Articles Posted in Securities Fraud

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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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.

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.

Ex-Adviser of Retired NBA Player Tim Duncan is Barred from the Industry

The US Securities and Exchange Commission has gotten a judgment barring former financial adviser Charles A. Banks IV from the securities industry. Banks, who pleaded guilty to wire fraud that involved bilking ex-NBA player Tim Duncan, was sentenced to 48 months in prison in criminal court and ordered to pay $7.5M in restitution.

Now, because he committed investment fraud, Banks is also banned from the industry, as well as prohibited from serving as a director or an officer of any public company. Banks also must pay a penalty, disgorgement, and pre-judgment interest.

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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A federal jury has found ex-American Realty Capital Properties (ARCP) Inc. CEO Brian Block guilty of securities fraud, conspiracy to commit securities fraud and other offenses, and of submitting false certifications and filings to the US Securities and Exchange Commission. Block was convicted of overstating the adjusted funds from operations (AFFO) at the real estate investment trust. Following the rendering of the verdict in the REIT fraud case, a lawyer for Block said that his client plans to appeal.

According to the US Department of Justice, an employee notified Block, as well as then-accounting chief Lisa McAllister about the funds overstatement before the first quarter results were publicly released in 2014. However, neither of them reported the error to auditors or to the REIT’s board. Prosecutors contend that Block tried to cover up the incorrect figures in financial reports for the second quarter.

The Wall Street Journal, which reviewed ARCP’s filings, reports that during 2014’s first quarter, McAlister and Block overstated the AFFO by over $12M and by about $10.9M during the next quarter. McAlister pleaded guilty to securities fraud and other criminal charges last year.
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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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Prosecutors in the US have filed lawsuits to seize assets that may be connected to an alleged financial fraud involving the 1Malaysia Development Bhd. (1MDB), which is a Malaysian state fund. The Justice Department is looking to recover $540M in property, assets, and other items. 1MDB was launched by Malaysian Prime Minister Najib Razak to help economic growth. The fund borrowed over $13B with little result to date.

It was in 2013 that The Wall Street Journal reported that almost $700M from the 1MDB fund, which was heavily in debt,had been moved to Prime Minister Najib’s personal bank account. Najib and 1MDB have denied wrongdoing and authorities in Malaysia have cleared him in their probe, which it has since closed.

The US government, however, claims that investors were bilked of billions of dollars in the financial fraud. Investigations into the alleged multi-billion dollar fraud are also ongoing in a number of countries, including Singapore, Luxembourg, and United Arab Emirates.

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The United Kingdom’s Serious Fraud Office has charged Barclays (BARC) and four of its ex-executives with criminal fraud involving money used to rescue the bank during the height of the 2008 financial crisis. The government has been investigating the ways in which Barclays sought out Qatari investors to help it stay afloat during that time so that the bank wouldn’t need a bailout. Barclays is also under investigation in the US by the Securities and Exchange Commission and the Department of Justice over payments that Barclays made to Middle Eastern officials.

During two emergency cash calls in 2008, investors put in $15B total, with Barclays stating in filings that it paid £322 million in “advisory services” to them. Shareholders were at first not apprised of this agreement between the bank and Qatari investors. Also, in 2008, Barclays issued a $3B loan facility to Qatar.

In the UK, it is against the law for a company to give money to a party in exchange for the latter’s purchase of company shares. Barclays has denied that the $3B loan was for the purchase of shares by investors. It also has argued that payments it received for advisory services were for actual business purposes. However, the Serious Fraud Office is alleging that the $3B loan to Qatar just weeks after getting funding from investors could be considered a fraudulent capital increase in a scam by Barclays to lend itself funds.

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