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A group of hedge funds, including Oaktree Capital Management LP and Glendon Capital Management LP, has filed a lawsuit against the federal government in the U.S. Court of Federal Claims. The hedge fund group are Puerto Rico bondholders who could suffer losses from bonds that were issued in 2008 to help the island’s retirement system, the Puerto Rico Employment Retirement System (ERS), stay afloat. Unfortunately, beginning in 2013, the ERS investments faltered, leading the pension system toward bankruptcy.

The hedge funds’ complaint comes after PROMESA, the federal oversight board that was appointed to help the island of Puerto Rico address its $73 billion of debt, placed the Commonwealth’s biggest public retirement fund under bankruptcy protection to help restructure $3 billion in pension obligation bonds (commonly called POBs).

The ERS’s bonds can be paid for by pension contributions that public employers make toward the retirements of their employees. The hedge fund plaintiffs thought that these payments would go to them first. However, in June, the federal oversight board approved legislation to transfer these employer contributions beyond the pension system and away from these creditors. Now, the hedge funds want a court order determining that the move was illegal. They are seeking $3.1 billion in principal plus interest on the ERS bonds.

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Jay Bruce Heimburger, a Dallas man, has pleaded guilty to mail fraud over his involvement in a $6.4M investment scam that allegedly took place from about March 2011 to November 2013. He faces up to more than 20 years in prison, has to pay a $250K fine, and could be ordered to pay restitution.

Heimburger is the second man to plead guilty in the investment scam, which defrauded investors of $6.4M. In plea documents, Heimburger admitted to seeking to bilk investors while using false pretenses and promises, as well as by making misrepresentations.

Another man, Houston resident Christopher Arnold Jiongo, pleaded guilty earlier this year to wire fraud related to the scam. Both men will be sentenced later this year. A third Texan, Craig Allen Otteson from McKinney, is scheduled to plead guilty on July 18.

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Haena Park, the Harvard-educated financier who pleaded guilty to the commodities fraud that bilked over 40 investors of more than $23M, is sentenced to three years in prison. Park defrauded friends and family over six years, beginning in 2008, by soliciting investments in different commodities and securities, including equities, futures, and forex transactions.

Even after she lost investors’ money, Park continued to solicit new investors, claiming up to 50% yearly returns and generating false monthly statements that concealed the large losses. Among her victims were immigrants who worked multiple jobs, older investors who saw their life savings disappear, and a paraplegic who suffered $4M in investment losses.

After Park pleaded guilty early this year, then-US Attorney Preet Bharara said that Park was not just admitting to the fraud, but also acknowledging that she lied about her trading expertise, as well as return rates, to draw in investors.

According to prosecutors, criminal charges have been brought against 14 people over their alleged involvement in a $14.7M investment scam that primarily targeted older investors. The US Attorney’s office alleges that between 1/2014 and 1/2017 the defendants and others sought to defraud the investors and prospective investors of certain companies by attempting to artificially manipulate the volume and price when shares were traded.

The group allegedly hid that they were behind the rigging of these companies’ shares through a pump-and-dump boiler room scam. They are accused of manipulating share trading pattens while aggressively soliciting senior citizens by phone to try and persuade them to buy the shares.

When their targets showed a willingness to buy the stock being solicited to them, the boiler room employees would allegedly pressure them to buy, sometime even charging them subscriptions so that they could receive future stock recommendations. Investors were not notified that the employees and others they conspired with had sold their own shares in these companies.
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After Pleading Guilty, Massachusetts Money Manager Must Repay Investors
Stephen Eubanks is sentenced to 30 months behind bars for bilking investors of $437K. He also must pay restitution in that amount to his more than 20 victims.

Eubanks presented himself as a hedge fund manager at Eubiquity Capital, which he founded. He raised over $700K from investors and claimed that he was running a hedge fund that had ties with UBS (UBS), TD Ameritrade (AMTD), Fidelity, and Goldman Sachs (GS).

While Eubanks invested some of the clients’ funds for them he also spent a healthy amount of their money on his own spending. Eubanks also is accused of on occasion operating his fund as if it were a Ponzi scam.

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Barclays (BARC) and Morgan Stanley (MS) were underwriters when the island sold $3.5 billion of bonds in 2014. According to Bloomberg, brokerage firm records submitted to the Financial Industry Regulatory Authority (“FINRA”) indicate that the U.S. Securities & Exchange Commission’s (“SEC”) staff is recommending that the SEC file an enforcement case against Barclays bankers James Henn and Luis Alfaro. The two men are under investigation for allegedly violating fair dealing in selling Puerto Rico bonds. They are also under investigation for alleged violations of securities rules and municipal bond rules as they pertain to misrepresentation, deception and fraud related to the securities.

Additionally, Bloomberg reports the SEC’s staff wants to issue a sanction against Morgan Stanley Managing Director Charles Visconsi and his ex-colleague Jorge Irizarry over disclosures that Puerto Rico made in documents that were sent to investors. The staff is interested in whether the broker-dealer adequately examined representations that were made by the island’s government. Visconsi and Irizarry reportedly have not been accused of any intentional misconduct.

In other Puerto Rico bond fraud news, the Puerto Rico Electric Power Authority (“PREPA”) has joined the island in filing bankruptcy protection. PREPA is currently overburdened with $9 billion of debt.

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Oil Well Company and Founders Accused In $2.4M Offering Fraud
The SEC has filed offering fraud-related charges against Kentucky-Tennessee 50 Wells/400 BBLPD Block, Limited Partnership, its founders, and three members of its sales team over a $2.4M offering fraud. According to the US Securities and Exchange Commission’s complaint, the oil well company fraudulently offered and sold unregistered securities to investors through a boiler room operation. They raised about $2.4M from 41 investors.

Carol J. Wayland and her son John C. Mueller founded K-T 50 Wells. They are accused of misappropriating investor funds for purposes not disclosed in the private placement memorandum, including taking more than $871K for their own expenses and making Ponzi payments to some investors.

Real Estate Agent Allegedly Sold Unregistered Securities as Part of Brother’s Ponzi Scam
Cheryl L. Jones is accused of defrauding investors by helping her brother, Mark Jones, recruit investors for his Ponzi scam. The Commission contends that Jones brought in associates and friends to buy unregistered promissory notes and personal guarantees that her brother was involved in.

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A federal grand jury has indicted the former business manager of Cleveland Cavaliers player Richard Jefferson for allegedly defrauding the professional athlete of $7M. Theodore Kritza is charged with more than 22 criminal counts related to financial fraud.

Jefferson reportedly paid the agency that Kritza worked for $250,000 a year to manage his financial accounts and pay his bills. Although Kritza did pay the NBA player’s bills, he also allegedly bilked him of millions of dollars.

According to the indictment, Kritza forged Jefferson’s signature on documents that gave the money manager power of attorney over the NBA athlete’s finances. Kritza also allegedly renewed credit lines, established new credit lines, and transferred funds from Jefferson’s accounts using his fake power of attorney. In 2012, the NBA player discovered numerous loans that had supposedly been initiated by him even though he did not give his consent.

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Lawrence Allan DeShetler is facing up to 20 years in prison for Texas investment adviser fraud. The Houston-based financial adviser pleaded guilty to mail fraud last month.

DeShetler fraudulently obtained $1.9M from clients he worked for through DeShetler & Company Inc. Three years ago, he started recommending that they take out money from their investments and give the cash to him so that he could help them garner higher returns. Instead of investing these funds, he put the money in a bank account that was only under his authority.

DeShetler admitted to using one investor’s funds to begin building a house in Nicaragua and persuading a senior investor, who was a widow in her eighties, to liquidate a trust account and move nearly $190K to him. Last year, DeShetler stayed at her house while she visited family. When she came back, he was no longer there and neither were her investment documents.

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The US Securities and Exchange Commission has brought penny stock fraud charges against Diana P. Lovera, the ex-COO of Oxford City Football Club, Inc. Lovera faced criminal charges in a parallel case and she has already pleaded guilty to conspiracy to commit mail fraud and wire fraud.

According to the SEC’s Complaint, from about 7/2013 to 7/2015, Lovera and others at the penny stock company used a boiler room and exercised pressure tactics to raise about $6.6M from over 150 investors. They sold millions of unregistered Oxford City stock shares. Many of the investors involved were unaccredited.

The regulator is accusing Lovera of making misstatements about Oxford City’s assets, potential for profit, business plan, and management composition. She also allegedly falsely told potential investors that they could “lock in” a reduced share price by using Oxford City’s voice verification “system.” She touted the system as having the ability to link the personal information of investors to an SEC filing.

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