Articles Posted in Texas Securities Fraud

Beaumont, TX Investment Adviser is Suspended for 90 Days
In a Disciplinary Order, the Texas State Securities Board suspended former LPL Financial LLC (LPLA) investment adviser Jason N. Anderson for 90 days. The state contends that while registered with that firm, Anderson touted an active-trading program to clients that charged them unreasonable fees, which included commissions to Anderson, as well as trading costs.

For example, one client paid costs that were approximately 30% of “the value of the average equity securities” in the client’s account. The Texas regulator said that the trading program would have had to make “extraordinary returns” for investors to “offset” such fees or even, in some cases, allow them to merely “break-even.”

The order called the commissions and trading costs “inequitable practices” that violated the Texas Securities Act. The state accused Anderson of not having reasonable grounds for believing that the trading program would be appropriate for these clients.

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The SEC has put a stop to Dallas-based AriseBank’s initial coin offering. The regulator contends that AriseBank, which touts itself as the first “decentralized bank” in the world, and its principals are committing Texas financial fraud, and they’ve targeted retail investors, including Texas investors, in an effort to raise hundreds of millions of dollars.

Now, the Commission has a court order to stop the sale of AriseCoin cryptocurrency, which it says are unregistered investments. The regulator called the ICO an “illegal offering” of said securities and it accused the company of engaging in an “outright” scam.

AriseBank reportedly sought to raise $1B during its ICO, which began in late December and was scheduled to end later month. Investors were supposed to receive their distributions on February 10.

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BitConnect, an investment lending platform for Bitcoin, has suddenly announced that it is shuttering its lending and exchange operation immediately. The company said that its exchange platform would shut down in five days. In a post on its site, BitConnect said that moving forward, it would operate for “wallet service, news and educational purposes.”

The announcement caused the price of BitConnect Coins (BCC), which is its Bitcoin currency, to plunge by over 90%–from over $400/coin to about $17.25/coin. Now, its investors are left wondering what to do with their coins.

Some site users are claiming that even though the exchange for the BCCs was supposed to stay open throughout the week, they have been unable to process trades because they cannot access the exchange. CoinDesk reports that one investor sent an email, claiming over $400K in losses because of this.

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In an Emergency Cease and Desist Order, the Texas State Securities Commissioner is demanding that BitConnect, which is based in the UK, stop a number of its investment programs, as well as its allegedly fraudulent sales of Bitcoin investments. According to the regulator, BitConnect sales agents are targeting prospective Texan investors, as well as investors in other parts of the US.

BitConnect issues its own currency, known as BitConnect Coins. As of earlier this month, the company was claiming that its market share for its cryptocurrency coins was $4.1B. It announced plans to issue up to 28 million coins.

According to the regulator’s order, BitConnect’s website BitConnect is an “open sourced, all-in-one Bitcoin and crypto-currency platform” that offers different investment opportunities. The site depicts BitConnect Coins as an “open source, peer-to-peer community-driven decentralized cryptocurrency” with which owners can “store and invest their wealth.”

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The SEC has filed fraud charge against Behavioral Recognition Systems, Inc. and its former CEO Ray C. Davis. According to the Commission, the Houston-based technology company, and Davis solicited over $28M from hundreds of investors, diverting over $7.8M to the latter’s personal use.

Between 1/2013 and 7/2015, investors targeted in the alleged Texas securities scam were solicited for funds and their involvement in seven equity securities offerings. “Material misrepresentations and misleading statements” were allegedly made to them about: how investor proceeds would be used, executive compensation, operating costs, and related party transactions.

The regulator’s complaint, claims that Behavioral Recognition Systems and Davis lied more than once in order to get investors to give them their money. Offering documents claimed that investor money would go toward “working capital,” “growth, “mezzanine funding,” and “general corporate purposes” for Behavioral Recognition Systems. Instead, contends the SEC, Davis used shell companies under his control to divert about $11M of investor money for his own use–$7.8M of that money was allegedly diverted during the period at issue. Bogus invoices from the shell companies for services purportedly rendered were then generated to conceal the fraud.
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An Austin man convicted of Texas securities fraud has been sentenced to 15 years in prison. James Elton Warr was also convicted on other multiple first-degree felonies, including money laundering, theft, and misapplication of fiduciary property in Travis County.

According to prosecutors, Warr stole $1.1M from investors who purchased contracts in unregistered real estate notes through his Warr Investment Group. He and his firm were not registered to sell these securities. Still, Warr promised 8% yearly interest, compounded monthly, and he touted the investments as “no-risk.”

The real estate deals were marketed as a safe alternative to more traditional investments. Warr promoted them online, including on YouTube.

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James C. Tao, an ex-financial adviser, has settled civil charges accusing him of bilking investors in a private equity fund. It was the US Securities and Exchange Commission that brought the Texas investment fraud charges against him.

Among the allegations was that Tao misappropriated investor money and made material misstatements in offering documents for the Presidio Venture Capital fund. Donna Boyd, Tao’s ex-partner, also settled SEC charges in this case.

The regulator’s complaint contends that the two of them set up the fund four years ago to invest in Houston-based technology startups. They raised about $860K.

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The United Development Funding, a beleaguered Texas real estate investment trust accused of running a $1B Ponzi-like scam, is suing a hedge fund manager for the allegedly “false and disparaging” statements that led to the fraud allegations. The REIT came under fire two years ago after an investor website issued a report accusing UDF IV of being run like a Ponzi scam. For the last two years, our Texas securities fraud lawyers at Shepherd Smith Edwards and Kantas LTD, LLP has been fielding calls from investors who suspect they may have suffered financial losses from investing in UDF Funds.

According to UDF’s complaint, filed in Dallas County, hedge fund manager Kyle Bass and his Hayman Capital Management are the ones that anonymously published the Ponzi allegations online and then later on a proprietary site. They allegedly did this to damage the UDF Funds.

In its filing with the US Securities and Exchange Commission about the complaint, the REIT accused the defendants of engaging in “false and disparaging statements,” including that: the UDF Funds were part of a Ponzi fraud, they were unable to run their own business, had insolvency problems that made their shares “worthless,” their real estate developments that were “not genuine,” and they “misappropriated” investors’ funds. The filing countered that the UDF Funds were “successful” and had actual real estate developments. The REIT claims that because Bass had set up a “large short position” in the Texas REIT before publishing the false allegations, he and his company “profited” from the damages wreaked by their claims.

Bass had a short position in the REIT. Once he disclosed this news, United Development Funding shares plunged in price. In response to this lawsuit, the hedge fund manager claims it is meritless.

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Texas Investment Adviser Suspend for Violating Earlier Securities Agreement
The Texas State Securities Board has suspended investment adviser John Michael McDonough for 90 days after he violated a past agreement that limited his business activities and required 212 Advisory Group to enhance its supervision of him. The undertaking agreement was a requirement for him to be approved as a registered investment adviser in Texas in 2015 while he worked with the Georgia-based firm.

At the time, the Financial Industry Regulatory Authority had already sanctioned McDonough, who used to be registered with AXA Advisors, LLC, over allegations that he engaged in “outside business activities” and a number of undisclosed private securities transactions. He was fined $10K and suspended by the self-regulatory organization.

Earlier this year, the Texas State Securities Board found that McDonough was in total violation of the undertaking agreement. Meantime, 212 Advisory was found to have failed in making sure that McDonough did not engage in any supervisory-like acts nor did it ensure that a firm principal was appointed as his direct supervisor.

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Lawrence Allen DeShetler will serve 60 months in federal prison for Texas investor fraud. The Houston man pleaded guilty to mail fraud earlier this year after he fraudulently solicited $1.9M from five clients.

Starting in 2014, the former investment advisor, certified planner, and head of DeShetler & Company started persuading clients that if they let him invest their funds they would make higher returns. These clients took money from their investment accounts and gave them to him. Unfortunately, DeShetler used the money on himself.

He has since admitted to using some of investors’ funds to build a house abroad. DeShetler also admitted that he persuaded one widow who was an octogenarian to liquidate a trust and transfer nearly $190K to him. He even stayed in her home while she went away. Upon her return DeShetler was gone and so were her investment documents.

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