Texas Securities Fraud

Stock Trader Faces Front Running Charges In Alleged $1.7M Texas Securities Fraud

Published on: June 1, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed Texas securities fraud charges against Daniel Bergin, a Dallas-based Cushing MLP Asset Management LP senior equity trader. Bergin is accused of front running, insider trading, and failing to notify his employer of certain trades.

According to the regulator, Bergin, who was a primary equity trader at the Swank Capital-owned registered investment advisory firm), allegedly made at least $1.7 million in profits in trading securities before making large orders of the same securities for Cushing customers. He purportedly used accounts that were registered in the name of Jacqueline Zaun, his wife, to make the personal trades. The Commission has named her as a relief defendant.

SEC Enforcement Division’s Asset Management Unit Marshall S. Sprung says that Bergin breached clients’ trust by secretly using data about their trades to garner an unfair advantage for himself and make massive profits. (As a Cushing, employee, Bergin had access to information about the trades (and their timing) that the RIA made for clients.

Texas Securities Roundup: $10M Ponzi Scheme, Foreign Note Sale Fraud, Promissory Note Scam, and Money Laundering Lead to Indictments, Criminal Sentences

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

$10M Texas Ponzi Scam Solicited Over 100 Investors

Austin resident Robert Roland Langguth is sentenced to four years in federal prison for running a $10 million Texas Ponzi scam that solicited over 100 investors to become involved in real and bogus construction projects and investments. Often, the money brought in would go toward supporting the 71-year-old’s extravagant lifestyle.

Monthly dividends paid to investors were actually payments from newer investors, which is typical for a Ponzi scam. Last year, Langguth pled guilty to money laundering and wire fraud charges. Aside from prison time, he will pay more than $10 million in restitution to investors that were defrauded.

Two Men Sentenced in Texas Securities Case Involving $30 Million Promissory Note Fraud that Bilked Investors Via Ponzi Scam

Published on: May 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In Harris County state District Court, two men have received prison terms of a decade each for running a Texas Ponzi scam that involved life insurance policy death benefits. Gregory F. Jablonski and Howard Glen Judah are accused of orchestrating a nearly $30M scam involving their National Life Settlements LLC, which sold securities that weren’t registered and which they falsely claimed were benefits-backed. Both of them pleaded guilty to selling an unregistered security and securities fraud.

Investors with National Life Settlements were paid using the money of new investors. The company made false promises, causing customers that they would get an 8-10% yearly return through the promissory notes. Active and retired state employees were among those targeted, and millions of dollars were taken from retirement plans and invested through the firm.

The National Life Settlements used insurance agents, many of whom did not have securities dealer licenses, as it sellers. The agents would go on to make $4M commissions.

Gemstar Capital Group Owner Sued for Texas Securities Fraud in $40 Ponzi Scam He Ran with Ex-Dallas Cowboy Football Player Gets 10-Year Prison Sentence

Published on: May 8, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Gemstar Capital Group owner Jeffrey J. Sykes has been handed a 10-year federal prison sentence for the $40 million Ponzi scam he ran with ex-Dallas Cowboy Michael Kiselak. Although the former NFL player has not been criminal charged, he was found liable for more than $20 million in 2009 over his involvement in the Texas securities fraud portion of the scheme. Now, the federal government is confirming that Kiselak defrauded investors of at least $24 million dollars in the financial scam run by Sykes.

In 2007, Sykes and Kiselak set up Kiselak Capital Group to pursue investors. According to the US Attorney’s Office, Kiselak used information given to him by Sykes to get investors to put in over $20 million. The ex-pro football player took out fees for himself and then gave the money to Sykes even though both Gemstar and Kiselak didn’t engage in Treasury note trading, which is what they told investors they were doing.

Instead, contend prosecutors, the two men used some of the funds for personal spending and in ventures that investors didn’t know about. While some of the funds did go back to investors, in certain instances, Sykes made false claims that the money was profit from T-Bill trading programs or their capital returned.

In the SEC’s securities fraud case against Kiselak, Sykes, and Gemstar, the regulator claimed that Kiselak promised 2.25% monthly returns to investors, falsified documents, dumped 95% of their funds in Gemstar, and failed to disclose that a 35% performance fee was levied on Gemstar profits.

Since Sykes put most of investors’ money in money market accounts, the latter were able to get back some of the funds, which they invested between 2007 and 2009. However, they lost approximately $12.9 million.

“Our firm has represented a number of high-profile athletes with securities fraud claims and we have also taken action against former athletes and the financial firms they represent,” said Shepherd Smith Edwards and Kantas founder and Texas securities fraud attorney William Shepherd. “I have been asked whether an unusually high number of former athletes become involved in such scandals. It is true that when an athlete’s career ends their income can fall precipitously. It is also true that many enter sales, including securities sales because of their ability to reach high net worth clients. But I do not believe former athletes are more likely than others to commit harmful acts. I do believe that when they become involved in problem situations these are far more heavily publicized.”

Owner of California private equity company pleads guilty in more than $40 million Ponzi scheme involving Texas investors, Dallas News, January 11, 2013

More Blog Posts:
Texas Senator’s Bill Would Make Plaintiffs’ Attorneys in Private Securities Cases Disclose Possible Conflicts Of Interest That Might Have Affected Client Retention, Stockbroker Fraud Blog, April 5, 2013
Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013
Continue Reading ›

Fifth Circuit To Hear Appeal Over Whether Dodd Frank’s Whistleblower Statute Covers Informants that Report FCPA Violations

Published on: April 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In June, The U.S. Court of Appeals for the Fifth Circuit will hear oral argument in Asadi v. G.E. Energy (USA) LLC, a novel appeal over whether the Dodd-Frank Wall Street Reform and Consumer Protection Act’s whistleblower statute give protections to informants who report that there have been possible Foreign Corrupt Practices Act abroad. The lawsuit had been dismissed by the U.S. District Court for the Southern District of Texas on the grounds that the Supreme Court’s decision in Morrison v. National Australia Bank Ltd. precluded applying the anti-retaliation provisions to behavior that occurred outside this country.

The plaintiff, Khaled Asadi, is a citizen of both Iraq and the United States. He had sued GE Energy (USA) LLC, his former employer, last year claiming that the company had violated these provisions when they fired him because he allegedly told his superiors that about a possible hiring situation that could violate the Foreign Corrupt Practices Act. He says that he spotted the alleged wrongdoing while working temporarily with Iraqi authorities in Jordan to obtain business for GE Energy.

After the district court in Texas threw out his case, Asadi filed his appeal, arguing that the Anti-Retaliation provisions specifically protect employees who make disclosures of any rule, law, or regulation under the Securities and Exchange Commission’s jurisdiction. He also maintains that American citizens working abroad who provide information about securities violations should be protected when those violations possess “extraterritorial applicability.”

Texas Senator’s Bill Would Make Plaintiffs’ Attorneys in Private Securities Cases Disclose Possible Conflicts Of Interest That Might Have Affected Client Retention

Published on: April 5, 2013 | by Shepherd Smith Edwards & Kantas, LLP

On March 22, Senator John Cornyn (R-Texas) introduced S. 652, which would mandate that plaintiffs’ lawyers in private securities actions reveal via sworn certification any fees or other conflicts of interest that might have impacted their retention of clients. Dubbed the “Securities Litigation Attorney Accountability and Transparency Act,” the bill would mandate that the courts review the certifications and disqualify any lawyers that had wielded such influence from the case.

Some plaintiffs attorneys feel that S. 652 disregards the effect that Private Securities Litigation Reform Act has had on securities cases. The bill has been referred to the Senate Banking Committee.

Meantime, another Texas lawmaker, House Financial Services Committee Chairman Jeb Hensarling , is asking the Securities and Exchange Commission to account for how it used resources in Gabelli v. SEC, a US Supreme Court case that affirmed the statute of limitations standard the regulator must abide by when bringing a civil penalty. Representatives Hensarling and Rep. Scott Garrett (R-N.J.), who chairs the HFSC’s Capital Markets subcommittee, wrote a letter to Commission chairman Elisse Walter expressing worry over how the regulator expends resources on “dubious legal theories” while failing to meet deadlines for rulemaking.

District Court Turns Down Dallas Mavericks Owner Mark Cuban’s Summary Judgment Request in Insider Trading Lawsuit by SEC

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

In SEC v. Cuban, the U.S. District Court for the Northern District of Texas has rejected Dallas Mavericks owner Mark Cuban’s request for summary judgment in the Securities and Exchange Commission’s insider trading case against him. This ruling allows the SEC to take the securities claims to a jury.

There have been numerous court rulings already in the regulator’s financial fraud case against Cuban, made on the grounds of an alleged misappropriation theory of insider trading in 2008. The Commission believes that Cuban broke the federal securities laws’ antifraud provisions when he sold stock shares that he owned in Mamma.com after finding out about material non-public information about a PIPE offering that the company was about to make. By getting rid of 600,00 shares, he went on to avoid losing $750,000.

Per the SEC’s Texas securities claims, Cuban fooled Mamma.com when he consented to honor a confidentiality agreement about the information related to PIPE and agreed to not trade on this data but then proceeded to sell his stock without first telling the company that he was going to trade on the information. His action caused him to avoid taking huge losses when Mamma.com’s stock price fell after the PIPE offering was announced to the public.

Texas Securities Fraud: IMS Securities Settles FINRA Case Alleging Inadequate Supervision of Wholesale Representatives

Published on: March 7, 2013 | by Shepherd Smith Edwards & Kantas, LLP

IMS Securities Inc. has settled a Financial Industry Regulatory Authority case accusing the Houston-based brokerage firm of inadequately overseeing its wholesale representatives. Per the SRO’s claims, IMS Securities allegedly failed to customize its supervisory system to its business in a manner that could allow it to be in compliance with securities laws and FINRA rules. However, despite agreeing to the $100,000 fine and censure, the financial firm is not admitting to or denying the findings.

Per FINRA, IMS Securities failed to supervise several wholesale representatives for nearly the first four years of their employment and had insufficient WSP’s detailing the steps for assessing certain securities products (even though the financial firm sold number of direct participation plans and privately-traded real estate investment trusts (REITs)). The regulator also said that there was one year when the financial firm did not conduct annual audits at two of its OSJ branches, and, for close to two years IMS Securities failed to properly maintain sales/purchase blotters, checks forwarded/received blotters, and other receipts and financial records.The SRO believes that not only did IMS Securities’ wholesale representatives send securities business-related electronic communications through outside email addresses but also, the firm did not keep the emails.

Texas Securities Fraud

Texas Courts Show Preference for Arbitration to Resolve Securities Fraud Claims and Other Business Disputes

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

Over the years, the Texas courts have followed federal courts in that they are now showing a preference that business disputes be resolved in arbitration rather than with a trial. Many view arbitration as a less costly, faster, and more logical way to solve conflicts between a company’s employees and its clients.

This willingness to have disputes be resolved outside a courtroom took on even more fervor in 2009, when the Texas Supreme Court determined that non-signatories in an arbitration agreement could be made to deal with their problems between each other away from the courtroom. The court held that an arbitration agreement between an employee and employer that was signed prior to the employee’s passing binds that employee’s wrongful death beneficiaries even if they didn’t sign the agreement. The state’s highest court said that in states where wrongful death actions are derivative, these are bound by the agreement of the decedent.

Then, in 2012, the Texas Supreme Court again exhibited its approval for dispute resolution methods not having to require a jury when it found in an employment dispute that a threat by an employer to use its legal right to fire an at-will employee if he didn’t sign a jury waiver is not coercion that would render a jury waiver agreement not valid. Also, a standalone arbitration agreement is still valid even if an employer keeps its right to unilaterally change or take back an employment policy in its employee manual. This includes arbitration policies (and even if the arbitration agreement doesn’t talk about the right to modify its terms or of incorporating the employment manual by reference.) Also, mutual promises to bring employment disputes to arbitration are satisfactory consideration for the agreements.

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit

Published on: February 6, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Fifth Circuit says it will not dismiss the Texas investment fraud case filed by the US Department of Justice against Joshua Wayne Bevill on the grounds of collateral estoppel and double jeopardy. The court held that although the Texas man previously pleaded guilty to securities fraud in a case that was related, he has not succeeded in showing collateral estoppel, or how, for double jeopardy purposes, the two cases’ respective “offenses are in law and in fact the same offense.'”

In this criminal case, Bevill is accused of committing financial fraud through a third company, Progressive Investment Partners. He allegedly took on a false identity and stole investor money (to pay for his expensive lifestyle) under the guise of getting them to invest in a supposed oil and gas venture. According to the government, he pleaded guilty to effecting a monetary transaction involving funds that were criminally derived.

Meantime, in the other Texas securities case to which Bevill already has pleaded guilty, he used his two companies, North Texas Partners and United Star Petroleum, which are based in Dallas, to bring in millions of dollars from investors by claiming to sell interests in purported oil and gas development projects.The government says that the defendant was actually just stealing their money.

Bevill has since tried to argue that the securities fraud charges from the two criminal cases are for the same offense. The Fifth Circuit, however, disagrees. The court determined that while Bevill committed the same type of investment scam on the two occasions, the actual acts involved are different and precludes the Double Jeopardy clause from being applied. Also, the court said that since the government has to now show that Bevill made statements to the victims that were fraudulent and this was not shown in the other case, he therefore did not show collateral estoppel.

Related Web Resources:
Northern District of Texas Successfully Prosecuted Numerous Individuals for Fraud in Connection with Oil and Gas Investments in Recent Years, US Department of Justice, January 12, 2012

5th Cir. Rejects Double Jeopardy Bid for Dismissal, Bloomberg/BNA, January 24, 2013

Double Jeopardy Clause, Cornell University Law School

More Blog Posts:
Alleged Houston, Texas Affinity Fraud Scam Targeting Druze and Lebanese Communities Leads to SEC Charges Against Day Trader, Stockbroker Fraud Blog, January 28, 2013
District Court in Texas Dismisses Securities Fraud Case Against Sports Franchisor, Stockbroker Fraud Blog, December 15, 2012

Reviving Antifraud Lawsuit Over Alleged Market-Timing Practices From Over Five Years Ago is Not the Answer, Say Ex-SEC Officials, Institutional Investor Securities Fraud, December 22, 2012 Continue Reading ›