Criminal Securities Fraud: Former Train Babcock Financial Adviser Pleads Guilty In $1.6M Family Trust Theft, Prosecutors Go After Former Cantor Fitzgerald Trader for RMBS Fraud, & Two NJ Traders Are Charged in $26M Stock Rigging Case

Financial Advisor Admits to Stealing $1.6M From Family’s Trusts
Brian Keenan, an ex-financial advisor, has pleaded guilty to criminal charges accusing him to stealing over $1.6M from three trusts belonging to members of the same family. Keenan had been employed with Train Babcock Advisors from about 5/2007 to 8/2012. It was during this time that the former financial adviser stole over $1.6M from the beneficiaries of three trusts.

Not only did Keenan take their money, but he also spent the funds on his own expenses. He set up a joint checking account under his name and the name of one of the beneficiaries, and he issued over 40 checks from the trust accounts to the joint account. The beneficiary under whose name he co-opened the account did not have access to it.

Issuing a statement about the financial fraud case, Manhattan District Attorney Cyrus R. Vance reminded the public that a financial adviser’s main duty is to act in a client’s best interest. Vance said that rather than fulfilling that obligation, Keenan took advantage of his clients. Keenan pleaded guilty to Grand Larceny in the First Degree.

Former Cantor Fitzgerald Bond Trader Accused of RMBS Fraud
David Demos, an ex-Cantor Fitzgerald & Co. bond trader, faces criminal charges accusing him of lying about residential mortgage-backed securities prices and bilking customers. According to prosecutors, Demos, 35, falsified prices at which his firm purchased RMBSs, causing customers to pay more, while misrepresenting the transaction price of the bonds so that clients would sell them for less. He also charged commissions to the customers who bought the bonds. The indictment against him alleges that one of the reasons that Demos inflated the price of the residential mortgage-backed bonds that he sold was to get a higher commission.

Demos is no longer registered with the Financial Industry Regulatory Authority. Earlier this year, he co-founded Jeremy Point Management LLC, a Connecticut investment adviser that concentrated on asset-backed securities, including RMBS. The firm closed its doors after it seed funding was withdrawn.

Traders Face SEC and Criminal Charges In $26M Stock Rigging Scam
The U.S. Securities and exchange Commission is charging Joseph Taub and Elazar Shmalo with violating, aiding, and also abetting violations of the securities laws’ antifraud provisions. According to the regulator, the two New Jersey-based traders manipulated over 2,000 stocks traded on NASDAQ and the NYSE, making over $26M in profits.

Taub and Shmalo purportedly used dozens of accounts at different brokerage firms to avoid detection of their scam. They would allegedly use two accounts at a time to engage in manipulate trading activities lasting under five minutes.

For example, claims the regulator, the two traders would buy a position in a stock with one account and then use the other account to make small buy orders to raise the price for the first account. They purportedly did this in order to sell the bigger position into the market at a price that was artificially inflated in order to make a substantial profit. In other instances, the men purportedly would have one account place small sell orders to lower a stock’s price so that the other account could buy its bigger position in a stock at the price that had been artificially deflated.

Shmalo and Taub allegedly engaged in these stock rigging activities dozens of times daily, totaling over 23,000 times just in ’14 and ’15. According to the federal criminal case against them—they are now also facing criminal charges and have been arrested—during that period, they purchased and sold about $10B of securities. Now, the regulator wants a permanent injunctions against them, as well as the restoration of ill-gotten gains, penalties, and interest.

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Ex Rep. Says He Stole $1.6M from Clients, ThinkAdvisor, December 9, 2016

DA Vance: Former Financial Advisor Convicted of Stealing $1.6M From Three Clients, ManhattanDA.org, December 7, 2016

Former Cantor Fitzgerald Mortgage Bond Trader Charged With Securities Fraud, Housing Wire, December 9, 2016

Read the SEC Complaint in the $26M Stock Scam Case (PDF)