Government Enforcement Actions

May 13, 2016

The SEC announced a whistleblower award of more than $3.5 million to a company employee whose tip bolstered an ongoing investigation of wrongdoing that strengthened the SEC’s case.  SEC

May 13, 2016

The SEC announced fraud charges against attorneys Jay Mac Rust and Christopher K. Brenner for making undisclosed risky investments and stealing money from escrow accounts of small business owners seeking commercial loans.  The SEC alleges Rust and Brenner collected $13.8 million acting as escrow agents between their clients and a purported loan company called Atlantic Rim Funding.  Rust and Brenner assured clients that their deposits of 10 percent of the desired loan amount would be held safe and only used to purchase liquid, government-backed securities.  According to the SEC’s complaint, Atlantic had no ability or intention to obtain these loans.  Yet Rust and Brenner continued to make misrepresentations to clients and collect more money from clients anyway.  Rust and Brenner took over $1 million in client funds to pay themselves and others and gambled on risky securities derivatives with the remainder of the money.  SEC

May 12, 2016

The SEC announced fraud charges against California stock promoter Imran Husain and New Jersey lawyer Gregg Evan Jaclin for creating sham companies and selling them until the SEC issued stop orders and suspended the registration statements of the last two companies they created.  The SEC alleges that Husain and Jaclin created nine shell companies and sold seven by creating a sham business plan for each company, installing puppet CEOs, preparing bogus legal documents purporting to sell each company’s shares to straw shareholders who were actually given cash to pay for the stock they purchased plus a commission, and then filing misleading quarterly and annual reports once the companies were registered.  Husain obtained about $2.25 million in total proceeds when the empty shell companies were sold.  Jaclin and his firm received nearly $225,000 for their legal services.  SEC

May 11, 2016

The SEC charged Jason Galanis, his father John Galanis, and five associates with defrauding investors in sham Native American tribal bonds in order to steal millions of dollars in proceeds to fund their own extravagant expenses and criminal defense costs.  The SEC alleges that Jason and John convinced a Native American tribal corporation to issue limited recourse bonds they had previously structured, acquired two investment advisory firms, and installed officers to arrange the purchase of $43 million in bonds using clients’ funds.  The SEC alleges that instead of investing bond proceeds as promised in annuities to benefit the tribal corporation and generate sufficient income to repay bondholders, the money wound up in a bank account in Florida belonging to a company controlled by the defendants.  The misappropriated funds were used for the purchase of luxury goods and to pay attorneys representing Jason and John in a criminal case brought parallel to fraud charges brought by the SEC last year.  SEC

May 6, 2016

Pittsburgh, Pa.-based financial adviser Martin Blazer III, founder of Blazer Capital Management, agreed to settle fraud charges brought by the SEC.  The SEC’s complaint, filed in federal court in Manhattan, alleges that Blazer targeted professional athletes and other high-net worth individuals as clients, took approximately $2.35 million from five clients without their authorization to invest in two movie projects in which he had a personal financial interest, and then took money from one client’s account when another found out about the unauthorized investment and threatened to sue if the money was not returned.  When SEC examiners uncovered the unauthorized withdrawals, Blazer lied and produced false deal documents he created in an attempt to hide his misconduct.  A determination of disgorgement and financial penalties will be determined by the court at a later date.  SEC

May 4, 2016

The SEC charged James R. Trolice and Lee P. Vaccaro with pocketing investor money they raised for companies they owned and controlled that they claimed held warrants to purchase the common stock of a technology startup company.  The SEC alleges that Trolice and Vaccaro raised approximately $6 million from more than 100 investors by creating a false sense of urgency and exclusivity around the offering and then used investor funds to pay for personal expenses such as credit card bills, college tuition, landscaping, and at Las Vegas casinos.  The SEC also alleges that neither Trolice nor Vaccaro were registered with the SEC or any state regulator.  SEC

May 3, 2016

The SEC announced fraud charges against 10 individuals involved in schemes to trick investors into buying shares of ForceField Energy Inc.  The SEC alleges that investors were unaware that those soliciting them to purchase ForceField stock were being paid by ringleader Richard St. Julien, ForceField’s then-chairman of the board, to steer them to the stock.  Some of the perpetrators attempted to evade law enforcement by communicating with prepaid disposable “burner” phones and through encrypted, content-expiring text messages.  SEC

May 2, 2016

Silicon Valley executive Peter D. Nunan will pay $534,303 to settle charges that he traded on inside information he received in his professional role with a subsidiary of semiconductor equipment manufacturer Screen Holdings Company.  The SEC alleged that Nunan received confidential information from a board member of FSI International that FSI was going to be acquired by a Japan-based semiconductor equipment company in FSI’s attempt to solicit a competing offer from Screen Holdings.  Nunan purchased over 100,000 shares of FSI and made over $250,000 in profits from his sale of the stock after the merger was announced.  SEC

June 6, 2016

A Stillwell, Kansas, man pleaded guilty to one count of aggravated identity theft and one count of theft of government funds, announced the Justice Department’s Tax Division. Richard Drake, 60, admitted that he obtained more than $2 million from the Internal Revenue Service (IRS) by filing false tax returns in the names of his clients. Those false returns claimed refunds that Drake directed into accounts he controlled. In his plea agreement, Drake admitted that he used the identities of his clients to perpetrate his fraud without their knowledge. The tax returns that Drake filed caused the U.S. Department of the Treasury to issue large income tax refunds that Drake then converted to his own use. As part of his plea agreement, Drake has agreed to serve 48 months in prison and to pay $2,432,147 in restitution to the IRS. DOJ

June 3, 2016

Rico Omar Cox (a.k.a. Omar Negron) of Dania Beach, Florida, has been ordered to pay $381,000 in restitution and a $560,000 civil monetary penalty for defrauding his clients in connection with commodity futures trading.  CFTC