Articles Posted in Texas Securities Fraud

The US Securities and Exchange Commission has filed charges against Two Texas companies and their principals accusing them of senior financial fraud and running a $2.4M Ponzi scam. The regulator brought its complaint in the US District Court for the Southern District of Houston Division.

The SEC contends that from ’10 to ’17, Clifton E. Stanley and his The Lifepay Group, LLC allegedly persuaded at least 30 older people to invest about $2.4M in retirement savings—approximately $1.3M of which he is accused of spending on his own country club memberships, travel, general living expenses, and entertainment bills. Stanley and Lifepay purportedly did this by making empty promises and touting significant investment returns of up to 36% annually. Many of Stanley’s alleged targets were investors in their 80’s and 90’s who lived in Texas and Louisiana.

In Ponzi scam fashion, investors received $1.1M of “returns” on their investments, which were actually funds that came from later investors and not returns at all. Meantime, investments were touted as “safe” and were supposedly to go toward real estate projects that would make money.

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The US Securities and Exchange Commission has filed senior investor fraud-related charges against Houston pastor Kirbyjon Caldwell of the Windsor Village United Methodist Church and financial planner Gregory Alan Smith. The regulator is accusing them of defrauding older investors of over $1M through the sale of pre-Revolutionary Chinese bond interests.

Smith runs the Smith Financial Group. The SEC permanently barred him from associating with brokerage-firms in 2010 after he was accused of misappropriating investor money. Caldwell is senior pastor at reportedly one of the biggest Protestant churches in the US.

According to the regulator, in 2013 and 2014, the two men solicited older investors in an attempt to sell them bonds that they claimed were valued at billions of dollars when, in truth, the bonds were “collectible memorabilia” that lacked any “meaningful investment value.”

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Valor Capital Asset Management LLC and its owner, Texas-based investment adviser Robert Mark Magee, have settled US Securities and Exchange Commission charges accusing them of defrauding investors by engaging in cherry picking. As part of the settlement, Magee is banned from the securities industry and will pay over $715K.

The SEC contends that while trading securities in the firm’s omnibus account, Magee would wait to allocate the trades until after watching their performances throughout the day. He would then allocate a disproportionate amount of the more profitable trades to his accounts while sending the trades that were not profitable to his clients. This allowed him to profit at cost to clients. The SEC believes that his ill-gotten gains from cherry picking was over $505K.

For example, notes the SEC, the way in which Magee traded and allocated El Pollo Loco Holdings is “representative” of how he allegedly engaged in cherry picking. For five trading days in a row, trades in LOCO that were profitable went to his own account. When the price went down on the sixth day, he allocated the shares to six Valor client accounts instead of selling the shares at a loss.

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The US Securities and Exchange Commission has filed civil charges against Ameratex Energy, Inc., Lewis Oil Company, Lewis Oil Corp., their CEO Thomas Lewis, and ex-Ameratex President William Fort over their alleged involvement in an $11.7M Texas oil and gas offering fraud. The companies are based in Plano, Texas.

According to the regulator, the companies and the two men sold unregistered securities to more than 150 investors while making misleading statements about how the proceeds would be used. They also allegedly provided false information regarding prospect wells and sales commissions, as well as provided “false guarantees” regarding the lending out and mingling of funds.

The securities that they offered were not registered with the SEC. The individuals selling the investments were not licensed brokers or associated with brokers that were registered.

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State Regulator Orders Cessation of $4M Oil and Gas Offering
In an Emergency Cease and Desist Order, the Texas Securities Commissioner has ordered Parker R. Hallam and Jason A. Gilbert, two Dallas residents, to stop their efforts to raise $4.4M in an oil and gas offering. The two men are accused of fraud.

Hallam and Gilbert have been offering investors interest in a well project that would be based in Kansas. They reportedly intend to take $1M of investor funds as a management fee payment to SourceRock Energy Phoenix Prospect LP, which is the company that they do business as. Meantime, the rest of the funds would go toward leasing and building the well field. The two men have not, however, told investors that drilling costs are estimated to be at just around $750K.

Hallam also is accused of failing to tell investors that in 2016, the US Securities and Exchange Commission sued him and others over their alleged involvement in an $80M oil and gas fraud. Also, according to the Texas securities regulator, Gilbert failed to disclose that the Internal Revenue Service previously filed $548K in tax liens against him. The government agency also filed liens against Hallam, who has yet to pay nearly $143K of what he owes.

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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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