July 6, 2016

Securities Fraud News: Andrew Caspersen Pleads Guilty to $40M Fraud, Massachusetts Investment Advisor to Pay $8M to Investors, & CFTC Ordesr Florida Man and His Companies to Pay Almost $175M in Sanctions in FX Ponzi Scam

Ex-Wall Street Executive Admits to Bilking Friends and Relatives
Andrew Caspersen has pleaded guilty to federal criminal charges accusing him of defrauding relatives, friends, and Moore Charitable Foundation of $40M. Caspersen is an ex-Wall Street executive and a member of the wealthy Caspersen family. The charitable foundation he bilked belongs to billionaire hedge fund manager Louis Bacon and his investment firm Moore Capital Management.

Caspersen, 39, pleaded guilty to one charge of wire fraud and one charge of security fraud. Each criminal charge comes with a maximum term of 20 years behind bars.

Caspersen's defense team initially argued that he was addicted to gambling and suffered from mental illness, which were what supposedly compelled him to run his multi-million dollar Ponzi-like scam. His mother, close friends, the family of an ex-girlfriend, and others were among those whom he bilked.

Continue reading "Securities Fraud News: Andrew Caspersen Pleads Guilty to $40M Fraud, Massachusetts Investment Advisor to Pay $8M to Investors, & CFTC Ordesr Florida Man and His Companies to Pay Almost $175M in Sanctions in FX Ponzi Scam" »

June 3, 2016

Madoff Investors Eligible For $4B Payout & Stanford Fraud Victims Settle With Law Firm for $35M

At least 25,280 claimants who were the victims of Bernard Madoff’s Ponzi scheme can expect to receive payouts for almost $4B in losses they sustained from the fraud. For these investors, they’ve been waiting to get at least some of their money back for nearly eight years.

It was in December 2008 that Madoff’s $64.8B Ponzi scam was discovered. It turns out that the 78-year-old money manager was an equal opportunity fraudster, bilking retail investors, wealthy investors, institutional investors, celebrities, and others alike.

The nearly $4B in payouts is being overseen by Richard Breeden of the Madoff Victim Fund and is separate from the payouts issued by Irving Picard, who is the trustee in charge of compensating former customers of Bernard L. Madoff Investment Securities LLC.

With the Madoff Victim Fund, claims include those brought by “indirect” investors whose accounts were at the hedge funds and other entities known as “feeder funds.” These funds would send investors’ money to Madoff. Thousands of victims that lost $17.5B have been seeking to avail of this fund.

Continue reading "Madoff Investors Eligible For $4B Payout & Stanford Fraud Victims Settle With Law Firm for $35M" »

March 19, 2016

$2.5B in Investor Money from Madoff Ponzi Scam Went Unclaimed

According to Fortune and Bloomberg, victims of Bernard Madoff’s Ponzi Scam were able to recover 57 cents for every dollar they invested in his fake funds because there were investors who never filed claims for $2.5B of the $20B lost in the fraud.

Seeing as the deadline to file claims to recover losses from Madoff’s scheme passed nearly seven years ago, it would be too late for any of these parties to try to get that money back now.

Fortune says no one even knows where this $2.5B is, as the Madoff's trustee only sought to recover money from claims made. Bloomberg believes that almost half of this money is owned by feeder funds that invested with Madoff. The media outlet said that a couple of Caribbean-based hedge funds are the likely investors. Bloomberg speculated that the funds may have figured that whatever they recovered on the $1.2B would have been much smaller than what they might have had to give back had they stepped forward. The owners of the other $1.3B remain unknown, but could be individual investors who had reasons for not coming forward and filing their own claims.

To date, trustee Irving Picard has paid direct investors about $9.2B. There are tens of thousands of others who, unable to file directly with Picard because they’d invested in the feeder funds, are still waiting to get some money back.

Continue reading "$2.5B in Investor Money from Madoff Ponzi Scam Went Unclaimed " »

November 19, 2015

Madoff Ponzi Scam Investors to Get $1.18B, Ernst & Young Found Liable in Auditing of Feeder Fund

A federal bankruptcy court has approved plans to issue $1.18B to investors who lost money in Bernard Madoff’s multibillion-dollar Ponzi scam. This means that immediate distribution of the funds can take place to those whose claims for repayment have been approved by Madoff trustee Irving Picard.

This is the sixth distribution to date in the over $20B investment fraud run by Madoff, who is spending the rest of his life behind bars for his crimes. This latest round will bring the amount paid to his victims to about $91.13B. Another $320M is being held for investors whose claims are still pending or in litigation.

According to Securities Investor Protection Corp CEO Stephen Harbeck, ex-Madoff customers who invested up to $1.16M will get all of their lost funds back while those who invested more will get about 61 cents for every dollar.

Madoff, who ran his Ponzi scam for decades, used new investors' money to pay earlier investors. He never conducted any securities trades but instead used a lot of the money to fund his lavish lifestyle. It wasn’t until 2008 that the scheme was uncovered. Thousands of retail investors, charities, celebrities, and others were among those who suffered devastating losses.

In other Madoff Ponzi scam-related news, a Washington State jury ruled that Ernst & Young is guilty of negligence because of the way it audited a feeder fund that sent money to Madoff’s company. The fund was overseen by FutureSelect Portfolio Management.

Ernst & Young audited for funds run by Rye Investment Management, which is a Tremont Group Holdings Inc. unit, and FutureSelect sued Ernst & Young in 2010 after losing over $195M in the Madoff Ponzi scam because it had invested in the Rye funds. Tremont, which is an OppenheimerFunds Inc, affiliate, already has settled charges against in this case. The terms of its settlement are confidential.

Continue reading "Madoff Ponzi Scam Investors to Get $1.18B, Ernst & Young Found Liable in Auditing of Feeder Fund" »

September 19, 2015

Ex-Aurelia Finance Managers Compensate Asset Managers Bilked in Madoff Ponzi Scam

Five ex-Aurelia Finance wealth managers have paid “substantial compensation” to resolve criminal complaints related to the Bernard Madoff Ponzi scam. According to prosecutors, the Swiss-based private bank lost up to $800 million of client money that they put into the scheme.

Pascal Cattaneo, Jean Marc Weneger, Vladimir Stepczynski, Olivier Ador, and Laurent Mathysen-Gerst were charged with criminal mismanagement of the money because they put too much into a Madoff feeder fund. Among those who lost money through asset management units were Italy's UniCredit, Santander (SAN.MC), and Swiss-based EFG International. Prosecutors claim that the ex-directors got rich on management fees, commissions, and finder fees paid for bogus returns that were never verified.

In total, the Madoff Ponzi scam cost its investors $17 billion. Those impacted included retail investors, celebrities, other wealthy private investors, and institutional investors.

Meantime, efforts to recover the money lost by Madoff’s victims continue.

Continue reading "Ex-Aurelia Finance Managers Compensate Asset Managers Bilked in Madoff Ponzi Scam" »

December 5, 2014

Madoff Ponzi Scam Victims Recover Over $10 Billion

Six years after the collapse of Bernard Madoff’s multi-billion dollar Ponzi scam, over $10 billion has been recovered—that’s close to 60% of the principal that went missing after his arrest in 2008. Nearly $6 billion has been paid back to investors. Trustee Irving Picard recently provided these figures in an interim report.

Thousands of investors lost $17.5 billion in principal because of Madoff’s scheme. Even as a significant amount of the money has been returned to them, billions of dollars are being kept in reserve until the securities fraud lawsuits filed by victims wanting bigger payouts are resolved.

The Securities Investor Protection Corp. has spent over $1 billion to facilitate the recovery process. Picard was tasked with recovering investors’ funds. He has worked with forensic accountants, lawyers, and others to figure out who was owed money and who should be sued for benefiting from Madoff’s Ponzi scam. He has even able to recover investor funds via hundreds of lawsuits involving the Madoff clients and banks that didn’t know they were benefiting from the fraud.

Already, Picard has filed over 1,000 lawsuits against feeder funds that sent customer money to Madoff, as well as “net winners” that withdrew more than what they paid. Among the individuals he sued that took more cash from their accounts than what they put in is Edward Blumenfeld. The New York real estate developer settled for $62 million.

Picard also settled with the estate of now deceased Florida investor Jeffrey Picowar for $7.2 billion, as well as recovered $325 million from JP Morgan Chase & Co. (JPM), which was Madoff’s primary bank. Recently, the trustee arrived at a deal with Herald Fund and Primeo Fund, which both funneled cash to the Ponzi scam. They consented to pay $497 million to resolve lawsuits over withdrawals from Madoff’s firm.

Madoff, who pleaded guilty to securities fraud, is serving 150 years in federal prison.

Prosecutors say that Madoff’s Ponzi scam began in the early 1960’s and went on for decades, defrauding famous and wealthy investors, along with average investors, financial instittuions, charities, and others. Bogus trades and account documents were used to make individual and institutional investors think that they owned securities in the largest American companies. According to final account statements, fake profits were at around $47 billion.

Now, five ex-Madoff employees are getting ready to hear their prison sentences for their involvement in his Ponzi scam. These individuals are the only defendants linked to the scheme to stand trial. They are Madoff’s former assistant Annette Bongiorno, ex-Madoff operations manager Daniel Bonventre, account manager JoAnn Crupi, and ex-Madoff computer programmers George Perez and Jerome O’Hara. They are accused of conspiring with Madoff to deceive investors. Earlier this year, a jury found them guilty on all charges in a 31-count indictment.

Madoff scam recovery hits $10 billion, almost 60% of lost money, at a cost of $1 billion, InvestmentNews, November 22, 2014

5 ex-Madoff employees face prison terms, USA Today, December 4, 2014

More Blog Posts:
SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales, Stockbroker Fraud Blog, December 2, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants, Institutional Investor Securities Blog, December 3, 2014

SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales, Stockbroker Fraud Blog, December 2, 2014

May 14, 2014

DOJ’s Fund for Madoff Victims Has Received 51,700 Claims Worth $40B

According to Richard C. Breeden, who is overseeing the US Department of Justice’s Madoff Victim Fund, he has received some 51,700 claims worth approximately $40 billion from Ponzi scam victims seeking to recover their losses. That amount is three times more than the claims submitted during the bankruptcy proceedings for Bernard L. Madoff’s firm.

The fund is responsible for giving back $4 billion in forfeited assets to claimants, including those who were indirectly impacted by the Madoff Ponzi scam, such as ” feeder funds,” banks, hedge funds, and other entities that trustee Irving Picard has denied recovery. Picard is only compensating direct investors who were harmed.

Breeden says that the amount of investors seeking recovery are twice as many as previously estimated and their claimed losses are billions of dollars greater than what was documented. Prior to an April 30 deadline, he received over 43,500 claims from those who did not submit to the bankruptcy case. More than 36,000 claims were from those who said they haven’t gotten any of their losses back.

The investors are from 119 nations. 58% of are U.S. residents. 78% are reporting losses of up to $500,000. Breeden, however, said that he expects to declare a significant number of claims duplicative, ineligible, or inflated.

Meantime, earlier this month Picard said that a fourth distribution of funds would be issued to direct investors who suffered losses. The distribution of $351.6 million will be for claims related to 1,081 accounts held by Bernard L. Madoff Investment Securities at the time of the fraudster’s arrest.

The average payment distribution will be about $325,000, with the largest one, $77.8 million. Picard says he is working to give approved claimants all of their losses back.

In total, Picard has recovered $9.8 billion to repay investors—that’s over half of the $17.5 billion in principal that Picard said was lost by claimants. Over the two decades that he was bilking clients, Madoff kept most of their funds in accounts with JPMorgan Chase (JPM). A majority of this latest distribution is a result of the $325 million settlement reached between JPMorgan Chase (JPM) and Picard over allegations that because the firm was profiting from transaction fees, it purposely chose to ignore signs that Madoff was running a Ponzi scam.

Madoff is serving a 150-year prison term for his scam. His victims ranged from ordinary retail investors to the rich and famous.

In other Madoff Ponzi scam-related news, five of his formers staffers who were found guilty in March of helping him perpetuate the fraud want an acquittal or a retrial. They contend that false testimony from government witnesses and flawed jury proceedings were factors in their convictions.

The defendants are ex-Madoff operations chief Daniel Bonventre, account manager Joann Crupi, and secretary Annette Bongiorno, who were convicted on tax evation and securities fraud charges, and computer programmers George Perez and Jerome O’Hara, who were convicted on fraud charges. They are facing a maximum of 78 to 220 years in prison.

If you suspect you were the victim of a Ponzi scam, contact our securities fraud lawyers today.

Another $350M Heading Back to Madoff Victims, Fox Business, May 5, 2014

Investors seek over $40 billion from Madoff victim fund, Reuters, May 13, 2014

Madoff Fraud Claims Swell, The Wall Street Journal, May 13, 2014

More Blog Posts:
Madoff Ponzi Scam: Five Ex-Aides Convicted of Securities Fraud,Victims to Recover $349 Million,, Stockbroker Fraud Blog, March 26, 2014

Madoff Ponzi Scam Victims Win Right to Appeal for Interest
, Stockbroker Fraud Blog, March, January 24, 2014

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

October 17, 2013

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams

The US Supreme Court has just listened to oral argument about how the Fifth Circuit appeals court interprets the breadth of the Securities Litigation Uniform Standards Act’s (SLUSA), which precludes the majority of state class action cases involving plaintiffs claiming misrepresentations related to the buying or selling of a security that it covers. The case stems from Allen Stanford’s $7B Ponzi scam, in which one of his banks put out certificates of deposit that were supposedly safe, liquid investments when, in reality, the investments did not exist. The bank used money from new CD sales to issue redemption payments and interest on older CDs.

Following the discovery of the Stanford securities shame, two sets of investors filed securities fraud cases in Louisiana court against several Stanford companies and employees contending law had been violated. The defendants got the cases sent to federal court.

The securities lawsuits were then sent to the Northern District of Texas, which threw out the fraud lawsuits on the grounds that SLUSA precluded them. That court said that the CDs weren’t covered but that the investors had alleged misrepresentations having to do with securities that were covered. The Stanford bank had claimed it invested in securities that were issued by multinational companies and solid governments and led investors to think investments SLUSA-covered securities at least partially backed the CDs. he Fifth Circuit then reversed that decision.

Now, the US Supreme Court must determine whether the class action securities cases can move forward despite SLUSA preclusion of “covered class actions” involving a private party claiming there has been a misrepresentation/omission of a material fact related to the selling or buying of a covered security.

Our Ponzi fraud lawyers represent clients that have suffered losses from Ponzi scams and other financial schemes, including elder financial fraud, affinity schemes, pump-and-dump scams, and others. Shepherd Smith Edwards and Kantas, LTD LLP represents institutional and individual investors.

Chadbourne & Parke, LLP v. Troice; Willis of Colorado Inc. v. Troice; Proskauer Rose LLP v. Troice (PDF)

Read the Oral Argument Transcription (PDF)

Securities Litigation Uniform Standards Act

More Blog Posts:
SEC and SIPC Go to Court Over Whether SIPA Protects Stanford Ponzi Fraud Investors, Stockbroker Fraud BLog, February 6, 2013

Texas Financier Allen Stanford’s Ponzi Scam: SIPC Asks District Court to Toss Out SEC Lawsuit Seeking to Reimburse Fraud Victims, Stockbroker Fraud BLog, March 5, 2013

SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors, Institutional Investor Securities Blog, February 10, 2012

May 14, 2013

SEC Roundup: Regulator Addresses CDS Portfolio Margin Program & Ex-Commission Officials Want DC Circuit to Grant SIPC Protection to Stanford Ponzi Scam Victims

Ex-Commission Officials, Others Want DC Circuit to Grant Stanford Ponzi Scam Victims SIPC Protection
Former SEC Officials, law professors, and trade groups are among those pressing the U.S. Court of Appeals for the District of Columbia Circuit to reject the regulator’s bid to compel Securities Investor Protection Corporation coverage for the investors who were bilked in R. Allen Stanford’s $7 billion Ponzi scam. Inclusion under the Securities Investor Protection Act would allow the fraud victims to obtain reimbursement for losses.

However, SIPC, which is a federally mandated non-profit corporation, doesn’t believe that the Stanford investors, who purchased certificates of deposit from Stanford International Bank Ltd. in Antigua, fall under this protection. Following a failure to act on the SEC’s request to initiate liquidation proceedings for brokerage firm Stanford Group Co., the regulator asked the court for a novel order that would make the organization comply.

Last year, the district court rejected the SEC’s application, finding that Stanford’s investors were not, for Securities Investor Protection Act purposes, covered. The agency then went to the DC Circuit.

Now, in an amicus brief filing, the academics and ex-SEC officials, including Paul Atkins and Joseph Grundfest, are arguing that the appeals court should turn down the regulator’s bid to expand who is “covered through SIPC” because it would not be in line with statutory history, “contravenes” the statute’s “plan language,” and is in conflict with over four decades of judicial precedent.

SEC Division of Trading and Markets Address Credit Default SwapsPortfolio Margin Program Questions
In other SEC news, its Division of Trading and Markets recently addressed questions related to temporary approvals that were given to several brokerage firms/ futures commission merchants that allow their involvement in a program that would mix and position portfolio margin customer positions in cleared credit default swaps.

The SEC is now granting conditional exemptive relief from certain 1934 Securities Exchange Act requirements related to a program that would portfolio and mix margin customer positions in certain cleared CDSs. In March, the Commission gave conditional approval to Goldman Sachs & Co. (GS), J.P. Morgan Securities LLC (JPM), and five other banks to take part in the program. They now can temporarily determine the portfolio margin figures for client positions in commingled CDs according to a model created by ICE Clear Credit, the largest credit default swaps clearing house in the world, while division staff assess the financial firms’ margin methodologies.

Now, ICE Clear Credit participants have questions. They want to know what is the margin treatment of a portfolio that has just single-name CDS positions as well as what is the clearing participants' affiliates’ margin treatment. Responding, SEC division staff said that a FCM/BD client account that has just single-name CD positions would be subject to applicable margin requirements per FINRA Rule 4240. They also said that BD/FCM clearing participants have to deal with affiliates’ single-name CD positions as if they were “customer positions” for margin purposes. SEC staff said that this is in line with FINRA and Commission broker-dealer financial responsibility rules regarding how affiliates are to be treated.

Read the SEC's Response to Questions About CDS Portfolio Margin Program (PDF)

Read the Amicus Filing to the DC Circuit

More Blog Posts:
Medical Capital Fraud Lawsuit Against Wells Fargo Must Proceed, Institutional Investor Securities Blog, April 10, 2013

FINRA Bars Former Wells Fargo Advisors Broker that Bilked Child with Cerebral Palsy, Stockbroker Fraud Blog, April 26, 2012

Standard & Poor’s Seeks Dismissal of DOJ Securities Fraud Lawsuit Over RMBS and CDO Ratings Issued During the Financial Crisis, Institutional Investor Securities Blog, May 9, 2013

March 24, 2013

SEC Actions Roundup: Bridge Premium Finance Settles Over Alleged $6M Ponzi Scam, Ex-Lancer Group Hedge Fund Manager’s Lawyer Sues Over FOIA Request, & Private Equity Firm Ranieri Partners Settles Securities Allegations

SEC Settles with Bridge Premium Finance Over Alleged $6M Ponzi
The U.S. District Court for the District of Colorado has approved a proposed settlement between the SEC and Premium Finance LLC, William Sullivan, and Michael Turnock. The three of them are accused of selling financing so that small businesses could cover their insurance premiums. The alleged Ponzi scam purportedly cost investors $6 million, even as they were promised up to 12% in returns.

Judge John Kane had initially rejected the proposed settlement, which came with SEC’s standard language allowing defendants to resolve cases without denying or admitting to the allegations. Pointing to strong federal policy that favors consent judgments and the “limited and deferential” review the courts have over such agreements, last month the Commission asked the court to reconsider. It also noted that such admissions could hurt the regulator’s enforcement program, potentially causing harm to the public. Turnock and Sullivan also filed a response to the complaint and admitted to some of the allegations.

Ex-Lancer Group Hedge Fund Manager’s Lawyer Sues the Commission Over FOIA Request
David Dorsen, the attorney for former Lancer Group hedge fund manager Michael Lauer, is suing the Securities and Exchange Commission for allegedly failing to respond properly to a Freedom of Information Act request. The SEC had sued Lauer in 2003, accusing him of misrepresenting hedge funds’ value. He was ordered to pay $62 million. Lauer has since been combatting the decision, even up to a certiorari petition that the US Supreme Court rejected last year.

Now, in his FOIA case, Dorsen is contending that the regulator sued his client without having pursued or received the right to carry out a formal probe and without sending a Wells notice to Lauer. Dorsen says that this case is a “public service” intended to enhance accountability and transparency on the part of the SEC.

Private Equity Firm Ranieri Partners Settles Securities Fraud Allegations
In re Ranieri Partners LLC, the private equity firm has settled SEC allegations accusing William M. Stephens, an unregistered broker, of improperly soliciting over $500 million from investors for funds run by Ranieri. Donald W. Phillips, an ex-Ranieri senior managing partner, was tasked with supervising Stephens.

Per the regulator, as a consultant Stephens’ job was to merely act as a “finder.” Yet, the Commission contends, the private equity fund sent him due diligence materials, private placement memoranda, and other documents to give to investors. Stephens even allegedly gave investment advice to one Ranieri client.

The Commission believes that Phillips disregarded the “red flags” indicating that Stephens was working beyond the scope of his designated duties. To settle the securities fraud allegations, Ranieri will pay $375,000, Phillips will pay $75,000, and Stephens has agreed to an industry bar. All of them settled without admitting to or denying the securities allegations.

Freedom of Information Act

Mortgage pioneer Ranieri's firm settles SEC charge, Reuters, March 11, 2013

SEC v. Bridge Premium Finance LLC

More Blog Posts:
Demand Notes Used to Help Pay For Ailing Real Estate Business Were Securities, Says District Court, Stockbroker Fraud Blog, March 23, 2013

Bulk of American Securitization Forum’s Board Resigns
, Institutional Investor Securities Blog, March 21, 2013

October 18, 2012

Institutional Investment Fraud Roundup: Ex-Analyst Guilty in $61.8M Insider Trading Scheme, SLUSA Precludes Investor Class Action Over Hedge Funds that Failed After Madoff Ponzi, & Dark Pool Operator Settles Subscriber Info. Breach Charges

Jon Horvath, an ex-research analyst at a New York hedge fund, has pled guilty to two counts of securities fraud and one count of conspiracy to commit securities fraud related to a $61.8 million insider trading scheme. Several other former hedge fund managers and analysts from different investment firms and hedge funds are also accused of allegedly trading key, nonpublic information about NVIDIA Corporation (NVDA), Dell, Inc. (Dell), and other publicly traded technology companies between 2007 and 2009. The information was obtained indirectly and directly from employees that worked at these companies.

Horvath admitted that when he received the insider information from the other analysts, he knew that they were all breaching their duties of loyalty. He caused certain trades to be executed based on such information. He also provided the other analysts with insider information about publicly traded companies.

In other securities fraud news, the U.S. District Court for the Southern District of New York has ruled that under California securities law, the Securities Litigation Uniform Standards Act bars a class action filed by investors in two hedge funds that failed after the Madoff Ponzi scheme was found out. The plaintiffs are contending that the defendants, investment advisor Tremont Partners and a number of affiliates, made misrepresentations and omissions connected with a covered securities’ sale. The case is Lakeview Investment LP v. Schulman.

Plaintiff Lakeview Investment LP, which is a hedge fund based in California, bought limited partnership interests in the Rye Select Broad Market Fund and the Rye Select Broad Market XL Fund LP. It invested $1.2 million in the Market Fund and nearly $24 million in the XL Fund. Tremont Partner was the sole general partner of both funds. While the Market Fund was a Madoff feeder fund, the XL Fund was set up to simulate the Market Fund’s returns with the use of swaps. Lakeview lost all that it invested in both funds after Bernard Madoff admitted to the running his multibillion-dollar scam.

The hedge fund would go on to file a class action securities case, for it and other California residents that had also bought limited partnership interests in both funds. The defendants then sought to have the lawsuit dismissed per SLUSA, which seals a loophole in the 1995 Private Securities Litigation Reform Act that lets plaintiffs file their cases in state courts to avoid its tighter pleading requirements. The district court said that all SLUSA preclusion elements were met here and it dismissed the investors’ class action case.

Meantime, eBX LLC, a dark pool operator, must pay $800,000 to settle Securities and Exchange Commission allegations that it did not keep subscribers’ information confidential. eBX LLC runs an alternative trading system LeveL ATS. According to the SEC, the dark pool operator “inaccurately informed” LeveL subscribers that data pertaining to their orders would be kept private when, in fact, contends the Commission, eBX let an outside firm run LeveL to use information about subscriber orders that hadn’t been executed (an act that violates Regulation ATS.) The regulator says that this information gave that firm’s “order routing business” a leg up as it used the data to its customers’ benefit.

Although eBX has agreed to settle, it is not denying or admitting to wrongdoing. It has, however, agreed to cease and desist from future securities violations, as well as to a censure.

Ex-SAC Analyst Horvath Pleads Guilty in U.S. Insider Case, Bloomberg, September 28, 2012

Lakeview Investment LP v. Schulman

In re eBX LLC, SEC, Admin. Proc. File No. 3-15058, 10/3/12 (PDF)

More Blog Posts:
FINRA Securities Fraud Roundup: Guggenheim Securities Fined $800K For Failure to Supervise CDO Traders, Brokerage Firm Managing TIC Securities Doesn’t Have to Arbitrate Investor Claims, & Investor Award in Morgan Keegan Funds is Upheld, Institutional Investor Securities Blog, October 12, 2012

CFTC Securities Fraud Roundup: Commissioner Bart Chilton Wants Financial System to Adopt Risk-Based Compensation System, Agency Nets $3M in Four Speculative Limits Cases, & Two Registered Futures Entities Pay $539K Over Inadequate Supervision Allegations, Institutional Investor Securities Blog, October 9, 2012

Securities Roundup: SLUSA Bars Investors’ State Securities Case Alleging Trust Account Management Negligence, Blocks Investors From Remanding Fraud Case to Puerto Rico & FINRA Enhances Proposed Rules' Cost-Benefit Analysis, Looks at Non-Traded REIT Ads, Stockbroker Fraud Blog, October 8, 2012

September 26, 2012

Institutional Investment Fraud Roundup: Ex-Hedge Fund Managers’ Guilty Plea Over Bilking Investors of Almost $1M Get 3-Year Prison Term, SEC Sues Investment Adviser Over Alleged $37M Ponzi, and SEC Files Lawsuit Over Purported “Fund of Funds” Scam

Ex-hedge fund managers Christopher Fardella and Michael Katz have been sentenced to three years in prison after they pleaded securities fraud and conspiracy charges for defrauding investors of nearly $1 million. Per court documents, between April 2005 and November 2006, the two men, along with two co-conspirators, were partners in KMFG International LLC, which is a hedge fund.

They cold called investors throughout the US and provided them with misleading information about the fund, its principals, and financial performance even though KMFG actually lacked a track record and never generated any profit for investors. The defendants and co-conspirators lost and spent $981,000 of the $1,031,086 that was given to them by investors.

Meantime, another hedge fund manager, Oregon-based investment advisor Yusaf Jawad, is being sued by the Securities and Exchange Commission over an alleged $37 million Ponzi scam. The securities lawsuit against him and attorney Robert Custis was filed in the U.S. District Court for the District of Oregon.

According to the Commission, Jawad employed bogus marketing materials claiming double-digit returns to get investors to take part in a number of hedge funds that he managed. He then allegedly redirected the funds into accounts under his control and used some of the money to pay for his own expenses. He also is accused of setting up bogus assets, providing investors with false accounts statements, and making up a fake buyout of the funds so investors would believe that their interests would be redeemable. Older investors were paid off using newer investors’ money. As for Custis, he allegedly sent investors misleading and false statements about the purported purchase of hedge funds assets, while consistently misrepresenting that a buy was “imminent” and would lead to them making a profit.

Over another Ponzi scam, the SEC is suing Georgia private fund manager Angelo Alleca and his Summit Wealth Management Inc. for bilking about 200 investors of approximately $17 million. Claiming to employ a supposed fund-of-funds strategy, Alleca, the Commission contends, was using clients’ money to play the stock market and losing badly.

Per the regulator's complaint, the defendants sold and offered interests in Summit Fund, which they told clients was a fund-of-funds. (The strategy for this fund is supposed to involve investing in other investment products to diversify the money while keeping exposure risks low.) However, not only did Alleca sustain financial losses when he allegedly opted to instead use investors money to engage in securities trading, but also he then hid the losses, made the fraud worse, and sustained even more losses. The SEC wants an emergency asset freeze so that more investment losses don’t happen.

Two Hedge Fund Managers Sentenced To Three-Year Prison Terms For Defrauding Investors Of Nearly $1 Million, Justice.gov, September 19, 2012

SEC Names Hedge Fund Manager, Lawyer in Alleged $37M Ponzi Scheme, Bloomberg/BNA, September 21, 2012

SEC v. Alleca

More Blog Posts:
Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches, Institutional Investor Securities Blog, September 25, 2012

Merrill Lynch Told to Pay $3.6M to Brazilian Heiress for Brother’s Alleged $389M in Unauthorized Trading, Stockbroker Fraud Blog, September 22, 2012

Municipal Advisor Bill Passes Vote by US House of Representatives, Institutional Investor Securities Blog, September 21, 2012

August 29, 2012

Institutional Investment Roundup: Madoff Ponzi Victims to Get 2nd Payout, Insurer’s MBS Lawsuit Against UBS Can Proceed, SEC Charges 2 in $10M Penny Stock Scam, & Hedge Fund Manager Found Guilty in $900K Insider Trading Scheme

The U.S. Bankruptcy Court for the Southern District has issued an order giving Irving Picard, the Bernard L. Madoff Investment Securities LLC liquidation trustee, permission to issue a second interim distribution to the victims of the Madoff Ponzi scam. Picard had asked to add $5.5 billion to the customer fund and issue a second payout of $1.5 billion to $2.4 billion to the investors that were harmed.

According to Bloomberg Businessweek, a $2.4 billion payout would be seven times more than what the bilked investors have been able to get back since Madoff, who is serving a 150-year prison term for his crimes, defrauded them. A huge part of the customer fund is on reserve because there are investors who have filed securities lawsuits contending they should be getting more.

Meantime, the U.S. District Court for the Southern District of New York has decided that the mortgage-backed securities lawsuit filed by insurance company Assured Guaranty Municipal Corp. against UBS Real Estate Securities Inc. can proceed. The plaintiff contends that UBS misrepresented the quality of the loans that were underlying the MBS it insured in 2006 and 2007.

Assured claims that the defendant was in breach of the pooling and servicing agreements involving three MBS certificates that it had insured. Because UBS allegedly misrepresented the quality of the underlying mortgage loans, it has to, per the contracts, repurchase them from Assured.

While Judge Harold Baer denied UBS motion to dismiss the insurer’s contention that the defendant misrepresented the loans’ quality, it agreed with the defendant that Assured cannot force UBS to repurchase them because certificate trustees are the only ones entitled to make sure the “repurchase obligation” is enforced.

In other institutional investment fraud news, the Securities and Exchange Commission has filed charges against Edward Bronson and his E-Lionheart Associates LLC. The two are accused of making over $10 million in a penny stock scam involving the reselling of billions of unregistered shares in about 100 small companies that they acquired at “deep discounts.”

Per the Commission, at Bronson’s direction, E-Lionheart would cold call penny stock companies to try to get them to obtain capital. If there was interest, the firm would offer to purchase shares in the concern at prices that were greatly lower than market value. The defendants would then start reselling the shares through brokers involved in unregistered sales.

The SEC says that while the defendants are invoking a registration exemption that exists under Rule 504(b)(1)(iii) of Regulation D, the Commission contends that this does not apply to these types of sales. The regulator is seeking disgorgement of over $10M, in addition to other penalties.

In an unrelated financial scam, this one involving a criminal case, a New York jury has convicted hedge fund manager Doug Whitman on securities fraud and conspiracy over his involvement in two insider trading schemes. Whitman, who is a Whitman Capital LLC portfolio manager, was charged with using insider trading tips to trade in Marvell Technology Group Ltd. (MRVL), Polycom Inc., (PLCM), and Google Inc. (GOOG) stocks. This allegedly caused him to generate over $900,000 in profits.

Prosecutors claim Whitman obtained the confidential information about the Marvell options and shares from an independent research consultant that received the information from the company’s employees. A colleague in the hedge fund industry gave him the information about Google and Polycom.

The SEC has also filed a civil lawsuit against Whitman and his financial firm. The securities fraud complaint is still pending.

Madoff Trustee’s Customer Payment May Reach $2.4 Billion, Bloomberg Businessweek, August 22, 2012

The Madoff Recovery Initiative

Assured Guaranty Municipal Corp. v. UBS Real Estate Securities Inc. (PDF)

Read the SEC's Complaint against E-Lionheart Associates LLC (PDF)

California Hedge Fund Manager Doug Whitman Found Guilty in Manhattan Federal Court on All Counts for Insider Trading, FBI.gov, August 20, 2012

More Blog Posts:
Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers, Stockbroker Fraud Blog, August 27, 2012

Securities Lawsuit Against Options Clearing Corporation and Chicago Board Options Exchange Can Proceed Says Illinois Appellate Court, Stockbroker Fraud Blog, August 24, 2012

2nd Circuit Affirms Dismissal of $18.5M Auction-Rate Securities Lawsuit Against Merrill Lynch Filed by Anschutz Corp.
, Institutional Investor Securities Blog, August 23, 2012

July 14, 2012

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit

The U.S. Court of Appeals for the Second Circuit is allowing a $20.5M award issued by a Financial Industry Regulatory Authority arbitration panel against Goldman Sachs Execution & Clearing LP to stand. The court turned down Goldman’s claim that the award should be vacated because it was issued in “manifest disregard of the law” and said that the clearing arm must pay this amount to the unsecured creditors of the now failed Bayou hedge fund group known as the Bayou Funds, which proved to be a large scale Ponzi scam.

Goldman was the prime broker and only clearing broker for the funds. After the scheme collapsed in 2005, the Bayou Funds sought bankruptcy protection the following year. Regulators would go on to sue the fund’s funders over the Ponzi scam and the losses sustained by investors. Meantime, an Official Unsecured Creditors’ Committee of Bayou Group was appointed to represent the debtors’ unsecured debtors. Blaming Goldman for not noticing the red flags that a Ponzi fraud was in the works, the committee proceeded to bring its arbitration claims against the clearing firm through FINRA. In 2010, the FINRA arbitration panel awarded the committee $20.58M against Goldman.

In affirming the arbitration award, the 2nd Circuit said that in this case, Goldman did not satisfy the manifest disregard standard. As an example, the court pointed to the $6.7M that was moved into the Bayou Funds from outside accounts in June 2005 and June 2004. While the committee had contended during arbitration that these deposits were “fraudulent transfers” and could be recovered from Goldman because they were an “initial transferee” under 11 U.S.C. §550(a), Goldman did not counter that the deposits weren’t fraudulent or that it was on inquiry notice of fraud. Instead, it claimed the deposits were not an “initial transferee” under 11 U.S.C. §550 and the panel had ignored the law by finding that it was.

Offering a rejoinder, the court agreed with the district court that Goldman’s argument for manifest disegard doesn’t succeed due to the recent case of Bear Stearns Securities Corp. v. Greddin, during which the Southern District of New York upheld the arbitration favoring the Creditors’ Committee. The court said it therefore could not conclude that arbitrators “manifestly disregarded the law” when they applied the legal principles in Greddin to impose on Goldman transferee liability.

The appeals court also found that arbitrators did not manifestly disregard the law as this relates to the $13.9M in transfers from the original Bayou fund to four new ones in March 2003. It affirmed the lower court’s decision that prejudgment interest should be awarded to the committee per the federal rate in 28 USC §961 and not the New York statutory rate.

If you are an institutional investor that was suffered financial losses due to fraud, contact our securities fraud law firm today.

Goldman Sachs Execution & Clearing LP v. Official Unsecured Creditors’ Committee of Bayou Group LLC

2d Circuit Agrees Goldman Clearing Arm Must Pay $20.5M Bayou Arbitration Award, Bloomberg/BNA, July 6, 2012

Goldman Battles Bayou Decision, The Wall Street Journal, October 15, 2011

More Blog Posts:

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investors Securities Blog, April 14, 2012

$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge, Institutional Investors Securities Blog, February 23, 2012

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

June 23, 2012

Institutional Investment Roundup: FINRA Lets Ex-UBS Broker Keep $1M Signing Bonus, Court Approves Settlement Reached By Ex-Bear Stearns Hedge Fund Managers & SEC, Madoff Investors’ Securities Suit Against the Govt. is Dismissed

A Financial Industry Arbitration panel has decided that ex-UBS Financial Services broker Pericles Gregoriou can keep $1 million of the signing bonus he was given when he joined the financial firm even though he left the company earlier than what the terms of the hiring agreement stipulated. Gregoriou worked for the UBS AG (UBS) unit from ’07 to ’09.

This is an unusual victory for a broker. They usually find it very challenging to contest demands by a financial firm to give back unpaid bonus money. However, the FINRA panel said that Gregoriou was not liable for the $1 million damages. Also, the
panel denied Gregoriou’s counterclaim against UBS and a number of individuals. He had sought $3.24 million.

In a securities fraud case involving two former Bear Stearns employees against the SEC, “reluctantly,” the U.S. District Court for the Eastern District of New York approved a settlement deal involving Matthew Tannin and Ralph Cioffi. The defendants are accused of making alleged representations about two failing hedge funds.

The ex-Bear Stearns managers faced civil and criminal charges in 2008 for allegedly misleading bank counterparties and investors about the financial state of the funds, which ended up failing due to subprime mortgage-backed securities exposure in 2007. Cioffi and Tannin were acquitted of the criminal allegations in 2009.

Senior Judge Frederic Block approved the agreement wile noting that the SEC has limited powers when it comes to getting back the financial losses of investors. He asked Congress to think about whether the government should do more to help victims of “Wall Street predators.”

Per the terms of the securities settlement, Tannin will pay $200K in disgorgement and a $100K fine. Meantime, Cioffi will also pay a $100K fine and $700K in disgorgement. Although both are settling without denying or admitting to the allegations, they also have agreed to not commit 1933 Securities Act violations in the future and consented to temporary securities industry bars—Tannin for two years and Cioffi for three years.

In other securities law news, the U.S. District for the District of Columbia dismissed the lawsuit that investors in Bernard Madoff’s Ponzi scam had filed against the government. The reason for the dismissal was lack of subject matter jurisdiction.

The investors blame the SEC for allowing the multibillion dollar scheme to continue for years and they have pointed to the latter’s alleged gross negligence” in not investigating the matter. The plaintiffs contend that the Commission breached its duty to them. Judge Paul Friedman, however, sided with the government in its argument that the investors’ claims are not allowed due to the Federal Tort Claims Act’s “discretionary function exception,” which gives the SEC broad authority in terms of when to deciding when to conduct probes into alleged securities law violations.

While recognizing the plaintiffs’ “tragic” financial losses, the court found that investors failed to identify any “mandatory obligations” that were violated by SEC employees that executed discretionary tasks. The plaintiffs also did not adequately plead that the SEC’s activities lacked grounding in matters of public policy.

Meantime, the SEC has named ex-Morgan Stanley (MS) executive Thomas J. Butler the director of its new Office of Credit Ratings. The office is in charge of overseeing the nine nationally recognized statistical rating organizations that are registered, and it was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The office will conduct a yearly exam of each credit rating agency and put out a public report.

UBS loses case to recoup bonus from ex-broker, Reuters, February 6, 2012

Court Clears SEC Deal With Former Bear Execs Tannin, Cioffi, Bloomberg/BNA, June 20, 2012

Strike Four: Another Federal Court Dismisses Madoff Investor Lawsuit Against SEC, Compliance Week, June 20, 2012

Former Exec to Head Office of Credit Ratings, The Wall Street Journal, June 15, 2012

More Blog Posts:
SEC Wants Proposed Securities Settlements with Bear Stearns Executives to Get Court Approval, Stockbroker Fraud Blog, February 28, 2012

AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty
, Stockbroker Fraud Blog, April 14, 2012

Investor Groups, Securities Lawyers, and Business Community Comment on the JOBS Act Reg D’s Investor Verification Process, Institutional Investor Securities Blog, June 24, 2012

Continue reading "Institutional Investment Roundup: FINRA Lets Ex-UBS Broker Keep $1M Signing Bonus, Court Approves Settlement Reached By Ex-Bear Stearns Hedge Fund Managers & SEC, Madoff Investors’ Securities Suit Against the Govt. is Dismissed" »

June 12, 2012

Madoff Trustee Files Clawback Lawsuits Collectively Seeking Over $1B For BLMIS Feeder Fund Transfers

Irving Picard, the trustee in charge of liquidating Bernard L. Madoff Investment Securities LLC, has filed nearly a dozen clawback lawsuits seeking to recover more than $1 billion from investments by “feeder” funds tied to the failed financial firm. Picard has been working to recover the money of the victims of the Madoff’s Ponzi scam who were collectively bilked of billions of dollars.

Among the defendants are Swiss private banks Lombard Odier Darier Hentsch & Cie and EFG Bank SA. Picard is seeking $179.4 million and $354.9 million, respectively. He is also suing ABN Amro Fund Services (Isle of Man) Nominees Ltd for $122.2 million and Banque Degroof SA, a Belgian private lender, for $108.1 million.

Although firms and banks based abroad that allegedly obtained transfers from the funds are the primary defendants, there also were other entities and individuals named. All of the defendants are affiliated with the Fairfield Greenwich Group, which was BLMIS’s biggest feeder fund operator.

The clawback complaints were filed with the U.S. Bankruptcy Court in Manhattan right before the one-year anniversary of when the settlement between Picard and the liquidators of Fairfield Sigma Ltd., Fairfield Sentry Ltd., and Fairfield Lambda Ltd., which are three funds connected to the Fairfield Greenwich Group. was approved. According to Picard’s spokesperson Amanda Remus, June 7, 2012 is the earliest date that defendants can claim that the statute of limitations “expires for subsequent transfer cases” related to that settlement.

In other Madoff-related news, the U.S. District Court for the Southern District of New York has dismissed a would-be securities class action lawsuit by investors in Madoff feeder fund Optimal Strategic U.S. Equity fund, against Banco Santander SA.

The plaintiffs claim that an investment adviser of the feeder fund and two affiliated Banco Santander S.A. entities disregarded “red flags” that should have warned them that Madoff was running a Ponzi scam. They are contending that their investments are covered under US securities law protections because they are connected with Madoff’s alleged New York Stock Exchange stock trades and, as a result, “economic reality” makes their purchases equal to investments in these stocks. They also believe that the defendant issued material misstatements related to the sale of shares of Optimal US.

Madoff trustee files many new lawsuits, Reuters, June 7, 2012

Some claims vs Madoff-linked Santander fund tossed, Chicago Tribune, June 4, 2012

Morrison v. National Australia Bank

More Blog Posts:

Leave The 2nd Circuit Ruling Upholding Madoff Trustee’s “Net Equity” Method for Investor Recovery Alone, Urges SEC to the US Supreme Court, Stockbroker Fraud Blog, June 5, 2012

SIPC Modernization Task Force Recommends Increasing SIPA Protection Level for Failed Brokerage Firm’s Clients from $500K to $1.3M, Stockbroker Fraud Blog, March 10, 2012

Continue reading "Madoff Trustee Files Clawback Lawsuits Collectively Seeking Over $1B For BLMIS Feeder Fund Transfers" »

June 7, 2012

Institutional Investor Securities Roundup: SEC Sues Investment Adviser Over $60M Ponzi Scam, Michigan Investment Club Manager Gets Prison Term for Defrauding Over 900 Investors, & IOSCO Seeks Comments on Report About Credit Raters’ Conflicts & Controls

The SEC is suing investment adviser John Geringer for allegedly running a $60M investment fund that was actually a Ponzi scheme. Most of Geringer’s fraud victims are from the Santa Cruz, California area.

According to the Commission, Geringer used information in his marketing materials for GLR Growth Fund (including the promise of yearly returns in the double digits) that was allegedly “false and misleading” to draw in investors. He also implied that the fund had SEC approval.

While investors thought the fund was making these supposed returns by placing 75% of its assets in investments connected to major stock indices, per the SEC claims, Geringer’s trading actually resulted in regular losses and he eventually ceased to trade. To hide the fraud, Geringer allegedly paid investors “returns” in the millions of dollars that actually came from the money of new investors. Also, after he stopped trading in 2009, he is accused of having invested in two illiquid private startups and three entities under his control. The SEC is seeking disgorgement of ill-gotten gains, financial penalties, preliminary and permanent injunctions, and other relief.

In an unrelated securities case, this one resulting in criminal charges, Michigan investment club manager Alan James Watson has been sentenced to 12 years behind bars for fraudulently soliciting and accepting $40 million from over 900 investors. Watson, who pleaded guilty to the criminal charges, must also forfeit over $36 million.

Watson ran and funded Cash Flow Financial LLC. According to the US Justice Department, he lost all of the money on risky investments—even as he told investors that their money was going to work through an equity-trading system that would give them a 10% return every month. In truth, Watson only put $6 million in the system, while secretly investing the rest in the undisclosed investments. He would go on to also lose the $6 million when he moved this money into risky investments, too.

Watson ran the club as a Ponzi scam so investors wouldn’t know what he was doing. He is still facing related charges in a securities case brought by the Commodity Futures Trading Commission.

In other institutional investments securities news, the International Organization of Securities Commissions' technical committee is asking for comments about a new consultation report describing credit rating agencies’ the internal controls over the rating process and the practices they employ to minimize conflicts of interest. The deadline for submitting comments is July 9.

The report was created following the financial crisis due to concerns about the rating process’s integrity. 9 credit rating agencies were surveyed about their internal controls, while 10 agencies were surveyed on how they managed conflict.

IOSCO’s CRA code guides credit raters on how to handle conflict and make sure that employees consistently use their methodologies. Two of the report’s primary goals were to find out how get a “comprehensive and practical understanding” of how these agencies deal with conflict when deciding ratings and find out whether credit ratings agencies have implemented IOSCO’s code and guiding principals.

Read the SEC's complaint against Geringer (PDF)

Investment Club Manager Sentenced To 12 Years In Prison For $40 Million Fraud, Justice.gov, May 24, 2012

Credit Rating Agencies: Internal Controls Designed to Ensure the Integrity of the Credit Rating Process and Procedures to Manage Conflicts of Interest, IOSCO (PDF)

More Blog Posts:
FINRA Initiatives Addressing Market Volatility Approved by the SEC, Institutional Investor Securities Blog, June 5, 2012

Several Claims in Securities Fraud Lawsuit Against Ex-IndyMac Bancorp Executives Are Dismissed by Federal Judge, Institutional Investor Securities Blog, May 30, 2012

Leave The 2nd Circuit Ruling Upholding Madoff Trustee’s “Net Equity” Method for Investor Recovery Alone, Urges SEC to the US Supreme Court, Stockbroker Fraud Blog, June 5, 2012

Continue reading "Institutional Investor Securities Roundup: SEC Sues Investment Adviser Over $60M Ponzi Scam, Michigan Investment Club Manager Gets Prison Term for Defrauding Over 900 Investors, & IOSCO Seeks Comments on Report About Credit Raters’ Conflicts & Controls" »

May 24, 2012

Alleged Ponzi-Like Real Estate Investment Scam that Defrauded Victims of $9M Leads to SEC Charges Against New Jersey Man

The SEC has charged David M. Connolly with running a Ponzi-like scam involving investment vehicles that bought and managed Pennsylvania and New Jersey apartment rental buildings. According to prosecutors in New Jersey, Connolly’s alleged victims were defrauded of $9 million. He also faces criminal charges.

None of Connolly’s securities offerings were registered with the SEC. (Since 1996, he had raised more $50 million from over 200 clients who invested in over two dozen investment vehicles.)

Per the Commission’s complaint, in 2006 Connolly allegedly started misrepresenting to clients that their funds were to be solely used for the property linked to the vehicle they had in invested in when (unbeknownst to them) he actually was mixing monies in bank accounts and using their funds for other purposes. Although clients were promised monthly dividends from cash-flow profits that were to come from apartment rentals and their principal’s growth from property appreciation, these projected funds did not materialize. Instead, Connolly allegedly ran a Ponzi-like scam that involved earlier investors getting their dividend payments from the money of newer investors.

He also allegedly made materially false and misleading omissions and statements about: investors’ money being placed in escrow until a purported real estate transaction closed, the financial independence and state of each property, the amount of equity victims had in properties, and the condition of each property. (Also containing allegedly false material misrepresentations and omissions was the “offering prospectus,” which provided information about how the investment vehicles would use the investor funds, the projected investment returns, prior vehicles performances, the mortgage financials for the real estate held in the investment vehicles, and the apartment buildings’ vacancy rates.)

Connolly is accused of improperly using proceeds from refinanced properties to keep his scheme running, and he even allegedly took $2 million of investors’ funds for himself. After he stopped giving dividend payments to investors in April 2009 (when money from new investors stopped coming in and the investment vehicles’ properties went into foreclosure), Connolly allegedly kept making sure he was getting dividends and a $250,000 income from the remaining client funds.

Meantime, a federal grand jury has charged him with one count of securities fraud, three counts of wire fraud, five counts of mail fraud, and seven counts of money laundering. A conviction for securities fraud comes with a 20-year maximum prison term and a $5 million fine. The other charges also come with hefty sentences and fines.

Read the SEC Complaint (PDF)

Multimillion-Dollar Real Estate Ponzi Schemer Indicted For Fraud And Money Laundering, Justice.gov, May 17, 2012

More Blog Posts:
Dallas Man Involved in $485M Ponzi Scams, Including the Fraud Involving Provident Royalties in Texas, Gets Twenty Year Prison Term, Stockbroker Fraud Blog, May 8, 2012

REIT Retail Properties of America’s $8 Public Offering Results in Major Losses for Fund Investors, Institutional Investor Securities Blog, April 17, 2012

JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI, Institutional Investor Securities Blog, May 15, 2012

Continue reading "Alleged Ponzi-Like Real Estate Investment Scam that Defrauded Victims of $9M Leads to SEC Charges Against New Jersey Man" »

February 10, 2012

SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors

U.S. District Court Judge Robert Wilkins says that the Securities and Exchange Commission doesn’t need to go through a full civil trial in order to make the Securities Investor Protection Corp. start liquidation proceedings to compensate the victims of Allen Stanford’s $7B Ponzi scam for their losses. This ruling is a partial victory for the SEC, which has been trying to get the brokerage industry-funded nonprofit to help the investors recoup their losses. The dispute between the two groups has centered around the interpretation of the SIPC’s mission and whether or not it supports the SEC’s efforts to protect investors.

SIPC had been pushing for a trial. However, Wilkins said that a trial doesn’t comport with the agency’s purpose, which is to give immediate, summary proceedings upon the failure of a securities firm. Wilkins is mandating a “summary proceeding” that would be fully briefed by the end of this month. However, in regards to the SEC claim that it should be able to determine when the SIPC has failed to fulfill its duties, Wilkins said that this was for the court to decide.

SIPC has a reserve fund that is there to compensate investors that have suffered losses because a brokerage firm has failed. Under SIPC protections, customers of a broker that has failed can receive up to $500,000 in compensation ($250,000 in cash). Although not intended as insurance against fraud, SPIC covers the financial firm’s clients but not those that worked with an affiliate, such as an offshore bank. For example, Stanford International Bank is an Antiguan bank, which means that it should fall outside SIPC-provided protections. However, Stanford Group Company, which promoted the CDs to the investors, is a member of SIPC. (Also, SEC has maintained that Stanford stole from the brokerage firms’ clients by selling the CDs, which had no value, and that this was not unlike the Bernard L. Madoff Ponzi scam that credited $64B in fake securities to client accounts.)

Meantime, Stanford has been charged by both federal prosecutors and the Commission with bilking investors when he and his team persuaded them to buy $7B in bogus CDs from Stanford International Bank. He then allegedly took billions of those dollars and invested the cash in his businesses and to support his lavish lifestyle. Stanford’s criminal trial is currently underway.

Wilkins noted that even if the SEC’s lawsuit against SIPC succeeds, this wouldn’t mean that Stanford’s victims would get their money right away. It would still be up to a Texas court to decide on claims filed by former Stanford clients.

Judge Hands SEC Initial Victory In Suit Against Insurance Fund, The Wall Street Journal, February 9, 2012

Securities Investor Protection Corporation
Compensating Stanford’s Investors, NY Times, June 20, 2011

More Blog Posts:

SEC and SIPC Go to Court to Over Whether SIPA Protects Stanford Ponzi Fraud Investors, Stockbroker Fraud Blog, February 6, 2012

SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts, Stockbroker Fraud Blog, December 20, 2011

SEC Chairman Criticized For Allowing Ex-Commission Official that Benefited from the Bernard Madoff Ponzi Scam to Help Craft Policy Regarding Victims’ Compensation, Institutional Investor Securities Blog, September 23, 2011

Continue reading "SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors" »

October 13, 2011

SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam

The Securities and Exchange Commission has received an emergency order to stop a Ponzi scam that bilked victims of about $26 million. Investors in PermaPave Companies were promised significant returns if they would place their money behind water-filtering natural stone pavers. According to the SEC, which has filed a securities complaint, Eric Aronson, a convicted felon, is the mastermind behind the scheme.

Aronson, who pleaded guilty to fraud in another case more than 10 years ago, is now accused of persuading about 140 people to buy promissory notes from PermaPave Companies and promising up to 33% in returns. Between 2006 and 2010, Aronson and company executives Robert Kondratick and Vincent Buonauro Jr., allegedly used new investor money to pay older clients while spending some of the Ponzi funds on gambling trips to Las Vegas, jewelry, and expensive cars. He also allegedly misappropriated about $2.6 million to repay victims of the earlier securities scam to which he entered a guilty plea.

Some of the investors’ funds that went into the Ponzi scam were also allegedly used to buy Interlink-US-Network, Ltd., which was a publicly traded company. Interlink later put out a Form 8-K falsely stating that LED Capital Corp. had said it would put $6 million into it. LED Capital did not have the money and never made such an agreement.

The SEC says that when investors began demanding that they be paid the money they were owed, Aronson accused them of committing a felony because they lent PermaPave Companies money at interest rates that were exorbitant—even though he was the one who promised them such high percentages. The Commission is accusing both Aronson and attorney Frederic Aaron of making false statements to get investors to change their securities into ones that would defer payments owed for several years.

U.S. District Court Judge Jed S. Rakoff is granting the SEC’s request that the defendants and relief defendants’ assets be frozen. Meantime, the Commission wants to bar Aronson, Buonauro, and Kondratick from being able to work as directors and officers of public companies and keep them from taking part in penny-stock offerings. The SEC also wants permanent and preliminary injunctions against the defendants, the return of illicit profits plus prejudgment interest, and civil monetary penalties.

Aronson, Kondratick, and Buonauro have been arrested in connection with the Ponzi scam.

Ponzi Scams
To succeed, Ponzi schemes need to bring in new clients so that their money that they invest can be used to pay older clients their promised returns. Unfortunately, with hardly any legitimate earnings, Ponzi scams can fall apart when it becomes a challenge to recruit new investors or too many investors ask to cash out.

SEC Files Emergency Action to Halt Green-Product Themed Ponzi Scheme, SEC.gov, October 6, 2011

3 New York Men Arrested In Alleged Landscaping Ponzi Scheme, The Wall Street Journal, October 6, 2011

SEC Claims Author Used Ponzi Scheme to Repay Prior Fraud Victims, Bloomberg Businessweek, October 6, 2011

More Blog Posts:

SEC Chairman Criticized For Allowing Ex-Commission Official that Benefited from the Bernard Madoff Ponzi Scam to Help Craft Policy Regarding Victims’ Compensation, Institutional Investor Securities Blog, September 23, 2011

Michael Kenwood Capital Management, LLC Principal Pleads Guilty to Securities Fraud Involving Ponzi Scam, Institutional Investor Securities Blog, March 17, 2011

Merrill Lynch Faces $1M FINRA Fine Over Texas Ponzi Scam by Former Registered Representative, Stockbroker Fraud Blog, October 10, 2011

Continue reading "SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam " »

September 23, 2011

SEC Chairman Criticized For Allowing Ex-Commission Official that Benefited from the Bernard Madoff Ponzi Scam to Help Craft Policy Regarding Victims’ Compensation

Securities and Exchange Commission Chairman Mary Schapiro has been taking some heat because the agency allowed David Becker, a former SEC general counsel, to help develop policy regarding compensation for the victims of the Bernard Madoff Ponzi scam should be compensated even though Becker was someone who benefited from the scheme. SEC Inspector General H. David Kotz has asked the Justice Department to look into whether Becker violated any laws as a result and whether criminal charges should be filed.

At a House hearing this week, Becker testified that SEC ethics officials told him that there was no conflict of interest preventing him from taking on this task. Attendees at the hearing criticized Schapiro for letting Becker participate in establishing compensation policy even though he had inherited his own Madoff account. Schapiro has already admitted that she was wrong in allowing him to stay involved.

Some lawmakers believe that Becker’s participation in this type of policy planning is just one more incident that has caused the public to lose faith in the SEC, which didn’t even realize for almost 20 years that Madoff had been running a multibillion-dollar scam. They are now raising questions about leadership within the agency, the ability of SEC senior management to make decisions, and possible flaws in the Commissions procedures and policies as they apply to ethical matters.

On Tuesday, Kotz issued a report stating that Becker took part “personally and substantially” in matters in which he had a financial interest. Also per his report, Kotz said that the ex-General Counsel had recommended to commissioners that they put into place a policy that would value Madoff clients’ claims in a manner that would have restricted the court-appointed trustee’s power to sue Ponzi scheme beneficiaries to get back fictitious profits. Becker is one of those beneficiaries.

Earlier this year, the trustee, Irving Pickard, filed a lawsuit against Becker and his siblings contending that about $1.5 million of the money in their mom’s account was a bogus profit that should go tot the fund designated to pay back victims of Madoff’s Ponzi scam. Becker, who maintains that he never considered there to be a conflict of interest (he says that on two occasions, the ethics committee even advised him that this was correct) said that if he knew then that the trustee would sue him later he would have recused himself from working on the compensation policy.

According to Reuters, while some lawmakers don’t believe that Becker broke any laws, many are wondering why he didn’t decide on his own to not get involved in Madoff-related SEC matters.

Bernard L. Madoff Investment Securities LLC’s multibillion-dollar Ponzi Scam, which cost investors billions, wasn’t discovered until the end of 2008. Madoff has been sentenced to 150 years behind bars.

SEC head under fire as ex-official says he got OK, Chron.com, September 23, 2011

Some lawmakers doubt ex-SEC lawyer broke the law, Reuters, September 22, 2011

More Blog Posts:
Madoff Trustee Files Securities Lawsuit Against Safra National Bank of New York Seeking to Recover Almost $111.7M for Ponzi Scam Investors, Institutional Investor Securities Blog, May 12, 2011

Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011

Madoff Investors Who Were Victims of “Ponzi” Scam Contact Securities Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP to Explore Recovery Options, Stockbroker Fraud Blog, December 17, 2008

Continue reading "SEC Chairman Criticized For Allowing Ex-Commission Official that Benefited from the Bernard Madoff Ponzi Scam to Help Craft Policy Regarding Victims’ Compensation " »

May 12, 2011

Madoff Trustee Files Securities Lawsuit Against Safra National Bank of New York Seeking to Recover Almost $111.7M for Ponzi Scam Investors

This week, Madoff trustee Irving Picard has filed a securities complaint against Safra National Bank of New York. Picard is seeking to recover about $111.7 millions for the investors who lost money in the Bernard Madoff Ponzi scheme.

The funds he is trying to get back were allegedly transferred to Safra by a number of Fairfield Greenwich Group funds. Fairfield Greenwich was the largest feeder fund to Madoff’s financial scheme, and Picard says that the commercial banking unit should have or knew about the different irregularities involved in investing through Bernard L. Madoff Investment Securities.

In his securities complaint, Picard says that Fairfield Sentry Ltd. made $95.9 million in improper transfers to Safra and that the remaining moneys came from feeder funds Fairfield Sigma Ltd. and two Kingate Management Ltd funds called Kingate Euro Fund Ltd. and Kingate Global Fund Ltd.

In addition to filing the complaint against Safra, which is a unit of a Brazilian private bank, Picard reached a settlement with the liquidators of the Fairfield Greenwich funds, who have agreed to give up claims their investors lost $1 billion. Instead, Picard and the liquidators will join forces to pursue the owners of Fairfield Greenwich. Both parties have agreed to divide future recoveries from an alleged fraud by fund operators and others. Most of the proceeds, however, will go to the Madoff Ponzi scam victims.

Picard has filed over 1,000 securities lawsuits, and he is trying to recover about $100 billion. So far, he has recovered over $7.6 billion, with most of it tied up in litigation.

Related Web Resources:
Madoff trustee sues Safra bank for $111.7 million, Reuters, May 10, 2011

Safra National Bank of New York Sued For $111 Million By Madoff Trustee, Bloomberg, May 10, 2011

Irving H. Picard, Madoff Trustee

More Blog Posts:
Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities, Stockbroker Fraud Blog, March 16, 2011

Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011

SEC, NASD, FINRA & SIPC: New SEC Report Card on Madoff Catastrophy Further Reveals How Investor Protection Is Severely Flawed!, Stockbroker Fraud Blog, September 3, 2009

Continue reading "Madoff Trustee Files Securities Lawsuit Against Safra National Bank of New York Seeking to Recover Almost $111.7M for Ponzi Scam Investors" »

March 17, 2011

Michael Kenwood Capital Management, LLC Principal Pleads Guilty to Securities Fraud Involving Ponzi Scam

Last month, our stockbroker fraud lawyers reported on a Securities and Exchange Commission order to freeze the assets of Michael Kenwood Capital Management, LLC and its principal Francisco Illarramendi for their alleged misappropriation of $53 million in investor funds. This month, Illarramendi pleaded guilty to securities fraud, wire fraud, conspiracy to obstruct justice, and investment adviser fraud.

Per the US Department of Justice’s release, a hedge fund that Illarramendi was advising sustained losses in the millions. He had been tasked with investing the money. However, instead of telling clients about their failed investments, the DOJ says that Illarramendi decided to cover up this information by taking part in a securities fraud scam. The hedge funds and other entities that he advised ended up with “outstanding liabilities” far beyond their assets’ values. U.S. Attorney David B. Fein says this securities case this is the largest white-collar prosecution that the office has ever pursued.

Two other men have been detained and criminally charged over their alleged involvement in the hedge fund scam and of aiding Illaramendi. Juan Carlos Horna Napolitano and Juan Carlos Guillen Zerpa are charged with investment adviser fraud and conspiracy to obstruct justice.

Meantime, the SEC says it has amended its civil complaint against Illaramendi and MK Capital Management, LLC. The agency is now alleging that the “breadth” of the securities fraud may be in the “hundreds of millions.”

Our institutional investment fraud law firm represents clients in arbitration and litigation with claims against investment advisers, broker-dealers, brokers, and others in the financial industry. We are dedicated to recovering investor losses.

Related Web Resources:
Connecticut Hedge Fund Exec Admits Guilt In Ponzi Scheme, WIBW, March 7, 2011

Hedge fund mgr pleads guilty over Ponzi scheme, Reuters, March 7, 2011

Order to Freeze Assets in $53M Fund Fraud Allegedly Involving Michael Kenwood Asset Management LLC Obtained by SEC, Stockbroker Fraud Blog, February 21, 2011

Connecticut Hedge Fund Adviser Admits Running Massive Ponzi Scheme, Justice.gov, March 7, 2011

SEC adds new charges Connecticut-based hedge fund manager in Ponzi scheme, SEC, March 7, 2011

Continue reading "Michael Kenwood Capital Management, LLC Principal Pleads Guilty to Securities Fraud Involving Ponzi Scam" »

November 23, 2010

Class Action Securities Fraud Lawsuit Accuses SEC of Gross Negligence Related to Bernard Madoff Ponzi Scam

Three individuals, Judith Welling, Robert Mick, and Charles Mederrick, have filed a purported securities class action against the Securities and Exchange Commission over financial losses related to investments they made in Bernard L. Madoff Investment Securities LLC. In their amended complaint, the plaintiffs are seeking damages sustained because of the “grossly negligent acts of the Defendant in connection with the SEC's deficient review of complaints and information” that Madoff was running a Ponzi scheme. Mick, Welling, and Mederrick contend that their investments, which they made over a 16-year period, caused them to suffer “catastrophic” consequences.

In their complaint, the plaintiffs accuse the SEC of “repeatedly and grossly failing to adequately apprise itself” of the facts related to the Madoff Ponzi scam allegations despite the fact that for years there had been numerous complaints. Last year, the SEC’s Inspector General put out a 457-page report detailing the agency’s failure to detect Madoff’s fraud scheme despite the signs.

The class action lawsuit is on behalf of those who invested in Madoff Investment Securities between November 1992 and December 2008 and have filed administrative damage claims seeking to recover damages for the SEC’s alleged negligence. The class could be comprised of more than 100 victims. The plaintiffs’ securities fraud lawyer says that to his firm’s knowledge, this is the first class action filed against the SEC over its handling of Madoff.

Madoff’s $50 billion Ponzi scam defrauded many institutional and individual investors. Some of these investors lost everything.

Related Web Resources:
SEC Hit With Class Action Alleging Gross Negligence in Oversight of Madoff, BNA Securities Law Daily

Madoff Investors Sue SEC for Incompetence, Daily FInance, November 12, 2010

Bernie Madoff's $50 Billion Ponzi Scheme, Forbes, December 12, 2008

Continue reading "Class Action Securities Fraud Lawsuit Accuses SEC of Gross Negligence Related to Bernard Madoff Ponzi Scam" »

November 10, 2010

Court Rejects Defendants’ Challenge to Poptech LP’s Lead Plaintiff Status in Class Securities Fraud Lawsuit

The U.S. District Court for the District of Connecticut has rejected defendants Stewardship Investment Advisors LLC and Marlon Quan's challenge to the appointment of Poptech LP as the lead plaintiff in a class securities fraud lawsuit filed by investors. The plaintiffs are accusing the investment firm and Quan of violating federal securities law antifraud proscriptions by allegedly misrepresenting that the fund would employ certain investment strategies. The fund is also accused of investing the majority of its assets in a Thomas Petters-operated Ponzi scam. Poptech, not long after filing its class securities lawsuit, published notice in Business Wire stating that there wasn’t a dispute that the notice appropriately notified members of the proposed class about the pending action and the purported class period.

In their challenge, the defendants argued that the notice did not satisfy Private Securities Litigation Reform Act requirements, including failing to completely and “adequately” notify proposed class members of all the claims asserted in the complaint, not providing enough details about the defendants’ alleged misrepresentations, and failing to “adequately facilitate” additional action and inquiry by potential members. The court, however, found that the PSLRA requires just a “reasonably detailed summary” of claims made.

Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Lawyer William Shepherd had this to say about the ruling: “If this Court’s decision survives appeal, it could be helpful to victims of securities fraud. Some courts have carried ‘pleading securities fraud with particularity’ to extremes before discovery could even begin. Also, while these pleading requirements apply to class action litigation, many judges have been requiring absurd pleading requirements in all types of securities actions. Hopefully, fewer defrauded investors will be thrown out of court in the future based on pleading technicalities.”

Related Web Resources:
Poptech LP v. Stewardship Investment Advisors LLC

Private Securities Litigation, Cornell University Law School

Continue reading "Court Rejects Defendants’ Challenge to Poptech LP’s Lead Plaintiff Status in Class Securities Fraud Lawsuit" »

Contact Us

(800) 259-9010

Our Other Blog

Recent Entries