Texas Securities Fraud

Texas Securities Regulator Orders BitConnect To Stop Allegedly Fraudulent Sales of Unregistered Bitcoin Investments

Published on: January 4, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In an Emergency Cease and Desist Order, the Texas State Securities Commissioner is demanding that BitConnect, which is based in the UK, stop a number of its investment programs, as well as its allegedly fraudulent sales of Bitcoin investments. According to the regulator, BitConnect sales agents are targeting prospective Texan investors, as well as investors in other parts of the US.

BitConnect issues its own currency, known as BitConnect Coins. As of earlier this month, the company was claiming that its market share for its cryptocurrency coins was $4.1B. It announced plans to issue up to 28 million coins.

According to the regulator’s order, BitConnect’s website BitConnect is an “open sourced, all-in-one Bitcoin and crypto-currency platform” that offers different investment opportunities. The site depicts BitConnect Coins as an “open source, peer-to-peer community-driven decentralized cryptocurrency” with which owners can “store and invest their wealth.”

Houston Technology Company is Accused of $28M Texas Securities Fraud

Published on: December 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed fraud charge against Behavioral Recognition Systems, Inc. and its former CEO Ray C. Davis. According to the Commission, the Houston-based technology company, and Davis solicited over $28M from hundreds of investors, diverting over $7.8M to the latter’s personal use.

Between 1/2013 and 7/2015, investors targeted in the alleged Texas securities scam were solicited for funds and their involvement in seven equity securities offerings. “Material misrepresentations and misleading statements” were allegedly made to them about: how investor proceeds would be used, executive compensation, operating costs, and related party transactions.

The regulator’s complaint, claims that Behavioral Recognition Systems and Davis lied more than once in order to get investors to give them their money. Offering documents claimed that investor money would go toward “working capital,” “growth, “mezzanine funding,” and “general corporate purposes” for Behavioral Recognition Systems. Instead, contends the SEC, Davis used shell companies under his control to divert about $11M of investor money for his own use–$7.8M of that money was allegedly diverted during the period at issue. Bogus invoices from the shell companies for services purportedly rendered were then generated to conceal the fraud.
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Texas Real Estate Investor Scams Lead to Investor Losses and Criminal Cases

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

An Austin man convicted of Texas securities fraud has been sentenced to 15 years in prison. James Elton Warr was also convicted on other multiple first-degree felonies, including money laundering, theft, and misapplication of fiduciary property in Travis County.

According to prosecutors, Warr stole $1.1M from investors who purchased contracts in unregistered real estate notes through his Warr Investment Group. He and his firm were not registered to sell these securities. Still, Warr promised 8% yearly interest, compounded monthly, and he touted the investments as “no-risk.”

The real estate deals were marketed as a safe alternative to more traditional investments. Warr promoted them online, including on YouTube.

Ex-Financial Adviser Settles Private Equity Fund Fraud Charges in Texas

Published on: December 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

James C. Tao, an ex-financial adviser, has settled civil charges accusing him of bilking investors in a private equity fund. It was the US Securities and Exchange Commission that brought the Texas investment fraud charges against him.

Among the allegations was that Tao misappropriated investor money and made material misstatements in offering documents for the Presidio Venture Capital fund. Donna Boyd, Tao’s ex-partner, also settled SEC charges in this case.

The regulator’s complaint contends that the two of them set up the fund four years ago to invest in Houston-based technology startups. They raised about $860K.

Texas REIT UDF Files Lawsuit Accusing Hedge Fund Manager of Damaging False Statements

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

The United Development Funding, a beleaguered Texas real estate investment trust accused of running a $1B Ponzi-like scam, is suing a hedge fund manager for the allegedly “false and disparaging” statements that led to the fraud allegations.

The REIT came under fire two years ago after an investor website issued a report accusing UDF IV of being run like a Ponzi scam. For the last two years, our Texas securities fraud lawyers at Shepherd Smith Edwards and Kantas LTD, LLP has been fielding calls from investors who suspect they may have suffered financial losses from investing in UDF Funds.

According to UDF’s complaint, filed in Dallas County, hedge fund manager Kyle Bass and his Hayman Capital Management are the ones that anonymously published the Ponzi allegations online and then later on a proprietary site. They allegedly did this to damage the UDF Funds.

In its filing with the US Securities and Exchange Commission about the complaint, the REIT accused the defendants of engaging in “false and disparaging statements,” including that: the UDF Funds were part of a Ponzi fraud, they were unable to run their own business, had insolvency problems that made their shares “worthless,” their real estate developments that were “not genuine,” and they “misappropriated” investors’ funds. The filing countered that the UDF Funds were “successful” and had actual real estate developments. The REIT claims that because Bass had set up a “large short position” in the Texas REIT before publishing the false allegations, he and his company “profited” from the damages wreaked by their claims.

Bass had a short position in the REIT. Once he disclosed this news, United Development Funding shares plunged in price. In response to this lawsuit, the hedge fund manager claims it is meritless.

Texas Securities: Investment Adviser Suspended by State Commissioner, Lawyer Ordered to Pay Almost $180K in Disgorgement Plus Interest, and Houston Man Must Pay Almost $3.8M & Serve 46 Months in Prison for $6.4M Diamond Investment Scam

Published on: November 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Texas Investment Adviser Suspend for Violating Earlier Securities Agreement
The Texas State Securities Board has suspended investment adviser John Michael McDonough for 90 days after he violated a past agreement that limited his business activities and required 212 Advisory Group to enhance its supervision of him. The undertaking agreement was a requirement for him to be approved as a registered investment adviser in Texas in 2015 while he worked with the Georgia-based firm.

At the time, the Financial Industry Regulatory Authority had already sanctioned McDonough, who used to be registered with AXA Advisors, LLC, over allegations that he engaged in “outside business activities” and a number of undisclosed private securities transactions. He was fined $10K and suspended by the self-regulatory organization.

Earlier this year, the Texas State Securities Board found that McDonough was in total violation of the undertaking agreement. Meantime, 212 Advisory was found to have failed in making sure that McDonough did not engage in any supervisory-like acts nor did it ensure that a firm principal was appointed as his direct supervisor.

Texas Securities Fraud: Houston Investment Advisor Gets Five Years for Defrauding Investors and Prison Sentences are Rendered in $6.4M Diamond Investor Fraud Case

Published on: November 10, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Lawrence Allen DeShetler will serve 60 months in federal prison for Texas investor fraud. The Houston man pleaded guilty to mail fraud earlier this year after he fraudulently solicited $1.9M from five clients.

Starting in 2014, the former investment advisor, certified planner, and head of DeShetler & Company started persuading clients that if they let him invest their funds they would make higher returns. These clients took money from their investment accounts and gave them to him. Unfortunately, DeShetler used the money on himself.

He has since admitted to using some of investors’ funds to build a house abroad. DeShetler also admitted that he persuaded one widow who was an octogenarian to liquidate a trust and transfer nearly $190K to him. He even stayed in her home while she went away. Upon her return DeShetler was gone and so were her investment documents.

FINRA Charges Sandlapper Securities Over Fraudulent Private Placement Markups of Up to 270% Involving Texas Saltwater Disposal Wells

Published on: October 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has filed fraud charges against Sandlapper Securities. According to the self-regulatory organization, the small brokerage firm created and sold private placements in saltwater disposal wells in Texas while charging undisclosed markups of up to 270% that eventually totaled over $8M on numerous deals.

Also accused of fraud are Sandlapper CEO Trevor Gordon, firm executive Jack Bixler, and two ex-brokers. FINRA contends that in 2011, the four men set up Tiburon Saltwater Reclamation Fund to invest in these wells. They also established a development company to handle the investments in the wells. However, alleges the SRO, between 12/12 and 7/13, Bixler and Gordon utilized the development company to intervene between the fund and the saltwater disposal well deals and they charged markups ranging from 161-270%. Not only were these markups excessive but also they went undisclosed. This occurred even though the fund could have directly bought interest in the wells.

Also, claims FINRA, beginning in 2013, Gordon began using the development company to obtain ill-gotten profits from investors who bought interest in the saltwater disposal wells. The company bought the interests and then resold them to investors, again at high, undisclosed markups of 67% to 376%.

Texas-Based Oil and Gas Company CEO Accused of Misappropriating Investor Funds

Published on: August 4, 2017 | by Shepherd Smith Edwards & Kantas, LLP

William Alexander Swell and his 7S Oil & Gas, which is a Texas-based oil and gas company, will pay $750K for allegedly misleading investors about commissions and administrative costs and for misappropriating a significant amount of their money. According to the US Securities and Exchange Commission, the oil and gas company and its CEO raised nearly $7M from at least 70 investors in the US via unregistered offerings in oil and gas projects. Securities were sold to investors as units in eight of these joint venture projects. All of the projects were based in Texas.

In its complaint, the regulator accused Sewell and 7S of bringing in investors through sales agents and YouTube videos, one of which guaranteed “some type of return.” Meantime, offering documents in the alleged Texas securities fraud purportedly stated that no more than 10% of investor funds would go toward marketing costs, commissions, and salaries, while 85% would be used on oil and gas operations.

Instead, the SEC is claiming, sales agents received up to 35% in commissions from investor proceeds while only 57% maximum of investor money went to the wells. Sewell and 7S are accused of using over $90K of investor funds on entertainment bills, his children’s school tuition, and other personal expenditures. “Sham ‘royalty payments’” were allegedly issued to some investors to make it appear as if they were getting a return on their investments.

Texas Company Settles SEC Charges Alleging Oil and Gas Offering Fraud

Published on: July 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Western District of Texas, Petroforce Energy LLC and its founder William Veasey have consented to pay almost $300K to resolve charges brought by the Securities and Exchange Commission in an oil-and-gas offering fraud. The Austin-based company and Veasy raised close to $3.9M from about 80 investors in four allegedly fraudulent offerings. Some investors backed more than one offer.

According to the regulator’s complaint, Veasey and Petroforce gave materials to investors that included misleading and false statements regarding the investments. These inaccurate statements allegedly misrepresented certain operational issues that impacted an earlier offering, overstated the wells’ profitability, and understated certain expenses. Other key information, including tax benefits involving the offerings, were also allegedly misrepresented.

The SEC Commission is accusing two Petroforce sales agents of acting as unregistered brokers in the oil and gas offering fraud. Javier Avarado and Ivan Turrentine, along with Veasey, offered and sold limited partnership and joint venture interests to investors in Petroforce securities. All of them made money from the sales.