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Two years after the Financial Industry Regulatory Authority (FINRA) barred former UBS Financial Services of Puerto Rico (UBS-PR) broker Jose Ramirez, nicknamed the Whopper, our UBS Puerto Rico fraud attorneys are continuing to provide representation to investors who sustained losses because they took his and other UBS-PR brokers’ advice to borrow from credit lines in order to invest in even more securities. If you are one of these investors and you would like to explore your legal options, please contact Shepherd Smith Edwards and Kantas, LTD LLP today.

It was in 2015 that the US Securities and Exchange Commission (SEC) brought charges against Ramirez accusing him of fraud in the offer and sale of $50 million of UBS-PR affiliated, non-exchange traded closed-end mutual funds. The former UBS broker allegedly enriched himself by advising certain customers to use non-purpose credit lines that a firm affiliate, UBS Bank USA, was offering so that they could buy even more shares.

These customers were not, in fact, allowed to use credit lines to buy the securities and Ramirez allegedly knew this. He is accused of getting around restrictions by telling customers to move money to a bank that had no affiliation with UBS and then re-depositing the funds to their UBS Puerto Rico brokerage account in order to buy additional closed-end mutual funds or Puerto Rico bonds. Such a scheme was a violation of numerous rules and regulations and, if misrepresented to the investors as the SEC has alleged, would have been a major legal violation.

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Wyoming Investment Manager Indicted for Allegedly Bilking Retired Investor
Tyris D. Maxey has been indicted on multiple counts of wire fraud and he was arrested this week. Maxey, a Wyoming investment manager, owns RB Mister Enterprises LLC. He allegedly convinced a retired school teacher to give him about $950K to invest and then using almost all of the funds on his own expenses.

Meantime, any investments he made with the investor’s money experienced “heavy losses.” Funds that he gave to the investor, which he claimed were returns, were actually the same funds that the teacher had given him to invest.

Maxey pleaded not guilty to the criminal charges of financial fraud.

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Jason Galanis, an ex-investment banker, who is already serving eleven years behind bars for stock rigging, has been sentenced to five years in prison for fraud involving a Native American tribal bond. He must forfeit over $43M and pay nearly $44M of restitution.

In the tribal bond scam, Galanis and his father John Galanis are accused of convincing Oglala Sioux Tribe affiliate Wakpamni Lake Community Corp. of issuing $60M in municipal bonds. The two of them and others then misappropriated the proceeds from the bonds, including $8.5M for Jason personally. Meantime, bond investors were left with worthless securities while the tribal corporation had no means of paying the interest payments that it owed on the bonds.

According to the prosecution, the bond scam bilked Galanis’ tribal bond clients and the investing public while “defrauding the Native American tribe into issuing bonds.” Galanis and his co-conspirators sold the bonds, which were illiquid, to pension funds, and stole the profits. Meantime, they allegedly hid conflicts of interest and the fact that the bonds were not liquid.

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According to a new study recently published in The Review of Financial Studies, the Bernie Madoff Ponzi Scam not only bilked over 10,000 investors of billions of dollars, but it also caused many in the investing public to stop trusting the financial industry. The study is called Trust Busting: The Effect of Fraud on Investor Behavior.

Researchers were able to track the impact of the Madoff fraud outside of the investors who were directly impacted because Madoff, who is Jewish, worked primarily with rich, older Jewish investors. Assistant Professor of Applied Economics and Management at Cornell Scott Yonker, who is a co-author of the study, describes the Madoff Ponzi Scam as an affinity scam in that it targeted investors who had similar backgrounds. That said, his victims included retail investors, wealthy investors, famous investors, celebrities, and various entities and financial funds.

The study found that once the Madoff Ponzi scheme became public knowledge, investors who either personally knew his victims or lived in the areas where his victims lived withdrew $363B from their financial advisers and placed their funds in banks instead—that’s almost 20 times more than the $17B that Madoff has been ordered to pay in restitution to his investors.

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In the United States District Court in San Juan, the hedge fund Aurelius Capital has filed a lawsuit seeking to have Puerto Rico’s bankruptcy case dismissed. Aurelius Capital is the holder of more than $470 million of Puerto Rico General Obligation bonds (“GO Bonds”). All Puerto Rico GO bonds were supposed to have been guaranteed under the Commonwealth’s constitution. Now, however, GO bonds are subject to a five-year plan that could force bondholders to take substantial reductions on what they are owed upon repayment.

Puerto Rico filed for Title III bankruptcy protection in May. Although bankruptcy protection was not originally available to Puerto Rico, under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), the law was changed to allow for Puerto Rico to file a bankrupt-like procedure if it could not resolve all of its debt with bondholders.

As with other bankruptcies, the island has been granted a “stay” from creditors. Now, Aurelius wants the federal court to lift the stay, which has prevented it and other creditors from suing the Puerto Rican government.

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William Alexander Swell and his 7S Oil & Gas, which is a Texas-based oil and gas company, will pay $750K for allegedly misleading investors about commissions and administrative costs and for misappropriating a significant amount of their money. According to the US Securities and Exchange Commission, the oil and gas company and its CEO raised nearly $7M from at least 70 investors in the US via unregistered offerings in oil and gas projects. Securities were sold to investors as units in eight of these joint venture projects. All of the projects were based in Texas.

In its complaint, the regulator accused Sewell and 7S of bringing in investors through sales agents and YouTube videos, one of which guaranteed “some type of return.” Meantime, offering documents in the alleged Texas securities fraud purportedly stated that no more than 10% of investor funds would go toward marketing costs, commissions, and salaries, while 85% would be used on oil and gas operations.

Instead, the SEC is claiming, sales agents received up to 35% in commissions from investor proceeds while only 57% maximum of investor money went to the wells. Sewell and 7S are accused of using over $90K of investor funds on entertainment bills, his children’s school tuition, and other personal expenditures. “Sham ‘royalty payments’” were allegedly issued to some investors to make it appear as if they were getting a return on their investments.

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The US Securities and Exchange Commission has filed charges against four former brokers for allegedly persuading federal employees to roll over holdings from federal retirement accounts into variable annuity products that charged higher fees. Their targets were Thrift Savings Plan (TSP) participants. The plan is administered by the Federal Retirement Thrift Investment Board, which is an independent government agency.

According to the regulator’s broker fraud case, then-brokers Jonathan Cooke, Christopher Laws, Brandon Long, and Danny Hoode promoted the VA products under the Federal Employee Benefits Counselors because they wanted the high commissions. Their alleged victims were federal employees who were 59 ½ years of age and older and with TSP account holdings that could be moved over into variable annuities, tax-free, in certain plans at annuity carriers.

Ex-Brokers Made High Commissions From the Alleged Elder Investor Fraud

Businessman Accused of Taking Investors’ Money That Was Supposed to Go Toward Fighting Cancer
In a complaint brought by the SEC, the regulator has filed securities fraud charges against Patrick Muraca, a Massachusetts businessmen, accusing him of misappropriating investments that were supposed to go toward helping to develop cancer diagnostic tests. Instead, Muraca, who raised almost $1.2M through MetaboRX LLC and NanoMolecularDX LLC, allegedly transferred $400K of these funds to pay the rent of his fiancées restaurant businesses as well as for other purchases.

Now, the regulator is charging Muraca and his companies with Securities Act of 1933, Section 17(a) violations and Securities Exchange Act of 1934 Section 10(b) and Rule 10b-5 violations. The SEC wants disgorgement of ill-gotten gains, interest, and penalties.

Meantime, prosecutors have brought related criminal charges against Muraca.

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The US Securities and Exchange Commission has announced two whistleblower awards this week. The first is almost $2.5M to an employee of a US government agency whose tip helped instigate the regulator’s probe into the alleged misconduct. This individual provided additional help that allowed the SEC to “address” the issue and accelerate the speed of the enforcement investigation.

Two days later, the SEC announced another award, this one for over $1.7M to a company insider who handed over key information to stop a fraud that might have been hard to detect without this person’s help. As a result, investors that were harmed were able to recover millions of dollars.

To date, since the SEC instituted its whistleblower award program, 46 individuals who voluntarily gave original and helpful information leading to a successful enforcement probe have been awarded $158M. To qualify for an award, money collected from the enforcement sanctions must be more than $1M, at which point the whistleblower may be entitled to 10-30% of these funds.

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In the U.S. District Court for the Western District of Texas, Petroforce Energy LLC and its founder William Veasey have consented to pay almost $300K to resolve charges brought by the Securities and Exchange Commission in an oil-and-gas offering fraud. The Austin-based company and Veasy raised close to $3.9M from about 80 investors in four allegedly fraudulent offerings. Some investors backed more than one offering.

According to the regulator’s complaint, Veasy and Petroforce gave materials to investors that included misleading and false statements regarding the investments. These inaccurate statements allegedly misrepresented certain operational issues that had impacted an earlier offering, overstated the wells’ profitability, and understated certain expenses. Other key information, including tax benefits involving the offerings, were also allegedly misrepresented.

The Commission is accusing two Petroforce sales agents of acting as unregistered brokers in the oil and gas offering fraud. Javier Avarado and Ivan Turrentine, along with Veasey, offered and sold limited partnership and joint venture interests to investors in Petroforce securities. All of them made money from the sales.

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