James Sallah as Receiver, Gets Value for Defrauded Investors

When James Sallah of Sallah Astarita & Cox, LLC was appointed the receiver for a software company that had been raided by the FBI it had nothing, but software. Rather than putting the company into bankruptcy, which would virtually ensure that the investors would receive nothing, Sallah used a little-known tool to transform those defrauded investors into shareholders of a new $11 million company.

Law360 has a detailed review of the transformation, and while there is no guarantee that the shareholders will recover anything, they now have a chance to do so.

https://www.law360.com/articles/1383609/receiver-s-rare-step-gives-investors-new-hope-after-fbi-raid

FINRA Admits Cyberattacks are Significant Threat, Continues to Push CARDS

With FINRA continuing to push to have every brokerage firm in the country deliver trade data for every trade done in every customer account as part of its CARDS proposal, the release of its own Report on Cybersecurity Practices is a startling admission.


FINRA's CARD proposal is simply nuts, and a disaster waiting to happen. While FINRA claims that personal identifiers will not be included, how tempting a target is a database of every trade done in every account, with brokerage firm identifiers, and individual account identifiers, for the hackers of the world.

And can we really trust FINRA, a private organization, to hold all of that sensitive information? For what purpose? So that it can better identify potential fraud? The concept is similar to embedding electronic trackers in every person so that we can better find the one criminal when we need to do so. FINRA has enough power of the financial markets, it does not need to increase that power by invading the privacy of everyone, and increasing the cyber-security risk..

All of this makes the report released on today by FINRA a very interesting admission.  FINRA's Report on Cybersecurity Practices was released, in an effort to alert the industry that responding to the threat of a cyberattack is a high priority. No kidding, really? The United States Government has been attacked, our military has been attacked, the largest corporations in the world have been attacked, FINRA knows it is a significant problem, yet FINRA is trying to obtain details of every securities transaction, and keep that information in one place.

Good thing FINRA is issuing warnings about attacks. Is it reading those warnings?

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Mark Astarita is a securities attorney and computer enthusiast, who has been online since 1985. He knows the dangers that online databases provide, in particular for financial information. He is also a partner in the securities law firm of Sallah Astarita & Cox, LLC, which represents all participants in the financial markets in compliance, regulation and litigation, nationwide. He can be reached at 212-509-6544, or at mja@sallahlaw.com.

Five Ways Fraudsters Trick Investors

"People fall for fraud because fraudsters are that good with special effects. It seems that real,"

Michael Hendon, a representative from the Commodity Futures Trading Commission.
At a recent securities law summit, government representatives reviewed some of the tricks that dupe investors out of their money.

Forewarned is forearmed.

For more information - 5 ways fraudsters trick investors - Nov. 20, 2014

--- The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

The Biggest Stock Scams of All Time

We reviewed Ponzi schemes last month, now a view of what  believes are the biggest stock scams of all time. They have Bernie Madoff in there with Enron and Worldcom, but its a good list. Why? because examining the past can help investors avoid scams in the future.

However, as the authors says, these shareholders had no way of knowing what was really happening, as they were being tricked into investing.

The Biggest Stock Scams Of All Time.

Former MIT Dean Settles with SEC, Now Pleads Guilty to Running $500 Million Hedge Fund Scam

Just a reminder. Defending a SEC securities fraud case is not simply about the civil charges and penalties. Most securities law violation s are also criminal violations, and violators can be charged both civilly and criminally.

Case in point - a former deputy dean of MIT's business school and his son settled fraud charges with the SEC in 2012 for $4.8 million and a permanent bar.

Today federal prosecutors announced that the duo are going to plead guilty to criminal charges. According to CNN they face between two and five years in prison. They could also be forced to pay as much as $290 million in fines plus payments to victims.

According to the government the duo falsely told clients that their hedge fund was delivering annual returns between 16% and 23%, according to federal prosecutors, enticing investors to entrust more than $500 million with them.

They also falsely claimed that the money would be invested using a complex trading model based on research they conducted at MIT. In fact, they placed investor money with Bernie Madoff and the Petters Group Worldwide, both of which were later found to be Ponzi schemes.

Securities fraud cases require securities law attorneys, with the knowledge and skill that only decades of  experience can provide.

For more information, Ex-MIT dean and son plead guilty to hedge fund scam - Aug. 12, 2014

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If you are the victim of a Ponzi scheme or the subject of an SEC investigation, call our office. Our attorneys include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, We represent investors, financial professionals, and investment firms. For more information contact Mark Astarita at 212-509-6544 or email us.

PA Advisor Gets 21 Year Jail Sentence for Fraud

A federal court has sentenced a Pennsylvania investment advisor to more than 21 years in prison for squandering millions of dollars in investors' assets while falsifying statements to indicate strong returns and stable principal balances. The advisor was found guilty on 21 counts of fraud stemming from a litany of misrepresentations made to clients from December 2004 through August 2009.

For more information - Pennsylvania Advisor Receives 21-Year Sentence in Fraud Case | On Wall Street
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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Stock Promoter Charged with Fraud in Florida Real Estate Venture

The Securities and Exchange Commission today filed fraud charges against a former Florida-based stock promoter currently serving a two-year prison sentence for lying to SEC investigators.

A fake post office in Laguna Beach, Florida that was part of a real estate fraud scheme for several years. Authorities shut it down in 1946. (Photo credit: Wikipedia)

The SEC's complaint filed in U.S. District Court in the Southern District of Florida alleges that Robert J. Vitale defrauded investors in a Florida real estate venture, sold unregistered securities, and acted as an unregistered broker-dealer. Vitale and his firm Realty Acquisitions & Trust Inc. raised at least $8.7 million from investors, including many senior citizens. Vitale allegedly told investors their funds were "100% protected" when they were not, and he claimed to be a financial expert with a business degree from Notre Dame when he never attended college after graduating from Notre Dame High School in West Haven, Conn.

The SEC alleges that although Vitale told investors his success rested on his "great honesty and integrity," he failed to tell them that he was charged by the SEC in 2004 for participating in a pump-and-dump market manipulation scheme or that he later settled the charges and was barred from the brokerage industry as part of the settlement.

Vitale is now an inmate at the Federal Detention Center in Miami. He was sentenced in September 2013 after being convicted of obstruction of justice and providing false testimony in the SEC's investigation that led to the charges filed today.

"We are gratified that the criminal authorities held Mr. Vitale responsible for his attempts to derail our investigation," said Andrew J. Ceresney, director of the SEC's Division of Enforcement. "His prison sentence and our determination to uncover and charge his underlying misconduct notwithstanding his obstruction show how seriously we and our law enforcement partners take our missions."

The SEC is seeking the return of allegedly ill-gotten gains with interest, a monetary penalty, and a permanent injunction against Vitale. The SEC's complaint also charges Coral Springs Investment Group Inc. as a relief defendant, alleging the company holds assets that came from defrauded investors that should be returned.

"Vitale hid the truth from investors just as he tried to hide his assets during our investigation," said Stephen L. Cohen, associate director of the SEC's Division of Enforcement. "When individuals barred from the industry continue their wrongdoing, we pursue them aggressively and seek to return their ill-gotten gains to investors."

For more informatino visit SEC Charges Former Stock Promoter With Defrauding Investors in Florida Real Estate Venture



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UBS' Track Record of Averting Prosecution Coming to an End?

In recent years UBS has increasingly gained a reputation for being an bad firm.  The latest Libor rate scandal, which affected an untold number of customers, and their brokers, is just the most recent example.

The New York Times has picked up the story, and urges the Justice Department to consider the record of the Swiss banking giant. UBS is one of more than a dozen banks being investigated for manipulating interest rates for their own benefit. As the NYT correctly points out, at UBS, a series of immunity, nonprosecution and deferred prosecution agreements in recent years seems to have had scant, if any, deterrent effect.

As the article points out, UBS is not alone in its seemly never ending string of violations and charges, but in many ways, UBS is in a league of its own given its track record for scandals. UBS was deemed "too big to fail" in the financial crisis and had to be bailed out after a $50 BILLION write-down on mortgage backed securities.

The NYT has summarized its ability to escape criminal prosecution, presumably because of its status. However, the continued impact of its conduct on the investing public, its own brokers and employees, and the markets in general, cannot, and should not be ignored.

•  UBS obtained a deferred prosecution agreement in 2009 for conspiring to defraud the United States of tax revenue by creating more than 17,000 secret Swiss accounts for United States taxpayers who failed to declare income and committed tax fraud. UBS bankers trolled for wealthy clients susceptible to tax evasion schemes at professional tennis matches, polo tournaments and celebrity events. One UBS banker smuggled diamonds in a toothpaste tube to accommodate a client. In return for the deferred prosecution agreement, UBS agreed to pay $780 million in fines and penalties and disclose the identities of many of its United States clients. At the same time it settled Securities and Exchange Commission charges that it acted as an unregistered broker-dealer and investment adviser to American clients and paid a $200 million fine. In October 2010 the government dropped the charges, saying UBS had fully complied with its obligations under the agreement. 

• In May 2011, UBS admitted that its employees had repeatedly conspired to rig bids in the municipal bond derivatives market over a five-year period, defrauding more than 100 municipalities and nonprofit organizations, and agreed to pay $160 million in fines and restitution. An S.E.C. official called UBS’s conduct “a ‘how to’ primer for bid-rigging and securities fraud.” UBS landed a nonprosecution agreement for that behavior, and the Justice Department lauded the bank’s “remedial efforts” to curb anticompetitive practices.

• In what the S.E.C. called at the time the largest settlement in its history, in 2008 UBS agreed to reimburse clients $22.7 billion to resolve charges that it defrauded customers who purchased auction-rate securities, which were sold by UBS as ultrasafe cash equivalents even though top UBS executives knew the market for the securities was collapsing. Seven of UBS’s top executives were said to have dumped their own holdings, totaling $21 million, even as they told the bank’s brokers to “mobilize the troops” and unload the securities on unsuspecting clients. As Andrew M. Cuomo, who was New York’s attorney general then, put it: “While thousands of UBS customers received no warning about the auction-rate securities market’s serious distress, David Shulman — one of the company’s top executives — used insider information to take the money and run.” Besides reimbursing clients and settling with the S.E.C., UBS paid a $150 million fine to settle consumer and securities fraud charges filed by New York and other states. It again escaped prosecution. 

There is more at the New York Times, read the entire article.
UBS’s Track Record of Averting Prosecution

SEC Files Action to Halt Green-Product Ponzi Scheme

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that a convicted felon and others defrauded investors in PermaPave Companies, a group of firms based on Long Island, N.Y.

About 140 individuals, many working in the construction or landscaping business, invested in the scheme between 2006 and 2010, the SEC alleged. Investors were told that PermaPave Companies had a tremendous backlog of orders for pavers imported from Australia, which could be sold in the U.S. at a substantial mark-up, yielding monthly returns to investors of 7.8% to 33%. In reality, the complaint states that there was little demand for the product, and the cost of the pavers far exceeded the revenue from sales.

The defendant and two other accomplices used new investments to make payments to earlier investors and then siphoned off much of the rest, buying luxury cars, gambling trips to Las Vegas, and jewelry. In addition, the complaint alleges that the defendant used investors’ money to make court-ordered restitution payments to victims of a previous scheme to which he pleaded guilty to conducting in 2000.

The three men were arrested earlier today and criminal charges have been filed.

SEC Files Emergency Action to Halt Green-Product Themed Ponzi Scheme

SEC Suspends Trading in 17 Penny Stocks

Yesterday the SEC suspended trading in 17 microcap stocks because of questions about the adequacy and accuracy of publicly available information about the companies, which trade in the over-the-counter (OTC) market.

The trading suspensions spring from a joint effort by SEC regional offices in Los Angeles, Miami, New York, and Philadelphia; its Office of Market Intelligence; and its new Microcap Fraud Working Group, which uses a coordinated, proactive approach to detecting and deterring fraud involving microcap securities. The trading suspensions follow a similar suspension last week against Uniontown Energy Inc. (UTOG), based in Henderson, Nev., and Vancouver, Canada.

The 17 companies and their ticker symbols are:

• American Pacific Rim Commerce Group (APRM), based in Citra, Fla.
• Anywhere MD, Inc. (ANWM), based in Altascadero, Calif.
• Calypso Wireless Inc. (CLYW), based in Houston.
• Cascadia Investments, Inc. (CDIV), based in Tacoma, Wash.
• CytoGenix Inc. (CYGX), based in Houston.
• Emerging Healthcare Solutions Inc. (EHSI), based in Houston.
• Evolution Solar Corp. (EVSO), based in The Woodlands, Texas.
• Global Resource Corp. (GBRC), based in Morrisville, N.C.
• Go Solar USA Inc. (GSLO), based in New Orleans.
• Kore Nutrition Inc. (KORE), based in Henderson, Nev.
• Laidlaw Energy Group Inc. (LLEG), based in New York City.
• Mind Technologies Inc. (METK), based in Cardiff, Calif.
• Montvale Technologies Inc. (IVVI), based in Montvale, N.J.
• MSGI Security Solutions Inc. (MSGI), based in New York City.
• Prime Star Group Inc. (PSGI), based in Las Vegas, Nev.
• Solar Park Initiatives Inc. (SOPV), based in Ponte Verde Beach, Fla.
• United States Oil & Gas Corp. (USOG), based in Austin, Texas.

SEC Suspends Trading in 17 Companies in Proactive Effort to Combat Microcap Stock Fraud

 

SEC Charges in Auto Loan Provider With Promissory Note Fraud

SEC Charges Subprime Auto Loan Lender and Executives with Fraud; 2011-92; April 13, 2011
The Securities and Exchange Commission today charged Massachusetts-based subprime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.

Investment Adviser Charged With Fraud in NY Real Estate Funds

The SEC has charged a Monticello, N.Y.-based investment adviser with fraudulently offering and selling securities in two upstate New York real estate funds he managed.

The SEC alleges that the adviser told investors in the Gaffken & Barriger Fund (G&B Fund) that it was a relatively safe and liquid investment that generated a minimum return of 8 percent per year. However, the fund’s actual performance did not justify these performance claims. The SEC further alleges that he defrauded investors in Campus Capital Corp. by raising money from them to prop up the ailing G&B Fund without disclosing that was how their money was actually being used. The Commission also alleges that the adviser caused Campus to engage in other transactions that personally benefitted him, unbeknownst to Campus investors.

According to the SEC’s complaint filed in federal court in Manhattan, the G&B Fund raised approximately $20 million from January 1998 to March 2008, and Campus raised approximately $12 million from October 2001 to July 2008. Barriger froze the G&B Fund in March 2008 and disclosed its true financial condition to investors.

The press release contains a link to the complaint - SEC Charges Investment Adviser With Defrauding Investors in Two Upstate New York Real Estate Funds

 

More Fraud Charges Against UBS

The hits just keep on coming.  UBS has paid huge fines for Auction Rate Securities fraud, Principal Protection Note fraud, and tax fraud, as well as losing case after case to its own investors who purchased Lehman Principal Protection Notes. Now it has settled fraud charges with the SEC which accused the firm of fraudulently rigging at least 100 municipal bond reinvestment transactions in 36 states and generating millions of dollars in ill-gotten gains.

UBS has agreed to pay $47.2 million that will be returned to the affected municipalities. UBS and its affiliates also agreed to pay $113 million to settle parallel cases brought by other federal and state authorities.

SEC Charges UBS with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds; 2011-105; May 4, 2011

SEC Charges Four In Boiler Room Operation

We haven't heard the term "boiler room" in years, but the SEC dusted off the term this week when it announced that it had filed a complaint alleging that a group in Los Angeles were operating a boiler room that defrauded investors who they persuaded to buy purportedly profitable trading systems.
The SEC alleges that representatives of Spyglass Equity Systems Inc. cold-called investors and made false and misleading statements to help raise more than $2.15 million from nearly 200 investors nationwide for two related investment companies – Flatiron Capital Partners LLC (FCP) and Flatiron Systems LLC (FS). However, only a little more than half of that money was actually used for the advertised trading purposes, and much of the trading that did occur failed to use the purported trading systems. FCP and FS wound up losing about $1 million in investor funds. The managing member of the two firms – David E. Howard II – misused almost $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.

SEC Charges Hedge Fund Managers with Fraud

The SEC has charged a hedge fund investment advisory firm and its two founders with orchestrating a multi-faceted scheme to defraud clients and failing to comply with fiduciary obligations.

The SEC alleges that the founders misappropriated client assets, inflated assets under management, and filed false information with the SEC and that they looted approximately $1.8 million of assets from a hedge fund they manage. The Commission alleges that they issued promissory notes to conceal a substantial portion of their misappropriation, and misrepresented the amount of capital that some of the partners had invested.

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SEC Charges Goldman Sachs in CDO Fraud

In a complaint filed in the Southern District of New York, the SEC has filed civil charges against Goldman Sachs, alleging that it structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). The Commission alleges that Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO. The SEC Press Release contains more details and a copy of the complaint.

SEC Asset Freeze in $32 Million Scheme

The SEC announced fraud charges and obtained an order freezing assets of the defendants of an alleged investment scheme that the Commission alleges defrauded investors of $32 million dollars. According to the press release, the SEC alleges that Sidney S. Hanson and his wife Charlotte M. Hanson solicited investors at church gatherings and in other face-to-face meetings, persuading them to cash out their retirement funds and invest in so-called private loan agreements that the Charlotte couple offered through a dozen companies they controlled (collectively, Queen Shoals Entities). Through their Web site and a widespread sales force of at least 45 "consultants," the Hansons falsely promised investors that the investment contracts they were offering would generate them yearly returns ranging from 8 to 30 percent, and that their funds would be safe in a diversified portfolio of treasury bills, precious metals, and foreign currency.

Returns of 8 to 30% a year? Investors need to spend some more time conducting due diligence to avoid spending much more time with their securities attorney pursuing their losses. Most securities attorneys will conduct a due diligence review of an investment BEFORE you make the investment. They will do it afterwards as well, when attempting to retrieve your money, but it costs quite a bit more. More>>>

SEC Files Another Ponzi Scheme Complaint

Ponzi schemes have become a popular topic at the SEC these days. Hardly a week goes by without the Commission announcing charges against someone for running a Ponzi scheme.

While it is well known that bull markets will disguise losses, bad investments and even frauds, it is interesting to note that most of these schemes have been operating for years, at least according to the SEC's allegations. We know that Madoff ran his Ponzi scheme for decades, in the latest complaint the Commission alleges that a Brooklyn man ran a $40 million Ponzi scheme since 1999.

Similar to Madoff, from reading the complaint is appears that the operation was at one time a legitimate one. The complaint alleges that in 1999 the defendant stopped investing his investor's funds and began using incoming investor money to repay existing investors. The Commission also alleges that the defendant diverted investors' fund for his own use, purchasing real estate in his own name, paying expenses of another business entity and to support his lifestyle.


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Madoff Losses May Be Covered Under Homeowner’s Policies

Madoff investors who believe they are without any remedy to recover their losses should look to their homeowner’s insurance to determine if they are covered by the Madoff fraud.

Some homeowner’s policies contain a provision which covers the homeowner from loss of money, securities or properties that results from fraud, typically defined as an intentional act by someone other than the homeowner designed to induce the homeowner to part with something of value.

At least one suit has been brought under such a policy against AIG in California. As investors check their own policies, more suits may follow.

For more information contact us at 212-509-6544 or 973-559-5566.

FINRA Admits Getting Tipped Regarding Stanford

FINRA acknowledged today that  it received a tip from an employee in 2003 that the company was running a Ponzi scheme—but did not follow up. The reason for the lack of follow up is, according to testimony that Dan Sibears of FINRA will present today, is supposedly because FINRA policy is to only follow up on complaints from customers, not employees.

Sibears says that the policy was changed in March of this year.

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