Securities Law Blog
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Louis Gallo, former vice president of Commodities Online LLC, a Florida-based investment company, was sentenced last week to fourteen years imprisonment and ordered to pay nearly $20 million in restitution for his participation in a $21 million invest fraud. Gallo’s sentence will additionally include three years of supervised release after he is released from prison. Finally, he will have to forfeit a criminal money judgment of $21.6 million as well as his interest in a car, two bank accounts, and three properties.

Gallo pleaded guilty in August to one count of conspiracy to commit mail and wire fraud. From January 2010 to April 2011, Gallo allegedly conned over 700 investors out of $21 million. James C. Howard III, Commodities Online’s co-founder, had already pleaded guilty to his role in the scheme and was sentenced to fifteen years and nine months and forced to pay $18.9 million in restitution. Rita E. Balbirer received twenty-one months on a money laundering charge.

Patricia S. Saa, Commodities Online’s other co-founder, still has charges pending against her. Michael R. Casey, Commodities Online’s outside legal counsel, also has charges pending against him. The Florida Supreme Court suspended his license in May after he did not show up for a hearing regarding this case.

Gallo and his co-schemers allegedly sold Commodities Online ownership units, subscriptions to Commodities Online’s website and investments in transactions to purchase and sell items such as seafood, iron ore, copper, and sugar. In addition, the group solicited “pre-sold” commodities contracts through Commodities Online’s website.

The group represented to investors that the company was profitable. However, the payments made to the first investors came from the funds of subsequent investors, the defining element of what is commonly called a Ponzi scheme. A large portion of the money was used by the group for personal expenses, including more than $2.5 million that Gallo used for himself and his family.

The group further made misrepresentations about the company’s hierarchy, telling investors after the mid-point of 2010 that Casey was president when in actuality Howard was. The group allegedly failed to alert investors that Gallo and Howard were convicted felons and that Gallo was actually still on probation. Howard had been convicted on cocaine possession and firearm charges in the Northern District of Florida, while Gallo had been convicted of cocaine possession and bank fraud charges in New Jersey.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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Richard L. Pearson, a broker affiliated with Rothstein Rosenfeldt Adler PA and alleged to have played a role in Scott Rothstein’s $1.2 billion Ponzi scheme, pleaded guilty in Florida federal court to a wire fraud charge, noting that he contributed to investors losing $2.4 million.

Pearson and Rothstein Rosenfeldt Adler attorney David Boden had each been charged with one count of conspiracy to commit wire fraud, admitting that they received commissions directly from a group investing in Rothstein’s scheme without informing the investors that Rothstein paid them an additional commission.

Federal authorities plan to show, if the case goes to trial, that the group invested roughly $3.3 million with Rothstein, paying a commission directly to Pearson who also received a commission from Rothstein. In sum, the investors were allegedly scammed out of $2.4 million because of Boden and Pearson’s misrepresentations and omissions.

Pearson will face a maximum of five years imprisonment and could be ordered to pay as much as $250,000 in restitution, according to his plea deal. He will be sentenced on January 9, 2015.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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The SEC adopted a rule that will allow securities arbitrators to immediately disclose frauds that have the potential to threaten the investing public when they learn of such frauds in the midst of a case. The SEC’s acceptance of the rule ends years of debate over implementing such a rule that was first proposed after massive Ponzi schemes run by Bernard Madoff and R. Allen Stanford.

FINRA has long been a proponent of adding such a rule. The regulatory authority has called for a “mid-case referral” rule since the turn of the decade. The SEC stated that allowing securities arbitrators to disclose serious concerns in the midst of a case pertaining to potential frauds detrimental to the investing public provides a needed method of alerting FINRA of these potential threats.

The rule, as of now, states that arbitrators must wait until the conclusion of a case to notify FINRA.

Attorneys for brokerages were concerned about how FINRA would handle arbitrators who reported potential frauds. They believed that arbitrators who proceed with a case after alerting FINRA of their concerns would be biased against particular parties having already made up their minds about the parties before hearing all of the relevant evidence. Finding and implementing a replacement arbitrator would prolong cases and make them more expensive.

FINRA had already proposed a similar rule in January but withdrew it after a number of attorneys expressed concern. The agency filed a second proposal with the SEC in February.

FINRA does note that the new rule will potentially result in delays and increased costs in some cases. The SEC believes, however, that the rule is written in such a way that it would only be invoked in rare circumstances, pointing out that to invoke the rule arbitrators must believe that the conduct involved poses a serious threat that is likely to harm investors unless immediate action is taken.

As of now, it is unknown when the rule will become effective.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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Frank Spinosa, a former vice president of TD Bank from Fort Lauderdale, is facing a potential 20 year imprisonment sentence if convicted on charges made by the FBI in relation to an extensive Ponzi scheme in South Florida. Spinosa is believed to have participated in Scott Rothstein’s $1.2 billion investment fraud.

Spinosa was fired from TD Bank in November 2009 and charged last week with one count of conspiracy to commit wire fraud and five counts of wire fraud pertaining to his bank activities from 2008 to 2009. He was released on $250,000 bond and has an appearance in court scheduled for October 24.

The grand jury indictment alleges that Spinosa played a role in Rothstein’s gigantic Ponzi scheme that persuaded investors to put money in sham legal settlements. According to the FBI, Spinosa worked with Rothstein in an attempt to use the prestige and legitimacy of TD Bank and Spinosa’s position as Regional Vice President to fool investors.

Rothstein pleaded guilty in January 2010 to five counts of racketeering, money laundering, and wire fraud. TD Bank has already paid $52.5 million to settle civil charges arising from the scheme.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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Robert Dane Freeman, a former investment advisor from Flat Rock, North Carolina, was arrested and arraigned last week, having been alleged to be a co-conspirator in a securities fraud. Freeman is being charged with five felonies pertaining to his participation in a 2008 Global Holdings LLC scheme to sell fraudulent high-yield investments. The scheme generated over $3.5 million from 35 investors.

Freeman’s alleged co-conspirators include Mark McAdams and Charles Lowell Walker. McAdams is a former Myrtle Beach, South Carolina lawyer who is believed to have used his position at a prestigious law firm to lend plausibility to the scheme. Walker is alleged to have assisted in the recruitment of investors. Each alleged co-conspirator is looking at three charges of wire fraud, one charge of conspiracy to commit wire fraud, and one charge of international money laundering. If convicted, the maximum sentence that each could receive is 140 years imprisonment.

The SEC brought a similar suit against McAdams and Freeman in 2010. The two men were found to be liable and were ordered to pay $4.3 million taken from investors and $240,000 in civil penalties. In the suit, McAdams and Freeman were found to have promised clients that they could earn as much as 4,900% interest on short-term investments in Standard & Poor’s AAA-rated and AA-rated bonds. They supported this assertion by claiming that Global Holdings would purchase the bonds at a discounted rate straight from the issuer and then would immediately resell the bonds in international markets. The majority of Global Holdings investors lost all of the funds they placed in the scheme.

According to federal authorities, instead of using investor cash to purchase the bonds, McAdams and Freeman used the funds for personal expenses, including Freeman paying off a $150,000 personal debt.

Freeman was released on a $25,000 unsecured bond, ordered to surrender his passport, and was told not to travel outside of South Carolina.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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The Frankowski Firm is investigating a two-man Ponzi scheme that victimized Utah investors. Martin A. Pool of Atlanta, Georgia and Armand R. Franquelin of Liberty, Utah pleaded guilty in May to fraud and money laundering charges. The two admitted that they had persuaded investors to convert traditional Individual Retirement Accounts into self-directed accounts and invest in a real estate project in Vernal, Utah by the name of Haven Estates with promised returns between eight and twenty percent. They further admitted that they had used investor funds for personal expenses and to make payments to old investors from new investor cash, a defining characteristic of what is commonly referred to as a Ponzi scheme.

Pool and Franquelin, operating as the Elva Group, told investors their funds would be used to develop Haven Estates and promised to secure their loans with first lien position on property at Haven Estates. No investors ever received any collateral or any interest in real property in Haven Estates or anywhere else.

Investors were not told of mortgages already in place on Haven Estates, according to investigators, and when the Elva Group began defaulting on the loan for Haven Estates, investors were not immediately informed. Ultimately, Haven Estates was foreclosed.

A federal judge last month sentenced Pool for fraud and money laundering relating to the real estate project in Vernal. Pool will serve 78 months in federal prison and will pay $8 million in restitution to his victims.

Franquelin received his sentence earlier this month. He will serve 57 months in federal prison for his role in orchestrating the multimillion dollar Ponzi scheme. He will also pay restitution of more than $5.5 million to victims of the scheme that operated from 2006 to 2010.

John Collins, a special agent for the in-state Internal Revenue Service’s Criminal Investigation unit stated that the sentencing “demonstrates that taking money from investors under false pretenses and using it for your own personal benefit as Pool did won’t be tolerated. Criminal Investigation is proud to bring our forensic accounting skills to this investigation and, working side by side with our law enforcement partners and prosecutors, help put a stop to this and other types of white-collar crime.”

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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Dennis F. Wright, an ex-AXA Equitable Life Insurance Co. agent who pleaded guilty to related criminal charges last month, will pay $2 million to settle his case with the SEC. Wright is alleged to have stolen from his customers and to have falsified account statements to conceal the theft. He is further accused of defrauding AXA and its clients out of $1.5 million through fraudulently purchasing and selling securities offered by AXA beginning in the early 1990s and going through June 2012.

According to the SEC, ““For more than a decade, defendant Dennis F. Wright, a stockbroker and insurance salesman entrusted with handling his clients’ retirement funds, lied and stole over $1.5 million from at least 28 customers. Wright targeted his childhood friends and/or members of his community, unsophisticated and inexperienced investors who trusted Wright to honestly represent their financial interests.”

Wright’s $2 million settlement includes disgorgement in addition to $500,000 in prejudgment interest. Any restitution that Wright is forced to pay as a result of his criminal case will go toward the disgorgement in accordance with the settlement agreement. He is also looking at up to twenty-five years in prison on his criminal securities fraud charges, as well as a fine of $250,000.

The Department of Justice alleges that Wright was a stockbroker and insurance salesman who handled AXA clients’ retirement funds. He fraudulently encouraged those clients to liquidate securities and other assets after falsely promising them that he would invest their money in what he represented to be “managed funds.” Following from the false promises, Wright acquired more than $1.5 million from more than 30 AXA clients through account transfers and withdrawals among other methods.

According to Wright’s settlement, he will be permanently barred from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. He will also be prohibited from participating in any penny stock offerings.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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Breifne O’Brien, an Irish businessman and socialite, was sentenced this week by a court in Ireland to seven years imprisonment for operating a $10.8 million Ponzi scheme. The scheme consisted of O’Brien selling fake property investments before Ireland’s real estate collapse in 2008.

O’Brien pleaded guilty to 14 counts of fraud and theft with regard to the Ponzi scheme, as well as sham shipping and insurance schemes. He was alleged to have masterminded an operation in which he told investors that their money would be placed in a bank account from which he would draw money to pay for investment properties. He was then supposed to flip the properties and split any profits with his investors. The money, however, was not kept in a bank account and, instead, was used to pay back other victims of the scheme as well as O’Brien’s personal expenses, including an extension of his house, a new car for his wide, and a Barbados apartment among other expenses.

The Irish media has not been kind in discussing O’Brien, having referred to him to as a fallen socialite who was a regular in the social section of the newspaper with his now-estranged wife Fiona Nagle and once famous for hosting extravagant parties at his Dublin home. He was additionally called “Ireland’s Bernie Madoff” by one paper.

O’Brien originally denied all 45 counts against him and brought his case before Ireland’s highest court in an attempt to get the case thrown out. The court refused, and subsequently O’Brien pleaded guilty to 14 of the charges. He faced a maximum sentence of ten years for theft and five for fraud. He received three and a half years for each of seven counts of fraud and seven years for each theft count. The sentences will be served concurrently in accordance with Irish custom.

At his sentencing, O’Brien stated that he is now destitute and living on social welfare.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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Jeffrey B. Bland, a businessman from Albuquerque, New Mexico, was indicted last week on felony charges for allegedly stealing $229,000 from an elderly Alamogordo, New Mexico investor. An Otero County, New Mexico grand jury returned the criminal indictment containing eight felony charges, including securities fraud, sale of an unregistered security, and sale of a security by an unregistered agent and fraud.

New Mexico Regulation and Licensing Superintendent Mike Unthank worries about frauds such as these, stating “Financial fraud against our elderly is heartbreaking because in most cases the victims have lost their entire retirement savings and are left in financial ruins.”

Last May, the New Mexico Securities Division got a complaint from the elderly investor, who had invested $229,000 with Bland in a promissory note issued by a property management firm.

The grand jury indictment alleges that Bland only made two of the payments he represented he would make and converted a large portion of the remaining funds for his personal use.

Bland is further accused of failing to inform the investor that in 2006 he sold promissory notes to investors around Albuquerque and failed to pay any of the represented interest.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.

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Three hedge fund managers have been sentenced in a Ponzi scheme case that conned investors out of $40 million. Jeffrey Toft of Sioux Falls, South Dakota received 66 months in prison. Chad Sloat of Kansas City, Missouri received 70 months. And Michael Murphy of Deep Haven, Minnesota received 48 months. All three of their sentences will be followed by two years of supervised release. The judge further ordered that the defendants pay restitution to their victims. Toft will pay $2,172,666, Sloat will pay $3,747,130, and Murphy will pay $2,552,824.30. Sloat will additionally pay $93,727 to the IRS. Jonathan Davey of Newark, New Jersey, a fourth defendant, is currently awaiting sentencing.

Judge Conrad stated during sentencing that the defendants exhibited callous greed causing devastating financial ruin to hundred of elderly and vulnerable victims. Conrad also noted that the lengthy sentences were reasonable provided the predatory nature of the scheme.

According to court documents, the trio of defendants operated hedge funds as part of a $40 million Ponzi scheme functioning under the name Black Diamond Capital Solutions. The three persuaded their victims to give them their money by asserting that the defendants had done their due diligence on Black Diamond and were operating legitimate hedge funds with significant safeguards. In actuality, however, those statements were inaccurate. As Black Diamond began to implode, the trio started a new Ponzi scheme and used a number of different bank accounts administered by Davey to promote the scheme. The three deposited new victim money into these accounts and used the money to make lulling payments to other victims and for their own personal expenses.

Toft pleaded guilty in November 2012 to securities fraud conspiracy, wire fraud conspiracy, and money laundering conspiracy. Sloat pleaded guilty in October 2012 to securities fraud conspiracy, and Murphy also pleaded guilty to securities fraud conspiracy in January 2013. Davey was convicted at trial of securities fraud conspiracy, wire fraud conspiracy, money laundering conspiracy, and tax evasion. He is currently awaiting sentencing by the court.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies or visit frankowskifirm.com.