May 14, 2013

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

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.

The state says that Judah and Jablonski did not get the life insurance policies they needed so they could investors. They two of them also falsely told investors that the Federal Reserve had given their firm billions of dollars. After an undercover probe led to the placing of National Life Settlements into receivership, investors got 69% of their money back.

Texas Securities Fraud
Our Houston securities lawyers represent investors that have been the victims of Texas financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today. Your no obligation, initial case assessment is free.

PROMOTERS OF DEATH BENEFITS FRAUD SENTENCED TO 10 YEARS IN PRISON, Texas State Securities Board, February 20, 2013


More Blog Posts:
Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

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Posted In: Life Settlements , Ponzi Scams , Texas Securities Fraud

May 8, 2013

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

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

Securities Fraudster Gets 10 Years in Prison, Courthouse News, May 6, 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

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

Continue reading "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" »

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Posted In: Texas Securities Fraud

April 12, 2013

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

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.”

Oral argument before the Fifth Circuit is scheduled for the week of June 3.

If you suspect that you were the victim of Texas securities fraud, please email or call Shepherd Smith Edwards and Kantas, LTD, LLP right away.

Asadi v. G.E. Energy (USA) LLC, Leagle.com

Morrison v. National Australia Bank Ltd.

Foreign Corrupt Practices Act


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

Galleon Group Founder’s Brother Pleads Not Guilty to Insider Trading, Institutional Investor Securities Blog, April 2, 2013

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Posted In: Texas Securities Fraud

Tags: FCPA Violations

April 5, 2013

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

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.

In Gabelli, the Supreme Court found that the five-year statute limitations for government civil liability actions start up when the fraud happened and not when it is found out. The Commission had been seeking the extended statute of limitations. However, the court said that the SEC ran out of time when it sued two investment adviser executives in 2008 in an alleged market timing scam that happened between 1999 and 2002.

While the defendants are the ones who asked the Supreme Court to hear the securities case, it was the SEC that appalled to the U.S. Court of Appeals for the Second Circuit. That court’s ruling, which favored the regulator, is what the nation’s highest court reviewed. Writing for a unanimous court, Chief Justice Roberts noted that unlike most private parties who don’t go around spending their days suspecting they were harmed, the Commission’s main purpose is to expose fraud and it has many tools to do so. The court expressed surprise that given the agency’s mission and the resources at its disposal to do the job, the regulator wasn’t able to discover the possible wrongdoing sooner and institute a civil case against Gabelli Funds within the five-year statute.

Hensarling and Garrett said the SEC should be more productive in the way it uses its resources, including implementing the long awaited Jumpstart Our Business Startups Act. They want the regulator to provide them with the exact number of hours Commission staff spent on Gabelli and how much this cost. They are also seeking an accounting of money paid to outside counsel over Gabelli.

Shepherd Smith Edwards and Kantas, LTD, LLP is a Texas securities fraud law firm that represents individual and institutional investors.

GOP Lawmakers Press SEC on Legal Costs, WSJ.com, March 25, 2013

S. 652: Securities Litigation Attorney Accountability and Transparency Act, GovTrakUS, March 22, 2013

Gabelli v. SEC (PDF)

More Blog Posts:
SEC Needs to File Securities Fraud Lawsuits Sooner, Rules the US Supreme Court, Institutional Investor Securities Blog, February 28, 2013

Texas Securities Fraud: IMS Securities Settles FINRA Case Alleging Inadequate Supervision of Wholesale Representatives, Stockbroker Fraud Blog, March 27, 2013

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

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Posted In: Texas Securities Fraud

March 16, 2013

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

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.

According to the district court, however, a real issue of fact exists regarding whether Cuban consented, at least implicitly, to not trade or use the nonpublic information about PIPE to his benefit. The court said that the SEC must prove that Cuban did not reveal to Mamma.com that he meant to trade on the nonpublic information that was shared with him. If the Texas billionaire did “fully disclose this intention,” then he didn’t deceive Mamma.com and he is not liable under insider trading’s misappropriation theory.

The district court rejected Cuban’s claim that he should get summary judgment because the information he had regarding Mamma.com was immaterial and not confidential and any agreement he made to keep what he knew confidential was not valid per the contract doctrine of mutual mistake of fact. The court said that the SEC has shown enough evidence for a jury to determine that the PIPE information revealed to Cuban was material.

PIPE Offering
PIPE stands for private investment in public equity. In this type of offering, investors agree to buy a certain amount of restricted shares at a set price. In exchange, the company consents to submit a resale registration statement that will allow them to sell back the shares to the public.

Please contact our Texas securities fraud lawyers if you believe your investment losses are a result of some time of investment scam or due to the misconduct of your financial representative.

Related Web Resources:
District Court Turns Down Dallas Mavericks Owner Mark Cuban’s Summary Judgment Request in Insider Trading Lawsuit by SEC, Reuters, March 5, 2013

Read the SEC Complaint


More Blog Posts:
Texas Securities Fraud: IMS Securities Settles FINRA Case Alleging Inadequate Supervision of Wholesale Representatives, Stockbroker Fraud Blog, March 7, 2013

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

US Sentencing Commission is Open to Public Comment on Proposed Amendments that Could Impact Insider Trading Convictions, Institutional Investor Securities Blog, February 29, 2012

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Posted In: Insider Trading , Texas Securities Fraud

March 7, 2013

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

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
If you were the victim of Texas securities fraud or if you are a Texan investor who has lost money because of investor fraud, please contact Shepherd Smith Edwards and Kantas, LTD, LLP. Our main office is in Houston, Texas, but we also have offices in New York, NY, Chicago, IL, Los Angeles, CA, San Francisco CA, Troy, MI, and Alexandria, VA.

Related Web Resources:
FINRA BrokerCheck

FINRA Disciplinary Actions (PDF)

More Blog Posts:
Texas Courts Show Preference for Arbitration to Resolve Securities Fraud Claims and Other Business Disputes, Stockbroker Fraud Blog, February 15, 2013

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Citigroup Ordered by FINRA to Pay $1.2M Over Bond Markups and Markdowns, Institutional Investor Securities Blog, March 27, 2012

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Posted In: FINRA , Texas Securities Fraud

February 15, 2013

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

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.

Meantime, the US Supreme Court also continues to express preference for arbitration. In 2010, the nation’s highest court held that arbitrators and not judges are the ones with the authority to decide whether unconscionability exists when the agreement gives the former that authority. Responding to a discrimination lawsuit by an employee, the court sided with employer Rent-A. Center. Inc., which had sought a motion to compel arbitration due to an agreement that the plaintiff had signed as part of terms for employment.

"Since landmark decisions in 1987, arbitration agreements in investors' account documents have been strictly enforced,” said Texas securities arbitration lawyer William Shepherd. “Since that time virtually all disputes between securities firms and their clients have been decided in arbitration, not courts. Arbitration decisions, including in securities arbitration, are fully binding on the parties. In fact, is far more difficult to appeal or 'vacate' an arbitration award than it is to appeal a court decision. This can be bad for investors if the decision is unfavorable, but this is good for investors who win because they only rarely have to face years of appeals before they are paid."


More Blog Posts:
Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Alleged Houston, Texas Affinity Fraud Scam Targeting Druze and Lebanese Communities Leads to SEC Charges Against Day Trader, Stockbroker Fraud Blog, January 28, 2013

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

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Posted In: Arbitration , Texas Securities Fraud

February 6, 2013

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

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

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Posted In: Texas Securities Fraud

January 28, 2013

Alleged Houston, Texas Affinity Fraud Scam Targeting Druze and Lebanese Communities Leads to SEC Charges Against Day Trader

The SEC has filed securities charges against day trader Firas Hamdan for allegedly running a Texas securities scheme in the Houston area that defrauded investors from the Druze and Lebanese communities. Hamdan, who used to be the treasurer of the Houston branch of the American Druze Society, is known among members of both groups. He is accused of raising over $6 million from over 30 investors over five years. He allegedly claimed to run a high-frequency trading program that applied a proprietary trading algorithm.

According to the Commission, Hamdan promised investors 30% in yearly returns, while misrepresenting his trading program as being safe, when, in fact, it had suffered $1.5 million in losses. He also allegedly falsified brokerage records to hide huge trading losses and overstate assets.

When profits that were promised to investors didn’t come in, Hamdan is said to have told clients that the money got entangled in the MF Global debacle and the debt crisis in Greece. He also is accused of lying about a nonexistent cash reserve account and a supposed $5 million “key-man” insurance policy that made clients’ investments secure.

Affinity Fraud
Texas affinity fraud is typical an investment scheme that targets members of a group that usually consists of people belonging to the same race, religion, age, ethnicity, community or or some other affiliation. Often, the fraudster is someone who belongs to the group, is a friend/associate of one or more members, or has has some other “in” that causes them to feel like they can trust this person with their money.

For example, Hamdan was an ex-officer of the American Druze Society. He solicited investors by talking to family and friends in the Druze and Lebanese communities. He also asked those that signed with him to talk to their friends about investing.


SEC Tips on Avoiding Affinity Fraud:
• Even if you know/trust the person bringing you the investment opportunity, make sure you do your own due diligence to make sure this isn’t a scam. The person trying to bring you into the deal may not even know that he/she too is also being fooled.

• Don’t invest in anything that promises “guaranteed” returns or massive profits. “Too good to be true” investments are exactly just that: too good to be true.

• Make sure the investment opportunity is spelled out in writing.

• Don’t feel pressured into investing in an “opportunity” out of fear that it won’t be there if you don’t join up now.

• Watch out from unsolicited e-mails from strangers touting investment opportunities.

SEC Charges Trader in Houston-Area Investment Scheme Targeting Lebanese and Druze Communities, SEC, January 29, 2013


More Blog Posts:
US Supreme Court to Hear Appeals of Petitioners Over Stanford Ponzi Lawsuits, Stockbroker Fraud Blog, January 25, 2013

District Court in Texas Dismisses Securities Fraud Case Against Sports Franchisor, Stockbroker Fraud Blog, December 15, 2012

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Texas Securities Fraud

January 25, 2013

US Supreme Court to Hear Appeals of Petitioners Over Stanford Ponzi Lawsuits

Our Texas securities fraud law firm has been bringing you the latest legal news developments in the efforts of defrauded investors to recoup their losses stemming from the $7 billion Stanford Ponzi scam. While the fate of R. Allen Stanford has already been sealed—he is serving 110 years in prison, which is essentially the rest of his life—for many of his victims how and when all of them will recover their losses still remains a big question mark.

On Friday, the US Supreme Court agreed to hear three petitioners’ appeals over the sale of bogus certificates of deposits from Stanford’s Antigua bank. The requests come from insurance brokerage Willis Group Holdings Plc., which has been accused of being involved in the bogus CD sales that Stanford used to defraud his clients, and two law firms that used to represent Stanford himself. They want the court to determine whether or not under the Securities Litigation Uniform Standards Act plaintiffs can assert state-law class action claims against the petitioners.

While a federal judge said in 2011 SLUSA does preempt such state law cases, the U.S. Circuit Court of Appeals for the fifth circuit later went on to revive the securities lawsuits. Now, it will be up to the nation’s highest court to make the final call.

The defendants want the lawsuits against them dismissed because while the CDs were not covered securities, per SLUSA, they say that the state class action claims are still subject to SLUSA preclusion because plaintiffs are contending that it was misrepresentations made claiming that the CDs were backed by SLUSA-covered securities that persuaded them to make the purchases. The way the Supreme Court chooses to go in this matter could define the breadth (or lack thereof) of SLUSA preclusion in more complex cases involving multi-layered transactions impacted by alleged fraud.

In other Stanford-related news, Ralph Janvey, the receiver appointed to settle Stanford’s estate, submitted a plan proposing that bilked investors are to get an initial $55 million payment for their claims. About 18,000 investors who were victims could benefit. However, Stanford Victims Coalition director Angela Shaw believes that the fees collecting the money would cost are much greater than the payout.

Also, James M. Davis, the star witness for the prosecution in the fraud trial against Stanford, has been sentenced to five years in prison. Davis, who was the former billionaire’s CFO, pleaded guilty to three fraud and conspiracy charges in 2009. At the criminal trial in 2012, Davis admitted to assisting his ex-boss by generating bogus documents and falsifying bank profits to conceal the scam.

Supreme Court to Hear Stanford Ponzi Lawsuits, Insurance Journal, January 21, 2013

Allen Stanford victims to receive $55 million under receiver plan, Reuters, January 11, 2013

Securities Litigation Uniform Standards Act (PDF)


More Blog Posts:
Texas Securities: SEC Says District Court is Mistaken In Not Forcing SIPC to Act for Stanford Ponzi Scam Victims, Stockbroker Fraud Blog, January 19, 2013

Clearing House Association Wants Greater Protections for Clearing Members, Institutional Investor Securities Blog, December 31, 2012

District Court in Texas Dismisses Securities Fraud Case Against Sports Franchisor, Stockbroker Fraud Blog, December 15, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Stanford Group Co. , Texas Securities Fraud

January 19, 2013

Texas Securities: SEC Says District Court is Mistaken In Not Forcing SIPC to Act for Stanford Ponzi Scam Victims

Addressing the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission maintains that a lower court was wrong to deny the agency’s bid to compel the Securities Investor Protection Corporation to act on behalf of investors who were victimized by the Allen R. Stanford Ponzi scam. Thousands of investors sustained losses as a result of the scheme. Meantime, Stanford is serving 110 years behind bars for running the $7 billion scheme that involved certificate of deposit sales issued by his Stanford International Bank in Antigua.

“Stanford Securities was a Houston-based firm which sold uninsured CD’s issued by foreign firms to investors all over the world,” said Texas securities fraud attorney William Shepherd. “Its founder was tried for securities fraud in a Federal Court and was sentenced to what will be a lifetime without parole in a federal penitentiary. Little has been gotten back by investors who, unlike the victims of the Ponzi scheme perpetrated by Barnard Madoff, have not been able to recover up to a maximum of $500,000 each from SIPC.”

It was last summer that the U.S. District Court for the District of Columbia noted the preponderance of the evidence standard and found that investors that had bought CD’s from Stanford’s Antigua bank were not, under the meaning of the Securities Investor Protection Act, “customers” of Stanford Group Co., which was Stanford’s brokerage firm in the US. Had that court ruled otherwise, SIPC would have to start liquidation proceedings for the broker-dealer and some 21,000 Stanford CD purchasers could have sought reimbursement through SIPC claims.

The SEC, however, is now saying that the district court had concluded improperly that it was up to the Commission to set up its case by a preponderance of the evidence standard. It also maintains that the court made a mistake by depending on a definition for the term “customer” that was an “unduly narrow construction” and to which the agency supposedly did not meet that burden.

The Commission believes that considering that the proceeding was “preliminary, summary,” and the regulatory agency has a supervisory role, it is more appropriate to apply the “probable cause standard applicable to SIPC in initiating liquidation rather than the preponderance standard needed to ensue liquidation. The court also said that in dealing with whether Stanford’s Ponzi scam victims are considered for SIPA purposes “customers,” the district court did not succeed in factoring in the unusual nature of Stanford’s group of companies. Both the Antigua bank and Stanford’s US brokerage belonged to a group of companies that ran as one fraudulent entity that disregarded “corporate boundaries.”

Court Committed Errors In Stanford SIPC Case, SEC Argues, Bloomberg/BNA, January 15, 2013

Securities Investor Protection Corporation

Securities Investor Protection Act


More Blog Posts:
District Court in Texas Dismisses Securities Fraud Case Against Sports Franchisor, Stockbroker Fraud Blog, December 15, 2012
Major Newspapers Say Judicial Arbitration by Delaware’s Court of Chancery is Unconstitutional, Institutional Investor Securities Blog, January 15, 2013

Clearing House Association Wants Greater Protections for Clearing Members, Institutional Investor Securities Blog, December 31, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Annuities and Insurance , Financial Firms , Stanford Group Co. , Texas Securities Fraud

December 15, 2012

District Court in Texas Dismisses Securities Fraud Case Against Sports Franchisor

Judge Sam A. Lindsay of the U.S. District Court for the Northern District of Texas has thrown out a securities fraud lawsuit accusing sports franchisor Brent L. Coralli of inducing investor Lee Purser to put $400K into an “emerging lottery” game operation in Peru. Other defendants in the case: Jet Text, LLC, Sting Group Holdings, Coralli Inc. Texas Titans Futbol LLC, and Royal Nations, LLC.

Per the plaintiff’s Texas securities case, Coralli approached Purser about a Peruvian mobile lottery. The supposed opportunity would allow investors to buy into the “emerging” operation that would be licensed there and have no competition. This type of lottery lets participants use cell phones and texting instead of scratch-off cards and paper tickets to purchase chances. Coralli allegedly promised that there would millions of dollars in gaming profits from Corporacion Galena, which is the Peruvian affiliate of British interactive gaming and mobile company Managed Gaming Solutions, and he boasted of having close ties with then-Peruvian President Alan Garcia Perez.

Purser claims that he and Corralli made an agreement that for a $400,000 investment, Purser and his affiliates would own 10% of Silverstrings Investments, a strategic partner of Management gaming Solutions and an industry expert, and that the investment would be protected by Jet Text. However, he is now claiming that Jet Text never gave him proof of his investment, which he made in two installments.

The lottery license was, indeed, awarded to Galena, with 20 year rights. However, Purser says that afterwards he did not hear from those involved and that the money he paid never went to Silverstrings or Galena. He believes that the Peruvian venture was executed to launder money, commit crimes, corruption, and fraud, violate state and federal laws, and harm Purser and his interests. He wants damages for securities fraud and breach of contract.

The defendants, including Coralli, had moved to have the case dismissed, under Rule 12(b)(6) of the Federal Rule of Civil Procedure, the Federal Rules of Civil Procedure, and the Private Securities Litigation Reform Act. Purser, however, filed an “Opposition” to their motions while noting that the original complaint needed to be amended to provide more specificity about what statements were misleading and why.

Now, Judge Lindsay is dismissing the case. He found that the plaintiff’s allegations are not enough to back a federal securities law claim. In particular, he noted the “conclusory” allegations reached about the behavior and motives of defendants and determined that while Purser may have brought up the possibility that Coralli had taken part in wrongdoing this is not enough to demonstrate that the plaintiff is entitled to relief. Lindsay also said that Purser did not identify the misleading statements or name those that made them. The Judge declined to exercise supplemental jurisdiction over the plaintiff’s state law claims involving breach of duty, contract breach, and fraud.

'About That $200,000 ...', Courthouse News, December 1, 2011

Read the Opinion (PDF)


More Blog Posts:
Houston-Based Receiver Files $1.8B Class Action Filed Against Law Firms Accused of Helping R. Allen Stanford Carry Out His $7B Ponzi Scam, Stockbroker Fraud Blog, December 5, 2012

SEC Clawback Lawsuit Against Two Former Arthrocare Corp. Executives Over Fraud Scheme Can Proceed, Says District Court in Texas, Stockbroker Fraud Blog, November 24, 2012

SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors, Institutional Investor Securities Fraud Blog, February 10, 2012

Continue reading "District Court in Texas Dismisses Securities Fraud Case Against Sports Franchisor" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Texas Securities Fraud

December 5, 2012

Houston-Based Receiver Files $1.8B Class Action Filed Against Law Firms Accused of Helping R. Allen Stanford Carry Out His $7B Ponzi Scam

Ralph Janvey, the Stanford receiver based in Houston, has filed a putative class action lawsuit against Hunton & Williams LLP and Greenberg Traurig LLP, two law firms accused of playing roles that allowed R. Allen Stanford to execute his $7B Ponzi scam. The securities complaint, which was filed in the U.S. District Court for the Northern District of Texas, is seeking $1.8 billion in damages and $10 million that it claims Stanford gave to the law firms during their years of working together. The plaintiffs are contending Texas Securities Act violations, aiding and abetting participation in a fraud scam, aiding and abetting breach of fiduciary duty, and conspiracy.

Also named as a defendant is Yolanda Suarez, who was not only a former Greenberg Traurig associate but also she served as Stanford Financial Group’s general counsel and later as chief of staff. Janvey says that Stanford could not have kept his scam going for over 20 years without these parties’ help.

Per the Texas securities case, Carlos Loumiet, an ex-Greenberg Traurig partner who later went to work for Hunton & Williams (he is now a DLA Piper partner and is not a defendant in this lawsuit), had a “very close personal relationship” with Stanford and played a part in helping the now convicted fraudster run his global scam. This included helping him establish sales and marketing offices in the US. Loumiet and Greenberg Traurig also allegedly helped Stanford set up the transactions that would allow the Ponzi mastermind to use the money he took from Stanford International Bank Ltd. in Antigua and invest them in “speculative venture capital” deals and property in the Caribbean. The law firm is also accused of giving Stanford securities law counsel and advice on a regularly basis.

After Louimet wen to Hunton, he and that law firm allegedly continued to help Stanford with the fraudulent activities. Because of Louimet and Suarez, contend the plaintiffs, Stanford was able to operate his scam outside the bonds of government oversight and regulations for over two decades.

Also named as a plaintiff is the Official Stanford Investors Committee, which is tasked with supervising the receivership of Stanford’s properties and assets. Meantime, class certification is being sought for investors that as of February 2009 had purchased or were still in possession of Stanford CDS or had accounts at SIBL. The proposed class wants actual and punitive damages.

Greenberg Traurig says the class action securities claims are “false and baseless.” The firm claims that it was unaware that any illegal conduct was taking place.

The $7B Stanford Ponzi fraud involved the selling of CDs from the Antigua-based bank so that Stanford could fund a number of businesses that failed, support his lavish lifestyle, and bribe regulators. The former tycoon was convicted for his crimes and sentenced to 110 years behind bars.

Receiver for Stanford Ponzi Scam Sues Lawyers, Courthouse News Service, November 16, 2012

Janvey Files $1.8B Class Action Against Law Firms Over Stanford Work, BNA/Bloomberg, November 28, 2012

Texas Securities Act


More Blog Posts:
After SCOTUS Overturns Oklahoma Supreme Court Decision Over Enforceability of an Arbitration Agreement’s Non-Complete Cause, Case Now Goes to Houston, Texas, Stockbroker Fraud Blog, November 30, 2012

SEC Clawback Lawsuit Against Two Former Arthrocare Corp. Executives Over Fraud Scheme Can Proceed, Says District Court in Texas, Stockbroker Fraud Blog, November 24, 2012

SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors, Institutional Investor Securities Fraud Blog, February 10, 2012


 

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Posted In: Class Action Lawsuits , Ponzi Scams , Stanford Group Co. , Texas Securities Fraud

November 30, 2012

After SCOTUS Overturns Oklahoma Supreme Court Decision Over Enforceability of an Arbitration Agreement’s Non-Complete Cause, Case Now Goes to Houston, Texas

For the third time in two years, the US Supreme Court has stood up for arbitration agreements, overturning yet another decision by a state court. The case is Nitro-Lift Technologies v. Howard. The Oklahoma State Court had ruled that the non-compete provision in an employment arbitration agreement was unenforceable because it is unconscionable.

Per the specifics of the case, Nitro-Lift Technologies, an oil well servicing company based in Louisiana, had given two of its ex-Oklahoma employees a demand for arbitration after they resigned and went to work for a competitor. Nitro contended that the former employees had violated a non-compete clause and that because of this they must now arbitrate. Meantime, the two ex-employees filed a lawsuit in Oklahoma state court seeking a declaratory judgment that the non-compete provisions could not be enforced.

The Oklahoma Supreme Court would go on to rule in the ex-Nitro employees’ favor, finding that state precedent allows the court jurisdiction over arbitration agreement provisions and that the non-compete clause is a violation of public policy there. Therefore, the court found, the clauses could not be enforced and are void.

Nitro’s attorney would go on to argue that this ruling was not consistent with SCOTUS precedent regarding arbitration’s primacy, per the Federal Arbitration Act. The company submitted a cert petition noting that the US Supreme Court had recently reversed the Florida’s state court ruling in KPMB v. Cocchi after the lower court had decided that Ponzi fraud victims could sue the auditor. The Supreme Court had also found in Marmet Health Care v. Brown that under the Federal Arbitration Act, West Virginia cannot bar arbitration in nursing home cases involving wrongful death and personal injury. Other lawsuits in which the nation’s highest court made similar determinations include Buckey Check Cashing v. Cardegna and AT & T Mobility v. Concepcion.

The Supreme Court’s justices apparently remain adamant that states cannot impose their own ideas regarding public policy on arbitration agreements. The court has described the FAA as the “supreme Law of the Land,” and they interpret the act in a manner that lets businesses make employees and consumers arbitrate instead of go to court. This can be a benefit for businesses, especially as a cost-saving measure (and especially when class actions are involved).

The ex-Nitro employees will now arbitrate their non-compete claims in Houston. According to their attorney, the two of them did not know that they had given up certain rights when they signed the agreement.

Texas Securities Fraud
Our Houston securities lawyers represent both clients with Texas arbitration claims and investor fraud lawsuits. Please contact Shepherd Smith Edwards and Kantas, LTD, LLP today. Your first case evaluation is free.

US Supreme Court Scolds Oklahoma Supremes for Discounting Arbitration Precedent, ABA Journal, November 26, 2012

Nitro-Lift Technologies v. Howard, US Supreme Court, (PDF)


More Blog Posts:
SEC Clawback Lawsuit Against Two Former Arthrocare Corp. Executives Over Fraud Scheme Can Proceed, Says District Court in Texas, Stockbroker Fraud Blog, November 24, 2012
Texas Securities Fraud: Investors Bilked in $68M Dallas Ponzi Scam Hope To Recover Some Funds Via Rare Guitar Auction, Stockbroker Fraud Blog, October 25, 2012

US Supreme Court's Janus Ruling May Compel SEC to File More Aiding, Abetting, and Control Person Liability Securities Claims, Institutional Investor Securities Blog, March 7, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Arbitration , Texas Securities Fraud

November 24, 2012

SEC Clawback Lawsuit Against Two Former Arthrocare Corp. Executives Over Fraud Scheme Can Proceed, Says District Court in Texas

The U.S. District Court for the Western District of Texas says that the Securities and Exchange Commission’s clawback lawsuit against two Arthrocare Corp. (ARTC) executives who received bonuses and compensation following accounting irregularities made by two other company officials can move forward. The defendants, ex-CEO Michael A. Baker and ex-CFO Michael Gluck, have not been charged with misconduct, and the district court said they do not need to have done anything wrong to be sued under the Sarbanes-Oxley Act’s Section 304.

This Texas securities case is one of many resulting from an alleged revenue recognition scam at the medical device manufacturer that was executed by two of its senior executives. (Arthrocare has since restated its financials for 2006 through 2008’s first quarter.) The SEC had argued that even though Baker and Gluck weren’t the charged with wrongdoing, under SOX’s Section 304, they must pay ArthroCare back their stock profits and bonuses that they received during the period of the accounting fraud.

The two men had filed a dismissal motion contending that the statute cannot be interpreted to make CFOs and CEOs with no scienter elements liable. They also claimed that statute’s vagueness not only makes it void but also it has other constitutional deficiencies. Now, however, the district court has denied their motion, finding that no separate misconduct or scienter by the defendants was necessary.

The court said that without ambiguity, the statute’s words “are dispositive” and Section 304 is unambiguous in mandating that CFOs and CEOs pay back the issuer for compensation that qualifies within a year of a filing that the issuer must restate because of misconduct by it or its agents. The district court also rejected the constitutional challenges made by the defendants and disagreed that the statute is constitutionally vague because it doesn’t clarify whose misconduct compels reimbursement. Referring to the statutory language, the court said that the ‘misconduct’ at issue in this case is misconduct by the issuer, and, since issuers include business entities and corporations, their agents, acting within the scope and course of their jobs, are also included within the definition of issuer.

The district court also disagreed with the two men’s contention that Section 304 is unconstitutionally vague. It said that the requirements for CFOs and CEOs are “crystal clear” when read along with the rest of SOX. It also noted that Section 302 tells executives exactly what they have to do to avoid reimbursement liability under Section 304, which is to ensure that the issuer submits financial statements that are accurate.

SEC v. Baker (PDF)

Sarbanes-Oxley Act of 2002


More Blog Posts:
Texas Securities RoundUp: Provident Royalties CEO Pleads Guilty in $485M Ponzi Scam and District Court Upholds $100K Arbitration Award in Adviser Fee Dispute, Stockbroker Fraud Blog, November 10, 2012

Texas Securities Fraud: Investors Bilked in $68M Dallas Ponzi Scam Hope To Recover Some Funds Via Rare Guitar Auction, Stockbroker Fraud Blog, October 25, 2012

Govt. Not Prepared for Next Inevitable Financial Crisis, Says Ex-SEC Chair, Institutional Investor Securities Blog, July 30, 2012

Continue reading "SEC Clawback Lawsuit Against Two Former Arthrocare Corp. Executives Over Fraud Scheme Can Proceed, Says District Court in Texas " »

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Posted In: SEC Enforcement , Texas Securities Fraud

November 10, 2012

Texas Securities RoundUp: Provident Royalties CEO Pleads Guilty in $485M Ponzi Scam and District Court Upholds $100K Arbitration Award in Adviser Fee Dispute

Paul R. Melbye, Provident Royalties’s CEO, has pleaded guilty to running a $485M Ponzi Scam that defrauded over 7,700 investors in the US. He faces up to 47 years behind bars.

According to prosecutors, Melbye did not disclose material facts to investors and he issued materially false representations to get them to make payments to Provident. The Securities and Exchange Commission had sued Melbye and Provident principals Henry Harrison and Brendan Coughlin over the alleged securities fraud in July 2009. The men were accused of taking the money of investors, who were promised yearly returns greater than 18%, and spending less than half of it on oil and gas leases when they had promised that most of the funds would go toward investments, leases, mineral rights, development, and exploration. The “returns” that older investors received came from the investment money put in by newer investors.

Coughlin and Harrison, who were indicted on criminal charges in July, are waiting to go to trial. The two Dallas men were each charged with 10 counts of mail fraud and one count of conspiracy to commit mail fraud. Per the criminal allegations, starting around September 2006, Harrison, Coughlin, and others made false representations and did not reveal material facts in order to get investors to make payments to Provident. (These allegedly false representations included statements that investors’ money would only go toward a specific oil and gas project.) They also allegedly failed to disclose that Blimline, a Provident founder, had obtained millions of dollars in unsecured loans and he had previously been charged with securities fraud.

In other Texas securities news, the U.S. District Court for the Southern District of Texas has decided not to overturn the $100,000 arbitration award that investment adviser representative Robert Thompson has been ordered to pay in a fee division dispute. The case involves Thompson and Chris Jones, who is a California resident. Both are former Walnut Street Securities representatives.

Jones and Thompson had gone into an agreement together in 2005 to divide fees from Thompson’s clients in the Houston area. Two years later, they became involved in a dispute over this arrangement and they sought resolution via a Financial Industry Regulatory Authority arbitration panel, which refused to have the venue in Texas. Instead, the hearing took place in California where the arbitration panel found that Thompson was liable to Jones for $100,000. All other counterclaims and claims were denied.

Thompson then went to court with a motion to vacate claiming that the decision to have the hearing take place in California prejudiced his rights to cross-examine witnesses and provide evidence. The district court denied Thompson’s motion to vacate.

The court said that since the statutory standards for vacatur under the Texas General Arbitration Act and the Federal Arbitration Act are substantially the same, it would use TAA in its analysis while looking at the common law that oversees the two statutes. The court also said that Thompson did not provide a transcript or order from the arbitration panel, which was needed for his argument. The court determined that regardless of whether or not the arbitration panel made a mistake in placing the venue in California, the award cannot be vacated because Thompson did not show how this venue decision prejudiced his rights.

Texan Pleads Guilty in $485 Million Ponzi, Courthouse News, November 9, 2012

Dallas Men Indicted in $485 Million Investment Fraud Scheme in East Texas, FBI, July 12, 2012

Joint Venture Collapses Into FINRA Arbitration Slugfest Over Fee Division, Forbes, October 8, 2012


More Blog Posts:
Texas Securities Fraud: Investors Bilked in $68M Dallas Ponzi Scam Hope To Recover Some Funds Via Rare Guitar Auction, Stockbroker Fraud Blog, October 25, 2012

Texas Securities Fraud: District Court Says Houston-Based Private Equity Firm Can Proceed with Claim Over $10M Film Financing Investment, Stockbroker Fraud Blog, October 19, 2012

Provident Royalties Faces $485 Million Texas Securities Fraud, Says SEC, Stockbroker Fraud Blog, July 26, 2009

Continue reading "Texas Securities RoundUp: Provident Royalties CEO Pleads Guilty in $485M Ponzi Scam and District Court Upholds $100K Arbitration Award in Adviser Fee Dispute " »

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Posted In: Texas Securities Fraud

Tags: Provident Royalties

October 25, 2012

Texas Securities Fraud: Investors Bilked $68M Dallas Ponzi Scam Hoping To Recover Funds Via Rare Guitar Auction

One year after The Rand Family pled guilty to bilking over 200 investors in $68M Dallas Ponzi scam, a number of their expensive instruments are going up for auction. The money from the sales will go towards paying back their victims.

The Rand Family, who owned oil and gas owned Aspen Exploration, scammed investors into financing the operation and drilling of a number of Texas oil wells. At least a 40% return was promised. However, not all of the investors’ monies went to drilling oil. Instead, US Postal investigators discovered that the family was using some of the funds to pay for their expensive lifestyle, which included private jets, yachts, country club membership, and the purchase of real estate, jewelry, musical instruments, and an original Picasso.

Their company, Aspen, sold net revenue interests and working interests in a number of wells in the Rancho Blanco Corporation State Gas Unit in Texas. Prosecutors accused the Rands of making false representations, such as telling them that their money, which would only be commingled when necessary, would go toward testing, drilling, and completion of a well and that they would managerial rights. Instead, the money was moved out of Aspen’s bank accounts as the defendants spent it on personal expenses and to drill and pay for the operation of other wells.

The Rands’ guilty plea agreements for their Texas securities fraud:

William Anthony “Tony” Rand: One count of securities fraud, one count of conspiracy to commit mail fraud.

Greg Rand: Three counts of securities fraud, one county of conspiracy to commit mail fraud.

Bill Rand: Three counts of securities fraud

Mark Rand: Fraud

(Joel Peterson: One count of securities fraud, one count of conspiracy to commit mail fraud. Peterson worked at Aspen in sales.)

Prosecutors claim that Aspen neglected to tell investors that Tony Rand, who was the financial manager of the company, had served time behind bars for securities fraud in the past.

In a separate oil and gas scam, yet another son, Wayne Anthony Rand, pleaded guilty to theft. In that financial scheme, $8M was raised from victims for Black Lake Energy Inc./Rock Wall Oil Co. Also, last month, a fifth son, Jeff Rand, was sentenced to 57 years behind bars for defrauding investors of $7.9 million for another oil and gas scheme.

The auction of the Rand Family’s instruments is scheduled for this weekend. Among the pieces being offered are 1959 Gibson Les Paul Sunburst Left-handed guitar and a 1960 Les Paul, also left-handed, (Only two others were ever made. One is lost and the other belongs to singer Paul McCartney. Also up for offers are two other left handed guitars: a 1965 Strat Sunburst and a 1959 Fender Stratocaster Hardtail.

Rare Guitars Seized In Dallas Ponzi Scheme To Go Up For Auction, Forbes, October 22, 2012

Family members plead guilty in oil and gas scam, Dallas News, January 26, 2011

JEFF RAND SENTENCED TO 57 MONTHS IN PRISON FOR DEFRAUDING INVESTORS OF $7.9 MILLION, US Department of Justice, August 27, 2012


More Blog Posts:
Texas Securities Fraud: District Court Says Houston-Based Private Equity Firm Can Proceed with Claim Over $10M Film Financing Investment, Stockbroker Fraud Blog, October 19, 2012

Texas Securities Fraud: Investor Sues Behringer Harvard REIT I, Stockbroker Fraud Blog, September 26, 2012

Institutional Investment Fraud Roundup: Ex-Analyst Guilty in $61.8M Insider Trading Scheme, SLUSA Precludes Investor Class Action Over Hedge Funds that Failed After Madoff Ponzi, & Dark Pool Operator Settles Subscriber Info. Breach Charges, Institutional Investor Securities Blog, October 18, 2012

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Posted In: Ponzi Scams , Texas Securities Fraud

October 19, 2012

Texas Securities Fraud: District Court Says Houston-Based Private Equity Firm Can Proceed with Claim Over $10M Film Financing Investment

The U.S. District Court for the Southern District of Texas is allowing Small Ventures USA LP, a private equity firm based in Houston, to move forward with its Delaware fraud claim against the promoters that solicited its $10 million investment in RT Newbridge III LLC, a film financing venture. Judge Ewing Werlein Jr. also decided that the plaintiff could proceed with its Texas securities fraud claim against MLRT Film Holdings LLC, Rizvi Traverse Management LLC, and a number of individual defendants.

Small Ventures contends that the defendants made false representations that most of Newbridge's investments, including independent movie Tekken (comprising about 30% of its portfolio), were financially healthy, when in fact they were not. Meantime, they also allegedly hid or did not reveal material facts, such as the fact that this particular film’s producer had defaulted on an $11 million loan from Newbridge and the movie wasn’t commercially viable and had received poor reviews at the Cannes Film Festival.

The plaintiff claims that to persuade the private equity firm to invest, in 2008 defendant Suhail Rizvi told Small Ventures founder William O. Perkins III that the loan Newbridge had made to produce the film was low risk because of having been over-collateralized with tax credits or foreign pre-sales. Spreadsheets were also passed on to the Small Ventures to make it appear as if the Newbridge portfolio was doing well. Several months after investment discussions began, Small Ventures decided to invest $10 million in return for a membership interest in Newbridge.

When Newbridge failed and the defendants did not collect on the Tekken loan, Small Ventures lost its investment. The plaintiff contends that if it had known the truth about the state of Tekken, it would have taken action to sell its interest so that damages could be mitigated. Small Ventures also believes that the defendants were negligent in the way that they managed the Tekken loan due to their failure to comply with the terms mandated for collection of the completion guaranty bond.

The plaintiff wants damages for what it claims was tortious conduct related to the sale, solicitation, and management of its $10 million investment. It is also contending fraud, grossly negligent and negligent misrepresentation, fraud by nondisclosure, gross negligence and negligence, breach of fiduciary duty, and claims under the Texas Securities Act.

Per the court, Small Ventures stated a fraud claim under Delaware law, which is applicable to the fraud claim, per a choice of law clause that can be found in the agreement between the parties. The court turned down the defendants’ contention that the fraud claims should be thrown out due to “no other representations” and “no reliance” clauses that could be found in the subscription agreements. It did, however, dismiss Small Ventures’ fiduciary duty claims.

Small Ventures USA, L.P. v. Rizvi Traverse Management, LLC et al, Justia Dockets and Filings


More Blog Posts:
US Supreme Court Considers Hearing Stanford Ponzi Lawsuits, Stockbroker Fraud Blog, October 3, 2012

Texas Securities Fraud: Investor Sues Behringer Harvard REIT I Stockbroker Fraud Blog, September 26, 2012

Texas Securities Fraud: Ex-Stanford Chief Investment Officer Gets 3-Year Prison Term for Her Part in $7 Billion Ponzi Scam, Stockbroker Fraud Blog, September 18, 2012

Continue reading "Texas Securities Fraud: District Court Says Houston-Based Private Equity Firm Can Proceed with Claim Over $10M Film Financing Investment " »

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Posted In: Texas Securities Fraud

October 3, 2012

US Supreme Court Considers Hearing Stanford Ponzi Lawsuits

The Supreme Court’s justices are looking to the Obama administration for advice about an appeal made to a ruling allowing the victims of R. Allen Stanford’s $7 billion Ponzi fraud can pursue law firms, insurance brokers, and outside parties for damages. The defendants, third party firms, want the court to stop the securities lawsuits, which are based on Texas and Louisiana law. If the court were to hear the appeals, it would put to test the Securities Litigation Uniform Standards Act, which was enacted so that if a class action lawsuit comes from a misrepresentation issued “in connection” with a covered security’s sale or purchase, investors cannot go to state courts to get around federal limits placed on such claims. The appeals is asking how close that connection has to be for a state lawsuit to be barred.

Investors have been trying to get back the money they lost in Stanford’s Ponzi fraud, which involved the sale of CDs from his Antigua bank. Numerous securities lawsuits have been filed, and at Shepherd Smith Edwards and Kantas, LTD, LLP, our Texas securities fraud lawyers represent victims of the Stanford Ponzi scam and other financial schemes.

Our Texas securities fraud law firm also continues to provide updates on the different Stanford-related securities litigation on our blog sites:

Last month, investor plaintiffs won the first victory against the SEC involving the Federal Tort Claims Act when their lawsuit, Zelaya v. United States, survived a motion to dismiss in the U.S. District Court for the Southern District of Florida. The plaintiffs contend that the Commission was negligent in the way it dealt with the Stanford Ponzi scam, and upon finding out about the fraud should have told the Securities Investor Protection Corporation right away. The government had submitted a motion to dismiss claiming lack of subject matter jurisdiction. Judge Robert Scola Jr., however, agreed with the plaintiffs.

In other Stanford Ponzi fraud news, the Securities and Exchange Commission recently told the U.S. District Court for the District of Columbia that it would appeal a ruling that denied its application to make SIPC protect Stanford investors. The securities case is SEC v. SIPC. While Judge Robert Wilkins rejected the SEC’s application, finding that the Ponzi victims that bought the CDs from Stanford’s Antigua-based bank are not, within the Securities Investor Protection Act’s meaning, clients of US-based broker-dealer Stanford Group Co., the SEC told BNA that it doesn’t agree with this ruling.

SIPC maintains that although it sympathizes with Stanford’s victims, the SEC’s theory clearly conflicts with the duties SIPC was tasked with by Congress. Per SIPA, SIPC must provide reimbursement to clients of brokerage firms that failed. The compensation is for cash or securities that have gone missing from their accounts.

Also related to SEC v. SIPC, the DC district court has denied one investor’s intervention motion to the lawsuit. The court said that not only is investor Richard Cheatham’s motion untimely but also, the SEC has done an adequate job of representing the interest of investors.

Cheatham contends that Stanford Group Co. stole his brokerage funds. He claims his facts are dissimilar from what SEC and SIPC had stipulated in the securities case, and for him to get back his SIPC insurance claim that is his by right, his intervention must be allowed.

Meantime, the SEC continues to go after former Stanford executives. It recently set up administrative proceedings against former Stanford Group president Daniel Bogar, ex-Stanford Group Holdings compliance head Bernard Young, and Stanford Group’s most recent private client group head, Jason Green. The Commission contends that the three of them often went to Antigua to conduct banking due diligence and therefore must have known that certain key misrepresentations about the CD program were being made. However, rather than protect investors, the three of them allegedly encouraged Stanford Group representatives to keep marketing the CDs without the key disclosures, and they received significant compensation following the increase in sales. All three men have denied any wrongdoing.

High Court Seeks Views on Stanford Fraud Lawsuits, NASDAQ, October 3, 2012

Securities Litigation Uniform Standards Act (PDF)

Zelaya v. United States (PDF)

SEC v. SIPC (PDF)

Read the SEC's appeal to the DC District Court's Ruling in SEC v. SIPC (PDF)

SEC Order Names Ex-Stanford Execs, Alleges They Had Role in Ponzi Scheme, Bloomberg/BNA, September 5, 2012


More Blog Posts:
Texas Securities Fraud: Investor Sues Behringer Harvard REIT I, Stockbroker Fraud Blog, September 26, 2012

Texas Securities Fraud: Ex-Stanford Chief Investment Officer Gets 3-Year Prison Term for Her Part in $7 Billion Ponzi Scam, Stockbroker Fraud Blog, September 18, 2012

Institutional Investment Fraud Roundup: Ex-Hedge Fund Managers’ Guilty Plea Over Bilking Investors of Almost $1M Get 3-Year Prison Term, SEC Sues Investment Adviser Over Alleged $37M Ponzi, and SEC Files Lawsuit Over Purported “Fund of Funds” Scam, Institutional Investor Securities Blog, September 26, 2012

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Posted In: Financial Firms , Ponzi Scams , Stanford Group Co. , Texas Securities Fraud

September 26, 2012

Texas Securities Fraud: Investor Sues Behringer Harvard REIT I

In her Texas securities lawsuit, investor Lillian Hohenstein is suing Behringer Harvard REIT I, one of the biggest nontraded real estate investment trusts. Hohenstein, who purchased 1,275 shares from the trust between 2004 and 2008, claims that the REIT, Behringer Harvard Holdings LLC, President and Chief Executive Robert Aisner, other company executives, and its board members of breach of fiduciary duty and negligence. Aisner and board members also are accused of making allegedly misleading and false statements when they recommended that investors turn down outside fund offers from those wanting to pay the REIT’s shares for as low as $180/share.

According to Hohenstein ‘s Texas REIT lawsuit, the REIT attempted to conceal its poor performance by using investors’ own money to pay them, while simultaneously depleting the company of millions of dollars even as top executives benefited. Behringer Harvard REIT I is among the nontraded REITs that have seen their value drop significantly following the collapse of the real estate market.

The REIT complaint contends that for a certain period of time, HPT Management Services LP and Behringer Advisors respectively collected fees of $77 million and $104 million, which, per the securities lawsuit, over the life of the trust is about 4% of the REITs existing assets. Behringer Harvard COO Jason Mattox, who says Hohenstein ‘s case is meritless, says the company has since lowered his fees, even waiving asset management fees of over $30 million.

The Texas investor lawsuit is also accusing Behringer Harvard REIT I of not being able to pay for dividends or distribution from “funds from operation.” It said that from 2003 to 2011 the nontraded REIT made $172 million in such funds, while paying $569 in distributions and setting up a $397 million shortfall. Hohenstein believes that the REIT will not likely be able to take care of distributions in the future.

Hohenstein’s lawsuit is the first step towards a class action case. Now, Behringer Harvard REIT I, Inc. shareholders of record from beginning April 1, 2011 who were allowed to vote on the Schedule 14 that Behringer Harvard REIT I submitted to the SEC on that date, persons belonging to the “tender class,” and shareholders that bought or acquired shares in the nontraded REIT beginning February 19, 2003 until now may be able to recover damages.

At Shepherd Smith Edwards and Kantas, we represent persons and institutions with respective individual securities claims and lawsuits. While filing with a class may allow you to recover along with the class members, submitting your own case and working one-on-one with an experienced securities law firm increases your chances of recovering more. If you sustained losses from investing in Behringer Harvard REIT I, do not hesitate to contact our REIT law firm immediately to ask for your free case evaluation.

Behringer Harvard hit with suit, Investment News, September 24, 2012

Investor suing Behringer Harvard real estate investment trust, says it operates “as a Ponzi scheme," Dallas News, September 18, 2012


More Blog Posts:
REIT Retail Properties of America’s $8 Public Offering Results in Major Losses for Fund Investors, Institutional Investor Securities Blog, April 17, 2012

Private REITs: The Need for Tougher Oversight?, Institutional Investor Securities Blog, February 25, 2012

Investor Complains to FINRA About Behringer Harvard Holdings, LLC-Related Real Estate Investment Losses, Institutional Investor Securities Blog, January 24, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Texas Securities Fraud

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