Articles Posted in Texas Securities Fraud

Ex-Stanford Group Compliance Officer, Now MGL Consulting CEO, Says SEC’s Delay Over Whether to Charge Him in Ponzi Scam is Denying Him Right to Due Process

Published on: July 24, 2012 | by Shepherd Smith Edwards & Kantas, LLP

According to Reuters, Bernerd Young, a former compliance officer for the Texas-based Stanford Group. Co., contends that the Securities and Exchange Commission’s lack of decision over whether to charge him in R. Allen Stanford’s $7 billion Ponzi scam is not only a denial of his right to due process but also has hurt his professional life. Young, who is now the CEO of MGL Consulting, also used to work as a regulator with the National Association of Securities Dealers in Dallas. NASD is now the Financial Industry Regulatory Authority.

While Stanford has already been sentenced to 110 years in prison over his use of bogus CDs from his Stanford International Bank in Antigua to defraud his victims, the SEC has been constructing cases against a number of executives and financial advisers that worked for Stanford Group. However, legal disagreements and recusals between SEC officials and commissioners have reportedly caused delays to these probes that have left not just the bilked investors but also certain possible defendants waiting for resolution one way or another.

Young maintains that he didn’t know about the Ponzi scam. He says that the SEC came after him in Houston about one year after he was told by other Stanford executives that the Antigua bank’s portfolio was comprised of at least $1.6 billion in personal loans to Stanford himself. The Commission contended that it had evidence linking his actions to investors who were wrongly led believe that their CD’s were insured. Young received a Wells notice in June 2010 notifying him that the SEC intended to recommend that charges be filed against him.

Although the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act gives the Commission six months to decide on a Wells notice, SEC lawyers are allowed to file extensions, which they have done in their potential case against Young. The Commission’s current extension of 180-days on the case will expire in September.

Meantime, Young believes that MLG Consulting losing 20% of its clients, regulators terminating the firms’ plans to expand, and its need to file for bankruptcy is a result of the stigma associated with the Stanford Ponzi scam probe. As for the investors who were victimized by the fraud and who have expressed dismay at the SEC’s delay in deciding whether/not to charge certain ex-Stanford employees, their worry is that these same individuals could go on to defraud other investors in the meantime.

These Investors have also had to deal with a federal district judge’s recent decision to reject the SEC’s request that the Securities Investor Protection Corporation start liquidation proceedings to compensate Stanford’s victims, some of whom sustained millions of dollars in losses. SIPC had argued that it only protects customers against losses involving missing securities or cash that had been in the in custody of insolvent or failing brokerage firms members of the protection corporation. While Stanford Group was a SIPC member, Stanford International Bank in Antigua was not.

Former Stanford executive says in limbo as SEC case drags, Reuters, July 22, 2012

More Blog Posts:
CFTC Files Texas Securities Fraud Against TC Credit Services and its Houston Owner Over $1.4M Commodity Pool Scam, Stockbroker Fraud Blog, July 17, 2012

Texas Securities: SEC’s Bid To Get Stanford Ponzi Scam Victims SIPC Coverage is Denied by District Court, Stockbroker Fraud Blog, July 9, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012 Continue Reading ›

CFTC Files Texas Securities Fraud Against TC Credit Services and its Houston Owner Over $1.4M Commodity Pool Scam

Published on: July 17, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Commodity Futures Trading Commission is charging TC Credit Service, LLC, doing business as Del-Mair Group, LLC), and its owner Christopher D. Daley with Texas securities fraud. In its anti-fraud enforcement action, the CFTC is accusing them of running a $.1.4 million commodity pool scheme.

According to the CFTC, beginning at least as early as the start of 2010 and up until at least November 2011, the defendants fraudulently accepted and solicited at least $1.4 million from at least 55 participants who became involved in a commodity pool for trading crude oil futures contracts. However, alleges the agency, TC Credit Services wasn’t maintaining any commodity accounts under its name during this time, while Daley’s personal trading accounts were suffering net losses monthly.

The Texas securities complaint accuses Daley of omitting material fact, giving pool participants fake account statements to hide the fraud, and making fraudulent misrepresentations that: his trading in crude oil futures contracts would make 20% monthly returns on deposits, the pool never experienced a month of losses, and its value had grown 60% for the year starting March 2011. Daley also allegedly omitted that the pool did not keep any commodity interest account under its name, his personal futures trading accounts lost money each month, and he was not a properly registered Commodity Pool Operator with the agency.

The CFTC claims that Dailey used just a part of the participants’ money to trade futures contracts while he misappropriated the rest of the cash, including at least $100,000 to cover his own expenses and about $195,000 toward his own bank accounts.

One day after the agency submitted its complaint to the U.S. District Court for the Southern District of Texas, Judge Lynn N. Hughes issued an emergency order freezing the defendants assets and barring them from destroying records and books. The CFTC wants restitution for the defrauded pool participants and for the defendants to pay civil penalties and give back ill-gotten gains. It also wants registration and trading bans and permanent injunctions against future federal commodities laws violations.

Commodity Pool Fraud
These scams usual involve unregistered commodity pool operators that promise investors big profits with low risks. These fraudsters will usually capitalize on their personal relationships or reputations to get people to invest. Unfortunately, every year, investors end up losing millions of dollar in commodity pool scams and fake “hedge funds” that trade in commodity futures and options.

CFTC Charges Houston-based Christopher Daley and his company, TC Credit Service, LLC, with Solicitation Fraud and Misappropriation in $1.4 Million Dollar Commodity Pool Scheme, CFTC, July 11, 2012

Read the Complaint (PDF)

More Blog Posts:
Texas Securities: SEC’s Bid To Get Stanford Ponzi Scam Victims SIPC Coverage is Denied by District Court, Stockbroker Fraud Blog, July 9, 2012

Texas Securities Roundup: Morgan Stanley Smith Barney Sued Over Financial Adviser’s Ponzi Scam, Judge Dismisses Ex-GE Executive Whistleblower’s Lawsuit Over His Firing, & Ex-Stanford Financial Group CIO Pleads Guilty to Obstructing the SEC’s Probe, Stockbroker Fraud Blog, July 3, 2012

Ponzi Scam Receiver Can Go Forward with Securities Claim Against Texas Investor Who Benefited From the Fraud, Stockbroker Fraud Blog, June 26, 2012 Continue Reading ›

Texas Securities: SEC’s Bid To Get Stanford Ponzi Scam Victims SIPC Coverage is Denied by District Court

Published on: July 9, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the District of Columbia has rejected the Securities and Exchange Commission’s lawsuit, which sought Securities Investor Protection Corporation protection for the investors that were defrauded in R. Allen Stanford’s $7 billion Ponzi scam. Federal Judge Robert Wilkins said that under the definition of the Securities Investor Protection Act, the SEC did not meet its burden in proving that more than 7,000 Stanford investors were “victims” and, as a result, eligible for SIPC coverage of up to $500,000 each. Wilkins therefore has decided not to order a liquidation proceeding in federal court in Texas.

SIPC, which has a special reserve fund to compensate investors that sustain financial losses in brokerage firms that fail, has been adamant that it cannot cover Stanford’s Ponzi victims because their losses were not in a failed brokerage firm. The investors had bought CDs issued by Stanford International Bank Ltd., which is a foreign-based bank, and not through Stanford Group Co., the broker-dealer based in Houston.

The SEC disagrees, which is why it brought this lawsuit to get the court to make SIPC start liquidation proceedings. The Commission doesn’t believe that an actual separation between the Antigua- located bank and Stanford Group existed and that clients who invested with Stanford International Bank effectively placed their money in the broker-dealer. It also said customer status shouldn’t only depend on the identity of the entity where the clients’ funds have been placed and pointed out that Stanford used his control over both banks to divert the CD sale proceeds toward Stanford Group obligations and expenses. The regulator noted how certain investors were given information that caused them to believe that they were buying SIPA-protected CDs.

In his ruling, however, Judge Wilkins, decided that the SEC’s interpretation of SIPA was “extraordinarily broad and would unreasonably contort” the language of the statute. The district court said that while it sympathized with Stanford’s victims, it had an obligation to apply SIPA the way Congress intended and to stick to the statute’s narrow definition of what constitutes a “customer.” Wilkins noted that an investor is eligible to SIPC compensation only if he/she has placed securities or money in a broker-dealer that becomes insolvent. If the investor did not entrust securities or cash, then he/she is not a “customer” and not entitled to recovery from SIPC. The court said that seeing as Stanford’s investors put money into Stanford International Bank accounts to buy their CDs and not Stanford Group, then within the meaning of SIP the defrauded investors that bought the CDs are not Stanford Group customers.

SEC Loses Bid To Force SIPC Payout For Stanford Investors, Bloomberg, July 3, 2012

SEC Loses Bid to Gain SIPC Coverage for Stanford Investors, Bloomberg/BNA, July 5, 2012
Securities Investor Protection Act, US Courts
Securities Investor Protection Corporation

More Blog Posts:
Texas Securities Roundup: Morgan Stanley Smith Barney Sued Over Financial Adviser’s Ponzi Scam, Judge Dismisses Ex-GE Executive Whistleblower’s Lawsuit Over His Firing, & Ex-Stanford Financial Group CIO Pleads Guilty to Obstructing the SEC’s Probe, Stockbroker Fraud Blog, July 3, 2012

Ponzi Scam Receiver Can Go Forward with Securities Claim Against Texas Investor Who Benefited From the Fraud, Stockbroker Fraud Blog, June 26, 2012

Madoff Trustee Files Clawback Lawsuits Collectively Seeking Over $1B For BLMIS Feeder Fund Transfers, Institutional Investor Securities Blog, June 12, 2012 Continue Reading ›

Texas Securities Roundup: Morgan Stanley Smith Barney Sued Over Financial Adviser’s Ponzi Scam, Judge Dismisses Ex-GE Executive Whistleblower’s Lawsuit Over His Firing, & Ex-Stanford Financial Group CIO Pleads Guilty to Obstructing the SEC’s Probe

Published on: July 3, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In Dallas County Court, 11 investors are suing Morgan Stanley Smith Barney and its financial adviser Delsa Thomas for bilking them in an alleged Texas Ponzi scam. They say that Thomas “took advantage of their trust in her when she suggested that they invest in Tejas Eagle Financial LLC. (She gave them the choice of investing $250,000 or $125,000.) They invested hundreds of thousand dollars of their retirement money and savings.

The plaintiffs contend that the financial firm breached its duty of care to them by allowing Thomas to give them unsuitable financial advice that “would destroy their investments.” They are seeking damages for negligent misrepresentation, fraud, negligent supervision, and vicarious liability.

In other Texas securities news, ex-Stanford Financial group chief investment officer Laura Pendergest Holt has pled guilty to charges that she obstructed the SEC’s probe into Stanford International Bank, which was owned by Ponzi scammer Robert Allen Stanford. Holt, who testified before the Commission about SIB’s investment portfolio, now admits that she did so as a “stall tactic” to impede the agencies efforts to get key information. Stanford is behind bars for running a $7 billion Ponzi scam.

Ponzi Scam Receiver Can Go Forward with Securities Claim Against Texas Investor Who Benefited From the Fraud

Published on: June 26, 2012 | by Shepherd Smith Edwards & Kantas, LLP

According to the U.S. District Court for the District of Utah, R. Wayne Klein, the receiver of a Ponzi scam involving Winsome Investment Trust and US Ventures can go ahead with his claims to get back money from an investor who received more than she had invested. Judge Dale A. Kimball rejected Houston restaurateur and caterer Nina Abdulbaki’s claims that the fraudulent transfer claims of the receiver were not timely and that she isn’t subject to personal jurisdiction in the district.

Per the court, Winsome sent nearly $25 million to US Ventures, which allegedly bilked investors while claiming to be involved in commodity trading. Robert Andres, who ran Winsome Investment Trust, is accused of soliciting Abdulbaki for money to take part in a commodity futures pool.

She put $65,000 into Winsome and between 6/31/07 and 3/28/08 she received payments of $92,250. However, the court says that during the time that Abdulbaki was paid this amount, Winsome was not solvent because it was being run as a Ponzi scam.

Finding no merit to her claims that she isn’t subject to personal jurisdiction, the court said that federal receiver statutes allow for “nationwide service of process for in personam as well as in rem jurisdiction.” It also found that Abdulbaki’s statute of limitations defense does not succeed on a number of grounds, including that for this case equitable tolling is allowed under the doctrine of adverse domination. Per the doctrine, the statute of limitations for an entity’s claim is tolled when the entity is dominated and controlled by individuals taking part in behavior that harms it. The court found that the doctrine applies to this case because Andres had sole control of Winsome until the receiver’s appointment removed him. Therefore, says the court, the statute of limitations was tolled until the appointment of the receiver and his claims are, as a result, timely. (Before Klein’s appointment, receivership entities would not have been able to avail of their legal rights.)

Commenting on the court’s decision, Texas securities lawyer William Shepherd said, “The claw-backs system used in these cases is grossly unfair and treats fraud victims as if they were perpetrators! Money received years ago has been spent on necessities, invested into homes, businesses, or used to pay taxes or make donations. Un-ringing such bells can be very harsh! Innocent persons often receive benefits from others’ wrongdoing. While others die, many who use drugs with unknown dangers receive benefits. Resort owners profit from lavish events to entertain government employees. Crooks pay top dollar for homes and cars and tip excessively. The list of innocent persons who benefit from crimes is very long. At the very least, those who benefit from Ponzi schemes should be allowed to retain the interest they would have earned or profits they could have made if their funds had been properly invested.”

Klein v. Abdulbaki, D. Utah, No. 2:11-CV-0095

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Texas Securities Case: Mark Cuban Asks District Court To Reconsider Compelling the SEC to Produce Documents Related to Insider Trading Allegations Over Mamma.com Stock Offering, Stockbroker Fraud Blog, June 19, 2012
Dallas Man Involved in $485M Ponzi Scams, Including the Fraud Involving Provident Royalties in Texas, Gets Twenty Year Prison Term, Stockbroker Fraud Blog, May 8, 2012

Houston, Texas-Based Forethought Financial Group to Purchase The Hartford Financial Services Group’s Annuities Units, Stockbroker Fraud Blog, May 4, 2012 Continue Reading ›

Texas Securities Case: Mark Cuban Asks District Court To Reconsider Compelling the SEC to Produce Documents Related to Insider Trading Allegations Over Mamma.com Stock Offering

Published on: June 19, 2012 | by Shepherd Smith Edwards & Kantas, LLP

For the third time, billionaire Mark Cuban is asking the U.S. District Court for the Northern District of Texas to reconsider a previous ruling denying his motion to make the Securities and Exchange Commission provide summaries and interview notes related to its probe into his alleged insider trading activities. Cuban also wants the court to make the SEC give over similar documents in its investigation of Mamma.com.

The SEC had filed insider trading charges against Cuban, who is the owner of the Dallas Mavericks and the founder of HDNet, in 2008. The Commission is contending after Cuban became involved in a confidentiality agreement while on the phone with Mamma.com’s CEO about that company’s decision to take part in a PIPE offering, within hours of being given this insider information, he contacted his broker and allegedly improperly sold his 600,000 shares prior to the PIPE announcement. As a result, he avoided more than $750,000 in losses. Cuban has denied the Texas securities fraud allegations.

The district court threw out the SEC’s charges against Cuban in 2009, but the following year the U.S. Court of Appeals for the Fifth Circuit revived and remanded the Texas securities lawsuit against him. Then, last August Cuban moved to have certain documents produced, and he followed that request in September with an amended second motion. The SEC submitted its own motion to compel Cuban to produce documents in November.

Earlier this year, the district court ruled that Cuban is entitled to the nonprivileged parts of the SEC’s investigative files related to the probes on him and Mamma.com, as well as to documents having to do with the connection between the two investigations. The court, however, also decided that the Commission isn’t required to produce documents pertaining to certain individuals’ involvement with Mamma.com or the interview summaries and factual sections from the SEC’s interviews with certain witnesses in its Cuban probe.

Now, in his latest motion to compel, Cuban has stated that he believes that the summaries and notes he wants produced will allow his witnesses to remember events that happened nearly a decade ago. Referring to the court’s previous decision to partially grant his motion, Cuban said that the interview notes that the SEC produced after the court’s last order not only “exonerate” him but also demonstrate the “undue hardship” he is facing in litigating this lawsuit if the SEC is allowed to keep “withholding” interview documents.

SEC v. Cuban is slated to go to trial.

SEC Accuses Mark Cuban of Insider Trading, New York Times, November 17, 2008
Cuban Asks Court, for Third Time, To Compel SEC to Produce Documents, Bloomberg/BNA, June 12, 2012

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After District Court Dismisses Texas Securities Fraud Against Billionaire Mark Cuban, SEC Appeal Can Now Move Forward, Stockbroker Fraud Blog, August 17, 2009
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Dallas Man Involved in $485M Ponzi Scams, Including the Fraud Involving Provident Royalties in Texas, Gets Twenty Year Prison Term

Published on: May 8, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A judge has sentenced Joseph Blimline to 20 years in prison over his involvement in two complex, oil and gas Ponzi scams that took place in Texas and Michigan. The Dallas man, who was sentenced to two counts of conspiracy, was actually sentenced to 240 months behind bars for each count, but U.S. District Judge Marcia A. Crone said the sentences could run concurrently. He also has to pay restitution to his Ponzi scheme victims.

Blimline is accused of working with others to run a Michigan Ponzi scam between November 2003 and December 2005. That financial fraud made more than $28 million before it fell part. The government says that fraudsters promised investors inflated return rates. Blimline would then use payments from newer investors to pay previous investors, while also diverting investor payments for his personal gain.

The scammers then moved the Ponzi scheme to Texas in 2006 where they started running Provident Royalties in Dallas. That fraud eventually made more than $400 million from about 7,700 investors. Blimline was accused of also making materially false representations to Texas and failing to disclose material facts to investors to get them to invest in Provident. Once again, investor money was used to pay other investors. Also, Blimline got millions of dollars in unsecured loans from the investors’ money and directed Provident’s purchase of worthless assets belonging to the Michigan venture.

Houston, Texas-Based Forethought Financial Group to Purchase The Hartford Financial Services Group’s Annuities Units

Published on: May 4, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Forethought Financial Group, a privately-owned Houston based firm, is bringing more annuities business to Texas with its purchase of The Hartford Financial Services Group Inc. (HIG)’s annuities units. The deal was announced on April 26. It was just in March that The Hartford made it known that it was planning to get out of the annuities business to focus on mutual funds, group benefits, and property and casualty insurance. It will will, however, keep managing is current annuity policies.

The Hartford had reported huge earning losses in its annuities business. Earnings dipped from $96 million during to 2010’s final quarter to $86 million during 2011’s last quarter and its overall net income had also plunged downward to $127 million from $619 million the year before. Low interest rates also hurt the financial firm.

The terms of the sale to Forethought were not revealed. However, the Texas firm is buying The Hartford’s distribution, management, and marketing units.

Texas Broker-Dealer Pinnacle Partners Financial is Expelled by FINRA Hearing Officer Over Allegedly Fraudulent Sales of Unregistered Securities and Private Placements of Oil and Gas

Published on: April 25, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In a default decision, San Antonio broker-dealer Pinnacle Partners Financial, Corp. has been expelled by a FINRA hearing officer for Texas securities fraud. The company’s president Brian Alfaro has also been barred. The financial firm and its head are accused of running a boiler room, engaging in the fraudulent selling of unregistered securities and private placements for gas and oil, and making numerous misrepresentations related to these investments. Alfaro is also accused of taking some of the investors’ money to pay for personal spending and unrelated business costs. The default decision was issued after Alfaro failed to show up at the FINRA panel hearing.

It was a year ago that FINRA issued an indefinite suspension against Alfaro and Pinnacle for not complying with a temporary order to cease and desist from making fraudulent misrepresentations. The two parties, however, allegedly kept making them, in addition to omissions related to the sale and offering of specific oil and gas joint interests.

According to the hearing officer, the Texas securities firm and its president operated the boiler room between August 2008 and March 2011. 10 brokers made cold calls numbering in the thousands to draw in investors for drilling investments involving gas and oil that was controlled or owned by Alfaro. They were able to get over 100 investors to put in more than $10 million.

Allegedly, between January 2009 and March 2011, Alfaro misused some of these monies, which investors thought were going toward well production and drilling, to cover some of his personal spending and other businesses. The misrepresentations and omissions that they are accused of purposely making in numerous private placements about a number of matters, include those involving inflated natural gas prices, cash flow, gross returns, and projected returns for natural gas. For example, they allegedly gave out a document claiming that over $14 million had been distributed to investors when, in fact, that figure was closer to under $1.5 million. Alfaro and Pinnacle also supposedly got rid of unfavorable, key information from well operator reports and gave investors maps that didn’t show undesirable wells that were located close to sites where drilling was supposed to take place.

To make restitution, Pinnacle and Alfaro will have to rescind the contracts of those that invested in the fraudulent offerings. They also must pay back the sales commission to clients who don’t ask for rescission.

FINRA Hearing Officer Expels Pinnacle Partners Financial Corp. and Bars President for Fraud, MarketWatch, April 25, 2012
Texas broker-dealer expelled by FINRA hearing officer, Reuters, April 25, 2012

More Blog Posts:
Texas Securities Fraud: US Supreme Court Turns Down Ex-Enron Corp Chief Executive Jeffrey Skilling’s Appeal to Have His Criminal Conviction Overturned, Stockbroker Fraud Blog, April 18, 2012
Texas Securities Fraud: State Law Class Action in R. Allen Stanford’s Ponzi Scam Not Barred by SLUSA, Stockbroker Fraud Blog, March 20, 2012
Three Oil Service Executives Face SEC Charges in Texas Court For Allegedly Bribing Nigerian Customs Officials, Stockbroker Fraud Blog, March 22, 2012 Continue Reading ›

Texas Securities Fraud: US Supreme Court Turns Down Ex-Enron Corp Chief Executive Jeffrey Skilling’s Appeal to Have His Criminal Conviction Overturned

Published on: April 18, 2012 | by Shepherd Smith Edwards & Kantas, LLP

This week, the US Supreme Court decided not to hear the most recent appeal filed by Enron Corp’s former CEO Jeffrey Skilling to have his criminal conviction overturned. The justices offered no comment for why they decided not to review the U.S. 5th Circuit Court of Appeals’ ruling that turned down Skilling’s legal challenge.

A Houston jury had convicted Skilling in 2006 on 19 criminal counts for his role in orchestrating the massive corporate fraud crime that led to the demise of the energy trading giant. Over 4,000 company employees found themselves out of work when Enron filed for bankruptcy in 2001. Many of them lost their life savings. Meantime, investors sustained losses in the billion of dollars. (In 2008, Enron investors and shareholders received their respective shares of over $7.2 billion from financial institutions accused of playing a part in the company’s collapse. Some 1.5 million entities and people were eligible.)

Prosecutors had accused Skilling of taking part in a scam to inflate Enron’s share price by concealing the company’s true financial shape from the public. They claimed that he engaged in accounting tricks, “hocus-pocus, trickery… half-truths… and outright lies.” Although Skilling was convicted of securities fraud, insider trading, making false statements to auditors, conspiracy, and other crimes, he maintains that he didn’t commit any crimes. He also contends that he never attempted to profit from Enron’s collapse. Skilling is currently serving a sentence of over 24 years in prison.