October 15, 2014

LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches

According to his report on the central registration depository, LPL Financial (LPLA) branch manager James Bashaw was fired last month for allegedly engaging in selling away, which involves taking part in private securities transactions without written disclosure or approval from a brokerage firm, as well as borrowing from a client and taking part in a business transaction that created a possible conflict, again without obtaining the necessary firm approval or written disclosure.

Bashaw, also known as “Jeb” Bashaw, is considered one of the leading financial advisers in Texas. Barron's magazine ranks him as number one in the state with assets totaling $3.8 billion.

According to Investment News, while the CRD, which is the central licensing and registration system for the securities industries and regulators, provided these details regarding Bashaw’s termination, LPL has not elaborated, except to report on his BrokerCheck profile that the broker did not follow industry regulations and firm policies. Bashaw is now registered with Wunderlich Securities Inc.

In other LPL Financial news, the firm has reached a deal with Massachusetts regulators in which it will pay back elderly investors over $500,000 to resolve complaints related to switching variable annuities. The broker-dealer has admitted that certain annuity-switch transactions were performed without disclosing that there were fees for surrendering or cashing in the annuity.

Annuity switching occurs when a broker recommends that a client trade in an older annuity to purchase another one. Frequently, this can cost a customer while benefiting the financial representative.

The agreement with Massachusetts Secretary of State William Galvin’s office covers 157 transactions involving senior investors in the state. LPL reportedly now has new policies in place to make sure that customers get the mandated disclosures when there are transaction fees.

LPL Financial to reimburse annuity-switching fees to investors, Reuters, October 14, 2014

Selling away claims behind LPL's termination of James "Jeb" Bashaw
, Investment News, October 13, 2014

LPL Financial to pay back $541,000, Boston Globe, October 14, 2014


More Blog Posts:

Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions, Stockbroker Fraud Blog, September 28, 2014

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 6, 2014

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

September 28, 2014

Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions

A federal judge has ordered Texas businessman Sam Wiley and the estate of his deceased brother Charles Wiley to pay $187.7 million in disgorgement plus prejudgment interest—bringing the total sanctions to over $300 million for their involvement in an offshore scam. The brothers were found liable on civil securities fraud charges accusing them of using offshore trusts to conceal stock sales, resulting in $553 million in profits.

The U.S. Securities and Exchange Commission had wanted the Wylys to pay $729 million in sanctions, including for all unpaid taxes on the profits made from the scheme plus interest. The government said that the Wylys used their improper gains to buy $100 million in real estate and spent tens of million dollars on luxury spending and charitable donations.

Meantime, lawyers for the Wyly brothers argued that the trusts were established for estate planning and tax purposes but that the two men did not control them. Over 700 transactions were sold in four companies, none of which the two men disclosed in regulatory findings. The Wyly brothers were insiders in the companies involved.

According to court documented submitted by the SEC, after he was warned that the brothers’ stance regarding the trusts’ tax actions was high risk and aggressive for tax purposes, Sam Wiley says that if the internal revenue ever challenged him he was willing to go to court for years. A jury found the brothers liable for keeping the trusts and subsidiaries going on the Isle of Man, in addition to an entity on the Cayman Islands.

In a recent statement, SEC Enforcement Division Director Andrew Ceresney said that the regulator was committed to sussing out wrongdoing and holding persons accountable for securities law violations regardless of how well concealed or complex the financial scam.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm.

'Staggering' Sanctions Slapped On Wyly Brothers In Offshore Case
, Forbes, September 25, 2014

U.S. SEC wins hundreds of millions in Wyly fraud case, Reuters, September 25, 2014


More Blog Posts:
Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam, Stockbroker Fraud Blog, September 20, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

September 20, 2014

Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam

Trendon T. Shavers, who is accused of operating a Texas Ponzi scam involving a Bitcoin scheme he operated from his residence must pay more than $40.4 million. The SEC filed a securities fraud case against him and his company Bitcoin Savings & Trust last year and sought disgorgement.

According to the regulator, Shavers, a Texas resident, raised more than 700,000 bitcoins while promising investors interest as high as 7% weekly. The allegedly fraudulent activities lasted from November 2011 through August 2012 when the Ponzi scam collapsed.

In a promo that he posted on online, Shavers solicited lenders, offering 1% interest daily for loans involving at least 50 bitcoins. He also published posts touting nearly zero risk, claiming that the business was doing exceptionally well. When his Texas securities scam failed, Shavers showed preference to longtime investors and friends when giving out redemptions.

Shavers admitted to using a “reserve fund” as part of his Ponzi operation to honor investor withdrawals when he couldn’t make enough returns from the supposed investments. He also allegedly pocketed some of the bitcoins and spent part of investors’ money on his own expenses, including casino visits.

The judge overruled his argument that the court lacked subject matter jurisdiction because bitcoins are not actual cash but virtual currency. He said that because Bitcoin can be used as money and exchanged for conventional currencies, it is a type of money.

The judge found that investors lost more than 365,000 bitcoins, valued at around $149 million. He granted the Commission’s motion for summary judgment was granted.

Please contact our Texas securities law firm if you believe that you were the victim of a Ponzi scam or any other kind of financial fraud.

Texas Man Must Pony Up $40.7M for Bitcoin Scam, Courthouse News, September 19, 2014

Read the SEC Complaint (PDF)


More Blog Posts:
Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest, Stockbroker Fraud Law Firm, September 2, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

September 2, 2014

Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest

The SEC is charging Robare Group Ltd., an investment advisory firm headquartered in Houston, Texas, with securities fraud. The regulator’s enforcement division says that the firm and co-owners Jack L. Jones Jr. and Mark L. Robare made mutual fund recommendations to clients even though they had a conflict.

According to the SEC, Robare and a broker-dealer purportedly had an undisclosed compensation agreement. The brokerage firm paid Robare Group compensation—a portion of each dollar that every client invested in certain mutual funds—for recommending the investments

The deal gave Robare, Jones, and the firm incentive for favoring these funds over other investments. The firm is accused of making about $440K in compensation over eight years from the agreement.

Although in 2011 Robare did modify its Form ADV to disclose the compensation agreement, the SEC claims that the form and later disclosures stated falsely that the investment advisory firm did not benefit financially for giving investment advice about the mutual funds. It wasn’t until last year that Robare disclosed there was a conflict of interest. However, the firm did not reveal that there was incentive to recommend certain mutual funds.

The SEC has been taking a closer look at compensation deals between brokers and asset managers. There is concern that payments to investment advisers for recommending certain investments is impairing their ability to give impartial advice that is in the best interests of clients. Also, investment advisers are required to disclose any conflicts of interest to customers.

Our Texas investment adviser fraud lawyers represent investors in recouping their losses. You shouldn’t have to sustain losses while an adviser, a broker, or anyone else profits at your expenses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Houston-Based Investment Advisory Firm and Co-Owners Charged With Failing to Disclose Conflict of Interest to Clients, SEC, September 2, 2014

Read the SEC Order (PDF)


More Blog Posts:
Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud, Stockbroker Fraud Blog, August 7, 2014


More Blog Posts:

August 18, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam

The SEC has filed charges against Chimera Energy, a Houston-based penny stock scam, and four individuals for their purported involvement in a pump-and-dump scam that made over $4.5 million in illicit proceeds. Investors were led to believe that the company was creating technology that would allow for oil-and-gas production that was environmentally friendly.

The regulator claims that Andrew I. Farmer set up Chimera Energy and secretly got control of all the shares issued in an IPO. He then set up a promotional campaign to hype the stock, touting technology that would extract shale oil without fracking.

In the alleged Texas securities fraud, Chimera Energy claimed that an entity named China Inland gave it an exclusive license to develop and commercialize the non-hydraulic extraction technologies. The SEC says that China Inland is not a real company and that Chimera Energy had no such technology or even a license.

When the stock became inflated due to the false claims made by Chimera Energy, entities under Farmer’s control dumped over 6 million shares on the public markets to generate the illegal gains. In 2012, the SEC suspended Chimera Energy stock and blocked Farmer and others from dumping additional shares or misleading more investors.

Also facing SEC charges are Chimera figurehead CEOs Charles E. Grob Jr. and Baldermar Rios, who are accused of running Chimera Energy at the minimum level and approving press releases that were misleading. Carolyn Austin is charged with helping Farmer make money off his scam when she dumped Chimera Energy stock. The regulator wants permanent injunctions, financial penalties, disgorgement, prejudgment interest, penny stock bars, and officer-and-director bars.

SEC Announces Charges in Houston-Based Scheme Touting Technology to End Fracking, SEC.gov, August 15, 2014

Read the SEC Complaint (PDF)


More Blog Posts:

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud, Stockbroker Fraud Blog, August 7, 2014

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case
, Stockbroker Fraud Blog, July 11, 2014

Christ Church Cathedral Sues JPMorgan Chase Over Proprietary Product Sales, Institutional Investor Securities Blog, August 13, 2014

August 7, 2014

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud

The U.S. Securities and Exchange Commission wants Sam Wyly and the estate of his brother Charles to pay $750M for securities fraud involving an offshore tax scam. The Texas billionaire siblings were found liable in civil court earlier this year. Now, the case has gone to trial to determine how much the Wylys must pay in damages.

According to the federal jury that issued the verdict, the Wylys are liable for the offshore trusts and other entities on the Cayman Islands and the Isle of Man that garnered them $553 million in profits between 1992 and 2004 via concealed trades. The fraud involved offshore transactions with four of their companies in which they sold shares. The sales should have been noted in regulatory filings but were not listed.

Now, the SEC is saying that it should be entitled to all unpaid taxes on the profits from the scam in addition to interest. Lawyers for the brothers, however, are contending that the proper penalty is $1.38 million and that the law does not support the regulator’s disgorgement theory. They are also arguing that the SEC cannot step into the Internal Revenue Service’s shoes. (During the fraud, the U.S. government was not aware that the Wylys owed taxes because they did not disclose their control of the trusts. )

SEC Attorney Bridget Fitzpatrick acknowledged that the agency’s tax-based disgorgement theory is unique but appropriate, She pointed out that the trusts were set up specifically for the purpose of tax benefits. The SEC had originally wanted the Wylys to pay $1.4 billion according to every profit dollar made through the trusts. U.S. District Judge Shira Scheindlin, who is presiding over the nonjury trial, barred that effort. Scheindlin also cleared the brothers of insider trading charges in another nonjury trial last month.

Our Texas securities fraud law firm represents institutional investors and individual investors. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Texas tycoons Wylys should pay $750 mln for fraud, SEC tells judge, Reuters, August 4, 2014

SEC Seeks up to $750 Million in Sanctions From Wyly Brothers, The Wall Street Journal, August 4, 2014


More Blog Posts:
Jury Says Wyly Brothers From Texas Committed Fraud, Stockbroker Fraud Blog, May 14, 2014

$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014

FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014

June 11, 2014

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case

A Texas jury has convicted to two ex-ArthroCare executives with operating a $400 million scam to bilk investors. Michael Baker, the former CEO, was found guilty of wire fraud, securities fraud, conspiracy to commit both, and making false statements. Michael Gluck, the ex-CFO, was found guilty of securities fraud, wire fraud, and conspiracy to commit both also. ArthroCare manufactures medical devices.

According to prosecutors, from 2005 until 2009 the two men and others inflated sales and revenue by tens of millions of dollars through transactions with several ArthroCare distributors. Some of the transactions occurred because the medical device maker had to satisfy sales forecasts and not to fulfill distributors’ product needs. As a result, ArthroCare sent million of dollars worth of devices to these distributors, reporting the deliveries as sales in yearly and quarterly filings. This let ArthroCare meet and sometimes even exceed predicted sales.

Meantime, the distributors consented to the extra inventory in return for cash commission, extended terms of payment, and a refund option. Gluk and Baker even compelled the company to acquire DiscoCare, a distributor, to hide the nature of these sales.

Investors lost the $400 million after ArthroCare’s share price plunged in 2008 when it announced that it would be restating the financial results from 2006’s third quarter through 2008’s first quarter. Also implicated are ex-ArthroCare senior VPs David Applegate and John Raffle, who have already pleaded guilty to a number of felonies.

Earlier this year, ArthroCare announced it would pay $30 million to resolve a U.S. Department of Justice probe into the alleged securities fraud. The DOJ charged the company with conspiracy to commit securities fraud as well as wire fraud. The settlement reached involves a two year deferred prosecution agreement between the company and the federal government.

Our Texas securities fraud law firm represents investors in getting their money back. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Ex-ArthroCare execs guilty in fraud case, Statesman.com, June 2, 2014

ArthroCare Pays Justice Department $30M for Securities Fraud, Compliance Week, January 14, 2014

Former Senior Executive of ArthroCare Corp. Pleads Guilty in $400 Million Securities Fraud Scheme, DOJ, July 23, 2013


More Blog Posts:
In Alleged $400M Texas Securities Fraud, Medical Device Maker Pays Over $30M Settlement, Stockbroker Fraud Blog, January 13, 2014

Jury Says Wyly Brothers From Texas Committed Fraud
, Stockbroker Fraud Blog, May 14, 2014

Bank of America Could Settle Mortgage Probes for $12B, Institutional Investor Securities Blog, June 7, 2014

May 14, 2014

Jury Says Wyly Brothers From Texas Committed Fraud

A jury says that the wealthy Texas billionaire brothers Charles and Samuel Wyly committed fraud by setting up a secret scam using offshores trusts and making $550M in illegal trading profits. The Texas securities ruling of liability is based on claims brought by the U.S. Securities and Exchange Commission.

The civil trial occurred following years of probes and litigation by the SEC and others. While the Wylys (Charles died in a 2011 car crash) admitted to setting up trusts on the Isle of Man for tax benefits, asset protection, and estate planning, they have denied wrongdoing. The brothers maintained that they were under no obligation to disclose the trusts because legally they weren’t the beneficial owners of the securities in them. They said that they relied on an “army of lawyers” to make sure their activities were in compliance with the law.

The SEC said the Wylys set up the trusts to hide trading that took place between 1992 and 2004 in four companies. The brothers were the boards of these four entities.

During the trial, a number of witnesses testified that the Wylys were in control of the trusts and that trustees were required to follow their orders. The Commission claims that the brothers used their improper gains to purchase $100 million of real estate and tens of millions of dollars in jewelry and art and other items, as well as make substantial charity donations. It wants the Wylys to pay penalties and give back the $550 million in allegedly illegal gains.

Commenting on the jury verdict, SEC Division of Enforcement Director Andre Ceresney said that the agency would continue to hold accountable fraudsters regardless of their scam’s complexity or efforts to conceal their wrongdoing. The regulator, however, isn’t done with the Wylys.

The SEC claims they made $31.7 million from insider trading in Sterling Software after the company was sold in 1999. A U.S. district court judge will decide those claims and whether there will be any penalties.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm.

Wyly brothers hid assets, jury rules, Dallas Morning News, May 12, 2014

Read the SEC Complaint (PDF)


More Blog Posts:
State Senator Reprimanded For Violating the Texas Securities Act, Stockbroker Fraud Blog, May 8, 2014

$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial
, Stockbroker Fraud Blog, April 2, 2014

DOJ’s Fund for Madoff Victims Has Received 51,700 Claims Worth $40B, Institutional Investor Securities Blog, May 14, 2014

May 8, 2014

State Senator Reprimanded For Violating the Texas Securities Act

The Texas State Securities Board has reprimanded Senator Ken Paxton and ordered him pay a $1,000 fine for soliciting investment clients even though he wasn’t properly registered. According to the board’s disciplinary order, Paxton, who is running for state attorney general, violated the Texas Securities Act. Under the Act’s Section 12.B, a person cannot act as an investment adviser representative unless he/she is registered as one for that investment adviser in particular.

The Texas Tribune reports that Paxton started working as a solicitor for companies belonging to Fritz Mowery in 2001. On three occasions, in 2004, 2005, and 2012, he took part in unregistered solicitations and referred the customers to Mowery Capital Management, LLC. The fine is for the last incident, which occurred within the last five years. (One of the incidents led to a Texas securities fraud case in 2009 when investors Teri and David Goettsche sued Paxton and Mowery for breach of duty.

In their Texas investment fraud case, the Goettsches claimed that Paxton recommended they invest with Mowery while failing to mention that he would get a 30% commission for the referral. The couple later dropped the securities lawsuit.

In other Texas securities news, a federal judge has sentenced a Brazoria County woman to three years in prison for investment fraud. Kimberly Fontenot bilked clients when she used a voice actor to pose as a rich investor. She falsely claimed that she knew a lot of rich “angel investors.” Fontenot will have to pay back over $115,000 to victims.

About 20 investors were defrauded in a scam involving her company Stellar Grants Inc. The voice actor was hired to pose as the fake wealthy investors during conference calls.

Prosecutors said that Fontenot used Gmail.com and Yahoo.com to set up bogus email accounts for these fake angel investors, who would then send e-mails to her customers. She had these clients (or their reps) sign “Master Consulting Agreements” that included a penalty clause for directly contacting the angel investors.

Two other Texans also in the headlines over fraud allegations are billionaire brothers Sam and Charles Wyly. The latter is deceased. Both men are on trial for allegedly making $550M because they concealed share holdings in offshore trusts.

According to the Securities and Exchange Commission, for 13 years the brothers hid trades in four public companies in which they were board members —Michaels Stores. Inc., Scottish Annuity & Life Holdings Ltd., Sterling Commerce Inc., and Sterling Software Inc. The regulator is suing them for insider trading and securities fraud.

The Wylys’ lawyer denies that the men hid the trusts or broke the law.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm. Our main office is in Houston.

Read the Disciplinary Order against Paxton (PDF)

Paxton Violated Securities Law, Gets Reprimand, The Texas Tribune, May 2, 2014

‘Investment Advisory Firm’ Owner Convicted of Fraud, FBI.gov, December 5, 2013

Jurors Weigh Fraud Charges Against Wyly Brothers Accused Of 13-Year 'Scheme of Secrecy', Forbes, May 8, 2014


More Blog Posts:
Texas Man Gets 25 years in Prison for $11M Ponzi Scam, Stockbroker Fraud Blog, April 21, 2014

Securities Lawsuits Accuse BlackRock Of Charging Exorbitant Investment Advisor Fees, Institutional Investor Securities Blog, May 8, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales, Stockbroker Fraud Blog, May 6, 2014

April 21, 2014

Texas Man Gets 25 years in Prison for $11M Ponzi Scam

After a federal jury convicted Gary Lynn McDuff of conspiring to defraud investors, a U.S. District Court for the Eastern District of Texas judge sentenced the 58-year-old to 25 years behind bar for the $11 million investment scam. McDuff’s co-conspirators, Robert Reese and Gary Lancaster, had both pleaded guilty—Reese has since died. They too received prison terms.

The three men lied to investors when they told them their funds would be invested in top rated bonds that carried low risk. Instead, the fraudsters laundered investor money.

They solicited investments from customers throughout the U.S. while working at Lancorp Investment Fund. The indictment says that McDuff claimed that Lancaster was a registered adviser and the fund was properly registered.

Misrepresentations were made to customers to get them to give money, including that only A+ and A1 rated bonds would be invested in and each investment’s principal would be insured. Lancaster was touted as someone with previous experience in these investments.

In a statement, the Plano Texas U.S. attorney said that McDuff was in charge of the Ponzi scam while Lancaster was the ‘front.’ A prior felony conviction prevented McDuff from having a securities license or selling securities. Reese, who had previously been accused of fraudulent conduct in California, was also brought in to sell. The men’s prior convictions and violations were never mentioned to customers.

As part of the sentence, McDuff must pay $6.5 million in restitution to investors that were bilked in the Ponzi scam.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm that works with investors to get their money back.

Pasadena Man Sentenced to 300-Month Term in Multi-Million-Dollar Investment Fraud Scheme, FBI, April 16, 2014

Jury Convicts Recidivist Ponzi Man, Courthouse News Service, March 29, 2013


More Blog Posts:
$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014

Mixed Securities Verdict Reached in SEC Case Against Texas-Based Life Partners Holdings, Stockbroker Fraud Blog, February 19, 2014

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

April 2, 2014

$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial

The civil trial is underway between the Securities and Exchange Commission and brothers Sam and Charles Wyly (The latter is deceased after he died in a car crash in 2011). The regulator is accusing the Texas siblings of using offshore trusts to hide over $750M of stock sales in companies in which they are board members and engaging in a $550M securities fraud.

In its Texas securities case, the SEC claims that between 1992 and 2004 the Wylys concealed stock trading in Sterling Software Inc., Sterling Commerce. Inc., Michaels Stores Inc., and Scottish Annuity & Life Holdings Ltd. by using entities and offshore trusts. The brothers also are accused of making $31.7 million in insider trading profits involving Sterling Software after the company was sold in 1999.

At issue is whether the Wylys were in control of the offshore trusts and if so then they may have also violated US tax laws. That said, the statute of limitations for charges involving tax evasion is six years.

The brothers denied any wrongdoing. They claim they weren't the beneficial owners of the stock in the trust. They said their lawyer told them that they did not need to reveal the sales and holdings of the trusts and they were given no indication that their activities were illegal.

Last month, ex-Wyly lawyer Michael French settled with the SEC by admitting to helping the two brothers in their alleged breach of securities disclosure rules. French will pay close to $795,000 and is serving as a witness for the agency in their cases against the brothers. Signing an admission of facts, French acknowledged that he “acted intentionally or recklessly” in relation to the violations described. The SEC is also accusing him of using his positions to establish and trade in offshore entities of his own. Also reaching a settlement related to the SEC case is Louis Schaufele, a former stockbroker for the Wylys.


The Texas securities case has been going on for so many years that the law under the SEC has changed. Last year, the US Supreme Court ruled that the regulator could no longer go after civil penalties for most of the time period under dispute. Because of this, the case is now in two parts.

A jury will rule over one part—regarding the Wylys' alleged failure to disclose the trust and trading in them—and a judge will decide on the insider trading allegations and whether the jury verdict merits a penalty.

This is the second securities case between Sam and the SEC. In 1979 he settled allegations involving undisclosed payments to encourage Wyly Corp. bond purchases. In this latest securities case, the regulator intends to pursue hundreds of millions of dollars in disgorgement of purportedly ill-gotten gains and penalties.

Our Texas securities lawyers represent investors that have sustained losses because of fraud. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Civil Trial to Start of Wyly Brothers in SEC Tax-Haven Case, The Wall Street Journal, March 30, 2014

Wyly brothers' ex-lawyer settles SEC fraud case, admits errors, Reuters, March 20, 2014


More Blog Posts:
Mixed Securities Verdict Reached in SEC Case Against Texas-Based Life Partners Holdings, Stockbroker Fraud Blog, February 19, 2014

In Alleged $400M Texas Securities Fraud Medical Device Maker Pays Over $30M Settlement, Stockbroker Fraud Blog, January 13, 2014

FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014

February 19, 2014

Mixed Securities Verdict Reached in SEC Case Against Texas-Based Life Partners Holdings

Even though jurors rendered a mixed verdict in the Securities and Exchange Commission’s financial fraud lawsuit in Texas against Life Partners Holdings Inc. (LPHI), the company still may have ended up with the better outcome because the Texas life-insurance investments seller won some of the bigger claims. Still, Even as Life Partners is declaring the securities case outcome a victory, Andrew Ceresney, the Commission’s enforcement director, said the agency was pleased that the defendants were found liable for defrauding shareholders and submitting SEC filings that were false.

In U.S. District Court in Austin, Texas, the regulator had accused Life Partners of disclosure and accounting fraud that purportedly went on for years and were related to misleading marketing practices that allegedly occurred during the sale of life-insurance investments to customers. While jurors turned down the SEC’s primary insider trading and fraud allegations, they found the company and two of its executives liable in a securities fraud violation of a narrower scope involving revenue-recognition practices. Also, Life Partners’ CEO Brian D. Pardo and general counsel R. Scott Peden were were found liable for their role in the filing of false reports, and Pardo also was found to have falsely certified company filings.

Meantime, Life Partners continues to be the defendant in a number of Texas securities cases, including one involving 207 plaintiffs in Dallas who went through the company to invest in life policies. State regulators also have a separate Texas securities fraud lawsuit against Life Partners they are appealing in the wake of the decision by a state judge to turn down some of the main claims it made in 2012. The Texas State Securities Board has been looking into allegations that the life settlement provider misled investors of life insurance policies.

Please contact our Texas securities fraud law firm today. Shepherd Smith Edwards and Kantas, LTD LLP represents investors throughout the state.

Mixed Verdict in SEC Suit Against Life Partners, The Wall Street Journal, February 4, 2014

Jury delivers mixed verdict on U.S. SEC case against Life Partners, Reuters, February 4, 2014

Texas State Securities Board

More Blog Posts:
In Alleged $400M Texas Securities Fraud Medical Device Maker Pays Over $30M Settlement, Stockbroker Fraud Blog, January 13, 2014

SEC Stops Texas Securities Scam Involving Oil and Gas Investments, Stockbroker Fraud Blog, January 6, 2014

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

January 13, 2014

In Alleged $400M Texas Securities Fraud, Medical Device Maker Pays Over $30M Settlement

Austin-based medical device manufacturer ArthroCare Corporation (ARTC) will pay $30 million to settle allegations that its senior executives were involved in a Texas securities scam that caused shareholders to lose over $400M. The company’s former senior VPs, David Applegate and John Raff, have already pleaded guilty to conspiracy to commit wire fraud and securities fraud over the financial scam.

As part of the deferred prosecution settlement, the US Justice Department has filed a complaint in the Western District of Texas charging the company with one count of conspiracy to commit securities fraud. The medical device maker will continue to cooperate with the government in its ongoing probe and pursuit of the individuals involved in the financial fraud. ArthroCare’s ex-CEO and CFO are scheduled to stand trial later this year.

In this Texas securities settlement, the company admitted that its executives inflated its revenues by tens of million of dollars, hid the nature and financial importance of its relationship with certain distributors, and engaged in bogus transactions to manipulate earnings and revenue. ArthroCare also acknowledged that these executives caused it to “park” millions of dollars worth of medical devices at distributors during the end of each relevant quarter to make it appear as if these were shipments (meaning supposed sales).

Shareholders lost over $400M when the company’s stock dropped from $40.03/share to $23.21/share in 2008. This happened after ArthroCare announced that because of the findings of an internal probe, its earlier reported financial results from 2006’s third quarter through 2008’s third quarter would have to be restated.

If you suspect that you’ve been the victim of Texas securities fraud, please contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Austin-based ArthroCare to pay $30 million to end fraud inquiry, Statesman.com, January 7, 2014

ArthroCare signs deal to end fraud prosecution, to pay $30 million fine, Reuters, January 7, 2014


More Blog Posts:
SEC Stops Texas Securities Scam Involving Oil and Gas Investments, Stockbroker Fraud Blog, January 6, 2014

Ex-NFL Running Back Ricky Williams Files $6M Texas Securities Fraud Case Against His Financial Adviser, December 18, 2013

US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle, Institutional Investor Securities Blog, August 10, 2013

January 6, 2014

SEC Stops Texas Securities Scam Involving Oil and Gas Investments

The Securities and Exchange Commission has filed securities charges and ordered an asset freeze against Janniece S. Kaelin and Robert A. Helms, who are both accused of running a Texas-based Ponzi scam involving purported investments in oil and gas projects. The regulator contends that Kaelin and Helms misled investors about their industry experience, even as they raised close to $18 million for what was supposed to be royalty interests in oil and gas. The SEC says that the two of them used most of the money to run a Ponzi scam and pay for business costs and personal spending.

Per the Commission’s complaint, Helms and Kaelin started offering investments through Vendetta Royalty Partners in 2011. They brought in at least 80 investors from numerous states.

In offering documents, they promised that over 99% of investment proceeds would be used to obtain a solid portfolio filled with oil and gas royalty interests. Instead, claims the regulator, the Kaelin and Helms put in only 10% of this money in the projects. The result was very small returns.

The Commission is taking issue with the offering documents, saying they were fraudulent and misleading and misrepresented Helms and Kaelin’s experience in the oil and gas industry. The agency also says that the two of them did not disclose that there was litigation against them and their companies or that Vendetta Royalty Partners was running behind on its credit line. (The company later defaulted.)

The regulators says that Kaelin and Helms ordered Vendetta Royalty Partners to make about $5.9 million in partnership income distributions to investors. New investors’ funds were used to make distributions to investors who had put their money in earlier.

The SEC complaint is also charging individuals Deven Sellers and Roland Barrera with illegally selling these investments (hey weren’t registered with the SEC) and misleading investors about the referral fees and sales commissions they would receive. Although they claimed that the fees would be small, each of them was paid over $200,000 for just one of the investments.

Now, the court has issued a temporary restraining order to prevent the defendants from committing more violations, as well as frozen their assets, forbidden any document destruction, and mandated for proper accounting. The SEC wants disgorgement of ill-gotten gains in addition to penalties and prejudgment interests and permanent injunctions.

Please contact our Texas securities fraud law firm if you suspect that your investment losses are do to misconduct, negligence, or fraud.

Oil and Gas Fraud
The SEC recently noted while oil and gas fraud has been a problem for a long time, with reports of new finds in Texas and North Dakota, the number of related securities fraud cases are going up. The government agency is now filing about 20 oil and gas fraud cases annually.

SEC Stops Texas Securities Scam Involving Oil and Gas Investments, SEC, December 6, 2013

Read the SEC Complaint (PDF)

SEC's Investor Alert (PDF)

Investment fraud is booming along with oil and gas drilling, SEC says, Dallas News, January 4, 2014


More Blog Posts:
Ex-NFL Running Back Ricky Williams Files $6M Texas Securities Fraud Case Against His Financial Adviser, Stockbroker Fraud Blog, December 18, 2013

Texas Securities Fraud: SEC Accuses Two Houston-Based Advisory Firms of Making Thousands of Transactions That Clients Didn’t Know About, Stockbroker Fraud Blog, November 27, 2013

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

December 18, 2013

Ex-NFL Running Back Ricky Williams Files $6M Texas Securities Fraud Case Against His Financial Adviser

Ricky Williams, the ex-NFL and University of Texas running back, is suing Peggy Fulford and King Management Group & Associates for securities fraud. He says that he and his wife were bilked of $6 million. Now, Williams wants an injunction, a restraining order, and damages for breach of contract, theft, and breach of fiduciary duty.

Williams claims that Fulford has been in control of most of his approximately $11 million fortune since 2007 when he and his wife went into an oral agreement with the financial adviser and King Management to have them manage their assets. He says that Fulford told them she had graduated from both Harvard Law School and Harvard Business Law School and that she was licensed to practice law in Texas. Williams is now saying that no record exists of Fulford attending either graduate program or having been admitted to the State Bar of Texas. Fulford lived in Houston between 2011 and 2013 before moving out of state.

Williams says that he and Fulford established a joint checking account at SunTrustBank and that without his knowing or consent she obtained and used a debit card linked to the account. It wasn’t until last year when the IRS called him to ask about his 2010 tax return that Williams discovered that Fulford had removed $6 million from his account via debts, wire transfers, cash withdrawals, and checks and that the money was used for mortgage payments, retail purchases, credit card bills, other debts, transfers to other accounts, and other purposes. She also purportedly pretended to be his wife when she spoke to the government agency.

The ex-pro football player claims that because she gave him no way to substantiate nearly $800,000 in deductions she had claimed, he was forced to pay the IRS a $350,000 penalty for just that year. He also says that all Fulford left them with is $1.9 million in a private equity fund that they cannot draw on for four more years. Williams’ legal team says that although their client has other sources of income, he relies on Fulford to issue a stipend to cover monthly expenses and these payments have not been consistent.

Williams contends that Fulford and her management group gave him “potentially falsified statements” of his finances and that these were sporadic at best. He says they never gave him full reports even though he repeatedly asked for them.

Athletes and Securities Fraud
Unfortunately, because of their fast wealth, professional athletes are favorite targets of financial fraudsters. Over the years, Shepherd Smith Edwards and Kantas, LTD LLP has represented professional athletes and other celebrities with securities fraud cases. Contact our Texas securities law firm today.

Ex-NFL star Ricky Williams suing financial adviser for impersonating his wife to IRS, UPI, December 17, 2013

Ricky Williams Claims Adviser Took Millions, Courthouse News, December 17, 2013

Professional Athletes, Celebrities Often Targeted for Securities Fraud, Stockbroker Fraud Blog, August 14, 2013

US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle, Institutional Investor Securities Blog, August 10, 2013

November 27, 2013

Texas Securities Fraud: SEC Accuses Two Houston-Based Advisory Firms of Making Thousands of Transactions That Clients Didn’t Know About

According to the SEC, Houston-based advisory firms Tri-Star Advisors and Parallax Investments LLC made thousands of principal transactions through the broker-dealer they are affiliated with but did not disclose that they were doing this to clients even though they are obligated to notify customers/get their permission beforehand. Also facing Texas securities charges over the transactions are three executives: John P. Bott II, who owns Parallex, and Jon C. Vaughan and William T. Payne, who are Tri-Star officials.

The regulator’s orders of administrative proceedings say that Bott made a minimum of 2,000 undisclosed principal transactions without the permission of Parallex clients. Meantime, for each one (executed between 2009 to 2011) its affiliate broker-dealer Tri-Star Financial employed its inventory account to buy bonds backed by mortgages for these clients and moved the bonds into the accounts of clients. Bott received close to half of the $1.9 million in sales credits that Tri-Star Financial received on the transactions.

Vaughan and Payne are also accused of making over 2,000 undisclosed principal transactions during the same timeframe without the permission of their Tri-Star Advisor clients. The same broker dealer provided similar third-party services as it did for Parallex, and Vauhan and Payne got close to half of the $1.9 million in gross sales credits. SEC Enforcement Division's Asset Management Unit co-chief Marshall S. Sprung says that Tri-Star and Parallex prevented clients from knowing that their advisers could benefit from “running the trades through an affiliated account.”

Principal transactions typically involve an investment adviser acting on behalf of its account via an affiliate brokerage firms. Because conflicts of interest can arise between the client and adviser, the latter must provide written disclosure about any conflicted role or monetary interest when offering advice to the client involved in the trade, as well as obtain their permission.

Failure to disclose and failure to obtain consent can be grounds for Texas securities claims if a client sustains investment losses. Contact our Houston securities fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC charges advisory firms and executives with not disclosing transactions, InvestmentNews, November 26, 2013

SEC Announces Charges Against Two Houston-Based Firms for Engaging in Thousands of Undisclosed Principal Transactions, SEC, November 26, 2013


More Blog Posts:
Supreme Court to Hear Texas-Based Halliburton’s Class Action Securities Fraud Case Again, Stockbroker Fraud Blog, November 18, 2013

Texas Jury Clears Billionaire Mark Cuban of Insider Trading Charges, Stockbroker Fraud Blog, October 31, 2013

Lawmakers & Industry Folk Address the DOL Amending the Definition of Fiduciary, Reg A Plus Offerings, Oversight, Rogue Brokers, and Expungement Rules, Institutional Investor Securities Blog, November 7, 2013

November 18, 2013

Supreme Court to Hear Texas-Based Halliburton’s Class Action Securities Fraud Case Again

The US Supreme Court has agreed to hear Halliburton v. Erica John Fund. In it, the Texas-based multinational corporation is appealing a class action securities lawsuit that tests the fraud-on-the market theory. That doctrine became part of securities law in 1988 after the highest court’s ruling in Basic v. Levinson.

The fraud-on-the-market theory is premised upon the efficient markets hypothesis, which is that the price of a stock is a reflection of all public data. This makes it possible for plaintiff attorneys to set up a class action for all the buyers of a stock without having to first prove in court that these purchasers depended upon untrue information from the company and that this caused their losses.

Instead, the doctrine assumes that a company’s stock price can reflect corporate assertions even if they are misleading. As a result lawyers are able to submit securities fraud classes while blaming corporate executives for certain changes in the market value of a company’s stock.

In the Erica John case, the plaintiffs, who purchased Halliburton stock between 1999 and 2001, claim that the company issued false statements to inflate the price of its stock. Meantime, Halliburton is challenging their class certification and it wants the fraud-on-the-market doctrine overturned. The company contends that class actions allow investors that purchased high and sold low to get reimbursement. It says that many investors buy stock because they believed the market price was wrong.

This is not the first time Halliburton brought this securities case to the US Supreme Court to challenge the investors’ class certification. Even then the company claimed that the plaintiffs failed to prove that it was a specific announcement made by Halliburton that caused their losses. The court, however, turned down that argument and sent the class action securities case back for more proceedings.

The Fifth Circuit Court of Appeals then reaffirmed the class certification and Halliburton once more appealed. This time, however, the Texas-based company posed the argument that it should be allowed to challenge the rebuttal presumption of reliance established in Basic. The Supreme Court granted cert.

Could the Supreme Court justices overturn the fraud-on-the-market theory? It is possible. Earlier this year in Amgen v. Connecticut Retirement Plans and Trust Funds, Justice Samuel A. Alito Jr. wrote in a concurrence that there is recent evidence to show that the theory may “rest on a faulty economic premise” and it might be “appropriate” to reconsider the presumption made in Basic.

As Shepherd Smith Edwards and Kantas, LTD LLP, our Texas securities fraud lawyers represent individual investors and institutional investors. We believe that investors stand a bigger chance of recovering more if not all of their investment losses when they decide to pursue their own securities case rather than being part of a class action lawsuit. Contact our securities law firm today.

A Supreme Reckoning for Securities Class Actions, Bloomberg/Businessweek, November 18, 2013

Justices to hear case on shareholder lawsuits, USA Today, November 15, 2013

Halliburton v. Erica John Fund


More Blog Posts:

Texas Jury Clears Billionaire Mark Cuban of Insider Trading Charges, Stockbroker Fraud Blog, October 31, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification, Institutional Investor Securities Blog, March 19, 2013

October 31, 2013

Texas Jury Clears Billionaire Mark Cuban of Insider Trading Charges

A jury in Texas cleared Mark Cuban of insider trading charges. The Securities and Exchange Commission accused him of using a private tip to avoid losing money when selling his shares of Internet company Mamma.com. Following the court victory, the owner of the Dallas Mavericks, an NBA basketball team, spoke out against US government over the case.

The U.S. Securities and Exchange Commission said Cuba traded on non-public information when selling 600,000 shares—a $7.9 million value—so he wouldn’t lose $750,000. A judge dismissed the insider trading case in 2009 but the Texas securities lawsuit was revived by an appeals court in 2012. The billionaire chose not to settle and the case went to trial.

Prosecutors claimed that Cuban sold his stake after discovering that Guy Faure, the head of Mamma.com, intended for a private placement that would dilute his company holdings. When Mama.com’s shares fell 9.3% the morning after the announcement of the offering, Cuban’s shares were already sold.

Following the jury’s decision, a spokesperson for the SEC said they respected the ruling but that they would still continue to bring civil cases against defendants that they think have violated securities laws. According to The New York Times, insider trading cases are usually “safe bets” for the government.

If Cuban had been found guilty, he would have had to pay approximately $2 million in fines. Cuban says he has already paid around that much in legal fees because he wanted to clear his name. He maintains that it was wrong for prosecutors bring a case against him.

Our Texas securities fraud lawyers represent investors seeking to recoup losses caused by stockbroker fraud, insider trading, Ponzi scams, and other types of financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Billionaire Mark Cuban cleared of insider trading; blasts U.S. government, Reuters, October 16, 2013

Mark Cuban Cleared of Insider Trading, NY Times, October 16, 2013


More Blog Posts:

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

SEC Reaches $600M Insider Trading Settlement with SAC Capital Advisors-Affiliated Hedge Fund Advisory Firm, Stockbroker Fraud Blog, March 29, 2013

$5M Texas-Based Securities Fraud Scam Pursued Foreign Investors Wanting US Residency Via EB-5 Program, Stockbroker fraud Blog, October 1, 2013

October 1, 2013

$5M Texas-Based Securities Fraud Scam Pursued Foreign Investors Wanting US Residency Via EB-5 Program

The SEC has filed fraud charges against a couple over a Texas securities scam that allegedly targeted foreign investors wanting to become American residents. Bebe and Marco Ramirez and three of their companies—USA Now LLC, Now Co. Loan Services, and USA Now Energy Capital Group LP—are accused of fraudulently raising at least $5 million from customers who were falsely promised that their cash would be invested in EB-5 Immigrant Investor Pilot Program.

Investors in Mexico, Egypt, and Nigeria were reportedly targeted. None of the investors ever received green cards let alone conditional visas from investing with the Ramirez’s and their companies.

The actual program allows foreign investors to receive conditional visas and later green cards if they invest in US economic development projects that help preserve or create a certain number of jobs for our nation’s workers. However, contends the regulator, rather than investing the money into the program, the Ramirezes moved investor funds to other businesses or used the money for their personal spending. Also, at least once, the couple allegedly used new investors’ money to pay existing investors in Ponzi scheme-fashion.

The SEC’s complaint says that as early as 2010, the Ramirez’s pursued approval from the U.S. Citizenship and Immigration Service to register USA Now as an EB-5 regional center that could receive and direct foreign investors’ investments into investment opportunities that were supposed to meet visa requirements. Yet before USCIS had made a decision, the Ramirezes and their employees began pursuing investors.

The couple supposedly told investors that the company would keep their investments in escrow until the government had approved their request. The two of them then went on to misappropriate the funds, including opening up a Cajun-themed restaurant.

Our Texas securities fraud law firm represents investors in the US, as well as foreign investors that have suffered investment fraud losses perpetrated by a US-based financial firm, representative, or broker. Contact Shepherd Smith Edwards and Kantas, LTD LLP today. We can help you determine whether you have grounds for a securities case.

The SEC's complaint against the Ramirezes (PDF)

Investor Alert: Investment Scams Exploit Immigrant Investor Program, SEC


More Blog Posts:

Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women, Stockbroker Fraud Blog, September 23, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

GAO Wants SEC to Look At Other Criteria for Who Qualifies As An Accredited Investor, Institutional Investor Securities Blog, July 31, 2013

September 23, 2013

Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women

An Allen, Texas man is sentenced to 40-years behind bars for bilking elderly women out of close to $500,000 in a phone annuity scam. Robert Mangiafico Jr. pleaded guilty to money laundering and theft related in the Texas securities fraud case.

According to prosecutors, Mangiafico persuaded a number of widows to liquidate holdings and securities in brokerage accounts and other assets and he was supposed to use the money to buy annuities for them. Instead, after he had them move the funds to him or to Security Financial Services LLS, which was set up by Thomas Grimshaw of Dallas, the cash went to bank accounts for him and Grimshaw. The two men used the money for personal spending and to scam their investment victims.

Prosecutors say that $655,000 was stolen from four victims, who sustained $458,361 in losses. According to a 2011 indictment, the appropriations were made without the women’s consent because they were of advanced age and their capacity to make rational and informed choices was diminished.

The criminal charges against Grimshaw are pending.

Elder Financial Fraud
Unfortunately, elder financial fraud is a serious problem. Many elderly seniors have lost their ability to make sound investment choices and there are those who choose to take advantage of this, bilking them of their retirement and other savings. This can lead to serious consequences for the investors, who may need these funds to take care of their medical and living expenses—especially if they have no one to turn to for help. A lot of elderly investors may be too scared to report when they’ve been victimized by fraud or they may have lost the ability to do so.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our elder financial fraud lawyers are here to advocate for our senior investor clients and fight for their right to recover their investment fraud losses. We handle securities cases via mediation, arbitration, or in the courts.

Contact our Texas securities fraud law firm today and ask for your free case consultation.

Texas man gets 40 years for phony annuities scheme, InvestmentNews, September 20, 2013

Fraud Target: Senior Citizens, FBI

Seniors, Securities and Exchange Commission


More Blog Posts:

Texas Money Manager Sued by SEC and CFTC Over Alleged Forex Trading Scam, Stockbroker Fraud Blog, August 6, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

GAO Wants SEC to Look At Other Criteria for Who Qualifies As An Accredited Investor, Institutional Investor Securities Blog, July 31, 2013