Securities Fraud

SEC Files Fraud Charges in $18M Arizona Securities Scam that Bilked 225 Investors

Published on: September 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging James Hinkelday, Jason Mogler, Brian Buckley, Casimer Polanchek, and James Stevens with bilking millions of dollars from investors. The regulators claims that the Arizona residents misappropriated about 97% of $18 million from 225 investors who thought their money was being used to acquire and develop beachfront property in Mexico, run recycling facilities, and buy foreclosed residential properties to resell. The men are accused of making Ponzi-like payments to investors who threatened to sue them.

In its complaint, the SEC says that the men-none of whom were registered with the agency to sell investments-solicited prospective investors via magazine, radio, and Internet ads, along with cold calls, marketing materials, and investor presentations. Polanchek purportedly looked for investors at cruises, bars, and self-help seminars. The men also were involved in The Investment Roadshow, which is an Arizona radio program that instructed listeners on how to use self-direct IRAs to put money in their companies. Prospective investors were guided to a website where they could schedule appointments and join seminars to find out more about the investment opportunities.
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Another RIA/Financial Radio Show Host Charged with Securities Fraud

Published on: September 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Bennett Group Financial Services founder and host of the radio show “Financial Myth Busting” with allegedly inflating her investment adviser firm’s assets under management, as well as its investment returns, to try to gain more clients.

Dawn J. Bennett is accused of claiming that the Washington-based firm had over $2 billion in assets even though it never oversaw more than $407 million. She made the inflated claim multiple times on her radio show. She also purportedly said that the Bennett Group’s investment returns were among the top 1% globally. The SEC said that these bragged about returns came from a model portfolio and did not represent any real customer returns.

At one point Bennett was number five on Barron’s “Top 100 Women Financial Advisors” list and number two on the DC “2011 Top Advisors” because of her alleged misstatements. She touted these rankings to potential customers.

In the regulator’s complaint, the Commission said that from at least 2009 to early 2011 Bennett and her investment adviser firm made material misstatements and omissions to try to bring in more clients. They also allegedly made other misstatements to attempt to conceal their fraud.
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SEC Moves to Stop Financial Fraud That Bilked Over 100 Investors Of Over $14 Million

Published on: September 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed fraud charges and obtained an asset freeze against three individuals accused of stealing investor money. According to the regulator, David Kayatta, Paul Ricky Mata, and Mario Pincheira raised over $14M from over 100 investors for two unregistered funds. The money was supposed to be placed in real estate.

The SEC’s complaint noted that on a website run by Mata, the alleged fraudsters advertised an “Indestructible Wealth Bootcamp” and promised said wealth when, in truth, both funds never made a profit. Online videos on the website and YouTube marketed this investment seminar and another one titled “Finances God’s Way.” Retirees were encouraged to sell their securities holdings and get involved in the unregistered funds.

The complaint states that Mata is an ex-licensed securities professional with a lengthy disciplinary record that he hid from investors. He and Kaytata allegedly promised guaranteed returns for one fund even though a state regulator had sanctioned them for making such promises. The two men are accused of diluting the investments in the other fund by bringing in new investors while making false assurances to current investors that the two funds were doing well. Pincheira, Kayata, and Matta purportedly charged dinners, entertainment, travel, and other expenses on Pincheira’s credit card and paid off the balances with investor money. Monthly balances on the card were often above $40,000.

Unfortunately, new technologies are making it easier for fraudsters to reach more investors. Well-edited videos and legitimate looking ads can make scammers appear as if they are experienced and qualified to offer financial advice when they are not. At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers are here to help investors who have sustained losses because of financial scams.
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SEC Gets Asset Freeze in Alleged $125M Fraud Case Involving Chinese Investors Seeking US Immigration

Published on: August 29, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission said that an asset freeze has been imposed on Lobsang Dargey, who is accused of bilking Chinese investors looking to obtain residency in the United States through the EB-5 Immigrant Investor Pilot Program. The regulator contends that Dargey and his Path America companies raised $125 million for two real estate projects in Washington State while diverting $14 million for other real estate projects and using $3 million for personal spending.

With the EB-5 program, foreign citizens can qualify for residency in the country as long as they invest at least $500,000 in a specific project that preserves or creates at least 10 jobs in the U.S. Dargey and his companies purportedly got 250 Chinese investors to invest money under the program.

The SEC said that Darby told U.S. Citizenship and Immigration Services and the Chinese investors that the funds would go toward a downtown Seattle skyscraper and a residential/commercial development with a farmer’s market in Everett. The regulator also claims that Darby misled investors about their chances of getting permanent residency for their investments. For instance, an investor’s application for residency can be denied if his/her funds are used for a project that materially deviates from the plan that was approved by the USCIS.
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SEC Says Broker-Dealers Need to Do a Better Job of Monitoring High Risk Products

Published on: August 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has put out an alert warning brokerage firms that they need to better monitor the sale of high risk complex investments to retail investors. The regulator said that its analysis of 26,600 transactions of $1.25 billion of structured securities products revealed that there has been quite a number of times when the investments were sold to investors for whom they were not appropriate.

According to InvestmentNews, the Commission examined 10 branch offices of brokerage firms. The assessments took place from January 2011 through the end of 2012. In one firm, they discovered $96 million of structured-product sales that were made to conservative investors. At two other broker-dealers, the SEC discovered high concentrations of structure products in the accounts of older investors. One representative purportedly modified a customer’s investment goals without that person’s consent after a sale went through to make the complex product purchases appear justified.

Brokers are required to abide by suitability standards, which mandate that investment products that are sold meet each client’s risk tolerance and investment goals. The SEC said that in exams that were conducted, there were firms that appeared to have weak suitability controls.

The Commission wants broker-dealers to regard this alert as a wake up call so that they will take a closer look at their compliance programs. The regulator noted that while all the broker-dealers that were scrutinized had written procedures and policies for suitability, the controls were not consistently or properly implemented. In some instances, suitability controls differed among the different branches of a firm.
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Over 14,000 Massachusetts Investors Receive Checks for Losses in $1B TelexFree Ponzi Scam

Published on: August 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The first checks for compensation in the $1 billion global Ponzi scam involving TelexFree Inc. have gone out to over 14,000 investors in Massachusetts. Victims received $2.9 million in total as part of a settlement with Fidelity Cooperative Bank. This is only a small portion of the alleged losses.

About 1.9 million investors are still waiting to get any financial relief in the case, which affected not just people in the US as the scam spread globally and virally online and by word of mouth. The alleged Ponzi scam involved fraudsters selling inexpensive Internet phone service for long distance calls. They were recruited as members for $1,400 increments. Big financial returns were promised to investors for bringing in other investors and using Internet ads to market the business. While early investors made money, many others suffered substantial losses.

Telex-Free was shut down in Brazil in 2013, but the Ponzi operation continued in Massachusetts where it was headed up by James Merrill and Carlos Wanzeler. Both deny the criminal and civil charges.
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Senate Bill Would Double Statute of Limitations for The SEC to Pursue Securities Violations

Published on: August 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Sen. Jack Reed, D-R.I. has introduced a bill that would give the Securities and Exchange Commission a longer period of time to uncover and impose penalties for financial fraud. Under his proposal the statute of limitations for pursuing civil penalties would be extended from five years to ten years.

The bill comes in the wake of the Supreme Court’s decision in Gabelli v. SEC, in which the Court held that the current five-year statute to take action against wrongdoers begins when the fraud happened and not upon discovery. According to an announcement about the new legislation, which was published on the Senator’s website, the ruling in Gabelli has made it even harder for the Commission to take action against offenders by shortening how much time the regulator has to investigate and pursue violations of securities laws.

The Gabelli case involved allegations of fraud by Marc J. Gabelli, an investment adviser who managed the Gabelli Global Growth Fund, which is a mutual fund. The SEC said that the alleged fraud took place from 1999 and 2002.

$30M Fraud that Bilked NHL Players Leads to Guilty Convictions

Published on: July 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury has found two men accused of running a financial scam that bilked investors, including several National Hockey League players, of $30 million guilty of money laundering, conspiracy, and wire fraud. The trial against Phillip Kenner, an Arizona financial adviser, and Tommy Constantine, a former professional race car driver, lasted ten weeks.

According to prosecutors, from 2002 to 2013, Kenner convinced at least 13 NHL players to invest $100,000 in a Hawaii real estate development. He met the players through a college friend who was drafted by the league.

He and Constantine stole the players’ money, causing $13M in losses. They used the funds to pay for their lavish lifestyles.

The two men, in a second scam, convinced many of the same hockey players to invest $1.4M in Eufora, a prepaid debit card business owned by Constantine. This money went into bank accounts controlled by the two men.

Massachusetts Regulator Charges Securities America Over Bait and Switch Ads By Broker Accused of Targeting Senior Investors

Published on: July 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin is charging Securities America with inadequate supervision of a broker who is accused of using a “grossly deceptive” radio ad campaign to target older investors. The state regulator said that the financial firm shouldn’t have approved the spots that Barry Armstrong ran on his AM radio show. His show, which airs on WRKO-AM, is syndicated on different stations.

The broker purportedly ran ads asking listeners to call for information related to Alzheimer’s Disease when what Armstrong really was doing was collecting their contact information so he could offer to sell them financial advice. Galvin’s office said that the broker engaged in ‘bait and switch’ by falsely advertising one service when he was really selling another type of service.

The regulator contends that Securities America failed to identify or prevent Armstrong’s unethical conduct by neglecting to ask even one question about the content of the ads or attendant mailing materials. Now, the state wants a censure, a cease-and-desist order, and a fine imposed against the firm.
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Two Former-Bank of Oswego Executives are Indicted for Fraud

Published on: July 3, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A federal grand jury has indicted ex-Bank of Oswego president and CEO Dan Heine and former CFO Diana Yates with running a widespread, five-year conspiracy to hide the Oregon-based bank’s troubled financial state from regulators. According to the indictments, the two of them authorized secret deals to conceal bad loans in the bank’s portfolio from the Federal Deposit Insurance Corp and its own board of directors.

According to the indictment, from September 2009 through last year, Yates and Hein conspired to defraud the bank. The reason for the allege conspiracy was to deceive its shareholders, board of directors, the public, and regulators by making the bank seem more financially robust.

Among their alleged acts:

• Using a bank employee to act as a straw man in a bogus real estate transaction.

• Having the bank make loans to a middleman. The latter would allegedly send loan proceeds to other beleaguered bank borrowers so that they could make their loan payments.

• Having the bank make loans and withdrawals from customer accounts without customer approval or knowledge.

• Mischaracterizing assets in reports to the Board and the FDIC, as well as making false entries in the report about the status of different loans and transactions.

• Hiding information about loans from bank insiders