On September 29, the Honorable Sam R. Cummings of the United States District Court for the Northern District of Texas entered final judgments against Defendants Paul Downey, Jeffry Downey, and John Leonard. The judgments followed summary-judgment rulings in the SEC’s favor in July 2016, in which the court found that the Downeys raised $4.9 million from investors in a fraudulent oil-and-gas investment program and Leonard made $405,698 in commissions while serving as an unregistered broker.
Judge Cummings found the Downeys’ misconduct to be “extremely egregious,” describing it as “knowingly deceiving investors about virtually every aspect of the investment.” The court ordered them to disgorge $4.9 million plus $1.1 million in interest and to pay a civil penalty of $178,156 apiece. Read More
On September 29, 2016, the Securities and Exchange Commission (“SEC”) charged five individuals for engaging in a fraudulent scheme to illegally profit by manipulating the market and price for the stock of Ecoland International, Inc. (now known as Novus Robotics, Inc.), a penny stock company whose securities were quoted on the OTC Bulletin Board.
The SEC’s complaint, filed in the U.S. District Court for the Eastern District of Pennsylvania, alleges that Louis Buonocore, Jeremy Draper, Frank Morelli III, currently incarcerated in Philadelphia, Pennsylvania, Berardino “Dino” Paolucci, Jr., and Don Rose participated in a scheme to obtain an OTCBB company with a large block of unrestricted stock and conduct a fraudulent promotional campaign through which they could sell their shares of stock. During the summer of 2011, the defendants allegedly acquired over 90% of Ecoland’s stock and began the process of merging Paolucci’s father’s company, D&R Technology, Inc., into it, thereby obtaining total control over Ecoland’s 22 million shares of unrestricted stock and influence over the majority of its restricted stock. Read More
On September 30, 2016 the Securities and Exchange Commission (“SEC”) charged an attorney and three others in California with defrauding investors out of $13.6 million in a penny stock pump-and-dump scheme.
The SEC alleges that Marcus Luna and Norell Walker orchestrated the scam, which entailed setting up boiler rooms of telemarketers to tout a pair of companies that Luna and Walker secretly controlled. Walker’s business associates, Paul Gomez and Dustin Smith, ran boiler rooms in Beverly Hills and Costa Mesa, respectively. Telemarketers trained and supervised by Walker, Gomez, and Smith cold-called investors and urged them to purchase penny stocks they claimed would soar as high as $11 per share. As investors entered orders to purchase the stock out of their personal brokerage accounts, Walker would contact Luna so he could contact an offshore brokerage to fill the orders with Luna’s own shares. Luna, a California attorney, split the proceeds with Walker. Read More
On September 30, 2016, the Securities and Exchange Commission (“SEC”) filed fraud charges against cannabis company Infinex Ventures, Inc. and its CEO Ronald Salem.
According to the SEC’s complaint filed in the U.S. District Court for the District of Colorado, Salem incorporated a new entity, Marijuana Funding Inc. in March 2014, and then caused Infinex to release a series of three press releases in May and June 2014 announcing its negotiations with, and ultimate acquisition of, Marijuana Funding, Inc. In those press releases, Infinex and Salem described Marijuana Funding, Inc. as a private company that specialized in funding companies in the marijuana industry. Read More
On October 26, 2016, the Securities and Exchange Commission (the “SEC”) adopted final rules that amend Rule 504 of Regulation D and Rule 147. According to the SEC, these new rules modernize how companies can raise money to fund their businesses through intrastate and small offerings while maintaining investor protections.
Rule 504 Amendments
Existing Rule 504 of Regulation D provides an exemption from the registration requirements of the Securities Act of 1933, as amended for certain issuers which offer and sell up to $1,000,000 of securities in a 12-month period.
On September 28, 2016, a federal court jury in New York, New York convicted Gary Hirst, the former CEO and President of Gerova Financial Group Ltd., of securities fraud, wire fraud and conspiracy charges. The criminal action was prosecuted by the U.S. Attorney’s Office for the Southern District of New York, and the trial was presided over by U.S. District Judge P. Kevin Castel.
The conviction follows guilty pleas on securities fraud and related charges by four other defendants in the matter: Jason Galanis, John Galanis, Derek Galanis and Gavin Hamels. Jared Galanis pled guilty to misprision of felony. A seventh defendant, Ymer Shahini, remains at large.
On September 24, 2015, the SEC filed a civil action in federal court in Manhattan, charging John Galanis, his sons Jason Galanis, Derek Galanis, and Jared Galanis, along with Hirst and investment adviser Hamels based on the same conduct alleged in the criminal case. According to the SEC’s complaint, in early 2010, Jason Galanis and Hirst orchestrated a scheme to secretly issue $72 million of unrestricted Gerova shares to a Galanis family friend in Kosovo. Jason Galanis, his father, and his brothers allegedly directed sales of the shares from the Kosovo friend’s brokerage accounts and had the proceeds wired to them and their associates who collectively realized approximately $20 million in illicit profits. Read More
On September 29, 2016, the Securities and Exchange Commission (“SEC”) charged Aegis Oil, LLC and its President and CEO Patrick Reagan Beason with defrauding investors in oil and gas projects managed by Aegis.
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of Florida, from at least October 2010 through October 2015, Aegis and Beason raised approximately $35million from approximately 250 investors nationwide through a series of unregistered offerings in 15 oil and gas projects. The SEC alleges that Aegis and Beason made material misrepresentations and omissions orally and in written offering materials concerning the use of investor proceeds, the projected oil production and income from the investment, and Beason’s disciplinary history. The SEC also alleges that Aegis used an independent network of sales agents to solicit potential investors, and that Aegis paid commissions as high as 35% of investor funds to these sales agents. Read More
The Securities and Exchange Commission (“SEC”) announced settled charges against Nicholas Savva, a New York City resident, with defrauding 12 investors in connection with his hedge fund, Five Star Capital Fund, LP.
In a complaint filed in the U.S. District Court for the Eastern District of New York, the SEC alleges that from May 2015 through February 2016, Savva, a former registered representative who was statutorily disqualified by FINRA from association with its member firms, made false and misleading statements while soliciting approximately $1.4 million from 12 investors in Savva’s hedge fund, Five Star. While soliciting investments, Savva lied to his investors about: (i) the management of Five Star; (ii) Savva’s true industry experience; and (iii) Five Star’s historic investment performance. While operating Five Star, Savva misappropriated $38,719.98 from Five Star for purely personal expenses, including, among other things, lodging during an international vacation, home improvement expenditures, and cash withdrawals. Read More
The Securities and Exchange Commission (“SEC”) today charged the former senior director of regulatory affairs for Puma Biotechnology with insider trading ahead of the company’s news announcements about a drug to treat breast cancer.
The SEC alleges that Robert Gadimian pocketed more than $1.1 million in illicit profits by secretly purchasing Puma stock and short-term call options based on nonpublic information he learned about positive developments in two clinical trials for Puma’s drug, neratinib. Gadimian allegedly bought Puma securities before the results from the first trial were announced in December 2013, and again before the results of the second trial were announced in July 2014. Read More
On September 28, 2016 the Securities and Exchange Commission (“SEC”) announced charges and an emergency asset freeze against former stockbroker Peter Kohli for defrauding investors in his failing mutual fund business.
The SEC’s complaint, filed in federal court in Philadelphia, Pennsylvania, alleges that, from 2012 through 2015, Kohli fraudulently raised more than $3.2 million from at least 120 investors. The complaint alleges that, among other things, Kohli filed false mutual fund registration statements with the SEC, misappropriated investor funds, and made false and misleading statements when selling securities in a company controlled by Kohli. At the time of his misconduct, Kohli was a registered representative and investment adviser representative associated with a dually-registered broker-dealer and investment adviser. Read More