Financial and Investment Fraud

April 15, 2016

The SEC announced fraud charges against James Catipay and David Aldrich for allegedly raising $11.7 million from approximately 250 investors, many of them retirees, for their Los Angeles-based litigation marketing company, PLCMGMT LLC (a/k/a PLC or Prometheus Law).  Investors were told their money would be used to help gather plaintiffs for class-action and other lawsuits and they would earn hefty investment returns from settlement proceeds.  Instead, the SEC alleges that Catipay and Aldrich diverted millions of dollars for their personal use while failing to deliver the promised 100 to 300 percent returns to investors.  SEC

April 11, 2016

The SEC announced fraud charges against Texas-based technology company Servergy Inc. and its founder and former CEO William Mapp III for boosting company stock sales with false claims about a supposedly revolutionary computer server and purported purchases by big-name companies.  The SEC alleges that Servergy and Mapp sold $26 million worth of stock in private offerings while misleading investors to believe that the “Cleantech CTS-1000” server (the company’s sole product) was especially energy efficient and would compete directly with top server makers like IBM, Dell, and Hewlett Packard.  In fact, 32-bit processors like the CTS-1000 were being phased out of the industry and could not compete with the high-performance 64-bit processors being produced by competitors.  In addition, the SEC alleges that when Servergy was low on operating funds, Mapp enticed prospective investors to purchase by falsely claiming well-known companies, such as Amazon, had placed orders for the servers.  In fact, an Amazon employee had merely contacted Servergy about testing the product for his personal use.  Servergy will pay $200,000 to settle the SEC’s charges.  The litigation against Mapp continues in the Eastern District of Texas.  Also charged in the SEC’s complaint is Texas Attorney General Ken Paxton and a former member of Servergy’s board of director, Caleb White.  The SEC alleges that Paxton and White recruited investors for Servergy while hiding that they were being compensated to promote the company’s stock.  White will pay $66,000 to settle the charges.  SEC

April 4, 2016

The SEC announced charges against four individuals for fraud against victims including seniors solicited through free dinners at a Tampa, Florida restaurant.  The SEC alleges that Philadelphia residents Joseph Andrew Paul and John D. Ellis, Jr. lied about the track record of their advisory firm, including by creating fraudulent marketing materials with performance numbers cut-and-pasted from another firm’s website.  Paul and Ellis recruited Donald Ellison and James Quay to use these materials and solicit potential victims with promises of lofty returns.  The SEC alleges that much of the money was never invested, but rather split between the four men.  SEC

March 31, 2016

Commercial vehicle manufacturer Navistar International Corp. will pay $7.5 million to settle charges that it misled investors about its development of an advanced technology truck engine that could be certified to meet U.S. standards.  Separately, the SEC has filed charges in federal court in the Northern District of Illinois against Navistar’s former CEO Daniel Ustian.  The SEC alleges that Navistar and Ustian failed to fully disclose the difficulties Navistar was having gaining EPA certification that its truck engine, designed using “exhaust-gas-recirculation” technology, met stricter Clean Air Act standards which took effect in 2010.  SEC

March 30, 2016

Biotech venture capitalist G. Steven Burrill and his firm, Burrill Capital Management, will pay $5.785 million to settle charges that Burrill siphoned money from the Burrill Life Sciences Capital Fund III under the guise of “advanced” management fees to fund his lavish lifestyle.  The SEC’s order also found Burrill Capital Management’s Chief Legal Officer and Controller to have played integral roles in Burrill’s scheme.  They will pay $275,000 combined to settle the SEC’s charges.  SEC

March 15, 2016

Kansas-based municipal advisor Central States Capital Markets, its CEO, and two employees will pay about $437,327 collectively to settle charges that they breached their fiduciary duties by failing to disclose a conflict of interest to a municipal client.  According to the SEC’s order, while Central States served as a municipal advisor to a client on municipal bond offerings in 2011, two of its employees, in consultation with the CEO, arranged for the offerings to be underwritten by a broker-dealer where all three worked as registered representatives.  Central States did not inform the client of its relationship to the underwriter or the financial benefit it obtained from serving in dual roles.  In three offerings, Central States received 90 percent of the underwriting fees the client city paid to the broker-dealer.  The case is the SEC’s first to enforce the fiduciary duty for municipal advisors created by the 2010 Dodd-Frank Act which required these advisors to put their municipal clients’ interests ahead of their own.  SEC

March 28, 2016

A company that purchased income streams from veterans and other pensioners has agreed to provide more than $2 million in debt relief to resolve allegations that it made predatory and illegal loans to Massachusetts consumers. Under the terms of the assurance of discontinuance, Future Income Payments, LLC (FIP), which was formerly known as Pensions, Annuities and Settlements, LLC, has agreed to convert its current contracts with consumers into interest-free loans. Through this alleged scheme, the 85 affected Massachusetts consumers who entered into contracts with FIP received upfront payments ranging from $1,800 to more than $40,000. In exchange, FIP accessed the consumers’ bank accounts each month to deduct a portion of their pension payments. The AG’s investigation revealed that FIP was charging consumers interest rates that far exceeded the statutory limit, many exceeding 100 percent. Under the terms of the settlement, any consumer who has already paid in excess of the principal balance borrowed will receive a refund for any overpayments. MA

March 23, 2016

Gilbert G. Lundstrom, the former CEO of TierOne Bank -- a $3 billion publicly-traded commercial bank formerly headquartered in Lincoln, Nebraska -- was sentenced to 132 months in prison and to pay a $1.2 million fine for orchestrating a scheme to defraud TierOne’s shareholders and to mislead regulators by concealing more than $100 million in losses on loans and declining real estate.  DOJ

March 16, 2016

A Thurston County judge ordered a California company that scammed new Washington property owners into buying overpriced deeds to pay more than $3.6 million, after granting summary judgment in a lawsuit brought by Attorney General’s office. The court found the Bellflower, Calif.-based LA Investors, LLC, which conducts business as “Local Records Office.” violated the state Consumer Protection Act at least 256,998 times by sending deceptive mailers. The company sent official-looking notices implying that consumers must buy a dramatically overpriced $89 copy of their deeds. Deeds typically cost only a few dollars from a local county office, and many property owners can obtain a copy of their deed for free online. WA

March 16, 2016

New Jersey announced that four individuals have been charged in connection with two separate schemes in which investors allegedly were defrauded of a total of $350,000 that they invested in purported medical ventures. In the first scheme, Joseph Denti Jr., Joseph Giardina and Heidi Francavilla allegedly stole $250,000 from a doctor by convincing him to advance that amount for a bogus investment involving a surgical center. They allegedly diverted his funds for their personal benefit. In the second scheme, Ralph Perricelli Jr. and Joseph Denti Jr. allegedly convinced a married couple to invest $100,000 in a blood-testing laboratory by falsely claiming to be joint owners of the lab. NJ