Articles Posted in Securities Fraud

SEC Charges SunTrust With Collecting Over $1.1M in Excess Mutual Fund Fees

The US Securities and Exchange Commission has filed charges accusing SunTrust Investment Services of collecting over $1.1M in unwarranted fees from mutual fund clients. The SunTrust Banks subsidiary will pay an over $1.1M penalty to resolve the regulator’s civil charges.

According to the regulator’s order, SunTrust Investment Services improperly recommended costlier mutual fund share classes to clients when less expensive shares of these funds were available. The SEC says this was a breach of the investment services firm’s fiduciary duty to take actions in the client’s best interests.

Financial Adviser Who Bilked Athletes, Including Mike Tyson, is Sentenced
Former SFX Financial Advisory Management Enterprises financial advisor Brian Ourand is sentenced to thirty years behind bars after he bilked a number of professional athletes, including former heavyweight champion Mike Tyson, ex-NBA basketball players Glen Rice and Dikembe Mutombo, and others. Ourand must also pay back $1M of what he stole.

Not only is he accused of forging the pro athletes’ signatures on checks that he cashed but also of taking credit cards out against these clients’ accounts to cover his own spending, including restaurants, clothing, and other bills. SFX fired him in 2011.

In 2015, Ourand was charged with wire fraud, federal mail fraud, and aggravated identity theft charges. He pleaded guilty to one criminal count of wire fraud.

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In federal court in Boston, Howard Present, the former CEO and co-founder of F-Squared Investments Inc. is on trial over civil exchange-traded fund fraud charges brought against him by the US Securities and Exchange Commission. Present is accused of lying about the firm’s flagship product, the AlphaSector model portfolio, to investors and making millions of dollars in the process.

According to the regulator, starting in 2008, Present touted the AlphaSector as having a successful track record going as far back as 2001. F-Squared claimed that this performance was based on a strategy developed by a multibillion dollar wealth manager when, in reality, it was based on an algorithm that had been applied to historical market information by the manager’s intern, who was a college student at a time. Also, the track record was hypothetical and not historical.

The regulator believes that there was a mistake in the hypothetical figures that caused a substantial inflation of investment performance that was used when creating marketing materials for the AlphaSector. The DEC contends that even though Present knew about the inaccuracies, he did not order a correction and continued to use the inflated performance numbers.

When F-Squared started marketing the strategy to possible clients, rather than stating that the potential performance of the strategy was set up in 2008, Present claimed that actual investment history had been used calculate the track record. A press release was even issued claiming that $100M in client money had been dedicated to the investment strategy for the past several years when the actual monetary figure for that was zero.

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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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The Financial Industry Regulatory Authority is barring Jaime R. Rodriguez, an ex-HSBC Securities (HSBC) broker, in the wake of a charge accusing him of bilking an older customer, who is also legally blind, of $200K. HSBC fired Rodriguez in 2014.

Rodriguez is accused of using about $70K of the client’s money in 2012 to buy an apartment that was supposed to be for the customer. However, because the man couldn’t read or see the documents related to the purchase, he did not know that Rodriguez had named himself as the sole beneficial owner.

According to InvestmentNews, Rodriguez met the man in 2010 and began helping him with his errands. Also in 2012, Rodriguez purportedly recommended to the client that they set up a joint account together so that the then-HSBC broker could assist him in paying his bills. The account was opened using about $42K of the client’s money and at one point it held $153K.

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The US Securities and Exchange Commission has filed charges against ex-financial adviser Dawn Bennett accusing her of bilking investors, making Ponzi-like payments, and spending clients’ funds on herself. According to the regulator, Bennett and her DJB Holdings LLC raised over $200M through the sale of notes issued to at least 46 investors by the luxury sports apparel company. Many of her victims were unsophisticated and older investors.

During the sales, Bennett allegedly claimed that the notes were safer than they actually were, as well as that her firm could pay yearly returns of up to 15%. Investors were purportedly told that their money would go toward company use but instead she paid back earlier investors in a Ponzi-like manner and used some of the funds to pay for her expenses. Meantime, contends the SEC’s complaint, Bennett hid the alleged fraud, lied to regulators, used sham promissory notes instead of actual convertible notes, and inflated her net worth.

Now, the Commission has charged Bennett and her company with violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The regulator wants disgorgement, interest, and penalties for the alleged senior financial fraud.

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Federal Judge Orders Tim Durham to Pay $1. 3M in Securities Fraud Case

Five years after he was convicted of securities fraud, businessman Tim Durham has been ordered by a federal judge to pay $1.3M in the US Securities and Exchange Commission’s civil case against him. Durham bilked over 5,000 investors in his Ponzi Scam involving his company Fair Finance. He is serving 50 years behind bars.

The Commission had wanted the judge to order Durham to pay back over $200M in ill-gotten gains. Instead, Judge Jane Magnus-Stinson ordered him to pay a $130K penalty for each criminal conviction, of which there were 10. After Fair Finance shut down in 2009, its bankruptcy trustee repaid investors $18M.

Ex-ArthroCare CEO is Convicted in $750M Scam For a Second Time
Michael Baker, the ex-CEO of ArthroCare Corp., has been convicted once again in a $750M securities fraud. An earlier conviction for the same scheme was vacated last year by the 5th U.S. Circuit Court of Appeals.

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A new survey conducted by the North American Securities Administrators Association found that there was been an increase in senior financial fraud incidents, with 97% of incidents going unreported until serious harm has occurred. The survey respondents, all state securities regulators, noted a 29% rise in complaints or cases involving older investors who were bilked or exploited.

The Pulse Survey took place between July 24 to August 4, 2017. Among other findings:

· Three-fourth of regulators that put into effect the Model Act to Protect Vulnerable Adults from Financial Exploitation were able to stop funds from going to fraudsters who had targeted older investors.

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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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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