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Investment Firm and Its CEO Are Expelled and Barred for Inflating the Price of Shares Before Selling Them

The Financial Industry Regulatory Authority has expelled Hallmark Investments and barred Steven G. Dash, who is the firm’s CEO, over a securities scam that involved selling stocks at inflated prices. According to the self-regulatory organization, Hallmark, Dash, and firm representative Stephen P. Zipkin used an outside broker-dealer and engaged in manipulative trading, as well as in trade confirmations that were misleading, to sell almost 40,000 shares of stock to 14 customers at prices that were fraudulently inflated. Zipkin has been suspended by FINRA for two years and he will have to pay over $18K in restitution.

Hallmark purportedly employed a trading scam to sell the Avalanche shares that they owned at $3/share. Meantime, the prices for Avalanche were selling at the public offering price of $2.05/share and Hallmark sold other Avalanche shares to other customers for as low as 80 cents/share. Also, the investment firm, Zipkin, and Dash failed to tell customers that Hallmark owned the shares they were buying or that it was marking up the transactions (or that the shares could be bought for less on the open market) even as it sold the shares to others at lower prices.

Citigroup to Pay Plaintiffs Suing Over Libor Rigging

Citigroup Inc. (C) will resolve a private US antitrust lawsuit alleging Libor manipulation by paying plaintiffs $130M. The litigation was brought by “over-the-counter” investors who engaged in direct transactions with banks that belonged to the panel that determines London Interbank Offered Rate.

As part of the proposed preliminary settlement, the bank will pay the money to a fund for future class members. It also will cooperate with the lawsuits brought against other banks also accused of involvement in Libor rigging. Despite settling the case, however, Citigroup is not admitting or denying any wrongdoing.

A jury has found former pharmaceutical CEO and hedge fund manager Martin Shkreli guilty of securities fraud in connection with his two hedge funds, MSMB Capital and MSMB Healthcare, as well as of conspiracy to commit securities fraud involving shares of the drug company Retrophin, which he founded.

Prosecutors had said that Shkreli misled investors, losing their money on bad stock picks while scheming to try recover millions of dollars of these losses. At one point, Shkreli claimed he had $40M in one hedge fund when it had only $300 in the bank.

That said, prosecutors experienced some challenges in proving their criminal case against the ex-hedge fund manager. For example, during the trial, a number of rich Texan financiers admitted that Shkreli’s scam made them money, sometimes even double or triple of what they invested, when Retrophin’s stock went public.

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Ex-Gerova Financial Group Head is Sentenced in $72M Fraud

Gary Hirst, the former president of Gerova Financial Group who was convicted of securities fraud and wire fraud last year, has been sentenced to six years behind bars. Hirst defrauded Gerova shareholders when he secretly gave away almost $72M of company stock to co-conspirators and himself.

He and his co-conspirators are accused of issuing huge quantities of stock and bilking stockholders and the investing public in order to earn millions of dollars in ill-gotten gains. Hirst and one of the co-conspirators, Jason Galanis, had gained enough control of Gerova that they could engage in transactions to enrich themselves and others even as they worked to conceal the scam.

Prosecutors in Massachusetts have filed charges against hedge fund manager Raymond Montoya for allegedly bilking investors of millions of dollars in a Ponzi-like scam. The criminal charges against him include wire fraud and mail fraud, and they come two months after state regulators brought their own charges against him.

Montoya ran the hedge fund RMA Strategic Opportunity Fund LLC. He is accused of misusing millions of dollars of investors’ funds to pay back earlier investors, as well as to pay for his son’s mortgage along with luxury items and expenses. The criminal complaint stated that Montoya told investors that RMA held about $4B in assets under management and employed proprietary software to predict stock price changes.

In reality, contend prosecutors, the hedge fund manager oversaw less than $100M and invested just part of victim’s funds.

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Four Firms Are Ordered to Pay $4.75M for Market Access Rule Violations

The Financial Industry Regulatory Authority, CBOE Holdings company Bats, the New York Stock Exchange, NASDAQ, and their affiliated Exchanges have fined four financial firms $4.75M collectively for violating the Securities Exchange Act of 1934’s Rule 15c3-5, which is also known as the Market Access Rule. The fines are: $2.5M for Deutsche Bank (DB), $800K for J.P. Morgan (JPM), $1M for Citigroup (C), and $450K for Interactive Brokers (IBKR).

The firms have given market access to quite a number clients that engage in millions of trades daily. However, according to FINRA, Bats, NASDAQ, and NYSE, when doing so, they purportedly did not comply with at least one of the Market Access Rule’s provisions when they did not put in place certain risk management controls and procedures so that orders that were “erroneous or duplicative,” or went beyond certain kinds of thresholds, could be detected or prevented. The firms are also accused of not having systems in place for properly supervising customer trading so that “potentially volatile and manipulative activity” could be avoided.

According to Andrew Bailey, the head of the UK Financial Conduct Authority, the London interbank offered rate (Libor) will be scrapped by the end of 2021. The British regulator intends to phase out the key interest benchmark, which is the underlying rate for over $350 trillion dollars of financial products, and bring in new measures that are more connected with the lending market.

One potential replacement reportedly under consideration is contracts with the Sterling Overnight Index Average, also known as Sonio. This alternative derivatives reference rate is almost free of risks and deals with overnight funding rates in the unsecured sterling market. Another option being explored is the Treasuries repo rate, which is tied to the cost of borrowing money that has been secured against US government debt.

Libor is set by 20 banks that every day turn in the rates at which they are ready to lend to other banks at different maturities and in five currencies over certain time periods. It has a global impact. Libor is used for setting the price that businesses should pay for loans and people should pay for mortgages. It also is a factor in derivative pricing.

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The US Securities and Exchange Commission has brought fraud charges against two men and their company, United Business Alliance, LLC, for allegedly running a prime bank investment scam. The regulator is seeking permanent injunctions, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.

According to the regulator’s complaint, between 10/2013 and 7/2015, George Frank Polera and Anthony Joseph Marino, through United Business Alliance, took part in a fraudulent prime bank scam, raising over $615k from 10 investors. The two men lacked the registration required to sell investments.

The two men, who are based in Las Vegas, and their company allegedly promised investors huge return rates, including 90% every two weeks for 40 weeks on one investment and 84% per year on one note. Investors were sold securities that were either promissory notes or investment contracts.

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Lawyer Barred Over Fraud Allegations
The US Securities and Exchange Commission has barred David Lubin, a New York-based lawyer, from practicing or appearing before the regulator and acting as any company’s director or officer. The regulator is accusing him of making misleading and false statements in corporate filings and committing fraud while he was the attorney and director of Entertainment Art. He was also the public company’s biggest shareholder.

According to the SEC’s securities order, not only did Lubin draft and sign misleading public filings, but also, he concealed their “true ownership” as well as that the fact that a significant chunk of the shares were of a “restricted nature.”

As a result, after Entertainment Art’s name was changed to Biozoom, over 14 million shares were resold illegally in an unregistered distribution, rendering $34M of illicit profits. At the time, the shares had belonged to a shell investor.

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Michael Wilson has pleaded guilty to wire fraud. The 30-year-old former New York businessman bilked investors of over $10M in just two years through fake investment companies.

Wilson was indicted of 47 criminal counts, including money laundering, conspiracy, and wire fraud, in 2010. He was accused of trying to bilk investors between June 2008 and July 2010. Through the fraudulent investment companies, he persuaded other companies and individuals to invest in financial instruments that supposedly guaranteed returns and high-yield earnings.

In court this week, Wilson admitted to targeting rich, sophisticated investors. Some of his clients invested up to $250K as part of their initial investments.

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