Articles Posted in Investment Advisers

NJ Investment Adviser Accused of Stealing Over $1M from Clients
The US Securities and Exchange Commission has brought investment adviser fraud charges against Scott Newsholme, a New Jersey-based financial adviser and tax preparer, accusing him of stealing over $1M from clients so he could support his lifestyle and support his gambling. According to the regulator, Newsholme generated fake account statements and “doctored stock certificates and forged promissory notes.”

Prosecutors have filed a parallel criminal case against him. Rather than invest clients’ funds in different securities as promised, Newsholme allegedly went to a check-cashing store to cash their checks and then kept their money for himself to cover his own expenses and gambling activities, as well as make Ponzi-like payments to the clients who wanted their money back.

Radio Host Accused of Stealing Millions of Dollars in Concert Ticket Scheme
Craig Carton, a sports radio host, is accused of running a concert ticket scam to bilk investors. According to the SEC’s complaint, he and Joseph Meli, another man whom the regulator had already filed charges against earlier this year, touted blocks of face value tickets to concert performances that were in demand and promised investors high returns that would come from ticket resales and their accompanying price markups.

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Aaron J. Johnson, a former registered investment adviser who ran Capital Advisors until state regulators took back his firm’s registration in 2013, is sentenced to five years behind bars for financial fraud. Johnson, 37, claimed that he stole over $600K from clients because he suffered a mental health breakdown.

According to prosecutors, Johnson took money from middle-class clients’ retirement accounts and charged them excessive fees to the point that he’d practically drained their funds. After Capital Advisors lost its registration, Johnson became affiliated with Trade PMR, a Florida-based firm that offers custody and brokerage services for investment advisers that are registered. Prosecutors contend that even then Johnson kept stealing from clients despite the fact that he was now under investigation. Prosecutors said that after Trade PMR began to question the fees that Johnson charged clients, including $3200 in client fees for an account that only held $13K in assets, the ex-adviser generated fraudulent documents as proof that his actions were warranted. He drained the account of the client, who was a single mom with three kids, until there was only $5 left.

Johnson has been ordered to pay back everyone that he defrauded.

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The US Securities and Exchange Commission has brought investment adviser against Jeremy Joseph Drake. He is accused of bilking a known professional athlete and his wife, making about $900K in compensation in the process. At the time of the purported financial fraud, Drake worked with HCR Wealth Advisers.

According to the regulator’s complaint, the couple entrusted over $35M of their assets to Drake to manage. As their investment adviser, he owed them a judiciary obligation.

The investment adviser fraud allegedly went on for over three years, during which time he allegedly told the couple that they were receiving a .15 to .20% fee rate on assets under management when they were actually paying a 1% fee. As a result, the athlete and his wife ended up paying $1.2M more in management fees than what they were told they had paid.

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In a second superseding indictment to an ongoing Texas securities fraud probe, the US Attorney’s Office for the Southern District of Texas has brought criminal charges again against several people accused in an alleged multimillion dollar pump-and-dump scam. This latest indictment expands on the original criminal charges, which involved Chimera Energy Corp. stock and an alleged $6M scam.

With this latest indictment, investors of 12 stocks were allegedly defrauded of more than $25M. Prosecutors said that the scam bilked investors in different companies through the use of fraudulent trading practices, the publication of misleading and false information via ads and press releases, and the circumvention of Securities and Exchange Commission reporting requirements.

Those charged in this latest Texas securities indictment include Andrew Ian Farmer, Charles Earl Grob, Carolyn Price Austin and Eddie Douglas Austin of Houston, John David Brotherton of League City, and Scott Russel Sieck of Florida for the parts they played in the alleged conspiracy fraud involving a dozen stocks, including Chimera Energy Corp. stock. The latter was the stock involved in the initial criminal indictment that brought charges against both Farmer and Thomas Galen Massey, also a Houston resident.

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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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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Investment Advisory Firm Founder Gets 2-Year Prison Term, Will Pay $1.3M for Fraud
Michael J. Breton, a Massachusetts investment adviser, has been sentenced to two years behind bars for running a cherry picking scam that allowed him to bilk clients. Breton, the founder of Strategic Capital Management, admitted to keeping profitable trades for himself while making unprofitable ones for customers. Breton has been ordered to pay them $1.3M in restitution.

The cherry picking scheme went on for six years, bilking 30 investors. According to regulators and prosecutors, when certain companies were slated to announce earnings announcements, Breton would purchase securities through a master account or via block trading. When the earnings news would raise a stock’s price, Breton would keep the trades. When an earnings announcement would cause a stock’s price to go down,
he would disburse these trades to clients.

Jury Convicts Indiana Investment Advisor of Securities Fraud
This week in Pittsburgh, a jury convicted Bernard Parker of mail fraud, securities fraud, and of filing false tax returns. Parker, who was the principal of Parker Financial Services, is accused of bilking 22 clients of over $1.2M and falsifying his US tax returns by not including over $790K in income.

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Grand Jury Indicts Texas Woman in $1M Ponzi Scam
A federal grand jury has indicted Nemelee Liwanag Jiao on two wire fraud counts for allegedly running a Texas Ponzi scam that cost investors over $1M. At least 35 investors were bilked.

According to the indictment, Jiao, a Texas resident, had investors back promissory notes that were supposedly issued by two non-profit schools in the Philippines when, in reality, she was using their money on herself. Jiao told investors she represented both Lord of Peace Learning Center and Shepherd’s Light Learning Center and she got them to invest their money in the promissory notes after promising 10-100% in returns. She also promised that they would get back their principle plus interest within 30-days to a year of investing.

The indictment against Jiao stated that she will have to forfeit all proceeds if convicted. She faces up to 20 years in prison for wire fraud, as well as a $250K fine.

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Federal Reserve Imposes First Fine to a Bank Over A Volcker Rule Violation
For violating the Volcker Rule’s ban on making risky market bets, Deutsche Bank (DB) must pay a $157M fine for not making sure its traders didn’t make such bets and for allowing its currency desks to engage in online chats with competitors, during which time they allegedly disclosed positions. It was just last year that the German lender admitted that it did not have sufficient systems in place to keep track of activities that could violate the ban.

Under the Volcker Rule, banks that have federal insured deposits are not allowed to bet their own funds. They also are supposed to makes sure that when their traders help clients sell and buy securities, they aren’t engaging in bet making.

For the system lapses, the Federal Reserve fined Deutsche Bank $19.7M. The remaining $136.9M fine is for the chats and because the bank purportedly did not detect when currency traders were revealing positions or trying to coordinate strategies with competitors.

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In federal court in Texas, Charles Banks, the former financial adviser to ex-NBA star Tim Duncan, has pleaded guilty to wire fraud. Banks admitted to misleading Duncan into guaranteeing a $6M loan to a company that had financial connections to the ex-advisor.

Duncan, who retired from professional basketball in 2016, claims that he lost more than $20M through deals he was involved in because of Banks. The two first started working together in 1997 when Banks was employed with CSI Capital Management Inc. and Duncan was an NBA rookie. After Banks left the firm he continued working with Banks.

Banks encouraged Duncan to lend a company, Gameday Entertainment, $7.5M. The company then obtained a $6M bank loan using what Duncan contends was his forged signature. Banks was Gameday’s chairman at the time.

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