Articles Posted in Ponzi Scams

A federal grand jury has indicted two men for their alleged involvement in a nearly $230M financial scam involving biotech companies. G. Steven Burrill, the owner and CEO of Burrill & Company, and Marc Howard Berger are the two defendants named in the criminal indictment. Burrill is charged with 26 counts of wire fraud, one count of investment adviser fraud, and one count of tax evasion. Berger is charged with multiple accounts of aiding in preparing fraudulent tax returns.

According to the criminal indictment, Burrill send letters that were false and misleading to persuade limited partners to give capital to the fund. He also allegedly moved millions of dollars in unnecessary management fees to companies under his control, as well as submitted the allegedly fraudulent tax returns.

It was in March of last year that Burrill settled civil charges brought by the US Securities and Exchange Commission accusing him of taking funds from the Burrill Life Sciences Capital Fund III in order to maintain his expensive lifestyle and keep some of his other businesses in operation. The regulator claimed that Burrill took from the Fund III and pretended that these were management fees he was issuing to himself in advance. He then allegedly went on to spend the money on vacations, jewelry, private planes, and other expenses.

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Bernard L. Madoff Investment Securities LLC trustee Irving H. Picard announced that a settlement has been reached for $687M with Thema International Fund for its ties to the multibillion-dollar Madoff Ponzi Scam. Now, a court must approve the agreement.

According to Bloomberg, the “Irish investment fund funneled $1.1B” to the Ponzi scam that bilked thousands of investors, including those who were with offshore feeder funds, of billions of dollars over several decades. The $687M is representative of all the funds transferred from Madoff’s securities firm to Thema International prior to the former’s collapse, in addition to 19.26% of the withdrawals beyond that time period.

Thema International Fund belongs to a number of offshore entities with ties to Madoff friend and Austrian banker Sonja Kohn and the Benbasset family of Switzerland. Picard contends that Kohn and the Benbassets granted Madoff key access to funds as his Ponzi scam began to fail.

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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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In Oregon, a district court judge has refused to dismiss a proposed class action lawsuit accusing TD Ameritrade (AMTD), Integrity Bank & Trust, Deloitte & Touche LLP, Eisner Amper LP, and law firms Tonkon Torp and Sidley Austin of playing a part in the alleged securities fraud committed by Aequitas Management LLC, which is now defunct.

Over 1500 investors entrusted over $350M to Aequitas. They each invested amounts ranging from about $60K to over $1M in Aequitas funds, including the Aequitas Income Opportunity Fund II LLC that they now claim was a Ponzi scam.

Last year, in its civil securities case, the US Securities and Exchange Commission accused the Oregon-based investment group and three of its executives of concealing the firm’s financial woes while still raising millions of dollars. Investors thought they were backing investments involving transportation, education, and healthcare when their funds were allegedly being used to save Aequitas. Meantime, newer investors’ funds were also used to pay earlier investors in a Ponzi-like scam.
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At the Federal District Court in Brooklyn, former hedge fund manager Martin Shkreli is on trial for multiple counts of securities fraud and wire fraud. Just this Monday, over 120 potential jurors were dismissed for various reasons. A number of them, through their statements, revealed that they could not be impartial, with some blaming Shkreli for problems involving the pharmaceutical industry, including that his actions had directly impacted them and/or their loved ones.

For example, one potential juror said that both of his parents now struggle to pay for their daily medical care after Shkreli raised the price of Daraprim from $13.50/pill to $750/pill overnight. The drug is used to treat parasites and has also been used for babies and AIDS patients suffering from infection. At the time of the price hike, Shkreli was running Turing Pharmaceuticals.

This criminal securities fraud case, however, is not about his time at Turing. Shkreli is accused of using the assets of Retrophin, a biotech company, in a Ponzi-like fraud when he was its CEO and of robbing investors of over $11M.

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Eight years after Bernard Madoff was sentenced to 150 years in prison for defrauding investors in a $65 billion Ponzi scam, thousands of his victims have still not seen any of the money that they lost. These investors’ claims are being handled by Madoff Victim Fund administrator Richard Breedon, whose firm RCB Fund Services was retained by the federal government to give $4B back to them.

Breeden had estimated last year that up to 40,000 victims would get their first recovery checks by the end of 2016. That didn’t happen. Now, he has stated that the initial distribution will happen this year and will be larger than what would have gone out previously. Claims processes and inadequate paperwork by some investors were some of the reasons cited for the delay.

It is Breedon’s job to recommend to the federal government which claims to reject or pay. His fund accepts recovery claims from all of types of investors who entrusted their money to Madoff, including feeder funds. Breedon’s fees come out of investors’ recovery.

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Judge Orders Deutsche Bank Subsidiary to Pay $150Mfor Libor Rigging
A federal judge is ordering Deutsche Bank Group Services, a subsidiary of Deutsche Bank (DB), to pay $150M for its involvement in an interest rate manipulation scam. The London unit pleaded guilty last year to rigging the London Interbank Offered Rate benchmark.

The fine comes two years after Deutsche Bank settled Libor rigging allegations with US and British regulators for $2.5B. According to prosecutors, derivatives traders at the German bank and at other banks colluded together to manipulate LIBOR rates to preference their trading positions.

Libor rigging allegations are not the only claims that Deutsche Bank has been contending with. Recently, the German Bank reached a $7.2B settlement with the US DOJ over its part in the 2008 global financial crisis. Meantime, NY and British officials ordered Deutsche Bank to pay $630M in fines because of alleged money laundering that occurred in Russia.

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Voya Accused of Not Disclosing Revenue Received for Mutual Fund Sales
The US Securities and Exchange Commission said that Voya Financial Advisors (VOYA) would pay approximately $3.1M to regulators and investors for not telling customers about revenue the firm was paid related to a mutual fund program that didn’t bill transaction fees. Voya’s clearing broker-dealer paid the firm a percentage of the money made from the mutual fund sales. This was information that should have been shared with investors.

Also, since 2014, Voya and the third-party brokerage firm were involved in a separate agreement under which Voya provided certain administrative services in return for a percentage of service fees involving certain mutual funds. The regulator said that these payments were a conflict because they gave Voya incentive to preference these funds over other investments, which could have impacted what the firm recommended to advisory clients. As part of the settlement, Voya will pay about $2.6M of disgorgement, approximately $175K of interest, and a $300K penalty. The firm is not, however, denying or admitting to the SEC’s findings.

Fired Waddell & Reed Broker is Barred from the Securities Industry
The Financial Industry Regulatory Authority has barred an ex-Waddell & Reed Inc. broker from the industry. Paul D. Stanley was fired from the firm last year for allegedly violating its policies regarding supervision, compensation, and conduct.

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