Washington, D.C., Aug. 29, 2011 – The Securities and Exchange Commission today charged two Florida men with operating a Ponzi scheme disguised as a purported private equity fund that fraudulently raised approximately $22 million from more than 100 investors, many of whom were Florida teachers or retirees.
According to the SEC’s complaint filed in U.S. District Court for the Middle District of Florida, James Davis Risher of Sanibel was responsible for handling the fund’s trading operations, and Daniel Joseph Sebastian of Lakeland distributed offering materials and solicited investors for the fund. Risher boasted to investors that he had substantial experience in trading equities and providing wealth and asset management services. In reality, Risher had no such experience but rather a lengthy criminal history, spending 11 of the last 21 years in jail instead of growing a thriving retail brokerage business as he claimed.
The SEC alleges that Risher and Sebastian falsely told investors that the fund earned annual returns ranging from 14 percent to 124 percent by investing in public equity securities through a broker-dealer. They sent investors fabricated account statements indicating such high returns to support their false claims. Only a fraction of the money raised was actually invested, and Risher instead misspent investor funds on such personal purchases as jewelry, gifts, and property in North Carolina and Florida. Risher and Sebastian also paid themselves millions of dollars in phony management and performance fees.
“Risher, who masqueraded as a highly successful equity trader, teamed up with Sebastian to tout sophisticated trading strategies they claimed would generate substantial profits for investors. Instead, Risher and Sebastian used investors’ life savings and retirement nest eggs to line their own pockets,” said Eric Bustillo, Director of the SEC’s Miami Regional Office.
According to the SEC’s complaint, Risher and Sebastian marketed the fund under the names Safe Harbor Private Equity Fund, Managed Capital Fund, and Preservation of Principal Fund. They described themselves in fund offering documents as “two unique individuals” who used their expertise to “create an investment vehicle that would allow investors to capitalize from both bull and bear markets.”
The SEC alleges that Sebastian often solicited his former customers at his prior job as an insurance broker. He primarily pitched the investment opportunity to educators, retirees, and members of several churches in Florida, but also solicited investors in California, other states, and Canada. Sebastian persuaded former customers to roll over money in their insurance and annuity products into the fund. He told them the fund would provide a higher rate of return than they could receive from the products he had previously sold them. At least one investor liquidated an annuity she had purchased from Sebastian and invested the proceeds in the fund.
The SEC alleges that Risher and Sebastian made a number of material false statements and omissions to investors about Risher’s criminal history, the fund’s investment strategy, the fund’s investment returns, the safety of investors’ principal, and the existence of audited financial statements. Risher misrepresented that the fund was registered in Bermuda, and he and Sebastian falsely claimed that the fund was audited annually by a Bermudan auditor. Sebastian verbally told investors during telephone calls and meetings that they would never lose their principal investments in the fund. He even provided some investors with written guarantees from a company he owned that would reimburse any loss. In reality, Sebastian knew that the company had no assets to reimburse investors for losses, making his guarantee meaningless.
Tuesday, August 30, 2011
SEC Charges James Davis Risher and Daniel Joseph Sebastian in Ponzi Scheme Defrauding Teachers and Retirees
Monday, August 29, 2011
Michael Spillan and His Wife Melissa Spillan Sentenced for $20 Million Fraud Scheme
COLUMBUS—Michael Spillan, 44, of Gahanna, was sentenced to 140 months in prison, and his wife, Melissa Spillan, 41, was sentenced to 36 months in prison for operating a fraudulent stock-based loan scheme that caused at least 38 victims to lose $19,695,579.17.
Carter M. Stewart, United States Attorney for the Southern District of Ohio; Edward J. Hanko, Special Agent in Charge, Federal Bureau of Investigation (FBI); and Daniel M. McDermott, U.S. Trustee for Region 9, announced the sentences imposed by U.S. District Judge Edmund A. Sargus, Jr.
They were also ordered to pay restitution to all of their victims.
The Spillans owned several companies in central Ohio including One Equity Corporation, Triangle Equities Group, Inc., Victory Management Group, Inc., and Dafcan Finance, Inc.
Between 2003 and 2008, the Spillans made low-interest loans to their victims who transferred shares of stock to the Spillans for them to hold as collateral against the loans. The Spillans promised to return the stock to the borrowers once the loans were repaid. The Spillans sold the stock without the borrowers’ knowledge instead of holding the shares and used the proceeds to fund other loans or for their own personal gain.
In April 2011, they each pleaded guilty to one count of conspiracy to commit securities fraud, mail fraud and wire fraud. Michael Spillan also pleaded guilty to one count of securities fraud, one count of wire fraud, and one count of mail fraud.
Saturday, August 27, 2011
Stephen Caputi Sentenced on Conspiracy to Commit Wire Fraud in Connection with Fraudulent Investment Scheme
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, and José A. Gonzalez, Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division (IRS-CID), announce today’s sentencing of Stephen Caputi, 54. U.S. District Judge William J. Zloch sentenced Caputi to 60 months in prison, to be followed a three years of supervised release. The court also ordered Caputi to pay $28,130,073.40 in restitution.
On June 15, 2011, Caputi pled guilty to conspiracy to commit wire fraud in connection with his involvement in a fraudulent investment scheme (the scheme) regarding the sale of purported confidential settlement agreements in sexual harassment and/or whistle blower cases purportedly being handled by attorneys at Rothstein, Rosenfeldt and Adler, P.A.
According to the documents filed with the court and statements made in court, Caputi posed as a banker and as a purported plaintiff during meetings with persons who were investors in the scheme. Specifically, Caputi, posing as an official from TD Bank, provided investors with fraudulent bank statements that reflected purported balances of trust accounts at TD Bank. In this way, Caputi lulled the investors into believing that the account balances were sufficient to fund their investments. On another occasion, Caputi posed as a plaintiff during a meeting with potential investors who had requested to meet with plaintiffs. Caputi pretended to be a plaintiff who had purportedly executed a $10,000,000 settlement agreement, thus raising potential investors’ confidence in the deal.
Thursday, August 25, 2011
Philip J. Baker Pleads Guilty to Defrauding 900 Investors in $294 Million Fraud Scheme
CHICAGO—The former managing director of a hedge fund that was forced into receivership by U.S. government regulators pleaded guilty today to fraudulently soliciting and obtaining approximately $294 million from some 900 investors worldwide. The defendant, Philip J. Baker, who controlled Lake Shore Asset Management Ltd., and the Lake Shore Group of Companies, which purportedly traded clients’ funds in several commodity futures pools, pleaded guilty to wire fraud, resolving criminal charges on which he was scheduled to stand trial next month.
Baker, 46, a Canadian citizen who lived in London and later Hamburg, Germany, has been in federal custody since he was extradited here in December 2009 from Hamburg, where he was arrested in July 2009. He was charged in a 27-count indictment returned in February 2009.
Under the terms of a written plea agreement, the government will recommend the maximum term of 20 years in prison when Baker is sentenced. In addition, Baker agreed to an order requiring him to pay restitution totaling more than $154.8 million, representing the outstanding losses to investors. U.S. District Judge John Darrah set sentencing for Nov. 17 in Federal Court in Chicago.
The guilty plea was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation.
According to the plea agreement, between 2002 and September 2007, as a result of Baker’s fraudulent solicitations, Lake Shore obtained approximately $294 million from approximately 900 investors. Baker admitted that he misappropriated at least $30 million for his own use and for the use of another Lake Shore director. He also admitted Lake Shore incurred several million dollars in net trading losses during the same time period that he misrepresented that Lake Shore’s trading was profitable.
Baker held himself out as a co-founder and managing director of Lake Shore, and the managing director of the “Lake Shore Group of Companies.” The Lake Shore companies advertised that they operated several commodity pools—investments that combined the funds of many investors for the purpose of trading commodity futures. Baker’s solicitations to invest in the Lake Shore commodity pools withheld material information and made the following false representations:
That the commodity pools generated positive returns between January 2002 and September 2007, when Lake Shore actually experienced millions of dollars in trading losses;
The plea agreement states that on June 13, 2007, NFA regulators reviewed a web site associated with Lake Shore and saw a press release stating, “In its 13-year history, Lake Shore’s flagship ‘Program I’ has generated a 28.27% compound annual return.” The next day, NFA staff went to Lake Shore Ltd.’s office on North Michigan Avenue in Chicago to conduct an audit to verify the profit claim on the web site and because Lake Shore Ltd. had been registered with the NFA only since January 2007. Lake Shore did not provide the NFA with certain records it was required by law to keep and produce to regulators.
Later that month, the Commodity Futures Trading Commission (CFTC), filed a civil lawsuit against Lake Shore Ltd. in Federal Court in Chicago, and obtained a court order freezing its assets and requiring the company to produce books and records verifying its profit claims and identifying investors. In that civil case, U.S. District Judge Blanche M. Manning issued several orders directing Lake Shore Ltd., other Lake Shore entities, and Baker himself to produce books and records. Judge Manning also appointed a receiver to gather all available assets for distribution to the defrauded investors. The receiver recovered and returned to investors more than $100 million to date. Baker never produced the documents to the CFTC or receiver, but instead took steps to hide the records in violation of the court orders.
Tuesday, August 23, 2011
Former Hedge Fund Portfolio Manager Joseph “Chip” Skowron Pleads Guilty in Manhattan Federal Court to Insider Trading Scheme Involving Clinical Drug Trial
NEW YORK—Joseph F. Skowron III, aka Chip Skowron, a former portfolio manager of the health care unit of a hedge fund group, pleaded guilty today to conspiracy to engage in insider trading and obstruction of justice, announced U.S. Attorney for the Southern District of New York Preet Bharara. Skowron used material, non-public information that he received from Yves Benhamou, a doctor who served as an advisor on a clinical drug trial, to avoid approximately $30 million in trading losses. Skowron obstructed justice by urging Benhamou to lie to the U.S. Securities and Exchange Commission (SEC) during an investigation into his trading. Skowron pleaded guilty in Manhattan federal court before U.S. District Judge Denise L. Cote.
“Chip Skowron is the latest example of a portfolio manager willing to pay for proprietary, non-public information that gave him an illegal trading edge over the average investor,” said U.S. Attorney Preet Bharara. “He seized upon the opportunity presented by his advance knowledge to avoid $30 million in losses on the basis of information concerning just one stock. The integrity of our market is damaged by people who, like Chip Skowron, engage in insider trading, and they will continue to be prosecuted by this office.”
According to the information, a complaint previously filed in this case, other court filings, and statements made during today’s guilty plea proceeding:
During the period of the insider trading scheme, Skowron was responsible for the hedge fund’s investment decisions in public companies, including the biopharmaceutical company Human Genome Sciences Inc., (HGSI), that were involved in the development of drugs to treat hepatitis C. Benhamou was a medical doctor with an expertise in hepatitis treatment who served on an HGSI steering committee that oversaw a clinical trial of a drug called Albuferon. At the same time, Benhamou also worked as a consultant for an expert networking firm that, for a fee, put him in contact with portfolio managers and other investors at hedge funds, including Skowron, who purchased and sold securities in the health care sector.
Beginning in April 2007, Skowron developed a personal and financial relationship with Benhamou independent of the expert networking firm. For example, Skowron gave Benhamou 5,000 euros in cash during a meeting in Barcelona, Spain. He also paid some of Benhamou’s expenses, including $4,624.83 in September 2007 for a New York City hotel room for him and his wife. Skowron also offered to hire Benhamou as a consultant or permanent advisor to a new hedge fund. Skowron gave these benefits to Benhamou to encourage him to provide inside information about the Albuferon clinical drug trial. Benhamou understood that Skowron would buy or sell HGSI stock on the basis of the inside information.
For example, on Jan. 18, 2008, after learning from Benhamou that HGSI’s independent safety committee had recommended to discontinue a portion of the clinical trial following serious adverse side effects suffered by two patients, Skowron directed a trader at the hedge fund to “sell the HGSI,” “all of it.” On Jan. 22, 2008, the day before HGSI announced it would discontinue a portion of the trial, Benhamou disclosed this information, as well as the potential of a press release from HGSI, to Skowron. While on the phone with Benhamou, Skowron sent an instant message to a trader at the hedge fund, urging him to sell the remaining HGSI shares more quickly. As a result of those communications, Skowron caused the hedge fund to sell more than 6 million shares of HGSI, thereby avoiding approximately $30 million in losses.
In addition, Skowron and Benhamou undertook efforts to conceal the insider trading scheme from regulatory authorities. Specifically, beginning in February 2008 after the SEC began investigating the hedge fund’s trading in HGSI stock, Skowron induced Benhamou to lie to the SEC by falsely denying that they had discussed the serious adverse events before they were made public.
Skowron, 42, of Greenwich, Conn., pleaded guilty to one count of conspiracy to commit securities fraud and obstruct justice. He faces a maximum penalty of five years in prison and a maximum fine of $250,000 or double the gain or loss arising from his conduct. In addition, he agreed to forfeit $5 million to the United States. He is scheduled to be sentenced by Judge Cote on Nov. 18, 2011, at 10:00 A.M. EDT.
Benhamou previously pleaded guilty in April 2011 to charges of conspiracy to commit securities fraud, securities fraud, conspiracy to obstruct justice, and making false statements to the FBI related to the scheme. He is scheduled to be sentenced by U.S. District Judge George B. Daniels on Oct. 20, 2011, at 10:00 A.M. EDT.
Monday, August 22, 2011
Federal Jury Convicts Former Triton President and CEO Kurt Branham Barton, in Ponzi Scheme
United States Attorney John E. Murphy announced that in Austin, 44-year-old Kurt Branham Barton, founder, president, and CEO of Triton Financial, L.L.C., faces up to life in federal prison after a federal jury convicted him this afternoon for carrying out a Ponzi scheme which victimized more than 300 individuals and resulted in a total estimated loss to investors of over $50 million.
“It is regrettable that selfish, greedy individuals devise schemes to make themselves rich by victimizing honest and innocent people, often depriving the victims of their life savings. These con artists are usually very accomplished salesmen taking advantage of trusting investors, who unfortunately will never be made whole again,” stated United States Attorney John E. Murphy.
The jury convicted Barton of conspiracy to commit wire fraud, making false statements to secure loans from financial institutions, and money laundering, as well as multiple substantive counts including one count of securities fraud, 15 counts of wire fraud, five counts of making a false statement related to the acquisition of loans, and 17 counts of money laundering.
Evidence presented during the eight-day trial revealed that from December 2005 and December 2009, Barton devised a scheme to obtain money from investors under false pretenses. Barton represented to investors, including members of the defendant’s family, members of the Church of Jesus Christ of Latter Day Saints, business leaders as well as professional football players, that Triton was purchasing properties, businesses and other assets with their funds when, in fact, he was using their money to satisfy the needs of other ventures and the need to pay quarterly dividends or redemptions to prior investors. Testimony also revealed that Barton used prominent former National Football League players and Heisman Trophy winners to solicit and encourage additional investors. To conceal his scheme, Barton presented fabricated and fictitious versions of his E*Trade monthly account statement to financial institutions, commercial lenders and potential investors.
Sunday, August 21, 2011
Investment Adviser Carlo Chiaese Sentenced to 58 Months in Prison for $2.4 Million Fraud Targeting Union Pension Fund and Other Investors in New Jersey and New York
NEWARK, NJ—A Westfield, New Jersey-based investment adviser was sentenced today to 58 months in prison for defrauding numerous investors, including a union pension fund, of more than $2.4 million by funding his lavish lifestyle with money he claimed to be investing in conservative securities, U.S. Attorney Paul J. Fishman announced.
Carlo Chiaese, 38, of Livingston, N.J., previously pleaded guilty before U.S. District Judge William J. Martini to an information charging him with securities fraud. Judge Martini also imposed the sentence today in Newark federal court.
According to documents filed in this case and statements made in court:
Chiaese, who had been working in the financial industry since 1999, solicited a number of new clients through his independent investment firm, CGC Advisors LLC, as early as 2008. He drew clients by touting his investment experience and promising to invest their funds in conservative but traditional securities like bonds and mutual funds. Chiaese admitted that between November 2008 and September 2010, he raised more than $2.9 million from individuals and entities in New Jersey, New York and abroad based on his representations. One investment of approximately $1.71 million came from a pension fund containing the pensions of over 850 current and former members of Local 333, United Marine Division, International Longshoreman’s Association—a union made up of members who were employed in the tugboat and ferry business in the New York and New Jersey waterways.
Chiaese admitted that he did not invest any of the victim investors’ money as he promised. Instead, he used over $1.4 million in investor money to pay for personal expenses such as: leases on a Porsche 911 Carrera, Audi Q7 and a Land Rover; his fees at two country clubs; stays at luxury hotels in New York, Florida and St. Thomas; and purchases at high-end retailers like Hermes, Salvatore Ferragamo, Bergdorf Goodman, and Saks Fifth Avenue. Chiaese also made cash withdrawals in excess of $185,000 and transferred over $800,000 to his wife and members of her family.
Chiaese also used at least $280,000 of the investors’ money to repay other investors, including one in London, in Ponzi-scheme fashion.
To conceal his fraudulent conduct, Chiaese sent many of the investors fake trade confirmations and account statements that made it appear that he had invested their money in securities when he had not.
In addition to the prison term, Judge Martini sentenced Chiaese to three years of supervised release and ordered him to pay approximately $2.5 million in restitution.
Saturday, August 20, 2011
Attorney Jason Goldfarb Sentenced in Manhattan Federal Court to Three Years in Prison for Insider Trading Scheme
PREET BHARARA, the United States Attorney for the Southern District of New York, announced that attorney JASON GOLDFARB was sentenced today in Manhattan federal court to three years in prison for his participation in an insider trading scheme in which he gave material, nonpublic information (“Inside Information“) that had been misappropriated from the law firm of Ropes & Gray to ZVI GOFFER for the purpose of securities trading. GOLDFARB pled guilty to one count of conspiracy and one count of securities fraud on April 21, 2011. U.S. District Judge RICHARD J. SULLIVAN imposed today’s sentence.
According to the charging documents and court proceedings in this case:
In 2007 and 2008, ARTHUR CUTILLO and BRIEN SANTARLAS, who were working as attorneys at Ropes & Gray, provided GOLDFARB with Inside Information about several mergers and acquisitions of public companies for which Ropes & Gray was providing legal services. GOLDFARB, in turn, delivered the Inside Information to GOFFER, a former hedge fund manager. GOFFER then executed securities transactions based on the Inside Information and passed it to other people who also used it to execute securities transactions.
The Inside Information included information regarding the potential acquisition of 3Com Corporation (“3Com“) and the potential acquisition of Axcan Pharma, Inc. (“Axcan“). In exchange for providing GOFFER the Inside Information, GOLDFARB, CUTILLO, and SANTARLAS received cash payments.
Friday, August 19, 2011
Baltimore Financial Adviser Ralph Edward Thomas, Jr., Indicted for Allegedly Defrauding Vulnerable Clients of Over $838,000
BALTIMORE—A federal grand jury has indicted Ralph Edward Thomas, Jr., age 52, of Baltimore, Maryland, today for mail fraud in connection with a scheme to defraud his clients of more than $838,350. Thomas was a financial adviser and had an active insurance license with the state of Maryland which enabled him to sell life insurance, health insurance, and variable annuities.
The indictment was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; and Chief James W. Johnson of the Baltimore County Police Department.
According to the indictment, from August 2000 through February 2004, Thomas was vice president of Harbor Financial, a subsidiary of Harbor Bank which offered brokerage, insurance products, and financial planning, and from February 2004 through July 2010, Thomas was employed as a financial adviser by Wells Fargo Advisors, LLC.
The indictment alleges that in December 2001, Thomas met KL, the trustee of a $3 million settlement received on behalf of her daughter, who suffered birth injuries, and persuaded KL to move the trust account to Harbor Bank. Each month, the annuity paid funds directly into the Harbor Bank trust account.
The indictment alleges that Thomas stole approximately $756,963.98 from the trust account for KL’s daughter by withdrawing money from the Harbor Bank trust account and purchasing cashier’s checks which he deposited into his personal bank accounts. Thomas allegedly used the funds to pay his personal credit card accounts and other personal expenses. The indictment alleges that on July 29, 2009, Thomas used $100,000 stolen from the Harbor Bank trust account to purchase a home in Reisterstown, Maryland.
The indictment further alleges that between June 2006 and May 2009, Thomas initiated three mortgages in the name of KL on her personal residence, without her permission, forging her name on mortgage documents and other paper work. The proceeds of the mortgages were deposited into the Harbor Bank account and were allegedly withdrawn by Thomas who diverted the funds to his personal use. KL incurred $26,886.36 in losses and expenses as a result of these three mortgages.
In addition, according to the indictment, in January 2006, Thomas became the financial advisor for LM, a retired Baltimore resident who oversaw the disbursements from an annuity that was shared by LM and her sister, an 85-year-old who suffered from dementia. LM allowed Thomas to manage the money in the annuity. The indictment alleges that Thomas withdrew $75,000 from LM’s account and used $42,000 of those funds for his personal benefit, including purchasing cashier’s checks made payable to credit card companies where Thomas held accounts.
The indictment seeks the forfeiture of the proceeds of Thomas’ scheme in the amount of $838,350.04, including investment accounts owned by Thomas, the home in Reisterstown, and luxury automobiles.
Wednesday, August 17, 2011
Robert Stinson Jr., Pleads Guilty to Running $17 Million Ponzi Scheme
Robert Stinson Jr., 56, of Berwyn, Pennsylvania, pleaded guilty today to charges contained in a 26-count indictment detailing a Ponzi scheme that defrauded more than 260 investors of more than $17 million, announced United States Attorney Zane David Memeger. Stinon pleaded guilty, before U.S. District Court Judge Michael M. Baylson, to five counts of wire fraud, four counts of mail fraud, nine counts of money laundering, one count of bank fraud, three counts of filing false tax returns, two counts of obstruction of justice, and two counts of making false statements to federal agents. Sentencing is scheduled for December 13, 2011. Stinson faces an advisory sentencing guideline range of 324 to 405 months in prison.
The indictment alleged that since 2006, Stinson ran a company called Life’s Good, Inc., that solicited investments in one of four real estate hedge funds, promising fixed returns of between 10 to 16 percent annually. However, rather than invest the money as promised, Stinson ran an elaborate “Ponzi” scheme that he used to steal more than $17 million from the investors. According to the indictment, Stinson falsely represented to investors that he was a graduate of Massachusetts Institute of Technology with a wealth of business experience, when, in reality, he had been convicted of fraud multiple times and had previously been enjoined from committing securities fraud by the United States Securities and Exchange Commission.
As part of this investigation, the Federal Bureau of Investigation executed numerous search warrants on June 29, 2010 and seized two Mercedes Benz sedans that Stinson had purchased with proceeds from his fraud. At the time of the search, Stinson allegedly obstructed justice by wiring stolen funds out of Life’s Good bank accounts to other accounts.
Tuesday, August 16, 2011
Former NASDAQ Managing Director Donald Johnson, Sentenced to 42 Months in Prison for Insider Trading
WASHINGTON – Donald Johnson, a former managing director of the NASDAQ Stock Market, was sentenced today to 42 months in prison for engaging in insider trading on multiple occasions based on material, non-public information he obtained in his capacity as a NASDAQ executive. Johnson was also ordered to forfeit $755,066.
The sentence was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney for the Eastern District of Virginia Neil H. MacBride.
Johnson, 57, of Ashburn, Va., was sentenced by U.S. District Judge Anthony J. Trenga in the Eastern District of Virginia. Johnson pleaded guilty on May 26, 2011, to one count of securities fraud. In pleading guilty, he admitted that, from 2006 to 2009, he purchased and sold stock in NASDAQ-listed companies based on material, non-public information, or inside information, that he obtained through his position as an executive at NASDAQ.
“Insider trading is an insidious crime that threatens the integrity of our financial markets, especially when the illegal trades are made by a trusted securities exchange official,” said U.S. Attorney MacBride. “Mr. Johnson used his position at NASDAQ to make quick profits from sensitive information companies provided him. He learned what every other trader on Wall Street must now realize: We’re watching, and when you’re caught you’ll face serious time in prison.”
According to court documents, from August 2006 to September 2009, Johnson was a managing director on NASDAQ’s market intelligence desk in New York. The market intelligence desk provides trading analysis and market information to the companies that list on NASDAQ. According to court documents, Johnson monitored the stock of companies traded on NASDAQ and offered NASDAQ-listed companies information and analyses concerning trading in their own stock. To enable him to perform these services, NASDAQ-listed companies routinely entrusted Johnson with material, non-public information about their company, including advance notice of announcements concerning earnings, regulatory approvals and personnel changes. Johnson admitted that he repeatedly used this information to purchase or sell short stock in various NASDAQ-listed companies shortly before the information was made public. He would then generate substantial gains by reversing those positions soon after the announcement. According to court documents, in order to conceal his illegal trading, Johnson executed these trades in a brokerage account in his wife’s name. Johnson failed to disclose this account to NASDAQ in violation of NASDAQ rules.
Johnson admitted in his plea that he made illegal purchases and sales of stock in NASDAQ-listed companies on at least eight different occasions. In addition, at sentencing, Johnson did not dispute that he engaged in insider trading on a ninth occasion, and the court ordered forfeiture based on proceeds from all nine instances. The companies whose securities he traded were Central Garden and Pet Co.; Digene Corporation; Energy Conversion Devices, Inc.; Idexx Laboratories Inc.; Pharmaceutical Product Development Inc.; and United Therapeutics Corporation. According to court documents, Johnson traded ahead of important announcements by these companies. For example, in November 2007, Johnson used inside information related to successful trial results for United Therapeutics’ drug Viveta (now called Tyvaso) to purchase shares of United Therapeutics before the trial results were announced. Soon after the announcement, Johnson sold the shares and gained more than $175,000 in profits. According to court documents, in July 2009, Johnson again improperly used inside information he obtained from United Therapeutics about the approval of its drug Tyvaso to purchase the company’s shares before the approval was announced. He sold the shares after the announcement and gained more than $110,000 in profits.
The Securities and Exchange Commission (SEC) has filed a related civil enforcement action against Johnson in the Southern District of New York.
Monday, August 15, 2011
Gregory Viola Charged with Defrauding Investors of at Least Hundreds of Thousands of Dollars Via a Ponzi Scheme
New Haven Division of the Federal Bureau of Investigation, announced that GREGORY VIOLA, 59, of Orange, was arrested today on a criminal complaint charging him with mail fraud. The charge stems from an alleged scheme to defraud investors of at least hundreds of thousands of dollars via a Ponzi scheme.
According to court documents and statements made in court, VIOLA operated an investment business in Orange. It is alleged that since as early as 2007, VIOLA engaged in a scheme to defraud multiple investors by not investing funds as he had represented. As part of the scheme, it is alleged that VIOLA promised his investors that their funds would be invested, and that they would receive a specified rate of return on the investments as well as the potential for the investment to appreciate. Rather than invest funds provided by investors, it is alleged that VIOLA engaged in a Ponzi scheme in which he used new investor funds to make payments to earlier investors. It is also alleged that VIOLA mailed investors fraudulent statements that falsely represented the amount of funds that the investors had on account.
The criminal complaint specifically alleges that VIOLA provided one investor with a purported E-Trade account statement representing that the investor had in excess of $300,000 on account with VIOLA. Subsequent investigation by law enforcement has revealed that this statement is false, and E-Trade has no record of an account in the investor’s name.
VIOLA voluntarily surrendered himself this afternoon and appeared before United States Magistrate Judge William I. Garfinkel in Bridgeport. He was released on a $100,000 bond, which is secured by two properties.
U.S. Attorney Fein and FBI Special Agent in Charge Mertz noted that the investigation into this alleged scheme is ongoing, and asked individuals who believe they may be a victim of this scheme, or anyone with information related to this scheme, to contact FBI Special Agent Wendy Bowersox at (203) 777-6311.
If convicted, of mail fraud, VIOLA faces a maximum term of imprisonment of 20 years.
Sunday, August 14, 2011
Dale Edward Lowell Pleads Guilty to Investment Fraud
COEUR D’ALENE—Dale Edward Lowell, 59, of Colbert, Washington, pleaded guilty today in United States District Court in Coeur d’Alene to wire fraud, U.S. Attorney Wendy J. Olson announced.
According to the plea agreement, Dale Lowell was a long-time resident of North Idaho. Beginning around 2005, Lowell raised funds with the promise to investors of profit and safety, often approaching past business clients and associates. Lowell represented to investors that he was an accomplished options trader and that his trading routinely resulted in 10 percent to 50 percent profits per month. Lowell personally guaranteed the safety of the funds placed with him. He also inferred that he had certificates of deposit in place to cover any possible loss to investors. Lowell used stories and explanations to encourage investors to part with their money and not demand repayment. He communicated with the investors by e-mail when they questioned his actions or inactions.
In total, Lowell raised approximately $2.2 million from approximately 22 investor units that often included several family members. Lowell either lost the money in the market, used it for personal and family expenses, or made payments to investors in order to keep the scheme going.
The charge carries a maximum punishment of up to 20 years in prison, a fine up to $250,000, and up to five years’ supervised release.
Friday, August 12, 2011
SEC Charges Toby G. Scammell with Insider Trading in Marvel Stock Prior to Disney Deal
Washington, D.C., Aug. 11, 2011 — The Securities and Exchange Commission today charged a California man with insider trading for a 3000 percent profit based on confidential information that he learned from his girlfriend prior to Walt Disney Company’s acquisition of Marvel Entertainment.
The SEC alleges that Toby G. Scammell, who worked at an investment fund at the time, purchased highly speculative Marvel call options beginning in mid-August 2009. He secretly used money in his brother’s accounts over which he had been given control when his brother was deployed to serve in Iraq a few years earlier. Just before Scammell purchased many of the Marvel securities, he searched the Internet for such terms as “insider trading,” “material, non-public information,” and “Rule 10b-5.”
According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Scammell’s girlfriend worked on the Marvel acquisition as an extern in Disney’s corporate strategy department, and she possessed confidential details about the pricing and timing of the deal. Scammell illegally traded on this non-public information in breach of his duty of trust and confidence to his girlfriend. Marvel’s stock price jumped more than 25 percent after the Aug. 31, 2009, public announcement, and Scammell then sold all of his Marvel options. He didn’t reveal his trades or profits to his brother or his girlfriend.
“Scammell exploited his romantic relationship for a financial windfall. His misuse of confidential information gave him an unfair and illegal edge over other traders in the markets,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office.
According to the SEC’s complaint, Scammell and his girlfriend often discussed her work projects at Disney. Scammell lived with his girlfriend in her Los Angeles apartment in late July 2009 when the Marvel deal heated up at Disney and his girlfriend was assigned to work on it. She explained to Scammell in an e-mail that she could not tell him the name of the company involved because of “confidentiality,” but she noted that “it’s very recognizable and nothing I’ve mentioned before.”
According to the SEC’s complaint, Scammell and his girlfriend had multiple discussions about whether she should delay her business school applications so that she could write about the high-profile acquisition she was working on at Disney as part of her business school applications. She worked long hours on the Marvel acquisition — sometimes from home — in the five weeks leading up to the deal. She received detailed information about the anticipated acquisition including the $50 per share acquisition price. Scammell had access and the password to his girlfriend’s Blackberry on occasion.
The SEC alleges that Scammell obtained the identity of the acquisition target from his girlfriend by overhearing one or more of her Marvel-related conversations, seeing electronic or paper documents in her possession related to the Marvel acquisition, or through his own work-related conversations with her. For instance, when Scammell’s girlfriend learned that the acquisition would be announced by Labor Day, she informed him the timing of the announcement would allow them to attend her friend’s wedding. It was around this time that Scammell began searching the Internet regarding call options.
According to the SEC’s complaint, Scammell had never before traded in Marvel securities, and had only one previous experience trading call options that was unsuccessful. In the weeks leading up to the Disney-Marvel announcement, Scammell made several purchases totaling more than $5,400 in Marvel call options with remarkable strike prices of $50 and $45 even though Marvel had never traded above $41.74. Most of the Marvel options that Scammell purchased were set to expire on September 19, just weeks after the announcement. Scammell’s trades were so unusual that his purchase of options represented 100 percent of the market in many instances. After the public announcement that Marvel would be acquired by Disney, Scammell sold his Marvel options for a profit of more than $192,000 — a 3000 percent return in less than a month.
Thursday, August 11, 2011
SEC Charges Stifel, Nicolaus & Co. and Executive David W. Noack with Fraud in Sale of Investments to Wisconsin School Districts
Washington, D.C., Aug. 10, 2011 — The Securities and Exchange Commission today charged St. Louis-based brokerage firm Stifel, Nicolaus & Co. and a former senior executive with defrauding five Wisconsin school districts by selling them unsuitably risky and complex investments funded largely with borrowed money.
In a complaint filed in federal court in Milwaukee, the SEC alleges that Stifel and Senior Vice President David W. Noack created a proprietary program to help the school districts fund retiree benefits by investing in notes linked to the performance of synthetic collateralized debt obligations (CDOs). The school districts established trusts that invested $200 million in three transactions from June to December 2006, paid for largely with borrowed funds. According to the SEC’s complaint, Stifel and Noack misrepresented the risk of the investments and failed to disclose material facts to the school districts. In the end, the investments were a complete failure, but generated significant fees for Stifel and Noack.
“Let this be a teaching moment for sellers of complex financial products,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The sale of these products to school districts or similar investors must meet well-established standards of suitability and accurate disclosure. Stifel and Noack violated these standards and jeopardized the ability of the school districts to fund operations and provide a quality education to students.”
Elaine C. Greenberg, Chief of the SEC Division of Enforcement’s Municipal Securities and Public Pensions Unit, added, “Stifel and Noack abused their longstanding relationships of trust with the school districts by fraudulently peddling these inappropriate products to them. They were clearly aware that the school districts could ill afford to bear the risk of catastrophic loss if these investments failed.”
According to the SEC’s complaint, the five school districts are Kenosha Unified School District No. 1, Kimberly Area School District, School District of Waukesha, West Allis-West Milwaukee School District, and School District of Whitefish Bay. The SEC alleges that Stifel and Noack made sweeping assurances to the school districts, misrepresenting that it would take “15 Enrons” — a catastrophic, overnight collapse — for the investments to fail. They also misrepresented that 30 of the 105 companies in the portfolio would have to default and that 100 of the top 800 companies in the world would have to fail before the school districts would suffer a loss of their principal.
The SEC alleges that among material facts that Stifel and Noack failed to disclose were the portfolio in the first transaction performing poorly from the outset, credit rating agencies placing 10 percent of the portfolio on negative watch within 36 days of closing, and certain CDO providers expressing concerns about the risks of Stifel’s proprietary program and declining to participate in it.
According to the SEC’s complaint, Stifel and Noack sold the school districts an unsuitable product that did not meet their investment needs. The school districts had no prior experience with investing in CDOs and related instruments. Stifel and Noack knew that the school districts lacked the requisite sophistication and experience to independently evaluate the risks of the investment, and knew that the school districts relied on Stifel and Noack’s recommendations. The school districts contributed $37.3 million toward the $200 million investment and borrowed the remaining $162.7 million.
The SEC alleges that the heavy use of leverage and the structure of the synthetic CDOs exposed the school districts to a heightened risk of catastrophic loss. The investments steadily declined in value in 2007 and 2008 as the CDO portfolios suffered a series of downgrades. By 2010, the school districts learned that the second and third investments were a complete loss and that the lender had seized all of the trusts’ assets. The school districts suffered a complete loss of their investment and suffered credit rating downgrades for failing to provide additional funds to the trusts they established.
