SEC Charges 14 Sales Agents In $415 Million Long Island-Based Ponzi Scheme

Source-  http://www.sec.gov/news/press/2012/2012-112.htm 

Washington, D.C., June 12, 2012 — The Securities and Exchange Commission today charged 14 sales agents who misled investors and illegally sold securities for a Long Island-based investment firm at the center of a $415 million Ponzi scheme.

The SEC alleges that the sales agents — which include four sets of siblings — falsely promised investor returns as high as 12 to 14 percent in several weeks when they sold investments offered by Agape World Inc. They also misled investors to believe that only 1 percent of their principal was at risk. The Agape securities they peddled were actually non-existent, and investors were merely lured into a Ponzi scheme where earlier investors were paid with new investor funds. The sales agents turned a blind eye to red flags of fraud and sold the investments without hesitation, receiving more than $52 million in commissions and payments out of investor funds. None of these sales agents were registered with the SEC to sell securities, nor were they associated with a registered broker or dealer. Agape also was not registered with the SEC.

“This Ponzi scheme spread like wildfire through Long Island’s middle-class communities because this small group of individuals blindly promoted the offerings as particularly safe and profitable,” said Andrew M. Calamari, Acting Regional Director for the SEC’s New York Regional Office. “These sales agents raked in commissions without regard for investors or any apparent concern for Agape’s financial distress and inability to meet investor redemptions.”

According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, more than 5,000 investors nationwide were impacted by the scheme that lasted from 2005 to January 2009, when Agape’s president and organizer of the scheme Nicholas J. Cosmo was arrested. He was later sentenced to 300 months in prison and ordered to pay more than $179 million in restitution.

The SEC alleges that the sales agents misrepresented to investors that their money would be used to make high-interest bridge loans to commercial borrowers or businesses that accepted credit cards. Little, if any, investor money actually went toward this purpose. Investor funds were instead used for Ponzi scheme payments and the agents’ sales commissions, and Cosmo lost $80 million while trading futures in personal accounts. Meanwhile, the sales agents assuredly offered and sold Agape securities to investors despite numerous red flags of fraud including Cosmo’s prior conviction for fraud, the too-good-to-be-true returns, and the incredible safety of principal promised to investors. The sales agents also ignored Agape’s relatively small and unknown status as a private issuer of securities, Agape’s series of extensions and defaults, and other dire warnings about Agape’s financial condition. None of the Agape securities offerings were registered with the SEC.

The SEC’s complaint charges the following sales agents:

Brothers Bryan Arias and Hugo A. Arias of Maspeth, N.Y., who offered and sold Agape securities to at least 195 and 1,419 investors respectively. They received more than $9.5 million combined in commissions and payments.

Brothers Anthony C. Ciccone of Locust Valley, N.Y. and Salvatore Ciccone of Maspeth, N.Y., who offered and sold Agape securities to at least 535 and 348 investors respectively. They received more than $17 million combined in commissions and payments.

Brothers Jason A. Keryc of Wantagh, N.Y. and Michael D. Keryc of Baldwin, N.Y. Jason Keryc offered and sold Agape securities to at least 1,617 investors and received at least $16 million in commissions and payments. He also paid sub-brokers, including his brother, at least $7.4 million to sell Agape securities for him. Michael Keryc offered and sold Agape securities to at least 177 investors and received more than $1 million in commissions and payments.

Siblings Martin C. Hartmann III of Massapequa, N.Y. and Laura Ann Tordy of Wantagh, N.Y. Hartmann enlisted his sister in his sales effort while he worked as a sub-broker for Jason Keryc. Hartmann and Tordy offered and sold Agape securities to at least 441 investors and received more than $3.5 million in commissions and payments.

Christopher E. Curran of Amityville, N.Y., who worked as a sub-broker for Keryc. Curran offered and sold Agape securities to at least 132 investors and received at least $531,890 in commissions and payments.

Ryan K. Dunaske of Ronkonkoma, N.Y., who worked as a sub-broker for Keryc. Dunaske offered and sold Agape securities to at least 70 investors and received more than $700,000 in commissions and payments.

Michael P. Dunne of Massapequa, N.Y., who worked as a sub-broker for Keryc. Dunne offered and sold Agape securities to at least 99 investors and received more than $1.5 million in commissions and payments.

Diane Kaylor of Bethpage, N.Y., who offered and sold Agape securities to at least 249 investors and received at least $3.7 million in commissions and payments.

Anthony Massaro of Boynton Beach, Fla., who offered and sold Agape securities to at least 826 investors and received more than $5.9 million in commissions and payments.

Ronald R. Roaldsen, Jr. of Wantagh, N.Y., who worked as a sub-broker for Keryc. Roaldsen offered and sold Agape securities to at least 159 investors and received more than $600,000 in commissions and payments.

The SEC’s complaint charges Bryan and Hugo Arias, Anthony and Salvatore Ciccone, Jason and Michael Keryc, Dunne, Hartmann, Kaylor, Massaro, and Tordy with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint charges all 14 defendants with violations of Section 15(a) of the Exchange Act, and Sections 5(a) and 5(c) of the Securities Act.

The SEC thanks the U.S. Attorney’s Office of the Eastern District of New York and the Federal Bureau of Investigation for its assistance in this matter. Anthony Ciccone, Kaylor, Jason Keryc, and Massaro have previously been arrested on a criminal complaint charging each of them with conspiracy to commit mail fraud based on their conduct as Agape sales agents. The SEC also acknowledges the assistance of the U.S. Postal Inspection Service and the Commodity Futures Trading Commission.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

Indictment Charges Kyong Ho Kim with $1.8 Million Commodities Fraud Scheme

Source-  http://www.fbi.gov/baltimore/press-releases/2012/indictment-charges-delaware-man-with-1.8-million-commodities-fraud-scheme 

WILMINGTON, DE—Charles M. Oberly, III, United States Attorney for the District of Delaware, announced today that an indictment was returned by a federal grand jury charging Kyong Ho Kim of Newark, Delaware, with seven counts of wire fraud (18 U.S.C. § 1343), three counts of mail fraud (18 U.S.C. § 1341), six counts of commodities fraud (7 U.S.C. §§ 6b, 13), and one count of engaging in monetary transactions in property derived from specified unlawful activity (money laundering; 18 U.S.C. § 1957).

According to the indictment, the defendant solicited and obtained over $1.8 million from other persons by representing that he was a successful foreign currency trader and that he would invest their money in foreign currency markets. It is alleged that the defendant sent investors false reports, indicating that their investments had grown through foreign currency trading; meanwhile, the defendant diverted certain funds he received from investors into his personal bank accounts. It is further alleged that the defendant spent the diverted funds on personal items, including a yacht.

If convicted of the pending charges, the defendant faces up to 20 years in prison on each count of wire fraud and mail fraud and up to 10 years in prison on each count of commodities fraud and money laundering, in addition to possible fines and restitution.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

Brian Ray Dinning Charged in South African Ponzi Scheme

Source-  http://www.fbi.gov/norfolk/press-releases/2012/virginia-attorney-charged-in-south-african-ponzi-scheme 

NORFOLK, VA—Brian Ray Dinning, 47, of Toronto, Canada, has been indicted by a federal grand jury on wire fraud charges.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia, made the announcement after the indictment was returned by the grand jury. Dinning has been charged with 25 counts of wire fraud, which each carry a maximum penalty of 20 years in prison, if convicted.

According to the indictment, Dinning was a graduate of Regent University Law School and also obtained an LL.M in tax from the Georgetown University Law Center. From early 2005 until the present, Dinning allegedly recruited approximately 23 individuals to invest in his numerous “for-profit” corporations that he had established. He did this by falsely advising investors that they would accrue significant financial gains from South African projects, such as a luxury Oceanside housing development, a luxury Oceanside hotel and private residence club, as well as diamond and gold mining operations. The indictment alleges that Dinning also used “not-for-profit” corporations to obtain donations purportedly for charitable, environmental, agricultural medical and community projects for the tribal people of South Africa, as well as developing wildlife habitats for native African species.

Regardless of whether his investors made investments for profit or donations for charitable causes to Dinning’s various corporations, upon receipt of these funds from his investors, Dinning is alleged to have immediately used their money for personal and family gain, for payment of his and his family’s expenses, for payment of alimony and child support to his ex-wife, for payment of private school tuition for his children, and to make the down payment and subsequent mortgage payments on his new $975,000 home in Suffolk. As a result, Dinning allegedly obtained more than $2.9 million from his investors, of which he retained more than $2 million for his and his family’s benefit.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

John Farahi Pleads Guilty in Investment Fraud and Obstruction Case in Which Losses May Exceed $20 Million

Source-  http://www.fbi.gov/losangeles/press-releases/2012/former-fund-manager-pleads-guilty-in-investment-fraud-and-obstruction-case-in-which-losses-may-exceed-20-million 

LOS ANGELES—A former investment fund manager pleaded guilty this morning to federal fraud charges, admitting among other things that he bilked investors out of millions of dollars by falsely promising to purchase corporate bonds backed by the Troubled Asset Relief Program (TARP).

John Farahi, 54, of Bel Air Estates, pleaded guilty to four felony counts—mail fraud, loan fraud, selling unregistered securities, and conspiracy to obstruct justice while collaborating with his corporate counsel to cover-up the fraud. Farahi formerly ran the Beverly Hills-based New Point Financial Services Inc.

In a plea agreement filed in United States District Court, Farahi acknowledged that the scheme caused losses of more than $7 million, while prosecutors reserved the right to argue that losses to victims are in excess of $20 million.

In the plea agreement, Farahi specifically admitted that he engaged in a scheme that started as early as November 2005 to defraud numerous victims by using their funds for a range of unauthorized purposes, including paying off prior investors and subsidizing options futures trading. Farahi also admitted that he extended his fraud scheme in 2008 by drawing down on personal lines of credit based upon false statements to federally insured banks, including Bank of America, Sunwest Bank, and U.S. Bank. Farahi also acknowledged that he violated federal securities laws by selling unregistered securities and failing to comply with the SEC’s rules and regulations for selling unregistered securities. Farahi further admitted that he conspired with his attorney to obstruct an SEC investigation by, among other things, altering documents that were turned over to the SEC and providing false and misleading testimony under oath to the SEC on three separate occasions.

The case against Farahi and Tamman is the result of an investigation by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the Federal Bureau of Investigation. The SEC also provided substantial assistance during the investigation.

“Mr. Farahi used a variety of schemes, including the use of false promises about corporate bonds backed by TARP, to victimize both private investors and federally insured banks,” said United States Attorney André Birotte, Jr. “The United States Attorney’s Office will continue to work with all its law enforcement partners, including the FBI, the SEC, and SIGTARP, to aggressively pursue investment fraud schemes and to protect investors at both the public and private level.”

Special Inspector General Christy Romero of SIGTARP stated: “Facing significant investment losses in late-2008, Farahi exploited TARP as a way to double-down on his long-running Ponzi scheme. In order to attract fresh capital and to pay-off existing investors, Farahi touted the safety of his purported low-risk investments in various companies backed by TARP. When investor cash ran short, Farahi also defrauded three different banks, two of which were TARP recipients, in order to keep his scheme going.”

The statutory maximum penalty for the four charges to which Farahi pleaded guilty is 75 years in federal prison. Under the terms of the plea agreement, the government agreed to recommend a sentence of no more than 10 years in prison. The final decision on a sentence will be made by United States District Judge Phillip S. Gutierrez on January 14, 2013.

“Mr. Farahi took advantage of investors’ trust, as well as their money,” said Steven Martinez, Assistant Director in Charge of the FBI’s Los Angeles Field Office. “Farahi’s admitted crimes resulted in millions of dollars in losses and should remind those seeking to invest to use extreme caution when turning over their money in an environment where fraud is all too common.”

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

OppenheimerFunds Inc. to Pay $35 Million to Settle SEC Charges for Misleading Statements During Financial Crisis

Source-  http://www.sec.gov/news/press/2012/2012-110.htm 

Washington, D.C., June 6, 2012 – The Securities and Exchange Commission today charged investment management company OppenheimerFunds Inc. and its sales and distribution arm with making misleading statements about two of its mutual funds struggling in the midst of the credit crisis in late 2008.

The SEC’s investigation found that Oppenheimer used derivative instruments known as total return swaps (TRS contracts) to add substantial commercial mortgage-backed securities (CMBS) exposure in a high-yield bond fund called the Oppenheimer Champion Income Fund and an intermediate-term, investment-grade fund called the Oppenheimer Core Bond Fund. The 2008 prospectus for the Champion fund didn’t adequately disclose the fund’s practice of assuming substantial leverage in using derivative instruments. And when declines in the CMBS market triggered large cash liabilities on the TRS contracts in both funds and forced Oppenheimer to reduce CMBS exposure, Oppenheimer disseminated misleading statements about the funds’ losses and their recovery prospects.

Oppenheimer agreed to pay more than $35 million to settle the SEC’s charges.

“Mutual fund providers have an obligation to clearly and accurately convey the strategies and risks of the products they sell,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Candor, not wishful thinking, should drive communications with investors, particularly during times of market stress.”

Julie Lutz, Associate Director of the SEC’s Denver Regional Office, added, “These Oppenheimer funds had to sell bonds at the worst possible time to raise cash for TRS contract payments and cut their CMBS exposure to limit future losses. Yet, the message that Oppenheimer conveyed to investors was that the funds were maintaining their positions and the losses were recoverable.”

According to the SEC’s order instituting settled administrative proceedings against OppenheimerFunds and OppenheimerFunds Distributor Inc., the TRS contracts allowed the two funds to gain substantial exposure to commercial mortgages without purchasing actual bonds. But they also created large amounts of leverage in the funds. Beginning in mid-September 2008, steep CMBS market declines drove down the net asset values (NAVs) of both funds. These losses forced Oppenheimer to raise cash for month-end TRS contract payments by selling securities into an increasingly illiquid market.

According to the SEC’s order, the funds’ portfolio managers under instruction from senior management began executing a plan in mid-November to reduce CMBS exposure. Just as they began to do so, however, the CMBS market collapse accelerated, creating staggering cash liabilities for the funds and driving their NAVs even lower.

The SEC’s order found that continued CMBS declines forced the funds to sell more portfolio securities in order to raise cash for anticipated TRS contract payments. This task became increasingly difficult for the Champion fund, ultimately prompting Oppenheimer to make a $150 million cash infusion into the fund on November 21. Over the next two weeks, the funds continued to reduce their CMBS exposure to avoid further losses.

According to the SEC’s order, Oppenheimer advanced several misleading messages when responding to questions in the midst of these events. For instance, Oppenheimer communicated to financial advisers (whose clients were invested in the funds) and fund shareholders directly that the funds had only suffered paper losses and their holdings and strategies remained intact. Oppenheimer also stressed that absent actual defaults, the funds would continue collecting payments on the funds’ bonds as they waited for markets to recover. These communications were materially misleading because the funds were committed to substantially reducing their CMBS exposure, which dampened their prospects for recovering CMBS-induced losses. Moreover, the funds had been forced to sell significant portions of their bond holdings to raise cash for anticipated TRS contract payments, resulting in realized investment losses and lost future income from the bonds.

The SEC’s investigation found that the Champion fund’s 2008 prospectus was materially misleading in describing the fund’s “main” investments in high-yield bonds without adequately disclosing the fund’s practice of assuming substantial leverage on top of those investments. While the prospectus disclosed that the fund “invested” in “swaps” and other derivatives “to try to enhance income or to try to manage investment risk,” it did not adequately disclose that the fund could use derivatives to such an extent that the fund’s total investment exposure could far exceed the value of its portfolio securities and, therefore, that its investment returns could depend primarily upon the performance of bonds that it did not own.

The SEC’s order finds that OppenheimerFunds violated Section 34(b) of the Investment Company Act of 1940, Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities Act), and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 promulgated thereunder. The order finds that OppenheimerFunds Distributor violated Sections 17(a)(2) and 17(a)(3) of the Securities Act.

Without admitting or denying the SEC’s findings, OppenheimerFunds agreed to pay a penalty of $24 million, disgorgement of $9,879,706, and prejudgment interest of $1,487,190. This money will be deposited into a fund for the benefit of investors. OppenheimerFunds and OppenheimerFunds Distributor also agreed to provisions in the order censuring them and directing them to cease and desist from committing or causing any violations or future violations of these statutes and rules.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

SEC Charges Company Officers and Penny Stock Promoters in Kickback and Market Manipulation Schemes

Source-  http://www.sec.gov/news/press/2012/2012-108.htm 

Washington, D.C., June 4, 2012 — The Securities and Exchange Commission today charged several penny stock companies and their officers as well as three penny stock promoters involved in various stock schemes in which bribes and kickbacks were paid to hype microcap stocks and illegally generate stock sales.

These charges are the latest in a series of cases in which the SEC has worked closely with the U.S. Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation to uncover penny stock schemes. Prior charges were filed by the SEC against other penny stock violators in October 2010, December 2010, and June 2011.

According to the SEC's complaints filed in U.S. District Court for the Southern District of Florida, some of these latest schemes involved the payment of undisclosed kickbacks to a pension fund manager in exchange for the fund's purchase of restricted shares of stock in the various microcap companies. Other schemes involved an undisclosed bribe that was to be paid to a stockbroker who agreed to purchase a microcap company's stock in the open market for his customers' discretionary accounts.

"The company officers and promoters in many of these schemes disguised their kickbacks as payments to phony consulting companies that performed no actual work," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "These illegal activities were fully intended to artificially inflate the stock volume and prices of these penny stock companies to the detriment of investors."

The SEC's complaints allege the following penny stock companies and individuals perpetrated the various stock schemes:

Angel Acquisition Corp. (AGEL) based in Carson City, Nev., and Carlsbad, Calif. (now known as Biogeron Inc.)

President and CFO Harold Steven Bonenberger of Carlsbad.

Clean Coal Technologies Inc. (CCTC) based in New York City.

President and CEO Douglas D. Hague of Boca Raton, Fla.

Cotton & Western Mining Inc. (CWRN) based in Humble, Texas.

President and CEO Robert L. Cotton of Houston.

Delivery Technology Solutions Inc. (DTSL) based in Boca Raton.

CEO and Chairman Ryan F. Coblin of Boca Raton.

Optimized Transportation Management Inc. (OPTZ) based in San Antonio

CEO Kevin P. Brennan of Pittsburgh.

OPTZ stock promoter Marc S. Page of Tiburon, Calif.

OPTZ stock promoter Donald G. Huggins of St. Petersburg, Fla.

Sure Trace Security Corp. (SSTY) based in Philadelphia.

Chairman and former president Michael M. Cimino of Philadelphia.

President Joseph J. Repko of Hobe Sound, Fla.

US Farms Inc. (USFM) based in San Diego and Fallbrook, Calif.

President and CEO Yan K. Skwara of San Diego.

Wound Management Technologies Inc. (WNDM) based in Fort Worth, Texas, and Fort Lauderdale, Fla.

President, CEO, and Chairman Scott Haire of Fort Worth and Coral Springs, Fla.

The SEC additionally charged a stock promoter involved in pumping the stock of KCM Holdings Corp., a penny stock company charged in the SEC's series of penny stock enforcement actions in June 2011. The SEC alleges that Matthew A. Connor, who lives in Amherst, Va., participated in a fraudulent scheme to hype KCM Holding's stock.

The U.S. Attorney's Office today announced criminal charges against the same individuals facing SEC civil charges.

The SEC's complaints allege that these companies, officers, and stock promoters violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and permanent injunctions against all the defendants. The SEC also seeks penny stock bars against each of the officers and promoters as well as officer-and-director bars against Bonenberger, Brennan, Cimino, Hague, Haire, and Skwara.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

Founders of S3 Partners Charged in $21 Million Real Estate Investment Fraud Scheme

Source-  http://www.fbi.gov/sanfrancisco/press-releases/2012/founders-of-s3-partners-charged-in-21-million-real-estate-investment-fraud-scheme 

SAN JOSE, CA—The three founders of S3 Partners who allegedly defrauded numerous individual investors and banks out of more than $21 million in connection with a real estate investment fraud scheme were arrested and arraigned on 33 counts of conspiracy, wire, mail, bank and securities fraud, United States Attorney Melinda Haag announced.

According to the indictment, which was filed in San Jose federal district court on May 23 and unsealed on May 24, from 2006 to 2009, Melvin Russell “Rusty” Shields, 42, of Granite Falls, North Carolina.; Michael Sims, 58, of Gilroy, California; and Sam Stafford, 56, of Campbell, California, defrauded individual investors and banks in the Northern District of California and elsewhere in connection with various real estate development projects. The three defendants conducted their business as “S3 Partners” out of a variety of locations including San Jose, Campbell, and Palo Alto, California; and Hickory, North Carolina. Shields, Sims, and Stafford allegedly engaged in securities fraud targeting elderly investors by encouraging those elderly investors to cash out their individual retirement accounts (IRAs) and wire the proceeds to the S3 Partners for the purchase of shares in an S3 Partners-controlled LLC. The three defendants falsely represented to investors that they would receive predictable high rates of return, that there was minimal to no risk of investing, and that profits from S3 Partners business projects would benefit various charitable and religious organizations. Shields, Sims, and Stafford obtained more than $21 million from investors and banks and converted more than half of those funds for their personal benefit, their personal business ventures, and other unauthorized purposes. Their conduct resulted in a near-total loss to investors.

On May 24, the Federal Bureau of Investigation arrested Sims and Stafford in Northern California and Shields in North Carolina pursuant to a sealed arrest warrant. That same day, Sims and Stafford made their initial appearances in San Jose before United States Magistrate Judge Paul Grewal where, subject to the posting of a $100,000 secured bond and being placed on home electronic monitoring, they were ordered released pending a detention hearing. Sims and Stafford are scheduled to appear at a detention hearing in San Jose tomorrow at 9:30 a.m, at which hearing Magistrate Judge Grewal will consider additional conditions governing their pretrial release. Shields made an initial appearance May 24 in Charlotte, North Carolina. After a detention hearing this morning before U.S. Magistrate Judge David C. Keesler, Shields was ordered released subject to a $100,000 unsecured bond and placed on home electronic monitoring.

The maximum statutory penalty for each count of conspiracy to commit wire, mail and bank fraud, wire fraud, and mail fraud in violation of Title 18, United States Code, Sections 1349, 1343 and 1341 is 20 years in prison and a fine of $250,000, plus restitution. The maximum statutory penalty for each count of bank fraud in violation of Title 18, United States Code, Section 1344 is 30 years prison and a fine of $1 million, plus restitution. The maximum statutory penalty for each count of Title 15, United States Code, Sections 78j(b) and 78ff; and 17 C.F.R. Section 240.10b-5-securities fraud is 20 years in prison and a fine of $5 million, plus restitution. Any sentence following conviction would, however, be determined by the court after considering the Federal Sentencing Guidelines, which take into account a number of factors and would be imposed in the discretion of the court.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

Eric A. Bloom and Charles K. Mosley Were Indicted in Alleged $500 Million Fraud Scheme Prior to Firm’s 2007 Collapse

Source-  http://www.fbi.gov/chicago/press-releases/2012/ceo-and-head-trader-of-bankrupt-sentinel-management-indicted-in-alleged-500-million-fraud-scheme-prior-to-firms-2007-collapse 

CHICAGO—The chief executive officer and the head trader of the bankrupt Sentinel Management Group Inc. were indicted on federal fraud charges for allegedly defrauding more than 70 customers of more than $500 million before the firm collapsed in August 2007, federal law enforcement officials announced today. Sentinel, which was located in suburban Northbrook, managed short-term cash investments of futures commission merchants, commodity pools, hedge funds, at least one pension fund, and other customers. The defendants, Eric A. Bloom and Charles K. Mosley, allegedly misappropriated securities belonging to customers by using them as collateral for a loan that Sentinel obtained from Bank of New York Mellon Corp. (BoNY) that was in part used to purchase millions of dollars worth of high-risk, illiquid securities not for customers, but for a trading portfolio maintained for the benefit of Sentinel’s officers, including Mosley, Bloom, certain Bloom family members, and corporations controlled by the Bloom family.

Bloom, the president and CEO of Sentinel who was responsible for its day-to-day operations, allegedly misled customers four days before Sentinel declared bankruptcy by blaming Sentinel’s financial problems on the “liquidity crisis” and “investor fear and panic” when he knew that the actual reasons for Sentinel’s financial problems were its purchase of high-risk, illiquid securities; excessive use of leverage; and the resulting indebtedness on the BoNY credit line, which had a balance exceeding $415 million on August 13, 2007. Sentinel declared bankruptcy on August 17, 2007.

Bloom, 47, of Northbrook, and Mosley, 48, of Vernon Hills, will be arraigned on a date yet to be scheduled in U.S. District Court in Chicago. They were each charged with 18 counts of wire fraud, one count of securities fraud, and one count of making false statements to an employee pension plan in a 20-count indictment that was returned by a federal grand jury yesterday. The indictment seeks forfeiture of more than $500 million.

The case is one of the largest criminal financial fraud cases ever prosecuted in federal court in Chicago. The indictment was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Robert D. Grant, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation; and James Vanderberg, Special Agent in Charge of the U.S. Department of Labor Office of Inspector General in Chicago. Also assisting in the investigation were the Labor Department’s Employee Benefits Security Administration, the Commodity Futures Trading Commission, and the Securities and Exchange Commission. The CFTC and the SEC filed separate civil enforcement lawsuits following the collapse of Sentinel, which remains in bankruptcy proceedings.

According to the indictment, between January 2003 and August 2007, Bloom and Mosley fraudulently obtained and retained under management more than $500 million of customers’ funds by falsely representing the risks associated with investing with Sentinel, the use of customers’ funds and securities, the value of customers’ investments, and the profitability of investing with Sentinel. Bloom and Mosley allegedly used customers’ securities invested in Sentinel’s “125 Portfolio” and its “Prime Portfolio” as collateral for its credit line with BoNY to purchase millions of dollars worth of high-risk, illiquid securities, some of which were collateralized debt obligations (CDOs). Mosley allegedly purchased the CDOs from two brokerage firms and received substantial personal benefits from those firms in the form of gifts, vacations, expensive tickets to sporting events, and parties.

The indictment alleges that Bloom and Mosley lied about customers’ investments and engaged in an undisclosed trading strategy with Sentinels’ own “House Portfolio,” which they traded for the benefit of themselves and Bloom family members. In addition to his salary, Mosley received an annual bonus based on the profitability of the House Portfolio. The undisclosed trading strategy included extensive leverage and a high concentration of CDOs that was inconsistent with the representations Bloom and Mosley made to customers regarding separate investment portfolios. The undisclosed strategy affected all customers, regardless of the trading portfolio in which they were invested, because the defendants allegedly used customers’ securities as collateral when they borrowed money from the BoNY and so-called “repo” lenders and then used the borrowed money to carry out the undisclosed trading strategy. (Under a repurchase agreement, known as a “repo,” a party such as Sentinel, effectively a borrower, sold securities to a counterparty, effectively a lender, with an agreement to repurchase the securities at a later date.)

“The use of their customers’ securities as collateral allowed the defendants to borrow more money than Sentinel otherwise could, subjected the customer securities to potential legal claims by creditors, and allowed the defendants to employ leverage to the extent that Sentinel itself, and all of the customer portfolios, were at increased risk of adverse market movements and insolvency,” the indictment states.

As part of the fraud scheme, Bloom and Mosley allegedly falsely represented to customers the returns generated by the securities in each Sentinel portfolio. Rather than giving customers the actual returns generated by a particular portfolio, the defendants on a daily basis pooled the trading results for all of Sentinel’s portfolios and then allocated the returns to the various portfolios as they saw fit, the indictment alleges. To conceal the scheme, to encourage customers to invest additional funds, and to otherwise lull customers, Bloom and Mosley on a daily basis allegedly caused false and misleading account statements to be created and distributed to customers, including via e-mail. These account statements reported returns earned by customers without disclosing that the returns actually were allocated by the defendants and were not the result of the market performance of the customers’ particular portfolios. The account statements also listed the purported value of securities being held by each portfolio without disclosing that the securities were being used as collateral for Sentinel’s loan from BoNY. The daily account statements were also misleading in that many of them, particularly those issued in July and August 2007, contained incorrect securities and inflated values of certain securities, the indictment alleges.

In July and August 2007, when Bloom and Mosley knew that Sentinel was approaching insolvency and that defaulting on the over-$400 million bank line of credit was a real possibility, they allegedly caused millions of dollars in investments in Sentinel to be obtained and retained by concealing Sentinel’s true financial condition from customers.

Each count of wire fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, or, alternatively, a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater, and restitution is mandatory. Securities fraud and making false statements to a pension plan each carry a maximum penalty of five years in prison and a $250,000 fine. If convicted, the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

SEC Charges Phoenix-Based Investment Adviser Walter J. Clarke and Firm Oxford Investment Partners LLC With Fraud

Source-  http://www.sec.gov/news/press/2012/2012-105.htm 

Washington, D.C., May 30, 2012 – The Securities and Exchange Commission today charged a Phoenix-based investment adviser and his firm for recommending investments without telling clients about his personal stake and exploiting a client who was buying an ownership share in the firm.

The SEC’s Enforcement Division alleges that Walter J. Clarke advised clients at Oxford Investment Partners LLC to invest in two businesses without disclosing the conflicts of interest that he co-owned one of them and had financial ties to the owners of the other. Both investments later failed. And when Clarke’s own financial problems prompted him to sell a stake in Oxford to a client, he fraudulently inflated the value of his firm by at least $1.5 million to make the client overpay by at least $112,000.

“Investment advisers have a fiduciary duty to be forthcoming with their clients and act in their best interests,” said Marshall S. Sprung, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit. “Clarke breached that duty by deliberately overvaluing the firm and staying mum on his personal ties to the recommended investments.”

According to the SEC’s order instituting administrative proceedings against Clarke and Oxford, Clarke convinced three clients in late 2007 and early 2008 to fund more than $300,000 in loans originated by Cornerstone Funding Group, a company co-owned by Clarke. However, the clients were never told that Clarke was a co-owner and would personally profit from successfully originated loans. Within months of the loans being funded, the underlying borrowers defaulted, causing the clients to lose their investments. In November 2008, Clarke convinced four clients to invest approximately $40,000 in HotStix, a privately-held company. The clients were not informed that the owners of HotStix were also co-owners and paid consultants of Oxford. Shortly after the clients made these investments, HotStix sought bankruptcy protection and the clients lost their money.

The SEC’s investigation further found that amid financial woes, Clarke sold a client 7.5 percent of his ownership interest in Oxford in March 2008. The client paid $750,000 based on Clarke’s valuation of Oxford at $10 million. However, Clarke used several ploys to fraudulently inflate Oxford’s value. First, Clarke applied an excessive and baseless multiple to Oxford’s 2007 annual revenue. Second, Clarke calculated Oxford’s 2007 revenue by quadrupling Oxford’s revenue in the fourth quarter of 2007 – its most profitable quarter that year – and ignoring Oxford’s lower revenue in the previous three quarters. Third, Clarke added a baseless $1 million “premium” to Oxford’s valuation.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

Miami Hedge Fund Adviser Charged for Misleading Investors About "Skin in the Game" and Related-Party Deals

Source-  http://www.sec.gov/news/press/2012/2012-104.htm 

Washington, D.C., May 29, 2012 – The Securities and Exchange Commission today charged a Miami-based hedge fund adviser for deceiving investors about whether its executives had personally invested in a Latin America-focused hedge fund.

The SEC’s investigation found that Quantek Asset Management LLC made various misrepresentations about fund managers having “skin in the game” along with investors in the $1 billion Quantek Opportunity Fund. In fact, Quantek’s executives never invested their own money in the fund. The SEC’s investigation also found that Quantek misled investors about the investment process of the funds it managed as well as certain related-party transactions involving its lead executive Javier Guerra and its former parent company Bulltick Capital Markets Holdings LP.

Bulltick, Guerra, and former Quantek operations director Ralph Patino are charged along with Quantek in the SEC’s enforcement action. They agreed to pay more than $3.1 million in total disgorgement and penalties to settle the charges, and Guerra and Patino agreed to securities industry bars.

“When making an investment decision, private fund investors are entitled to the unvarnished truth about material information such as management’s skin in the game or the adviser’s handling of related-party transactions,” said Bruce Karpati, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Quantek’s investors deserved better than the misleading information they received in marketing materials, side letters, and other fund documents.”

According to the SEC’s order instituting settled administrative proceedings, fund investors frequently inquire about the extent of the manager’s personal investment during their due diligence process, and many require it in fund selection. Quantek, particularly Patino, misrepresented to investors from 2006 to 2008 that management had skin in the game. These misstatements were made when responding to specific questions posed in due diligence questionnaires that were used to market the funds to new investors. Quantek made similar misrepresentations in side letter agreements executed by Guerra with two sought-after institutional investors.

The SEC’s order also found that Quantek misled investors about certain related-party loans made by the fund to affiliates of Guerra and Bulltick. Because the fund permitted related-party transactions with Bulltick and other Quantek affiliates, investors were wary of deals that were not properly disclosed. In 2006 and 2007, Quantek caused the fund to make related-party loans to affiliates of Guerra and Bulltick that were not properly documented or secured at the outset. Quantek and Bulltick employees later re-created the missing related-party loan documents, but misstated key terms of the loans and backdated the materials to give the appearance that the loans had been sufficiently documented and secured at all times. Quantek and Guerra provided this misleading loan information to the fund’s investors.

“The related-party transactions were problematic to begin with, and the false deal documents left investors in the dark about the adviser’s conflicts of interest,” said Scott Weisman, Assistant Director in the SEC Enforcement Division’s Asset Management Unit.

According to the SEC’s order, Quantek also repeatedly failed to follow the robust investment approval process it had described to investors in the fund. Quantek concealed this deficiency by providing investors with backdated and misleading investment approval memoranda signed by Guerra and other Quantek principals.

Quantek, Guerra, Bulltick, and Patino settled the charges without admitting or denying the findings. Quantek and Guerra agreed jointly to pay more than $2.2 million in disgorgement and pre-judgment interest, and to pay financial penalties of $375,000 and $150,000 respectively. Bulltick agreed to pay a penalty of $300,000, and Patino agreed to a penalty of $50,000. Guerra consented to a five-year securities industry bar, and Patino consented to a securities industry bar of one year. Quantek and Bulltick agreed to censures. They all consented to orders that they cease and desist from committing or causing violations of certain antifraud, compliance, and recordkeeping provisions of the Investment Advisers Act of 1940 and the Securities Act of 1933.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

SEC Halts Fraudulent Investment Scheme by New York-Based Fund Manager

Source-  http://www.sec.gov/news/press/2012/2012-103.htm

Washington, D.C., May 25, 2012 — The Securities and Exchange Commission today announced charges against a New York-based fund manager and his two firms for luring investors into a trading program that would purportedly maximize their profits but instead spent their money in unauthorized ways.

The SEC alleges that since at least November 2011, Jason J. Konior and his firms raised approximately $11 million by selling investors limited partnership interests in Absolute Fund LP, an investment vehicle that Konior claimed had $220 million in trading capital. Konior and his firms falsely claimed that Absolute Fund would allocate millions of dollars in matching investment funds, place the combined funds in brokerage accounts through which investors could trade securities, and operate a “first loss” trading program that would allow investors to dramatically increase their potential profits.

However, the SEC alleges that instead of using investor funds for trading purposes, Konior and his firms Absolute Fund Advisors (AFA) and Absolute Fund Management (AFM) siphoned off approximately $2 million of the proceeds to pay redemptions from earlier investors and to pay their personal and business expenses.

The SEC obtained an asset freeze against Konior and his companies late yesterday in federal court in Manhattan.

“Konior falsely portrayed Absolute Fund as a legitimate investment vehicle designed to maximize investors’ access to trading capital in order to grow their hedge fund businesses,” said Bruce Karpati, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “In reality, Konior’s operation became a way for Konior to funnel cash to his firms and himself for unauthorized purposes.”

According to the SEC’s complaint, Konior falsely represented to several investors that upon receipt of their investments, Absolute Fund would:
Allocate capital of up to nine times the amount of the investor’s capital contribution.

Place the combined funds in a sub-account at a broker-dealer through which the investor could trade securities.

Allocate any trading losses first to the investor’s contribution amount, and then any trading profits would be shared between Absolute Fund and the investor.

The SEC alleges that Absolute Fund did not actually operate the first loss trading program as promised for these investors. Absolute Fund also did not provide these investors with any matching funds or satisfy investor demands for returns of their capital contribution.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net

Jeanne Rowzee Sentenced to More Than Seven Years in Federal Prison for Role in $25 Million Investment Scheme

Source-  http://www.fbi.gov/losangeles/press-releases/2012/orange-county-lawyer-sentenced-to-more-than-seven-years-in-federal-prison-for-role-in-25-million-investment-scheme 

SANTA ANA, CA—An Orange County attorney was sentenced today to 87 months in federal prison for participating in a fraud scheme that took in more than $25 million with bogus promises of huge returns on short-term loans to businesses.

Jeanne Rowzee, 53, of Irvine, was sentenced by United States District Judge Andrew J. Guilford. In addition the prison term, which Rowzee was ordered to begin serving on June 15, Judge Guilford ordered her to pay $25,544,811 in restitution.

“Investment scams harm investors large and small, and Ms. Rowzee and her cohorts bilked scores of investors with empty promises,” said United States Attorney André Birotte, Jr. “Rowzee played a key role in this scheme by promising huge returns on investments and pretending to be an experienced securities attorney.”

Rowzee pleaded guilty in October 2008 to conspiracy and securities fraud, admitting that she helped bilk victims who thought they were investing in public investments in private entities (PIPEs) and money market programs. Rowzee and her co-schemer—James Halstead, 65, of Tustin—promised returns of 25 percent to 35 percent every three to four months. When the scheme collapsed, approximately 140 investors suffered more than $20 million in losses.

Halstead was sentenced two years ago to 10 years in federal prison.

Rowzee and Halstead solicited investments in PIPEs as short-term bridge loans to companies that were in the process of obtaining equity financing for growth. Victims were told that their money would be used to fund the short-term loans, and Halstead and Rowzee claimed they had never lost money in this type of investment. Halstead and Rowzee told victims that Rowzee was an experienced securities attorney and had previously worked for the Securities and Exchange Commission.

In reality, the victims’ money was never invested. Halstead and Rowzee instead used the money to make Ponzi payments to some investors and to support their lavish lifestyles. According to court documents, Halstead used $191,005 of victim-investors’ money to buy a Ferrari, more than $1 million to purchase a home for himself in the Las Vegas area, and $162,350 to buy a Porsche.

When she pleaded guilty, Rowzee admitted that the PIPEs scheme was a fraud and that claims to investors—regarding the existence of the PIPEs, her experience as a securities lawyer, that she personally performed due diligence on each PIPE, and that they had never lost any money—were false.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net 

Mark Roy Anderson Sentenced to Over 11 Years in Prison for $9.5 Million Investment Scam

Source-  http://www.fbi.gov/losangeles/press-releases/2012/disbarred-lawyer-sentenced-to-over-11-years-in-prison-for-9.5-million-investment-scam 

LOS ANGELES—A Beverly Hills man was sentenced this morning to 135 months in federal prison for running an investment scheme that collected more than $9.5 million from victims who were falsely promised huge profits through investments in various oil companies and oil ventures.

Mark Roy Anderson, 57, who was disbarred from the practice of law in Nevada, received the prison sentence this morning from United States District Judge Percy Anderson, who also ordered the defendant to pay more than $9.5 million in restitution, which represents the total amount of losses from Anderson’s fraudulent scheme.

Judge Anderson stated that “this was nothing more than an elaborate and concerted fraud by a professional conman,” noting that the defendant “had prior convictions...[that] came from a decade-long frenzy of fraudulent activity in the 80s.” Judge Anderson called Mark Roy Anderson a “financial predator with little regard for the law or harm he causes,” concluding that he was “solely motivated by greed.”

Mark Roy Anderson was remanded into custody in April 2011 after, according to Judge Anderson, he “brazenly violated court orders.” Mark Roy Anderson pleaded guilty to one count of wire fraud and one count of money laundering last July.

Mark Roy Anderson solicited investments from victims who were told that their money would be invested in various oil companies and oil-related ventures in Oklahoma and California and promised his victims substantial returns on their investments. Instead of using investors’ money for oil ventures, Mark Roy Anderson and his then-wife used investors’ funds for living expenses and personal items. Mark Roy Anderson also used investors’ funds to purchase an interest in the now-closed Prego restaurant in Beverly Hills. In total, approximately 14 victims lost more than $9.5 million.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net 

Richard H. Nickles Sentenced to 12 Years in Federal Prison in Ponzi Scheme That Caused Nearly $7 Million in Losses

Source-  http://www.fbi.gov/losangeles/press-releases/2012/orange-county-investment-advisor-sentenced-to-12-years-in-federal-prison-in-ponzi-scheme-that-caused-nearly-7-million-in-losses 

SANTA ANA, CA—The owner and operator of a Santa Ana investment firm was sentenced today to 144 months in federal prison for operating a Ponzi scheme that collected more than $10 million from approximately 36 victims, many of whom were elderly residents of Orange County and Los Angeles County.

Richard H. Nickles, 59, of Irvine, who was the owner of Innovative Advisory Services, Inc., was sentenced by United States District Judge Cormac J. Carney. In addition to the prison term, Judge Carney ordered Nickles to pay $6.8 million in restitution.

“Investment fraud schemes that target senior citizens are particularly sinister,” said United States Attorney Andre Birotte Jr. “Mr. Nickles went to great lengths to disguise the criminal nature of his scheme, and his actions caused harm to many investors, including the elderly victims who trusted his false promises. This lengthy sentence in federal prison should serve as a warning to others who want to follow in Mr. Nickles’ footsteps: the end of the line for con men is a prison cell.”

Nickles pleaded guilty in June 2011 to mail fraud and securities fraud, admitting that his scheme raised more than $10 million and three dozen victims suffered losses of approximately $6.8 million because some of the money was returned to investors during the course of the scheme.

As part of the investment scheme, Nickles placed advertisements in the Orange County Register and the Los Angeles Times that promoted safe investments through Innovative Advisory Services. The advertisements variously described the investments as “U.S. Government Guaranteed,” “FDIC Insured,” “Guaranteed,” or “Insured” and stated that there was a “$50,000 Minimum Investment.” After being contacted by potential investors, Nickles met with them and offered investments in various types of low-risk bonds. According to court documents, Nickles took money from investors, but, instead of investing the money in the bonds he recommended, he used the money to pay off prior investors or trade in securities not authorized by the investors. As part of his scheme, Nickles created fraudulent statements from Innovative Advisory Services that were mailed to investors. Investigators also determined that of the funds investors deposited, Nickles transferred hundreds of thousands of dollars to his personal bank accounts and those of his family members. Furthermore, investigators found that Nickles had transferred approximately $170,000 to bank accounts in the Turks and Caicos.

In sentencing documents filed with the court, prosecutors emphasized “the sophistication and audacity of defendant’s fraud, the extensive suffering inflicted on his victims, and his flagrant defiance of court orders” in a related civil case brought by the Securities and Exchange Commission. In particular, prosecutors noted that Nickles withdrew victims’ funds from a bank account that a federal judge had ordered frozen at the SEC’s request.

************************************************************************

Report Securities Fraud by Calling 1-888-482-6825 or by visiting

www.reportsecuritiesfraud.net