Articles Posted in Investor Fraud

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.

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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In yet another investor fraud case in which the alleged fraudsters touted the sale of tickets from the musical Hamilton, Jason Nissen is charged with wire fraud in a $70M Ponzi scam. According to prosecutors, the CEO of National Event Co. raised money by falsely claiming that he would use investors’ funds to purchase and resell wholesale tickets for premier events, including the Broadway hit and the Super Bowl.

Although Nissen did buy tickets with some of the money, most of the funds purportedly did not go toward ticket purchases. According to court filings, what Nissen allegedly was actually doing with the funds was paying back earlier investors. After running out of new funds this month, he purportedly admitted to two investors that he’d bilked them. He also allegedly said that he’d forged documents to conceal his scam.

Among Nissen’s alleged victims are a diamond wholesaler that lent him $32M and a private equity firm, which gave him $40M to invest. This same firm owns part of National Event Co.

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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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FINRA Suspends Broker For Accepting $105K in Gifts
The Financial Industry Regulatory Authority Inc. has suspended Adam C. Smith from the securities industry for a year. The former Merrill Lynch broker, who was fired from the firm, will pay a $10K fine.

According to the self-regulatory organization, while at Merrill Lynch, Smith and his wife accepted $26K in checks from a couple whom he represented. The money was to help fund the education of Smith’s children. When one of the client’s passed away, the remaining spouse gifted Smith and his wife another $53K, again to pay for their kids’ education. Smith received $26K from other clients.

Although he is settling, Smith is not denying or admitting to FINRA’s findings.

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San Angeleno Man Goes to Prison Over Investment Scams
Stanley Jonathan Fortenberry of Texas has been sentenced to 78 months behind bars for running two investment scams and bilking investors of about $900K. He pleaded guilty to obstruction of justice and mail fraud in 2016. Now, Fortenberry must pay over $890K in restitution and forfeit more than $311K.

Fortenberry ran Premier Investment Fund and raised money for social media projects operated by another company. According to prosecutors, the Texas man misled investors about that company’s profitability and regarding what their money would be used for. He admitted to diverting about half of investors’ money to himself and to his fundraising operation.

Fortenberry also ran Wattenberg Energy Partners, a company that raised money for oil and glass drilling projects in Colorado. He admitted to establishing the company under his son’s name because the US Securities and Exchange Commission was already investigating him about the way Premier investors’ funds were being used.

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RIA Misappropriated Over $865K and Withdrew $640K in Excess Fees, Say Prosecutors
Broidy Wealth Advisors CEO Mark Broidy has pleaded guilty to taking $640K in excess management fees from clients and misappropriating over $864K in stock that were in trusts of which he was the trustee. Now, the registered investment advisor must make restitutions to those whom he defrauded. He could end up serving up to five years behind barsamong other penalties.

According to the Justice Department, from around 11/2010 to 7/2016 Broidy billed more than what he was allowed to in compensation, which caused three clients to pay more than $640K in excess fees. He concealed his theft by falsifying those clients’ IRS Form 1099s.

After one client demanded that Broidy pay back the stolen funds the latter allegedly sold over $865K of stock from another client’s trust accounts, which were for that person’s children. Broidy also suggested that several clients invest in startups with which he had deals to pay him part of any money he raised on the companies’ behalf. The clients didn’t know about these arrangements.

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According to the AARP Investment Fraud Vulnerability Study, published by the AARP Fraud Watch Network, active, older investors who get involved in unregulated investments may be more vulnerable to investment fraud. 214 fraud victims were interviewed, along with 814 members of the public who are considered general investors.

The study said that there are appear to be certain traits that may identify why some people are more likely to become fraud victims, including:

· Usually men, age 70 or older.

· These men are often risk-takers.

· They’re more likely to value wealth accumulation as a sign of financial success.

· They’re typically open to sales pitches and to answering remote sales pitches.

Doug Shadel, the lead researcher for the AARP Fraud Network, noted that if an older investor is able to identify whether/not she has a predisposition toward risky conduct, this could make the person more mindful of that tendency and he/she might potentially avoid becoming vulnerable to fraud.

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The US Securities and Exchange Commission has filed Texas fraud charges against Patrick O. Howard, Optimal Economics Capital Partners, LLC (OE Capital) and Howard Capital Holdings, LLC. Howard controls the two Dallas-based companies., which have raised about $13M from 119 investors. The regulator is alleging that the money went to fraudulent offerings involving private fund investments in three limited liability companies and that Howard falsely presented himself as a registered investment adviser when, in fact, he was not. In addition to offering and selling units through OE Capital, he retained two firms to do the same and paid them a 5% commission.

The SEC is charging Howard and his companies with violating the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The regulator wants permanent injunctions, disgorgement, prejudgment interest, and civil penalties.

According to the Commission, which filed its complaint under seal in Dallas federal court, Howard and his two companies promised investors 12-20% yearly returns, along with minimal risk. They also purportedly claimed that almost all invested money would go toward acquiring interest in revenue streams of the portfolio companies and that promised returns were insured.

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