Securities Fraud: RIA and Broker Will Go to Prison Over $15M Scam, Ohio Financial Adviser Pleads Guilty in Senior Financial Abuse Case, and SEC Wants Ex-Financial Investment Broker Barred

Registered Investment Adviser and Broker Convicted in $15M Pump-and-Dump Scam
A federal jury has found Sheik F. Kahn, a Nevada RIA, and Christopher Cervino, a New Jersey broker, guilty of securities fraud, conspiracy to commit securities fraud, wire fraud, and conspiracy to commit wire fraud in an over $15M stock scam that targeted 100 investors. Kahn also was convicted of aggravated identity theft crimes and investment adviser fraud. Both she and Cervino were previously affiliated with New York-based firm Primary Capital.

According to the U.S. Attorney for the Southern District of New York, the pump-and-dump scam involved VGTEL (VGTL), a publicly traded over-the-counter company. The securities scam was led by Edward Durante, who pleaded guilty last year to a number of crimes, including securities fraud, conspiracy, perjury, and money laundering involving VGTL.

Cervino and Kahn are accused of artificially inflating the stock price of VGTel from 25 cents/share to up to $1.90/share in 2012 and they also inflated trading volume, raising their ability to bring in private investments in the stock.

The government said that Durante paid Cervino $35K plus commissions for executing VGTel stock trades while Kahn was paid over $400K, including over $100K for liquidating clients’ annuities investments so proceeds could be directed to VGTel shares. Her clients lost nearly all of the funds that they invested in VGTel shares.

Ohio Financial Adviser Pleads Guilty in Elder Financial Fraud Case
Jon Schmidhammer has pleaded guilty to the criminal charge of unlawful securities practices involving elder financial fraud. The financial adviser was accused of stealing over $550K from an 81-year-old woman.

Schmidhammer was arrested last year after PNC Bank officials reported suspect bank activity involving an 81-year-old client. The woman said she never agreed to have the funds withdrawn from her account.

Authorities said that the Ohio financial adviser took $554K from her accounts and he confessed to making the withdrawals. The prosecution said that Schmidhammer made the woman, who had memory problems, sign blank checks that he then used to cover his own expenses.

As part of the plea agreement, the theft charge against Schmidhammer was dismissed. He is now facing up to eight years in prison and a $15K maximum fine.

SEC Takes Action to Bar-Broker Who Pleaded Guilty to $3.2M Securities Fraud
The US Securities and Exchange Commission has filed an administrative order to bar former Financial Network Investment Corp. broker William Bucci. The ex-broker pleaded guilty last year to securities fraud, mortgage fraud, and mail fraud. FINRA already barred Bucci in 2013.

According to the regulator, from ’03 through ’11, Bucci ran scams in which he bilked investors of more than $3.2M, including soliciting loans from associates and friends, claiming he could pay back the loans, filing false tax returns, soliciting customers for a business he said would importing Italian food products, and promising a 10% return rate. However, his federal indictment notes, there was no such business. Instead, he used most of investors’ money for his own spending.

Investment Adviser And Broker Found Guilty In Manhattan Federal Court Of Securities Fraud, Wire Fraud, Conspiracy And Aggravated Identity Theft Charges, Justice.gov, March 23, 2017

Financial adviser who ripped off elderly client pleads in fraud case, The Columbus Dispatch, March 14, 2017

The SEC Complaint in the Bucci Case (PDF)