Financial and Investment Fraud

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 27, 2016

New Jersey assessed a $2 million civil monetary penalty against a Hudson County couple and their bogus private investment fund management company for selling sham securities and using more than $500,000 of investors’ funds to buy luxury cars, expensive clothing and jewelry, and other personal items. West New York residents Alcibiades Cifuentes, his wife, Jennifer Wee Cifuentes, and Cifuentes Fund Management, LLC (“CFM”) violated the State’s Uniform Securities Law by offering investors unregistered securities in the form of investment contracts and/or purported limited partnership interests in the couple’s “investment,” according to the Bureau’s Summary Order. The Cifuenteses held themselves out as the principals of CFM, which they claimed was a private investment fund management company that invested in foreign currencies. Neither the Cifuenteses nor CFM are registered with the Bureau in any capacity. Since May 2013, the pair through CFM, raised at least $553,969 from at least 24 unsuspecting domestic and foreign investors, at least 11 of whom were offered and sold the unregistered securities to or from New Jersey. NJ

May 11, 2016

The CFPB took action against All American Check Cashing, Inc., which offers check cashing and payday loans, and its owner Michael Gray, for allegedly tricking and trapping consumers.  The complaint alleges that All American tried to keep consumers from learning how much they would be charged to cash a check, used deceptive tactics to stop consumers from backing out of transactions, made deceptive statements about the benefits of its high-cost payday loans, and also failed to provide refunds after consumers made overpayments on their loans.  CFPB

April 13, 2016

Nery Cowan, a former health care clinic consultant and Medicare biller for partial hospitalization program Greater Miami Behavioral Healthcare Center Inc. was sentenced to 135 months in prison and ordered to pay a $100,000 fine for her role in laundering money in connection with a $63 million health care fraud scheme.  As part of her guilty plea, Cowan admitted to directing and authorizing the payment of kickbacks and bribes to patient brokers and others in exchange for Medicare beneficiary referrals.  Cowan also admitted that Greater Miami personnel routinely falsified medical records affiliated with these recruited Medicare beneficiaries to support false claims to Medicare.  Cowan also admitted that she, along with co-defendants Dean Butler and Irina Mora, took great lengths to conceal kickback payments to shell companies owned by “patient brokers” who, on behalf of Greater Miami, solicited Medicare beneficiaries from assisted living facilities, halfway houses and drug courts located throughout the Southern District of Florida.  Judge Bloom previously sentenced Butler and Mora to 16 years and nine years in prison, respectively, following their guilty pleas.  DOJ

April 19, 2016

Three former executives at battery manufacturer Ener1 will pay collective penalties of $180,000 to settle allegations of materially overstating revenues and assets.  The financial misstatements stemmed from management’s failure to impair investments and receivables related to an electric car manufacturer that was one of its largest customers.  In addition, the SEC found that Robert Hesselgesser, the engagement partner for PricewaterhouseCoopers’ audit of Ener1’s 2010 financial statements, violated PCAOB and professional auditing standards.  Hesselgesser agreed to be suspended from practicing before the SEC as an accountant.  SEC