Texas Securities Fraud

SEC Files Charges in $80M Texas Oil and Gas Scam

Published on: June 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is charging Breitling Energy Corp. (BECC), Breitling Oil & Gas Corporation, Patriot Energy Inc., Crude Energy, LLC, and eight people over an $80M Texas oil and Gas scam run by a Dallas man. Chris Faulkner, who is Breitling Energy Corp.’s CEO, is accused of starting the scam as far back 2011 through Breitling Oil and Gas Corporation (BOG), which sold “turnkey” oil and gas working interests.

Faulkner is charged with issuing misleading and false offering documents, trying to manipulate BECC’s stock, and misappropriating clients’ funds, including at least $30M for his own expenses, such costly meals, international travel, personal escorts, and jewelry. The SEC said that the false offering documents included fake statements and omissions regarding Faulkner’s experience, the ways in which investor money would be used, and drilling cost estimates. The documents also included reports by Joseph Simo, a licensed geologist. Simo’s production projections purportedly had no basis and the reports did not mention that he had ties to BOG.

The SEC said that BECC, Patriot Energy, and Crude Energy also were involved in the scam. Faulkner is accused of setting up the latter two companies so he could scam investors through additional offerings that resembled those offered by BOG. BOG, Patriot, and Crude would go on to raise over $80M from investors.

Also facing SEC charges are ex-Crude and Patriot employee Beth Hadkins, ex-BECC CFO Rick Hoover, BECC COO Jeremy Wagers, BOG co-owners Dustin Michael Miller Rodriguez, and Parker Hallam, Simo, and ex-BECC employee Gilbert Steedley. Wagers and Hoover,

Denver Broncos Quarterback Mark Sanchez and MLB Pitchers Roy Oswalt and Jake Peavy Defrauded in $30M Scam

Published on: June 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has gotten a court order to freeze the assets of investment adviser Ash Narayan. He is accused of bilking Denver Broncos quarterback Mark Sanchez, ex-Major League Baseball pitcher Roy Oswalt, and San Francisco Giants pitcher Jake Peavy, and other clients of millions of dollars in a Ponzi-like scam.

Also named in the case are The Ticket Reserve Inc., an online sports and entertainment ticketing business, its COO John A. Kaptrosky and CEO Richard Harmon. Narayan, who used to be managing director of Dallas-based RGT Capital Management, was on the ticket company’s board. He owned over 3 million shares of The Ticket Reserve Inc. stock and he was the primary person raising funds for the company.

According to the regulator, Narayan took over $33M from clients’ accounts and moved the funds to The Ticket Reserve. He allegedly did this without their knowledge or permission and he used unauthorized or forged signatures. Narayan also is accused of making Ponzi-like payments using newer investors’ money to pay earlier investors. Meantime, he was purportedly was paid almost $2M in concealed compensation.

Texas Appeals Courts Upholds $2.1M Mortgage-Backed Securities Ruling Against Morgan Keegan

Published on: May 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Texas Court of Appeals for the Fifth District has upheld a $2.1M judgment for a client of Houston Securities Fraud Attorney Sam Edwards of Shepherd Smith Edwards & Kantas. The ruling ordered Morgan Keegan to pay $2.1M for not telling investors about the actual risks involved in a mortgage-backed securities stake.

It was in October 2014 that a Dallas state court judge determined that the wealth management and capital markets firm had violated the Texas Securities Act by not accurately representing the risks involved in securities in which Purdue Avenue Investors LP and its principals Dana and Robert Howard had invested. These were MBS purchased by bond funds that Morgan Keegan underwrote and Morgan Asset Management managed. The purportedly undisclosed risk was that the funds were heavily involved in lower than investment grade structured finance.

The Howards invested more than $2M in the RMK Strategic Income Fund and the RMK Advantage Income Fund. The funds would go on to lose more than $2B.

Texas Fraud Cases: Houston Municipal Employees Pension System Sues BOFl, Dallas Police and Fire Pension System Accuses Financial Adviser of Fraud, and SEC Accuses Two Attorneys of $13M Escrow Scheme

Published on: May 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Houston Pension Fund Accuses Bank of Fraud
In the U.S. District Court Southern District of California, the Houston Municipal Employees Pension System has filed a securities fraud case against Bofl Holding (BOFI) Inc. The pension fund claims that the bank employed illegal lending practices and depended on off-balance-sheet entities to enhance profits.

According to the plaintiff, Bofl did not disclose its use of off-balance-sheet entities to buy lottery receivables, failed to put into place a healthy compliance system, and gave loans to foreign nationals even though they had suspect or criminal histories. The Houston pension fund also believes that Bofl did not fully disclose to investors that it had been subject to regulatory and government subpoenas or that there were pending federal probes against it.

Dallas Pension Fund Files Lawsuit Against CDK Realty Advisors
The Dallas Police and Fire Pension System is suing CDK Realty Advisors. The Texas pension fund claims that the advisory firm directed it toward risky deals while making excessively high fees and garnering other benefits. The plaintiff is seeking to recover millions of dollars.

CDK Realty Advisors once managed over $700M for the Dallas pension fund. Now, the latter is claiming multiple breaches of fiduciary duty. It is also claiming write-downs and losses of over $320M because of the risky investments. The Dallas Police and Fire Pension System says that CDK should have done a better job of protecting the fund’s members.

Texas Securities News: Round Rock Man Goes to Jail Over $4.5M Ponzi Scam, Linn Energy Files for Bankruptcy, Judge Says Wyly Brothers Committed Tax Fraud

Published on: May 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Texas Oil and Gas Ponzi Scam Leads to 13-Year Prison Term
The owner of RHM Exploration has been sentenced to over 13 years months behind bars for a Texas oil and gas Ponzi scam that raised about $4.5M from investors. William Risinger must pay more than $3.7M to those whom he bilked.

Risinger pleaded guilty to criminal charges of money laundering and wire fraud. From 11/10 to 6/14 he stole funds from investors for three gas, oil, and mineral ventures that were scams. Court documents state that he used proceeds from his fraud for his own spending and for ‘lulling” payments to make it appear to investors as if the joint venture they put their money into was running promised.

As part of his sentence, Risinger will spend 160 months in prison and serve three years of supervised release.

Linn Energy Seeks Chapter 11 Bankruptcy Protection
In other oil and gas news, Linn Energy LLC (LINE) has filed for Chapter 11 bankruptcy. The Houston-based company cited weak energy prices as a reason for having to seek protection.

Institutional Fraud Cases: Shareholders Sue PJT Partners Over Andrew Caspersen’s $95M Fraud, Sabal Limited Sues Deutsche Bank, and Dallas Pension Fund Sues Firm

Published on: April 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Securities Case Brought Over Caspersen Fraud
Shareholders of PJT Partners Inc. have brought a class action lawsuit against the publicly traded investment bank. The complaint comes in the awake of the arrest of Andrew Caspersen, who previously was one of the top officials at the bank’s Park Hill Group unit. Caspersen is accused of running a $95M fraud in secret. He is also a defendant in this lawsuit.

According to authorities, Caspersen falsely told investors that he was raising funds for supposed private equity investments when actually he was placing their money in high-risk options bets. He lost millions of dollars through options trading in his own accounts. Among his investors were the charitable foundation of a hedge fund and other institutional clients.

Caspersen was arrested and charged last month, as well as fired from PJT Partners. Investor Gregory Barrett claims that the investment bank misled shareholders by not disclosing that it had inadequate fraud prevention and compliance controls. The shareholder lawsuit points to purported evidence of alleged control failures, including an anonymous quote in the New York Times stating that Caspersen had availed of Park Hill Group’s payment system to give investors invoices and keep his scam going.

Sabal Sues Deutsche Bank Over Swap Transaction
Sabal Limited LP is suing Deutsche Bank AG (DB). Sabal claims that the German bank falsified documents after coming to the realization that the outcome of a swap transaction wasn’t going to be in its favor. Deutsche Bank is accused of improperly holding nearly $1M from the Texas asset management firm.

According to Sabal, in 2011, Deutsche Bank proposed a way of “cheapening” the firm’s capital costs through a swap tied to the DB Pulse USD Index. Deutsche Bank purportedly said that if the swap was based on this index it would generate a lot of funds. The transaction was finalized a few months later.

Texas-Based Linn Energy Extends Deadline for Exchanging LINE Units for LNCO Shares

Published on: April 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Linn Energy (LINE) says that its unit holders have until April 25 to exchange their units for LinnCo shares. According to SeekingAlpha.com, the Texas-based company is making the deal to avoid CODI (cancellation of debt income).

As it stands, Linn Energy has suspended its distribution and is making interest payments on its unsecured debt just in time before its 30-day grace period to make the payments ends in order to avoid a default. According to Nasdaq.com, the energy player paid interest of $60M on senior debt. At some point, Linn Energy may have to file for bankruptcy.

This month, Zach Investment Research downgraded Linn Energy shares from a buy rating to a hold one. It sent investors a research report with this new information. Stifel Nicolaus (SF) also lowered shares of the oil and gas company from a hold rating to a sell one in February. In March, Robert Baird lowered its target price on Linn Energy shares and established a neutral rating for the company in its research note. In December, Barclays (BARC) reaffirmed its hold rating of the shares. Ladenburg Thalmann downgraded Linn Energy from neutral to a sell rating and Citigroup (C) did the same in its research note.

Commodity Trading Cases: Galileo Trading Fined Over $1.6M, Trader Ordered to Pay More than $141K for Aiding and Abetting Fraud, and Criminal Defendant Must Pay Over $4.7M in Restitution

Published on: April 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Galileo Trading to Pay Penalties and Restitution to Settle Commodity Futures Fraud Charges
The U.S. Commodity Futures Trading Commission is filing fraud charges against Nathan Schleifer and his Galileo Trading LLC. Schleifer and his firm are accused of fraudulently soliciting customers to get them to trade commodity futures and for making a number of false statements and material representations to the National Futures Association about their trading practices.

The SEC said that from at least ’99 – ’14, Schleifer and his firm fraudulently obtained at least $2.8M from a number of people for supposed trading in a pooled investment in commodity futures. The Commission claims that Galileo and Schleifer misrepresented to pool participants that they’d had previous success trading in futures. They also purportedly claimed that they were making a lot of money for these pool participants when in reality there were substantial losses.

Schleifer is accused of falsely claiming that he was a skilled money manager. He guaranteed investors minimum returns and told them their money was safe. When at least one individual tried to take money out, Schleifer said he lost the funds during a flash crash in May. Later, he admitted that he lost all of the investor’s money years ago.

CFTC Permanently Bans Trader from Registering with the CFTC
The CFTC has settled charges against Brian Hinman for aiding and abetting a commodity pool fraud involving a number of Texas-based entities owned by Kevin G. White and for the fraudulent solicitation of participants to get involved in Revelation Forex Fund, a foreign currency exchange pool. It was in 2013 that the CFTC filed a federal court action against White and his KGW Capital Management, LLC and RFF GP, LLC. They were ordered to pay $3,365,888 in restitution and a civil penalty of over $4.1M. White is now serving prison time for mail fraud.

Houston Pension Fund Files Securities Fraud Case Against BofI Holding

Published on: April 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Houston Municipal Employees Pension System is suing Internet banking company BofI Holding Inc. (BOFI). The pension fund claims that the bank engaged in unlawful lending practices and other misconduct to enhance profits.

For example, according to the complaint, BofI Holdings refinanced a loan to a borrower involved in a gang-run gambling ring, did not disclose that it was using off-balance-sheet entities to buy lottery receivables, gave loans to foreigners with suspect or criminal backgrounds, did not have a healthy compliance system, and failed to tell investors that it was the subject of regulatory and government subpoenas and pending federal probes. The Houston pension fund is seeking class action status.

The case was spurred by a whistleblower court case filed by an ex-junior auditor at BofI Holdings. The whistleblower claimed that the Internet banking company issued loans to certain foreign nationals without properly vetting them even though some of them had criminal pasts. BofI denied his contentions and countered with its own lawsuit.

Texas Adviser Barred by State Over Fraudulent Life Settlement Sales

Published on: March 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Fort Worth-based investment adviser James Poe has been barred by the Texas State Securities Board from serving as a financial representative or broker in the state. According to the Board, Poe engaged in fraudulent sales practices involving life settlements.This is Texas securities fraud.

The Texas adviser, who is the president of Jim Poe & Associates, Inc., was the recipient of undisclosed payments through International Alternatives PR, which he also owns. The state says that firm consulted on life insurance policy selections and represented activity that was fraudulent.

Poe is also accused of getting paid 10% commission for product sales from ’11 to ’15 even though he was an unregistered agent at the firm. Such payments would be a violation of Texas law. During that period he purportedly recommended investments to certain individuals, who were promised a 75% return. What these investors didn’t know is that in addition to paying for the policy and its premiums, the “associated costs” they agreed to take on included the 10% commission to Poe and undisclosed payments (20% of what they invested) to International Alternatives PR, which consulted and identified which policies to choose.

The Texas State Securities Board’s order said that failure to disclose that 20% of what investors paid went to the firm, which Poe owned, was a failure by the firm to disclose material facts and that this type of activity was fraudulent. The state said that seeing as 30% of investor money went to Poe and his company, this posed a material risk to what an investor could potentially make.
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