Articles Posted in Securities Law Violations

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Cecil Franklin Speight, sole owner and CEO of International Stock Transfer of Palm Beach, Florida pleaded guilty last month to conspiracy to commit mail fraud and securities fraud for operating a scheme in which he conned investors out of $3 million. According to the SEC, Speight utilized “aggressive boiler room tactics” and faux investment firms that issued fake securities that were worthless.

“Rather than transferring capital to issuers, the defendant used the investors’ funds as his own, including financing his lifestyle in Florida. His victims, from the Eastern District of New York and around the world, were conned into buying bogus securities that were not worth the paper they were printed on. Now, he will be held to account for his crimes,” stated United States Attorney Lynch.

Speight allegedly stole more than $3.3 million from investors and used the money to pay for his personal expenses, such as purchases made at Mercedes-Benz, Nordstrom, and Groupon. He is looking at a sentence of up to five years in prison, more than $3.3 million in restitution, and a fine of at least equal and at most double what the investors lost.

Speight allegedly used cold callers and other means to persuade people into investing their money in high-yield securities. He then promised investors a high rate of return if they invested in securities that were supposedly associated with International Stock Transfer. As soon as the investors wired money to an escrow account, Speight took the money for this own personal use, withdrawing over $350,000 of investor fund in cash.

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.

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Two people from North Carolina and one from Florida were sentenced earlier this month for what federal authorities have called a church-targeting Ponzi scheme. All three individuals had previously testified against Thomas Kimmel from Indiana who was the alleged mastermind of the operation.

James Willis Kirk and Carol April Graff, both of Washington, N.C., as well as Glen Smith Jr. of Lake Worth, Florida had previously pleaded guilty to conspiracy to commit mail fraud, sell unregistered securities and engage in unlawful monetary transactions. Kirk and Smith also pleaded guilty to selling unregistered securities. Kimmel was found guilty in July of conspiracy, mail fraud, and money laundering.

According to the prosecution, Kimmel solicited around $20 million for “Sure Line Acceptance Corporation” from investors, most of whom were church-attendees who were guaranteed that their principal was protected by collateral, including cars and car loans. The majority of the victims, however, never got their principal back.

Kimmel and his corporation were issued a cease and desist order in a number states, including New Jersey and Alabama. In New Jersey, Kimmel allegedly went to churches to talk to parishioners about how to live debt free by employing biblical principles. After presentations, he solicited parishioners to buy securities in Sure Line, which offered investments in the form of promissory notes.

Kimmel was convicted in Raleigh on June 26. At trial, prosecutors asserted that Kimmel gave financial conferences at churches, where he would spend at least a few minutes telling investors about a 12% collateralized note program. According to federal authorities, Kimmel was in reality operating a Ponzi scheme.

Kirk and Smith were sentenced to 60 months and 48 months, respectively. Graff was sentenced to 18 months. The award of restitution has been postponed for 60 days.

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.

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Morgan Stanley & Co. lost a FINRA arbitration dispute last week to Banco Nacional de Mexico SA. A FINRA panel ordered Morgan Stanley to pay the Mexican bank, commonly referred to as Banamex, $4.5 million, finding Morgan Stanley liable for negligence and negligent supervision.

The case was filed by the bank against Morgan Stanley in 2012. The statement of claim alleged fraud and negligence among other allegations and asked the FINRA panel to order Morgan Stanley to pay over $5.2 million. The dispute centered on whether Morgan Stanley allowed funds in a family’s trust account to be used to repay third-party loans without its authorization.

The trust was established in 2007 with proceeds from the sale of property that a group of adult siblings and their mother had inherited. Banamex was the trustee to the family’s trust account and hired a broker at Morgan Stanley to manage the accounts that same year.

The trust accounts were held at a banking unit of Morgan Stanley & Co and managed by the brokerage unit. They were set up in a way that did not allow the assets to be used as guarantees to pay off third-party loans taken by another family member’s account. Banamex alleged that Morgan Stanley caused the trust accounts to guarantee payment of third-party loans of a family member without Banamex’s authorization.

Morgan Stanley spokeswoman Christine Jockle wrote, “We are disappointed in the arbitration panel’s award. We believe that the evidence showed that the patriarch of the family pledged the trust accounts as collateral for loans that benefited the family, and those accounts were treated that way for the two year period at issue.”

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.

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Lynn A. Simon, an investment advisor from Evansville, Indiana, pleaded guilty yesterday to charges arising from allegations last year that he conned over $1 million out of investors in the area. The charges included three counts of securities fraud, class B felonies, and one charge of unlawful sale of a security, which is a class C felony.

Simon reached an agreement with the Indiana Secretary of State’s Office that would send him to prison for two years and eight years of work release. Judge David Kiely will have to decide whether or not to uphold the agreement.

Simon was a registered investment advisor and the sole owner of Financial Security Planning, which operated as a satellite office of CFD Securities of Kokomo, Indiana. Simon also owned The Insurance Shoppe.

Local, state, and federal law enforcement agents started their investigation of Simon in April 2013 after he went missing and the Indiana Secretary of State’s Office starting getting complaints about him. The investigations found that Simon issued promissory notes that showed a rate of return at a specified maturity date but Simon also would tell investors that if they requested money it would be given in the order received and only if there was enough money coming into the fund.

None of the investments investigated sold under the Financial Security Planning name were registered with the state as required by law. Bank records did not show money going to investments of insurance companies as purported by Simon. Instead, the money was going into the account and then either went to other investors or was withdrawn by Simon, who was the only person authorized to use the account. More than $42,000 was withdrawn the day before his wife reported him missing.

Investigators followed Simon to Alabama and then to New Mexico before the Vanderburgh County Prosecutor’s Office obtained a warrant for his arrest. Simon surrendered at the Vanderburgh County Jail in September as Secret Service agents and local police were trying to locate him and serve the warrant.

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.

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On Monday, the SEC accused the state of Kansas of securities fraud, alleging that it failed to disclose funding problems with its public pension when it held bond offerings in 2009 and 2010. Kansas is now the third state the SEC has taken action against for violating municipal bond disclosure rules. New Jersey was first in 2010, and Illinois was second last year.

Having been under investigation for the past four years, the state has implemented reforms regarding how it discloses its pension liabilities and has agreed to settle the charges for its past failures to disclose without either admitting or denying the charges.

According to the SEC, the Kansas pension system was so underfunded that it created a repayment risk for investors holding the state’s bonds, but in bond offering documents the state did not explain the existence of the significant unfunded liability. Kansas also should have described how the state legislature could have appropriated funds to cover the pension liability, thus making less money available for spending in other areas, including debt service payments.

Governor Sam Brownback, who took office in 2010, pointed to reforms passed in 2012 to boost contributions from both employers and employees, and enroll new workers in a plan resembling 401(k) accounts in the private sector. “Under my administration, we have improved transparency in the reporting system and taken decisive actions to meet our existing obligations and maintain the trust of our state workers and retirees,” he said.

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.

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A $5 million putative class of plaintiffs accusing UBS AG of soliciting to elderly investors risky mutual funds that ended up losing billions asked a Puerto Rico federal court last week to block UBS’ attempt to transfer the suit to New York, noting the strong ties the case has to Puerto Rico. The plaintiffs instead suggested consolidating their case with a similar one currently pending. The case at hand alleges UBS Puerto Rico and Popular Securities LLC breached their fiduciary and contractual duties to thousands of investors by selling them risky closed-end mutual fund securities made specifically for Puerto Rico. The suit was originally filed in the Southern District of New York earlier this summer but was voluntarily dismissed so that it could be filed in Puerto Rico, after discussions between the two groups of plaintiffs discovered that their two cases shared common legal and factual issues.

The investors allege that the defendants misrepresented twenty-three closed-end mutual funds, which invested in bonds in the unsteady Puerto Rican economy, as safe fixed-income securities that would preserve their main investments while providing tax-free income. In actuality, the funds were “ticking time bombs” that had about half their assets financed through borrowing and invested in hundreds of millions of dollars of debt securities issued by the Puerto Rican government.

The investors moved to consolidate their suit with the pending suit in June. In July, UBS and Popular filed to transfer the case to New York arguing that the investors were bound to litigate the case in New York. The plaintiffs countered that the New York forum selection clause in UBS’ customer contracts is not the only forum selection clause involved in the suit, and it does not cover all of the plaintiffs’ claims. They also argue that Puerto Rico’s “exceptionally strong interest” in the case makes the commonwealth the most appropriate forum for the plaintiffs to litigate their claims.

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.

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Last Friday, a federal jury from the Middle District of Florida found that Edward Hayter, the CEO and president of BIH Corp., ran a pump-and-dump scheme, selling unregistered shares of stock in the restaurant equipment company. After a four-day trial, Hayter was found to have defrauded investors by selling the unregistered stock from 2008 to 2009 and giving false information about the company in violation of securities laws, providing a substantial win for the SEC.

The SEC’s complaint, filed in 2010, alleged that Hayter and a partner sold the company’s stock to North Bay South Corp., Bimini Reef Real Estate Inc., and Riverview Capital Inc., all companies controlled by co-defendants in the case. Hayter and his partner then dumped over $1 million of BIH’s stock on unknowing investors and split the illicit profits between themselves and others.

The SEC further alleges that Hayter and his partner pumped up the price of BIH’s stock by spreading false and misleading press releases and posting untrue information on the company’s website about BIH’s directors, its operations and business relationships, and its stock and dividend payments. Additionally, Hayter was accused of hiding his control of the company by inventing an alter ego, Cris Galo, who was supposedly BIH’s CEO and president with an entrepreneurial background and interests in a number of businesses in several states.

The SEC claimed that Hayter violated several sections of the Securities Act and the Exchange Act. The jury on Friday delivered its verdict in the SEC’s favor on all counts, and the jury noted that Hayter acted knowingly or with severe recklessness. The SEC is seeking an injunction, disgorgement with prejudgment interest, civil money penalties, and a penny stock bar against Hayter.

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.

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Matthew Sarad of Bakersfield, California, the founder and former CEO of Telomolecular Corp., pleaded guilty to securities fraud on Wednesday in a Sacramento federal court. Telomolecular Corp. was professed to be a biotechnology startup company that claimed to have developed nanoparticle technology that could eradicate cancer and treat other age-related diseases.

From November 2005 to July 2008, Sarad solicited investors from across the country offering stock in Telomolecular, misrepresenting the stock in the process. According to court documents, Sarad would tell investors that the company’s cancer-curing products would complete trials, obtain required government approval, and make it to the market in less than three years. He also said his firm had a deep management team with experience taking companies public. Throughout the process, he collected about $6.5 million from more than 300 investors.

From January to December 2009, Sarad also owned Sun Nanosystems out of Fulsom, California. Sun Nanosystems professed to install solar energy systems for residential and commercial customers and claimed to have developed nanoparticle technology that greatly increased the efficiency of solar panels. Sarad told customers that the company worked with state-of-the-art proprietary technology that could increase the efficiency of standard solar panels by as much as fifty percent and that the company was experienced in installing solar panels and had satisfied customers. Sarad collected about $300,000 from customers but never installed a single solar panel.

Sarad will be sentenced November 19 by U.S. District Judge Kimberly J. Mueller.

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.

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Bank of America is in talks to settle an investigation into its role in the sale of mortgage-backed securities before the 2008 financial crisis and could pay between $16 and $17 billion, making it the biggest Justice Department settlement by a long shot arising from the economic collapse. However, the deal has not been finalized, and although the two sides have reach an agreement in principle sources say talks could still break down. Under the tentative deal, the bank would pay about $9 billion in cash. The remainder would go toward consumer relief.

The deal would be the most recent stemming from the sale of toxic mortgage securities leading up to the recession. The Justice Department last year reached a $13 billion settlement with JPMorgan and in July announced a $7 billion settlement with Citigroup.

Leading up to the financial crisis, banks downplayed the risks of subprime mortgages when packaging and selling the securities to mutual funds, investment trusts and pensions, as well as other banks and investors. The securities contained residential mortgages from borrowers who were unlikely to be able to repay their loans, yet were publicly promoted as relatively safe investments until the housing market collapsed and investors suffered billions of dollars in losses. Those losses triggered a financial crisis that pushed the economy into the worst recession since the 1930s.

Bank of America had previously argued that it should not be held liable for the subprime mortgages issued by Countrywide and Merrill Lynch, two troubled firms the bank acquired in 2008 as the meltdown took hold. Combined, those three firms issued $965 billion in mortgage-backed securities from 2004 to 2008. Almost 75 percent of that total came from Countrywide.

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.

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The SEC got a big win last week when a jury found a Virginia-based subsidiary brokerage firm and its CEO collectively liable for $70 million. The SEC sued AIC Inc., Community Bankers Securities LLC and Nicholas D. Skaltsounis in 2011 for fraud and engaging in a Ponzi scheme executed by selling millions of dollars of AIC promissory notes and stock. The companies sold these investments through falsifications that hid AlC’s financial issues and inability to come through on returns.

According to the SEC some of the material information about the investments the company omitted or falsified when pitching them to investors were the safety and risk associated with the investments, the rates of return, and how the proceeds would be used by AIC. The companies were never profitable, and they used money from new investors to pay back existing ones. At least 74 investors in at least 14 states were scammed as part of the scheme.

After nearly three weeks of trial in a Tennessee federal court, U.S. District Judge Thomas Varlan ordered AIC to pay $35.6 million in disgorgement, pre-judgment interest, and penalties. He ordered Community Bankers Securities pay $31.2 million and Skaltsounis pay $2.6 million.

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.