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Archive for March, 2012

Ex-NBA player indicited in Ponzi scheme case

A former NBA player has been indicted in New Jersey on federal charges he ran a more than $2 million Ponzi scheme.

Prosecutors say C. Tate George used The George Group to run the investment fraud scam. The indictment on four counts of wire fraud was announced Friday.  Prosecutors say George persuaded people, including former professional athletes, to invest in what he promised would be high-return real estate projects.  The U.S. attorney’s office says George instead used some of the money to pay existing investors and personal expenses.

The 43-year-old George played for the New Jersey Nets and the Milwaukee Bucks. The former University of Connecticut player is perhaps best known for hitting a buzzer beater in the 1990 NCAA Tournament.

Former broker to pay more than $500,000 for defrauding 9/11 widow

he Securities and Exchange Commission announced that a federal judge in Massachusetts entered a final judgment on March 14, 2012 ordering defendant James J. Konaxis, formerly a registered representative of Beverly-based broker-dealer Sentinel Securities, Inc., to disgorge more than $483,000 in commissions earned over a two-year period by defrauding a former customer who was left widowed by the September 11, 2001 terrorist attacks. Together with prejudgment interested and a civil penalty, Konaxis has been ordered to pay a total of $514,954. In granting the Commission’s motion for monetary remedies, Judge Denise L. Casper found that Konaxis was liable in the amount of all commissions earned from three of the victim’s accounts over a two-year period because he “misled the victim into thinking her investments were safe, while churning (e.g., excessively trading) her funds in a manner contrary to her interests[.]”

According to the Commission’s complaint, Konaxis violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder by excessively trading his customer’s funds while knowingly or recklessly disregarding her interests. During a two-year period, the Commission alleges that the value of his customer’s accounts (funded by payments made to the victim and her family by the September 11th Victim Compensation Fund) decreased from approximately $3.7 million to approximately $1.6 million, much of which was due to Konaxis’s investments and the resulting commissions paid to Konaxis.

SEC Charges Senior Executives at California-Based Firm in Stock Lending Scheme

The SEC alleges that Argyll Investments LLC’s purported stock-collateralized loan business is merely a fraud perpetrated by James T. Miceli and Douglas A. McClain, Jr. to acquire publicly traded stock from corporate officers and directors at a discounted price from market value, separately sell the shares for full market value in order to fund the loan, and use the remaining proceeds from the sale of the collateral for their own personal benefit. Miceli, McClain, and Argyll typically lied to borrowers by explicitly telling them that their collateral would not be sold unless a default occurred. However, since Argyll had no independent source of funds other than the borrowers’ collateral, Argyll often sold the collateral prior to closing the loan and then used the proceeds to fund it.

Also charged in the SEC’s complaint filed in U.S. District Court for the Southern District of California is a broker through which Argyll attracted potential borrowers. The SEC alleges that AmeriFund Capital Finance LLC and its owner Jeffrey Spanier violated the federal securities laws by brokering numerous transactions for Argyll while not registered with the SEC.

Citi fined $1.2 million by FINRA over bond markups

The Financial Industry Regulatory Authority said it ordered Citigroup Inc. (C) to pay more than $1.2 million in fines, restitution and interest related to alleged excessive markups and markdowns on corporate and agency bond transactions.

Finra said that from July 2007 to September 2010, Citi International Financial Services LLC, a subsidiary of the global bank, charged bond markups and markdowns that Finra found to be excessive compared to market conditions, the value of the service rendered and other factors. Also, from April 2009 through June 2009, the unit allegedly failed to use reasonable diligence in buying and selling corporate bonds, so the resulting prices to its customers weren’t as favorable as possible under market conditions, Finra said.

The subsidiary’s supervisory system was found to have significant deficiencies relating to the markdowns and markups, the amounts taken from a selling price or added to a buying price, respectively, Finra said

Bond oversight lax according to Securities and Exchange Commission

Wall Street banks may not be exercising proper supervision of state and local government bond sales, the Securities and Exchange Commission said, warning investors about risks in the $3.7 trillion municipal market.

Reviews of underwriters showed that some may not be sufficiently examining bond documents for evidence of fraud, the agency’s Office of Compliance Inspections and Examinations said today. Banks are required to review bond documents to guard against false statements and can face sanctions if they don’t.  SEC has set up an enforcement unit to police the municipal market for fraud. In August 2010, it settled claims against New Jersey that the state had misled investors by masking inadequate pension funding in $26 billion of bond sales. Later that year, four San Diego city officials agreed to financial penalties to settle the agency’s claims that they failed to inform investors of “fiscal problems’ tied to municipal retirement plans.

The SEC also has stepped up oversight of the municipal market as states and cities continue to deal with the effects of the 18-month recession that ended in June 2009. Amid such strains, the number of U.S. municipal-bond defaults doubled in the past two years, compared with the average from 1970 to 2009, driven by bonds sold for health-care and housing projects, according to Moody’s Investors Service.


NY Mets, owners settle with Madoff trustee

The NY Mets and owners announced a deal with a trustee for Bernard Madoff’s fraud victims that requires them to pay millions less than they might have.  Mets CEO Fred Wilpon and team president Saul Katz, co-majority owners, emerged smiling from a Manhattan federal courthouse after a judge announced the agreement, which makes it likely they’ll pay much less than the agreed-upon $162 million, if any at all; guarantees they will owe nothing until the end of four years; and averts a high-profile civil trial.

Stanford class actions to move forward

 Investors who lost billions in a massive Ponzi scheme orchestrated by convicted former Texas tycoon R. Allen Stanford won a legal victory Monday as a federal appeals court decided to let their class action lawsuits go forward against individuals and companies they allege aided the financier’s fraud.

The 5th U.S. Circuit Court of Appeals overturned a federal judge’s ruling from last year that threw out three class action lawsuits that are trying to use state laws to recover investor losses resulting from Stanford’s scheme.

U.S. District Judge David Godbey in Dallas had thrown out the lawsuits, saying they were precluded under the Securities Litigation Uniform Standards Act, or SLUSA, a federal act that says class action suits related to securities fraud cannot be filed under state law. Godbey had determined the fraud alleged by the lawsuits — filed by investors in Texas and Louisiana — was connected to the purchase or sale of securities such as stock.

But a three-judge panel of the appeals court disagreed with Godbey, saying “we find that the (alleged) fraudulent schemes … are not more than tangentially related to the purchase or sale of covered securities and are therefore not sufficiently connected (to) purchases or sales to trigger SLUSA preclusion.”

Stanford was convicted earlier this month on 13 fraud-related charges for misusing money from investors who bought certificates of deposit, or CDs, from his Caribbean bank to pay for his businesses and his lavish lifestyle.

The appeals court found that while Stanford had promoted his bank’s investment portfolio as being backed by securities like stocks, this claim only had a minor connection to the heart of the financier’s fraud.

Oppenheimer Global Resource Private Equity Fund

The former private equity arm of Oppenheimer Holdings may have exaggerated the valuation of one of its holdings.  The Securities and Exchange Commission and Massachusetts authorities are investigating the Oppenheimer Global Resource Private Equity Fund, a fund of private equity funds launched by Oppenheimer in 2008. Among the fund’s holdings was a $6 million investment with Cartesian Capital Group’s Cartesian Investors A. That fund, in turn, invested all of its capital in a closed-end fund established by the Romanian government to benefit victims of the country’s Communist era.

In the fall of 2009, as Oppenheimer sought to raise more money for the fund, it valued its investment in Cartesian A at 33 cents a share. That valuation was well above the 20 cents that Cartesian placed on the investment, and almost five times as high as the roughly seven cents that the closed-end fund, S.C. Fondul Proprietatea, was trading at the time.  Oppenheimer’s valuation added more than $4 million to its bottom line, and turned an internal rate of return from a 6.3% loss to a 38% gain, The Wall Street Journal reports. Oppenheimer used those figures as it raised more than $55 million from investors, including two Massachusetts cities and an Illinois university.

The SEC is currently conducting an “informal inquiry” into private equity valuations. The regulator sent information requests to about a dozen firms in December.

Firms charged over private Facebook share offerings

Securities regulators took enforcement action against an online trading platform and two private funds offering Facebook shares on Wednesday, the first action in a year-long probe into the lightly regulated world of private company-share trading.

The SEC charged SharesPost, which matches buyers and sellers of private shares, and its CEO Greg Brogger with failing to register as a broker-dealer before offering the securities.

The SEC also brought charges against two private funds and their managers for allegedly misleading investors about hidden fees in Facebook stock offerings.

Insider trading charges brought against 5 with AA ties

The Securities and Exchange Commission says it is charging two financial advisors and three others connected to them with insider trading for more than $1.8 million in illegal profit gained from confidential information gleaned through an Alcoholics Anonymous relationship.

The SEC says Timothy J. McGee and Michael W. Zirinsky, representatives at Ameriprise Financial Services, traded in stock of insurance company Philadelphia Consolidated Holding Corp. before it was publicly known it was being acquired by Japanese firm Tokio Marine Holdings in July 2008.  McGee obtained the information after an executive at the Philadelphia insurer, with whom he had a relationship with through Alcoholics Anonymous, complained about pressure he was facing due to the impending acquisition.

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