stock certificates and forged promissory notes.”

Prosecutors have filed a parallel criminal case against him. Rather than invest clients’ funds in different securities as promised, Newsholme allegedly went to a check-cashing store to cash their checks and then kept their money for himself to cover his own expenses and gambling activities, as well as make Ponzi-like payments to the clients who wanted their money back.

Radio Host Accused of Stealing Millions of Dollars in Concert Ticket Scheme
Craig Carton, a sports radio host, is accused of running a concert ticket scam to bilk investors. According to the SEC’s complaint, he and Joseph Meli, another man whom the regulator had already filed charges against earlier this year, touted blocks of face value tickets to concert performances that were in demand and promised investors high returns that would come from ticket resales and their accompanying price markups.

FINRA Bars Ex-HSBC Securities Broker Over Alleged $200K Senior Financial Fraud

Published on: August 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring Jaime R. Rodriguez, an ex-HSBC Securities (HSBC) broker, in the wake of a charge accusing him of bilking an older customer, who is also legally blind, of $200K. HSBC fired Rodriguez in 2014.

Rodriguez is accused of using about $70K of the client’s money in 2012 to buy an apartment that was supposed to be for the customer. However, because the man couldn’t read or see the documents related to the purchase, he did not know that Rodriguez had named himself as the sole beneficial owner.

According to InvestmentNews, Rodriguez met the man in 2010 and began helping him with his errands. Also in 2012, Rodriguez purportedly recommended to the client that they set up a joint account together so that the then-HSBC broker could assist him in paying his bills. The account was opened using about $42K of the client’s money and at one point it held $153K.

Ex-Financial Adviser Dawn Bennett Faces SEC and Criminal Charges Over Alleged $20M Investor Fraud

Published on: August 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed charges against ex-financial adviser Dawn Bennett accusing her of bilking investors, making Ponzi-like payments, and spending clients’ funds on herself. According to the regulator, Bennett and her DJB Holdings LLC raised over $200M through the sale of notes issued to at least 46 investors by the luxury sports apparel company. Many of her victims were unsophisticated and older investors.

During the sales, Bennett allegedly claimed that the notes were safer than they actually were, as well as that her firm could pay yearly returns of up to 15%. Investors were purportedly told that their money would go toward company use but instead she paid back earlier investors in a Ponzi-like manner and used some of the funds to pay for her expenses. Meantime, contends the SEC’s complaint, Bennett hid the alleged fraud, lied to regulators, used sham promissory notes instead of actual convertible notes, and inflated her net worth.

Now, the Commission has charged Bennett and her company with violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The regulator wants disgorgement, interest, and penalties for the alleged senior financial fraud.

Securities Fraud: Ponzi Scammer Tim Duncan Must Pay $1. 3M, Former ArthroCare CEO is Convicted Again in $750M Scheme, & Former Summit Wealth Management CEO is Sentenced to Eight Years

Published on: August 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Federal Judge Orders Tim Durham to Pay $1. 3M in Securities Fraud Case

Five years after he was convicted of securities fraud, businessman Tim Durham has been ordered by a federal judge to pay $1.3M in the US Securities and Exchange Commission’s civil case against him. Durham bilked over 5,000 investors in his Ponzi Scam involving his company Fair Finance. He is serving 50 years behind bars.

The Commission had wanted the judge to order Durham to pay back over $200M in ill-gotten gains. Instead, Judge Jane Magnus-Stinson ordered him to pay a $130K penalty for each criminal conviction, of which there were 10. After Fair Finance shut down in 2009, its bankruptcy trustee repaid investors $18M.

Ex-ArthroCare CEO is Convicted in $750M Scam For a Second Time
Michael Baker, the ex-CEO of ArthroCare Corp., has been convicted once again in a $750M securities fraud. An earlier conviction for the same scheme was vacated last year by the 5th U.S. Circuit Court of Appeals.

NASAA Survey Finds That Number of Senior Financial Fraud Incidents is Growing

Published on: August 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A new survey conducted by the North American Securities Administrators Association found that there was been an increase in senior financial fraud incidents, with 97% of incidents going unreported until serious harm has occurred. The survey respondents, all state securities regulators, noted a 29% rise in complaints or cases involving older investors who were bilked or exploited.

The Pulse Survey took place between July 24 to August 4, 2017. Among other findings:

· Three-fourth of regulators that put into effect the Model Act to Protect Vulnerable Adults from Financial Exploitation were able to stop funds from going to fraudsters who had targeted older investors.

Investment Adviser Accused of Bilking Pro Athlete

Published on: August 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has brought investment adviser against Jeremy Joseph Drake. He is accused of bilking a known professional athlete and his wife, making about $900K in compensation in the process. At the time of the purported financial fraud, Drake worked with HCR Wealth Advisers.

According to the regulator’s complaint, the couple entrusted over $35M of their assets to Drake to manage. As their investment adviser, he owed them a judiciary obligation.

The investment adviser fraud allegedly went on for over three years, during which time he allegedly told the couple that they were receiving a .15 to .20% fee rate on assets under management when they were actually paying a 1% fee. As a result, the athlete and his wife ended up paying $1.2M more in management fees than what they were told they had paid.

FINRA Cases: Hallmark Investments is Expelled For Fraud and FSC Securities Must Pay $592K Over Exchange-Traded Fund Sales

Published on: August 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Investment Firm and Its CEO Are Expelled and Barred for Inflating the Price of Shares Before Selling Them

The Financial Industry Regulatory Authority has expelled Hallmark Investments and barred Steven G. Dash, who is the firm’s CEO, over a securities scam that involved selling stocks at inflated prices. According to the self-regulatory organization, Hallmark, Dash, and firm representative Stephen P. Zipkin used an outside broker-dealer and engaged in manipulative trading, as well as in trade confirmations that were misleading, to sell almost 40,000 shares of stock to 14 customers at prices that were fraudulently inflated. Zipkin has been suspended by FINRA for two years and he will have to pay over $18K in restitution.

Hallmark purportedly employed a trading scam to sell the Avalanche shares that they owned at $3/share. Meantime, the prices for Avalanche were selling at the public offering price of $2.05/share and Hallmark sold other Avalanche shares to other customers for as low as 80 cents/share. Also, the investment firm, Zipkin, and Dash failed to tell customers that Hallmark owned the shares they were buying or that it was marking up the transactions (or that the shares could be bought for less on the open market) even as it sold the shares to others at lower prices.

Ex-Investment Banker is Sentenced for Tribal Bond Fraud

Published on: August 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Jason Galanis, an ex-investment banker, who is already serving eleven years behind bars for stock rigging, has been sentenced to five years in prison for fraud involving a Native American tribal bond. He must forfeit over $43M and pay nearly $44M of restitution.

In the tribal bond scam, Galanis and his father John Galanis are accused of convincing Oglala Sioux Tribe affiliate Wakpamni Lake Community Corp. of issuing $60M in municipal bonds. The two of them and others then misappropriated the proceeds from the bonds, including $8.5M for Jason personally. Meantime, bond investors were left with worthless securities while the tribal corporation had no means of paying the interest payments that it owed on the bonds.

According to the prosecution, the bond scam bilked Galanis’ tribal bond clients and the investing public while “defrauding the Native American tribe into issuing bonds.” Galanis and his co-conspirators sold the bonds, which were illiquid, to pension funds, and stole the profits. Meantime, they allegedly hid conflicts of interest and the fact that the bonds were not liquid.

Ex-Hedge Fund Manager Martin Shkreli is Convicted of Securities Fraud

Published on: August 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A jury has found former pharmaceutical CEO and hedge fund manager Martin Shkreli guilty of securities fraud in connection with his two hedge funds, MSMB Capital and MSMB Healthcare, as well as of conspiracy to commit securities fraud involving shares of the drug company Retrophin, which he founded.

Prosecutors had said that Shkreli misled investors, losing their money on bad stock picks while scheming to try recover millions of dollars of these losses. At one point, Shkreli claimed he had $40M in one hedge fund when it had only $300 in the bank.

That said, prosecutors experienced some challenges in proving their criminal case against the ex-hedge fund manager. For example, during the trial, a number of rich Texan financiers admitted that Shkreli’s scam made them money, sometimes even double or triple of what they invested, when Retrophin’s stock went public.