Category Archives: Securities fraud

Leader of $25 Million Ponzi Scheme Pleads Guilty to Securities Fraud

Garfield M. Taylor, 55, of Rockville, has pleaded guilty to securities fraud in connection to a $25 million Ponzi scheme that spanned from 2006 to 2010.  Under federal sentencing guidelines, Taylor could face a sentence ranging from 12 years and seven months to 15 years and 8 months in prison.  As part of the plea agreement, Taylor must also pay restitution to the victims and fines totally nearly $175,000.

According to evidence, Taylor convinced the victims of his scheme to invest with him by promising substantial returns on their investment.  Taylor told investors that he used a sophisticated securities trading strategy that protected against losses and claimed he had a proven track record of using this strategy effectively.  However, he never used this investing strategy and either lost money, or made minimal profits far below what was needed to pay the amounts he owed.

Federal court records show a list of 10 investors who collectively lost $25.1 million in the scheme.  Included in the list of victims was a family who sought to generate enough money to send an autistic child to private school.

United States District Court Judge Richard W. Roberts scheduled Taylor’s sentencing hearing for July 15, 2014.

Agents from the Federal Bureau of Investigation’s Washington Field Office and the District of Columbia Department of Insurance, Securities, and Banking handed the investigation this case.

Common Securities Crimes in Alabama

While United States Attorneys across the country are accustomed to prosecuting complex financial crimes, most local District Attorneys do not have the knowledge or the resources to handle such cases. The prosecution of securities fraud, Ponzi cases, and the like, typically involve hundreds of thousands (if not millions) of documents and months of investigation. Local District Attorneys are more equipped to handle day long Robbery jury trials, or week long capital murder cases as opposed to fraud cases, which can last a month or longer.

This is why the Alabama Securities Commission typically is the prosecuting agency for complex financial fraud cases prosecuted by the State. If such a case is not picked up by “the Feds”, prosecutors within the Alabama Securities Commission, which is a division of the Attorney General’s Office, step in. Such cases generally are indicted by local county grand juries that are presided over by assistant attorney general’s whopresent evidence and question witnesses. The two most common charges from such an investigation are Sale of Unregistered Securities and Sale by an Unlicensed Broker.

The charges of Sale of Unregistered Securities usually imply that money exchanged hands in return for a “security”. These cases typically involve an investor being convinced to either invest money, or lend money, with promises of some return on their money. Often, the incentive to invest or lend the money turns out to be fraudulent. One common scheme is to offer unusually high returns or interest on the investor’s money.

Alabama blue sky laws require that any security (with a few exceptions such as securities only offered to accredited investors, etc.) be registered with the Alabama securities commission. If a security is sold that is not registered with the State, this likely constitutes a crime. Because fraudulent intent is not necessary to be convicted, defendants often argue either that the instrument was not a “security”, or that they didn’t “sell” anything.
The same defenses often apply to the second charge that typically accompanies a “Sale of Unregistered Securities” charge – “Sale by an Unlicensed Broker Dealer.” In Alabama, as in other states, in order to sell securities, you typically have to be a licensed broker dealer. This is usually easy to determine. You either have a valid securities license, or you don’t. Therefore, as with the defense of unregistered securities cases, the case will usually rise or fall with whether the instrument in question is a security, or whether the Defendant “sold” it.

Brokers Face Possible Prison Time for Overcharging Clients Pennies Per Share

Two securities brokers from New York faced criminal charges from the Department of Justice last week for allegedly adding a few pennies to the cost of securities traded by the Linkbrokers Derivatives firm. Authorities say the alleged scheme allowed the firm to earn $18.7 million.

The securities brokers are Marek Leszczynski and Benjamin Chouchane.  Henry A. Condon, sales leader at the Linkbrokers firm has already pled guilty to related charges. Linkbrokers is a high volume trading firm that works on behalf of large institutional customers including many hedge funds.

The complaints were filed in the Federal District Court in Manhattan. The complaints accuse Leszczynski and Chouchane of charging a marginally higher price or slightly lowering the sale price of securities then hiding the actual costs from clients. The Securities Exchange Commission claims that the duo made more than 36,000 trades from 2006 to 2010. The two allegedly defrauded customers by much as $228,000 in a single transaction.

The duo played with prices during market volatility. Usually institutional entities scrutinize orders and trading costs, but during market volatility it is harder to ascertain when securities are being fraudently priced.

Leszczynski’s attorney stated that his Leszczynski was “astonished” to have been charged with this crime, he admits no fault.

The two brokers did not directly benefit from the increased price hikes. Rather, they benefitted from the higher bonuses received from the profits they generated. The criminal complaints mention that Leszczynski received bonuses ranging between $600,000 to $2.4 million in the years in question. Likewise Chouchane received bonuses in excess of $ 1.2 to $2 million.

Evidence for these types of securities fraud are difficult to provide. The Department of Justice will have to show that Leszczynski and Chouchane’s securities trading practices showed a pattern of fraud. Both men face up to 25 years in prison if convicted of both charges.

Two securities brokers from New York faced criminal charges from the Department of Justice last week for allegedly adding a few pennies to the cost of securities traded by the Linkbrokers Derivatives firm. Authorities say the alleged scheme allowed the firm to earn $18.7 million.

The securities brokers are Marek Leszczynski and Benjamin Chouchane.  Henry A. Condon, sales leader at the Linkbrokers firm has already pled guilty to related charges. Linkbrokers is a high volume trading firm that works on behalf of large institutional customers including many hedge funds.

The complaints were filed in the Federal District Court in Manhattan. The complaints accuse Leszczynski and Chouchane of charging a marginally higher price or slightly lowering the sale price of securities then hiding the actual costs from clients. The Securities Exchange Commission claims that the duo made more than 36,000 trades from 2006 to 2010. The two allegedly defrauded customers by much as $228,000 in a single transaction.

The duo played with prices during market volatility. Usually institutional entities scrutinize orders and trading costs, but during market volatility it is harder to ascertain when securities are being fraudently priced.

Leszczynski’s attorney stated that his Leszczynski was “astonished” to have been charged with this crime, he admits no fault.

The two brokers did not directly benefit from the increased price hikes. Rather, they benefitted from the higher bonuses received from the profits they generated. The criminal complaints mention that Leszczynski received bonuses ranging between $600,000 to $2.4 million in the years in question. Likewise Chouchane received bonuses in excess of $ 1.2 to $2 million.

Evidence for these types of securities fraud are difficult to provide. The Department of Justice will have to show that Leszczynski and Chouchane’s securities trading practices showed a pattern of fraud. Both men face up to 25 years in prison if convicted of both charges.

Iphone Case Company CEO Charged with Securities Fraud

Earlier this week a class action lawsuit was filed against ZAGG Inc. alleging that the board of directors hid stock pledges made by the recently retired CEO and Board Chair Robert J. Pedersen. 

ZAGG manufacturers the popular protective coverings for Apple’s IPhone and IPad devices. 

The alleged violation occurred when ZAGG issued a press release stating that Pedersen resigned.  However, the press release did not mention that Pedersen sold about 515,000 shares of stock in order to meet margin calls three days before he resigned. A margin call is when a stock sale purchased with borrowed money decreased in value so much that an investor would have to either deposit more money in the account or sell the asset. 

The lawsuit alleges that ZAGG, board members, and some company officials knew that Pedersen had undisclosed stock pledges going back to last year, including the sale of stock prior to his resignation. The only information Pedersen and the board provided was that the stock sales in December were made to meet financial obligations. However, the lawsuit alleges that the December stock sale was actually due to a margin call situation, which requires investor disclosure. 

The complaint accuses that starting in December 2011 Pedersen borrowed substantial amounts of money, of which ZAGG stock was used as collateral. If this is true it would have violated US Securities law, even though Pedersen is no longer CEO of the ZAGG.

ZAGG’s attorney, Jeff Jones, responded to the lawsuit, stating that the claims are without factual basis, and that they will be defended vigorously.  

 

Tommy Tuberville dealing with the plaintiffs instead of players

Tommy Tuberville knows how to run a football field. They nicknamed him “The Riverboat Gambler” for his aggressive plays at Ole Miss. He helped the Auburn Tigers win five bowl games. And so far at Texas Tech he has led the Red Raiders to one bowl game win. However, off the field, he seems to need a little help managing money in his Auburn-based investment company.

Tuberville and his co-founder John David Stroud have been listed in a federal suit that alleges they committed fraud at investors’ expense of more than $1.7 million. Tuberville’s attorney released a statement that he, “categorically denies any wrongdoing which has been attributed to him in (the) suit.”

The 32-page suit, though, claims that Tuberville and Stroud did not file tax returns, falsified documents, lied about fund performance and mixed their assets with assets of their clients, to name a few.

The suit is next in a growing line of legal troubles. In October 2011, the National Futures Association (NFA) took “emergency enforcement action” against Tuberville’s TS Capital Management firm after it failed to cooperation with an NFA audit. In February of this year, seven people sued Tuberville and Stroud for securities fraud (which has now grown to eight plaintiffs). The plaintiffs have recently rejected Tuberville’s request to stop depositions until Stroud’s case has been resolved – a case that could take years for a resolution as Stroud has been exercising his 5th Amendment right to not speak, and therefore, not helping the case move along very quickly at all.

When all is said and done the cases have finally been finished, it will be interesting to see how it all plays out. Will Tuberville be found to be innocent as he claims, or will the courts find him guilty of the charges brought against him? Regardless of the outcome, it’s sure to be a long game, possibly going into overtime.

Roessel Pleads Guilty on False Return

U.S. District Court in the Southern District of Florida received a guilty plea from Wolfgang Roessel of Ft. Lauderdale, FL for filing a false tax return for the 2007 tax year.

Court documents show that the U.S. citizen maintained bank accounts at UBS AG in Switzerland but failed to report them on his tax returns from 2002 to 2007. Roessel also failed to file a Report of Foreign Bank and Financial Accounts (FBAR) for that same tax period.

Roessel opened a UBS numbered investment account in the nominee name of a foreign entity, Neptune Trust, with an opening balance of approximately $4-5 million. In 2004 the Neptune account, along with subaccounts were transferred into the nominee name of another foreign entity, Cyan United, and traded in U.S. and foreign securities. There were periodic meetings between Roessel and a Swiss banker to discuss account performances.

Court records dating back to the 1980s and through the late 2000s in which Roessel held accounts at different times with different banks with deposited foreign proceeds from his business. None of these were reported on his tax returns or his required FBARs.

Roessel knew of the government’s grand jury investigation into his foreign UBS accounts, yet only disclosed the UBS accounts on his tax returns for those years. He did not report the other Swiss account.

The plea agreement will include a tax loss of more than $312,000 for his 2002 through 2007 returns plus an FBAR penalty in which he will owe the U.S. Treasury upwards of $5.8 million, which represents 50 percent of the 2007 unreported foreign bank accounts year-end balance of over $11 million. Roessel faces a potential maximum prison term of three years and a fine of up to $250,000.

A sentencing date has not yet been set.

Man Receives 110 Year Sentence for Ponzi Scheme

Last week Allen Stanford was sentenced to 110 years in federal prison in the U.S. District Court in Houston Texas. Stanford was also ordered to forfeit $5.9 billion.

Federal Judge David Hittner remarked that Stanford’s case was one of the most “egregious criminal frauds ever presented to a jury in federal court.”

Stanford’s investment scheme misappropriated at least $7 billion of investors money on frivolous expenses including a cricket tournament, personal loans, and investment in his personal failing businesses. The scheme drew in investors from all over the Americas.

The prosecutors requested the judge sentence Stanford to 230 years in prison, the maximum under Federal sentencing guidelines. Although the sentence given was less, is more figurative than practical. Stanford is 60 years old.

Prosecutors say that Stanford is remorseless for his ponzi scheme despite the wrenching testimony of victims.

Stanford claims that he worked hard for the company and could have repaid the investor’s money if he was allowed by law to liquidate all of his company’s assets.

One piece of evidence that was very damaging to Stanford were victim statement letters. Judge Hittner said that he read every statement letter and stated that those letters showed that Stanford ruined the lives and life savings of his investors, many of whom were in Latin America.

The defense attorneys stated that the sentence was excessive and unfair. They vowed to appeal the sentence despite the fact that jurors rejected the defense’s claims that investors received adequate notice of how the money was spent as well as any wrongdoing that occurred due to Stanford’s mismanagement of the funds.

Tuberville Business Partner Indicted for Fraud

Former Auburn University football coach, Tommy Tuberville, needs some tips on picking out friends and business partners.  His current friend and business partner has been indicited on federal fraud charges.

John David Stroud, a business partner of former Auburn University football coach Tommy Tuberville, will be tried on October 1 on charges he sold financial products without a license and misused millions of dollars of his client’s money.

On May 7, Stroud was indicted on a total of 21 counts, which included selling securities as an unregistered agent, fraud in connection of those sales and theft of property in the first degree.

Tuberville was not charged in this criminal case, however he and Stroud face a separate civil lawsuit that alleges the two defrauded investors out of more than $1.7 million.  The seven plaintiffs in this case are from Arkansas, Alabama and Tennessee.

Both men have denied any wrongdoing, and Stroud denies that Tuberville was involved in the dealings that led to the civil lawsuit.

Tommy Tuberville was Auburn’s head coach from 1999 to 2008, and he is currently the head coach at Texas Tech University.

Stroud acted as an unregistered securities agent, according to the Alabama Securities Commission, between February 2008 and October 2011.  During this time, court documents allege he used money from new investors to pay purported returns to old investors.  The suit claims he used about $5.2 million in investments to pay for his personal expenses and that he stole more than $500,000 from ten investors.

Stroud was arrested on May 15 according to the Alabama Securities Commission.  He was transported to the Lee County Detention Center on May 16, where he bonded out, reported the Opelika-Auburn News.

The court records do not show whether Stroud has an attorney representing him on these criminal charges.

 

Fairhope Man Convicted in Securities Fraud Case

Richard James Tucker, 39, of Fairhope was convicted of 13 counts of criminal activities.  Charges against Tucker included two counts of misrepresentation in the sale of securities, five counts of failure to state a material fact in the sale of securities, one count of sale of an unregistered security, two counts of overall scheme to defraud and, two counts of first-degree theft of property.  Tucker was convicted in Baldwin County Circuit Court and will be sentenced on May 24.

In 2010, Tucker was arrested after Alabama Securities Commission Investigators charged him with promising access to millions of dollars in exchange for up-front fees through the company.  Investors in 2009 wired Tucker nearly $3.3 million to Synergy accounts, but never saw any return of their investments, investigators said in court filings.

Greg Biggs, the prosecutor in the case said, “Tucker used this scheme to take victims’ money, promising to obtain millions in return.”  “However,” Biggs added, “He used investors’ hard earned money for his own personal gain  We are grateful for the jury’s quick work in sending a strong message to Tucker and all financial criminals like him.”

Tucker’s lawyers have denied after his arrest, that there were any wrongdoings.

The director of the Alabama Securities Commission, Joseph Borg, praised efforts by local and state officials in convicting Tucker.

Borg said, “We appreciate the excellent support of the Baldwin County District Attorney’s Office and other local and county law enforcement officials and the superb investigative efforts of our Enforcement division in this complex case.  We also commend the ASC prosecution team of attorneys Greg Biggs, Amanda Senn and Deputy Director for Enforcement, Steve Feaga, for their efforts in bringing justice to those who would cheat our citizens out of their life savings.”

There were five defendants in this case and all were indicted and pled guilty to charges.  The five defendants took part in an advance-fee loan business that was described as a “multi-billion dollar loan brokerage.”  Money was solicited from American and foreign investors for security transactions, commission officials said.  None of the defendants or the company they represented were registered to offer or sell securities within, into or from Alabama, a requirement through the Alabama Securities Act.

The original article can be read here.

The Congressional insider trading flap as a sign of the times

Insider trading has long been a serious federal offense if you are a private citizen—but less so if you happened to be a member of Congress. For years, members of Congress were legally permitted to use non-public information for personal gain, such as through the purchase of stocks. They suffered no legal consequences as a result of their actions, even though they fit the definition of insider trading, a crime that could land private-sector financial professionals in prison.

In fact, penalties for insider trading have increased substantially in the last several years. A Reuters article on the arrest of Garrett Bauer is a case in point. Bauer pled guilty in December to an insider trading ring worth $37 million over 15 years. He will be sentenced on May 1. In the meantime, Bauer has given talks, such as a lecture for students at Manhattan’s Baruch College, in which he warns professionals to avoid the temptation to commit securities fraud.

Bauer’s attorney, Michael F. Bachner, remarked on the changes in policy that have recently occurred. “If Garrett was indicted in 1987 he would have been looking at a three-year sentence,” he told Reuters—a relatively light punishment compared to the 11-year prison term assigned to Raj Rajaratnam last year. “We are in an era where things that were often treated as a civil wrong are being referred very quickly for criminal prosecution. If you are somebody that has a fiduciary duty to a client and you break it you are getting indicted. It doesn’t matter if you make money or lose money.”

The article goes on to report that major technological advances have made it easier than ever to detect potential cases of insider trading. According to Bachner, “The SEC looks for blips in the market. It’s fairly easy to catch.”

After a surge in media attention and public outrage over Congress’s loophole, the government has agreed to abide by its own rules. The STOCK Act recently signed into law applies the same standards to lawmakers and members of Congressional staff. According to a Reuters report, President Barack Obama hailed the bill as a victory for the American public. “The powerful shouldn’t get to create one set of rules for themselves and another set of rules for everybody else,” he said. “If we expect that to apply to our biggest corporations and to our most successful citizens, it certainly should apply to our elected officials, especially at a time when there is a deficit of trust between this city and the rest of the country.”

A “deficit of trust”—the same could be said for the relationship between the financial industry and the rest of the public. It seems that confidence in the ethical condition of American financial institutions has rarely been so low, as reflected in the rhetoric of accountability—not to say vengeance—directed at those suspected of securities fraud or other white-collar crimes. Matters are not helped by the perceived association between government officials and financial industry insiders. In the court of public opinion, it seems, the burden of proof lies with the defense, not the prosecution.

It is surely no coincidence that the public’s strong reaction to Congress’s insider trading loophole follows one of the worst recessions in the nation’s history. What was once perceived as a relatively minor offense in better economic times has become a much more serious crime in the eyes of the public, and of government prosecutors. As the outcry over Congressional insider trading demonstrates, the rhetoric will only become more formidable. The crucial point, all too often missed, is that government probes, accusations, and innuendo do not mean guilt. A sound defense constructed by a proven attorney can cut through the layers of rumor and hearsay so that the case is decided on the basis of the facts, not rhetoric.