Tag Archives: Investment Fraud

Financial Fraud: Louis F. Petrossi Was Convicted On Securities Fraud, Investment Adviser Fraud, And Wire Fraud

New York Investment Adviser Convicted Of Defrauding Investors

HARRISBURG – Louis F. Petrossi, age 77, the founder and president of the Wealth Research Institute, a purported investment research firm, was convicted yesterday by a federal jury in the Middle District of Pennsylvania, on three counts of securities fraud, investment adviser fraud, and wire fraud for his role in a scheme to defraud investors. The four-day trial was held before Chief United States District Court Judge Christopher C. Conner in Harrisburg.

David J. Freed, United States Attorney for the Middle District of Pennsylvania and Richard P. Donoghue, United States Attorney for the Eastern District of New York, jointly announced the verdict.

The evidence at trial established that Petrossi falsely claimed to investors that money they had invested in purported investment funds, Chadwicke Partners LLC (“Chadwicke Partners”) and Chadwicke Ventures LLC (“Chadwicke Ventures”), would be used to invest in startup companies. Instead, the defendant used the investors’ money to pay for personal expenses and issued fraudulent statements that overstated both the cost and value of the securities held by Chadwicke.

Financial Fraud: Louis F. Petrossi Was Convicted On Securities Fraud

The evidence also showed that between January 2015 and January 2017, Petrossi solicited more than $1.8 million in investments in Chadwicke Partners from more than 25 investors nationwide including an investor residing in the Middle District of Pennsylvania. Petrossi promoted Chadwicke as providing the opportunity to invest in high-profile startups companies such as Lyft, Inc., Maplebear Inc., Pinterest Inc., Spotify Technology SA, and Palantir Technologies, Inc. among others. Petrossi invested approximately $665,400 in privately held startup companies but used more than $1.1 million in investor funds to pay for personal expenses, including payments to BMW, renovations to his home and to pay his personal legal fees. In or around August 2016, Petrossi sent emails to Chadwicke investors attaching a spreadsheet that contained false and misleading statements about the purchase price and value of the securities held by the Chadwicke funds in order to conceal his misappropriation of investor money.

On May 3, 2016, Petrossi was arrested in Nevada pursuant to an indictment returned by a federal grand jury in the Eastern District of New York for his role in a securities fraud scheme involving the securities of ForceField Energy Inc. Under the terms of Petrossi’s pre-trial release, the defendant was prohibited from employment “directly involving the handling of investors.” Between May 3, 2016 and approximately January 2017, Petrossi continued to engage in the Chadwicke scheme by emailing the August 2016 spreadsheet and soliciting $210,000 in investor funds.

Petrossi faces a maximum of 20 years’ imprisonment on each count of conviction when he is sentenced by Chief Judge Conner of the Middle District of Pennsylvania.

Petrossi was convicted in May 2017 by a federal jury in Brooklyn for his role in the ForceField Energy Inc. market manipulation scheme. He faces a maximum sentence of 20 years’ imprisonment when he is sentenced by United States District Judge Brian M. Cogan of the Eastern District of New York.

Louis F. Petrossi

Assistant United States Attorney Mark E. Bini of the Eastern District of New York and Special Assistant United States Attorney John O. Enright of the United States Securities and Exchange Commission’s Enforcement Division prosecuted the case.

The matter was investigated by the United States Securities and Exchange Commission’s Enforcement Division.

A sentence following a finding of guilt is imposed by the Judge after consideration of the applicable federal sentencing statutes and the Federal Sentencing Guidelines.

Under the Federal Sentencing Guidelines, the Judge is also required to consider and weigh a number of factors, including the nature, circumstances and seriousness of the offense; the history and characteristics of the defendant; and the need to punish the defendant, protect the public and provide for the defendant’s educational, vocational and medical needs. For these reasons, the statutory maximum penalty for the offense is not an accurate indicator of the potential sentence for a specific defendant.

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Financial Fraud: BRIAN BLOCK Sentenced For Inflating a Key Metric Used to Evaluate The Financial Performance of Publicly Traded REITS in ARCP

Former Chief Financial Officer Of American Realty Capital Partners Sentenced For Accounting Fraud

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that BRIAN BLOCK, the former chief financial officer of the publicly traded real estate investment trust (“REIT”) formerly known as American Realty Capital Partners (“ARCP”), was sentenced to 18 months in prison for inflating a key metric used to evaluate the financial performance of publicly traded REITS in ARCP’s filings with the U.S. Securities and Exchange Commission (the “SEC”). BLOCK was convicted by a jury in June, following a three-week trial before U.S. District Judge J. Paul Oetken, who imposed today’s sentence.[1]

Acting Manhattan U.S. Joon H. Kim said: “Block, the CFO of a major REIT, deliberately cooked the books to mislead investors and the SEC. Investors in our securities markets must be able to trust that corporate officers will not lie about the financial health of a publicly traded company. And corporate officers who do lie face time in a federal prison, as Brian Block has learned.”

According to allegations contained in the Indictment, and evidence presented during the trial in Manhattan federal court:

In 2014, ARCP was a publicly traded REIT headquartered in Manhattan, New York. ARCP’s securities traded under the symbol “ARCP” on the National Association of Securities Dealers Automated Quotations (“NASDAQ”) exchange.

ARCP, like many REITs, measured its financial performance through metrics besides, or in addition to, traditional measurements of company performance calculated using Generally Accepted Accounting Principles (“GAAP”). ARCP calculated and reported to the investing public a non-GAAP measure called adjusted funds from operations, or AFFO, which was designed to more accurately reflect ARCP’s cash flow and financial performance by presenting ARCP’s income before consideration of non-cash depreciation and amortization expense and by excluding certain one-time charges and expenses. REITs such as ARCP commonly reported their AFFO figures, including AFFO per share, to the investing public and in filings with the SEC. ARCP also provided forward-looking guidance to the investing public regarding their anticipated AFFO performance in upcoming time periods.

Prior to the filing of ARCP’s Form 10-Q setting forth ARCP’s financial statements for the second quarter of 2014 (the “Second Quarter 10-Q”), BRIAN BLOCK, along with Lisa McAlister and others, came to understand that the method used by ARCP to calculate AFFO in the first quarter of 2014 and in certain previous quarters was erroneously inflated. Another employee of ARCP (“CC-1”) had brought this methodological error to the attention of BLOCK, McAlister, and others shortly before the filing of ARCP’s first quarter 2014 10-Q (the “First Quarter 10-Q”), but no corrective change was made to the First Quarter 10-Q while the issue was under review. Following the filing of the First Quarter 10-Q, CC-1 concluded, and advised BLOCK, McAlister, and others, that the reported AFFO per share calculation for the first quarter of 2014 was overstated by approximately $0.03 per share. Instead of $0.26 per share, which was publicly reported by ARCP to its shareholders and the investing public, and which placed ARCP on track to meet its full-year AFFO per-share guidance, the correct AFFO for the first quarter of 2014 was $0.23 per share.

Despite his knowledge of a material error in ARCP’s previous filings with the SEC, BLOCK took no steps to advise the Audit Committee of ARCP’s Board of Directors, or ARCP’s outside auditors, of the error in the First Quarter 10-Q. Moreover, BLOCK, McAlister, and CC-1 then knowingly facilitated the use of the same materially misleading calculations in ARCP’s Second Quarter 10-Q. For example, on July 24, 2014, a draft of ARCP’s Second Quarter 10-Q was circulated to members of ARCP’s Audit Committee. The draft included an AFFO calculation for the six-month period ending June 30, 2014, that incorporated AFFO figures from the first quarter of 2014 that BLOCK, McAlister, and CC-1 knew to be erroneously inflated.

On July 28, 2014, BLOCK met with McAlister and CC-1 in his office in Manhattan for the purpose of finalizing the financial figures that were to be included in ARCP’s Second Quarter 10-Q. Utilization of a proper method to calculate ARCP’s second quarter 2014 AFFO would have exposed that the reported AFFO and AFFO per share figures from the first quarter were inflated. Accordingly, during the meeting, BLOCK, McAlister, and CC-1 inserted into a spreadsheet BLOCK was using to calculate AFFO and AFFO per share for the first and second quarters of 2014 and for the first six months of 2014 (“YTD 2014”) figures that fraudulently inflated the AFFO and AFFO per share calculations that were to be included in the Second Quarter 10-Q and the related ARCP press release. The fraudulent numbers BLOCK, McAlister, and CC-1 used to inflate the AFFO and AFFO per share figures had no basis in fact, were without documentary support, and did not tie to ARCP’s general ledger accounting system, as BLOCK knew and understood at the time. The fraudulent numbers included in the spreadsheet prepared by BLOCK were then incorporated into ARCP’s Second Quarter 10-Q, which was filed with the SEC the following day. As a result of the manipulative efforts of BLOCK, McAlister, and CC-1, ARCP’s SEC filings included AFFO and AFFO per share figures for the second quarter of 2014 and for the first six months of 2014 that were fraudulently inflated.

The Second Quarter 10-Q was signed by, among others, BLOCK. Additionally, on a certification accompanying the 10-Q, BLOCK falsely certified, among other things, that the Second Quarter 10-Q did not contain any materially untrue statements or material omissions. He further falsely certified that he had disclosed to ARCP’s auditors and the audit committee of its board of directors: “Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.” In a second certification accompanying the 10-Q, BLOCK falsely certified that: “The quarterly report on Form 10-Q of the Company, which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.”

With regard to YTD 2014 specifically, the fraud resulted in an intended overstatement of AFFO by approximately $13 million and an intended overstatement of AFFO per share by approximately $0.03, or approximately 5 percent of total AFFO per share. By reporting AFFO per share of $0.24 in the second quarter, after having reported AFFO per share of $0.26 in the first quarter, BLOCK and his co-conspirators misled ARCP’s shareholders and the investing public by falsely representing that ARCP’s AFFO per share for the first six months of 2014 was consistent with analysts’ expectations and on track to meet ARCP’s guidance for AFFO per share for calendar year 2014, when in fact, they were not.


In addition to the prison term, BLOCK, 45, of Hatfield, Pennsylvania, was sentenced to three years of supervised release, and a $100,000 fine. Restitution will be determined at a future date.

Mr. Kim praised the investigative work of the Federal Bureau of Investigation and also thanked the SEC.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Brian Blais, Edward Imperatore, and Daniel Tehrani are in charge of the prosecution.

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Investment Fraud: ROBERT WALTER MURRAY Pled Guilty To Securities Fraud

Virginia Man Pleads Guilty In Manhattan Federal Court To $100 Million Market Manipulation Scheme Involving Fitbit Stock

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that ROBERT WALTER MURRAY pled guilty today in Manhattan federal court to securities fraud. In November 2016, MURRAY conducted a scheme to manipulate the market for the stock of Fitbit, Inc. (“Fitbit”) by filing a sham tender offer with the Securities and Exchange Commission (“SEC”). The sham tender offer falsely reported that another entity had made a bid to purchase all outstanding Fitbit stock at a significant premium to the then-existing market price. As a result, the price of Fitbit stock temporarily but significantly increased in price, allowing MURRAY to sell for a profit options that he had previously purchased. MURRAY’s sham tender offer, moreover, resulted in a temporary inflation in Fitbit’s market capitalization of over $100 million.

Acting U.S. Attorney Joon H. Kim said: “As Robert Murray admitted today, he manipulated the market in Fitbit stock by making a false filing with the SEC about a tender offer. After manipulating Fitbit’s stock price and temporarily inflating its market capitalization by over $100 million, Murray sought to take a quick profit from trading in Fitbit stock. Murray’s ill-advised and criminal attempt to game the system has ended in a federal securities fraud conviction.”

According to the allegations in the Complaint and Indictment filed in Manhattan federal court, previous court filings, and statements made in public court proceedings:

On November 8, 2016, MURRAY, falsely purporting to be an officer at a China-based entity called ABM Capital, created an account on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (or “EDGAR”) system. The next day, MURRAY submitted a filing on EDGAR that reported that ABM Capital had offered to purchase Fitbit for approximately $12.50 a share, a significant premium to the price of Fitbit stock at the time. This filing was made public on November 10, 2016, and, when it was, Fitbit’s stock temporarily increased in response to the news. While Fitbit’s stock had closed at approximately $8.55 a share on November 9, 2016, it reached a high of approximately $9.27 per share, with significantly increased trading volume, after the false tender offer filing was made public. MURRAY’s filing, however, was entirely fictitious, and was instead meant only to increase the value of options in Fitbit stock that he had purchased just before filing the sham tender offer.

MURRAY, moreover, took significant steps to hide his connection to the tender offer filing. He created a separate email account to register with the SEC and to file the sham tender offer, taking care to disguise his actual IP address when accessing it.


MURRAY, 24, of Chesapeake, Virginia, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5 million. In addition, pursuant to a plea agreement with the Government, MURRAY agreed to forfeit proceeds of the offense. MURRAY is scheduled to be sentenced by Judge Katherine B. Forrest on March 9, 2018.

The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Kim praised the exceptional work of the Office’s criminal investigators, and thanked the United States Postal Inspection Service and the Securities and Exchange Commission for their assistance.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney Robert Allen is in charge of the prosecution.

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Investment Fraud: MICHAEL SCRONIC Charged With Securities Fraud And Wire Fraud Arising Out of His Execution of a $19 Million Ponzi Scheme

Westchester Hedge Fund Manager Arrested For Running A Ponzi Scheme

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that MICHAEL SCRONIC, a hedge fund manager in Westchester County, was arrested this morning and charged with securities fraud and wire fraud arising out of his execution of a $19 million Ponzi scheme through the Scronic Macro Fund. SCRONIC will be presented before United States Magistrate Judge Lisa Margaret Smith in White Plains federal court later today.

Acting U.S. Attorney Joon H. Kim said: “Michael Scronic allegedly stole more than $19 million from investors by lying about the performance of his investment fund, and then spent much of that money on his own lavish lifestyle. Hedge fund managers who lie to their investors and steal their money, as Scronic is alleged to have done, will always be in our sights as targets for federal prosecution.”

FBI Assistant Director William F. Sweeney Jr. said: “Scronic’s alleged get-rich-quick scheme was, in fact, a plan to deceive investors, luring them into a false sense of security about their investments by overselling the reliability and success of the fund. The FBI will continue to identify and investigate those who defraud investors. We ask anyone who has information related to investor fraud submit a tip at https://tips.fbi.gov/.”

According to the allegations contained in the Complaint[1] unsealed today in White Plains federal court:

SCRONIC, a graduate of Stanford University and the University of Chicago’s business school, raised more than $19 million from 45 investors in the Scronic Macro Fund (the “Fund”) from April 2010 to the present. SCRONIC told investors that the Fund had positive returns in all but one of the 22 quarters from January 2012 through June 2017, with the highest reported quarterly return being 13.4 percent in the fourth quarter of 2014. In reality, the Fund lost money in 28 out of 29 quarters of its operation, with a total net loss of about $15.7 million before commissions. The Fund’s only positive quarter was its first quarter of operation in 2010.

As a result of these trading losses, the total assets SCRONIC claimed the Fund had in each quarter far exceeded its actual assets. For example, SCRONIC sent account statements to investors that together showed total fund assets of $21.7 million as of June 30, 2017. On that date, the combined balance of SCRONIC’s brokerage and bank accounts was $102,376.

In addition to losing money on trades, SCRONIC used investor money for personal expenses. His personal expenditures averaged more than $500,000 a year since January 2012 and included monthly rent of $12,275 on his primary residence in Westchester, mortgage payments on a vacation home in Stratton, Vermont, fees for multiple beach and country clubs, including a $30,000 payment to the Stratton Mountain Club in July 2017, and miscellaneous items charged to credit cards in amounts averaging more than $15,000 a month.

In recent months, SCRONIC has been unable to pay redemptions requested by existing Fund investors. Between June and August of this year, four Fund investors requested redemptions totaling about $1.5 million. SCRONIC has not had sufficient funds on hand to pay these redemptions. He instead has told these investors that the Fund would pay redemptions only at quarter end, that he was too busy and preoccupied with a relative’s medical condition to pay redemptions, and that he was unavailable to pay redemptions because he was on vacation. In some cases, SCRONIC ignored redemption requests.


SCRONIC, 46, of Westchester County, New York, is charged with one count of securities fraud and one count of wire fraud. Each charge carries a maximum sentence of 20 years in prison.

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

Mr. Kim praised the investigative work of the FBI. Mr. Kim also thanked the Securities & Exchange Commission for its assistance in the investigation.

In a related case, the Securities & Exchange Commission brought a civil action today against SCRONIC in U.S. District Court in White Plains.

The criminal case is being prosecuted by the Office’s White Plains Division. Assistant U.S. Attorney James McMahon and Special Assistant U.S. Attorney Daniel Loss are in charge of the prosecution.

 


As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth below constitute only allegations and every fact described should be treated as an allegation.

Investment Fraud: Wade Wylie Blackburn Sentenced To Conspiracy To Commit Mail Fraud

Dallas Man Sentenced in Connection with Denton County Highway Expansion Fraud

SHERMAN, Texas – A 34-year-old Dallas man has been sentenced to federal prison in connection with a Denton County highway expansion project in the Eastern District of Texas, announced Acting U.S. Attorney Brit Featherston today.

Wade Wylie Blackburn, pleaded guilty on Apr. 19, 2017, to conspiracy to commit mail fraud and was sentenced to 12 months and one day in federal prison on Sep. 14, 2017, by U.S. District Judge Marcia A. Crone. Blackburn was also ordered to pay restitution in the amount of $1 million to the Texas Department of Transportation.

According to information presented in court, from 2008 to 2011, Blackburn conspired with Kevin James Bollman to defraud the Texas Department of Transportation (TXDOT.) Blackburn and Bollman raised investment money and purchased Right-of-Way (ROW) along Interstate Highway 35 East in Denton County with the intent of quickly re-selling the ROW land tracts to TXDOT.

TXDOT acquired ROW through one of three methods: (1) Condemnation (normal acquisition); (2) Early Acquisition (EAQ); and (3) Advanced Acquisition (AAQ) through option contracts. The first two methods required environmental clearances before TXDOT was permitted to acquire the ROW and pay the landowner. The timing on these acquisitions, including the timing of the environmental clearance issued by the federal government, is unpredictable and often takes years to accomplish. The third method – the AAQ method through option contracts – permitted TXDOT to execute an option contract before environmental clearances were obtained, then pay the landowners a significant up-front option fee designed to keep the landowner from transferring or developing the property on the ROW that would later result in TXDOT likely having to pay more for the ROW. The landowner agreed not to develop the property in exchange for the up-front option fee, then closed on the sale and received the remainder of the purchase money after the environmental clearances were obtained.

As part of the scheme, Blackburn and Bollman intentionally caused false material information to be submitted to the TXDOT appraiser regarding, among other things, their development plans for the various properties. Blackburn and Bollman made these representations to the TXDOT appraiser even though they knew they had no intent to develop any of the properties. Blackburn also wrote a letter with material false statements to individuals at TXDOT. It claimed they were being forced to forego imminent development plans for the tracts, had been unable to successfully secure building permits, and were experiencing financial hardships as a result. Blackburn and Bollman also made false material oral misrepresentations to officials of TXDOT when they told them that they were experiencing financial hardships as a result of not being able to proceed with immediate development of the tracts, and that TXDOT should use the AAQ method to immediately purchase the tracts. Blackburn and Bollman made the material misrepresentations to TXDOT so they could ultimately benefit from the up-front option fee rather than wait for TXDOT acquisition by their usual course of condemnation. TXDOT used option contracts to purchase the tracts for higher prices than what Blackburn and Bollman paid for the tracts. Blackburn was indicted by a federal grand jury in April 2016.

According the general counsel for TXDOT, this is the first time a developer has been ordered to pay restitution for providing false information. Bollman is scheduled to be sentenced on Oct. 30, 2017.

This case was investigated by the Federal Bureau of Investigation and prosecuted by Assistant U.S. Attorneys Christopher A. Eason and J. Andrew Williams.

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Financial Fraud: Robert Raffa Pleaded Guilty For His Role In a Market Manipulation Scheme

Stock Broker Pleads Guilty to Microcap Stock Manipulation Scheme

BOSTON – A former New Hampshire stockbroker pleaded guilty today for his role in a market manipulation scheme which was actually part of an undercover operation.

Robert Raffa, 57, of Penacook, NH, pleaded guilty to one count of conspiracy to commit securities and wire fraud, one count of securities fraud, and three counts of wire fraud. U.S. District Court Chief Judge Patti B. Saris scheduled sentencing for Dec. 6, 2017. In April 2016, Raffa and a co-conspirator were arrested and charged in connection with their role in a scheme to manipulate the market for the publicly traded securities of Green Energy Renewable Solutions, Inc., a penny stock company that claimed to be in the business of developing and operating waste processing and recycling facilities near Detroit, MI.

In early 2012, the conspirators used four foreign entities to covertly acquire nearly all of Green Energy’s unrestricted stock without reporting their controlling interest as required by law. They then hired a promoter to send blast e-mails touting Green Energy to potential investors, all while selling shares without disclosing that they had orchestrated the campaign encouraging investors to buy.

The initial promotion enabled the conspirators to sell more than 1.5 million shares of Green Energy stock for proceeds of over $900,000. However, as the conspirators continued to control a substantial amount of Green Energy stock after the promotion ended, they used manipulative trading techniques to stabilize Green Energy’s stock price while they searched for another promoter to run a second touting campaign. Their search led them to a stock promoter who was secretly cooperating with federal agents and an undercover agent who claimed to have access to a network of corrupt stockbrokers who would buy their shares in exchange for kickbacks. Raffa and his co-conspirator executed a trade in which they sold 174,000 shares of their Green Energy stock to an account purportedly controlled a corrupt broker, which was in fact controlled by federal authorities. Following the trade, the conspirators wired a $6,000 kickback payment to an account they believed to be controlled by the corrupt broker, but which was actually controlled by federal authorities.

In a parallel action, the Securities and Exchange Commission (SEC) previously charged Raffa with securities fraud in connection with the scheme.

These charges arose out of a multi-year investigation focusing on preventing fraud in the microcap stock markets. Microcap companies are small publicly traded companies whose stock often trades at pennies per share. Fraud in the microcap markets is of increasing concern to regulators as such markets have proven to be fertile grounds for fraud and abuse. This is, in part, because accurate information about microcap stocks may be difficult for the average investor to find, since many microcap companies do not file financial reports with the SEC.

Today’s charges follow a series of cases filed by the U.S. Attorney for the District of Massachusetts and the SEC in which more than 30 individuals have been criminally charged and convicted for using kickbacks and other schemes to trigger investment in, or manipulate the stock of, thinly-traded stocks.

The charge of conspiracy provides for a sentence of no greater than 25 years in prison, five years of supervised release and a fine of $250,000, or twice the gain or loss. The charge of securities fraud provides for a sentence of no greater than 25 years in prison, five years of supervised release and a fine of $250,000, or twice the gain or loss. The charges of wire fraud provide for a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of $250,000, or twice the gain or loss. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.

Acting United States Attorney William D. Weinreb and Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division made the announcement today. The United States Attorney’s Office received valuable assistance from the SEC. Assistant U.S. Attorney Vassili Thomadakis of Weinreb’s Criminal Division and SEC Attorney Andrew Palid, who was appointed as a Special Assistant U.S. Attorney, are prosecuting this case.

The details contained in the charging document are allegations. The remaining defendant is presumed to be innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

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Financial Fraud: Craig Carton And Michael Wright Arrested And Charged With Securities Fraud, Wire Fraud, And Conspiracy to Commit Those Offenses

Manhattan U.S. Attorney And FBI Assistant Director Announce Securities And Wire Fraud Charges Against Craig Carton And Michael Wright

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, and William F. Sweeney Jr, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today that CRAIG CARTON and MICHAEL WRIGHT were arrested this morning and charged with securities fraud, wire fraud, and conspiracy to commit those offenses.

As alleged, CARTON, WRIGHT, and another individual (“CC-1”) worked together to induce investors to provide them with millions of dollars, based on representations that the investor funds would be used to purchase blocks of tickets to concerts, which would then be re-sold on the secondary market. CARTON and CC-1 purportedly had access to those blocks of tickets based on agreements that CC-1 had with a company that promotes live music and entertainment events (the “Concert Promotion Company”) and that CARTON had with a company that operates two arenas in the New York metropolitan area (the “Sports and Entertainment Company”). In fact, neither the Concert Promotion Company nor the Sports and Entertainment Company had any such agreement with CARTON, WRIGHT, or CC-1, or any entity associated with them. After receiving the investor funds, CARTON, WRIGHT, and CC-1 misappropriated those funds, using them to, among other things, pay personal debts and repay prior investors as part of a Ponzi-like scheme.

CARTON and WRIGHT will be presented later today in Manhattan federal court.

Acting Manhattan U.S. Attorney Joon H. Kim said: “As alleged, Craig Carton and Michael Wright deceived investors and raised millions of dollars through misrepresentation and outright lies. Their schemes were allegedly propped up by phony contracts with two companies to purchase blocks of concert tickets, when in fact, Carton and Wright had no deals to purchase any tickets at all. As alleged, behind all the talk, the Wright and Carson show was just a sham, designed to fleece investors out of millions ultimately to be spent on payments to casinos and to pay off other personal debt.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “Carton and Wright thought they could get off easy by allegedly paying off their debts with other people’s money. They then attempted to pay off investors with money that would eventually become future debt, as alleged. We see this time and time again, the rise and fall of a Ponzi scheme destined for failure. The truth is, the time will come when your luck runs out. Unfortunately for those arrested today, that time is now.”

According to the Complaint unsealed today Manhattan federal court:

In the fall of 2016, CARTON, WRIGHT, and CC-1 exchanged emails and text messages regarding their existing debts. On September 5, 2016, for example, WRIGHT emailed CARTON and CC-1, “for the sake of our conversation tomorrow,” and outlined “the debt past due and due next week.” WRIGHT listed several apparent creditors, to whom he, CC-1, and/or CARTON were personally indebted for over a million dollars. WRIGHT listed eight possible options for repaying the debt, including “Run to Costa Rica, change name, and start life all over again – may not be an option.” CARTON responded to WRIGHT and CC-1, stating “don’t forget I have $1m coming tomorrow from ticket investor[.] will need to be discussed how to handle.” On September 7, 2016, CARTON emailed WRIGHT and CC-1, referenced a potential investor (“Investor-1”) in an upcoming holiday concert tour, and suggested “borrow[ing] against projected profits” on that investment.

Later in the fall of 2016, CARTON began negotiating with a hedge fund (the “Hedge Fund”) regarding a transaction in which the Hedge Fund would extend CARTON capital to finance CARTON’s purchase of event tickets, which CARTON would then re-sell at a profit. In early December 2016, CC-1 texted CARTON and WRIGHT and discussed using the Hedge Fund’s capital “to repay debts,” and not for the purchase of tickets.

The next day, December 7, 2016, CARTON emailed the Hedge Fund five agreements between (i) CC-1 and a company controlled by CC-1 (the “CC-1 Entity”) and (ii) the Concert Promotion Company. In each of the purported agreements, the Concert Promotion Company agreed to sell the CC-1 Entity up $10 million worth of tickets to different concert tours. However, as alleged, these agreements were fraudulent and had not, in fact been entered into by the Concert Promotion Company.

The following day, the Hedge Fund and CARTON executed the revolving loan agreement (the “Revolving Loan Agreement”), under which the Hedge Fund agreed to provide CARTON with up to $10 million, for the purpose of funding investments in the purchase of tickets for events. The Revolving Loan Agreement provided, in sum and substance, that the proceeds of the loan would be used only to purchase tickets pursuant to agreements for the acquisition of tickets, including the agreements with the Concert Promotion Company and for limited business expenses. The Hedge Fund would receive a share of the profits from the resale of the tickets.

The Hedge Fund then sent $700,000 to the CC-1 Entity to finance the purchase of tickets pursuant to the agreements between the CC-1 Entity and the Concert Promotion Company. CC-1, however, then sent this money to a bank account controlled by WRIGHT, who then, on December 12, sent $200,000 to CARTON’s personal bank account (the “CARTON Bank Account”), which CARTON then wired to a casino. Also on December 12, WRIGHT sent another $500,000 to an individual who had previously lent CARTON $500,000, which was due to be repaid that day.

Later in December 2016, the Hedge Fund sent an additional $1.9 million to the CC-1 Entity, to finance the purchase of tickets pursuant to agreements between the CC-1 Entity and the Concert Promotion Company. Once again, the Concert Promotion Company had not entered into any such agreements. CC-1, WRIGHT, and CARTON engaged in text messages regarding the disposition of these funds. Some of the money was used by CC-1 to repay two individuals who had previously invested with CC-1 in a related scheme involving the purported investment in the resale of tickets, and by CARTON to pay casinos and to pay Investor-1 a purported return on an earlier investment in a ticket-related venture.

CARTON also induced the Hedge Fund to wire $2 million to the Sports and Entertainment Company, based purportedly on an agreement he had with the Sports and Entertainment Company (the “Sports and Entertainment Company Agreement”). The Sports and Entertainment Company Agreement purportedly gave an entity controlled by CARTON (the “CARTON Entity”) the right to purchase $2 million of tickets to concerts at one of the venues operated by the Sports and Entertainment Company. CARTON, among other things, sent the Hedge Fund a copy of the Sports and Entertainment Company Agreement that purportedly had been signed by the chief executive officer of the Sports and Entertainment Company. However, this agreement was fraudulent and had never been entered into by the Sports and Entertainment Company or signed by the chief executive officer.

On December 20, 2016, when the Hedge Fund wired the $2 million to the Sports and Entertainment Company, CARTON contacted the Sports and Entertainment Company and told them, in sum and substance, that the wire had been sent in error and should be sent to the bank account for an entity operated by CARTON and WRIGHT, for which WRIGHT is the signatory. After the money was rewired to that account, WRIGHT wired $966,000 to WRIGHT’s personal bank account and $700,000 to the CARTON Bank Account. CARTON then wired approximately $188,000 from the CARTON Bank Account, including at least $133,000 in wires to several casinos.

* * *

CARTON, 48, of New York, New York, and WRIGHT, 41, of Upper Saddle River, New Jersey, are each charged with one count of conspiracy to commit securities fraud and wire fraud, one count of wire fraud, and one count of securities fraud. The conspiracy count carries a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Kim praised the investigative work of the FBI and thanked the Boston Regional Office of the U.S. Securities and Exchange Commission, which has filed civil charges against CARTON and CC-1 in a separate action. He added that the FBI’s investigation is ongoing.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Brendan F. Quigley and Elisha J. Kobre are in charge of the prosecution.

The allegations contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

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Financial Fraud: Scott Newsholme Charged In Million Investment Fraud Scheme

Monmouth County Investment Adviser And Tax Preparer Charged In $1.8 Million Investment Fraud Scheme

TRENTON, N.J. – A Farmingdale, New Jersey, man was arrested and charged today with defrauding investment clients out of more than $1.8 million, Acting U.S. Attorney William E. Fitzpatrick announced.

Scott Newsholme, 42, is charged by criminal complaint with one count each of mail fraud, wire fraud, and securities fraud. He was arrested by FBI and IRS special agents this morning and will appear later this afternoon before U.S. Magistrate Judge Tonianne J. Bongiovanni in Trenton federal court.

According to the complaint:

Since 2002, Newsholme owned and operated at least three different financial advisory and tax return preparation businesses. Between 2007 and 2016, Newsholme recommended to multiple clients that they invest their money with him, which he would use on their behalf to purchase various securities, including bond instruments issued by a private New Jersey country club, a bond investment in a video-game production company, and investments in the production of a movie. Newsholme also represented to clients that he would invest their money in more traditional securities, including mutual funds, annuities, life insurance policies, college education accounts, and money market funds.

Newsholme directed his investment clients to write checks to him or one of his companies so that he could execute the investments on their behalf.

However, rather than invest them as promised, Newsome used the funds for personal expenses, including multiple vehicles, bedroom furniture, debits at casinos, bank transfers to Newsholme’s personal bank accounts, and ATM withdrawals. In many cases, the investments that Newsholme recommended did not even exist.

In addition, Newsholme concealed his scheme by diverting incoming investment funds to pay other clients who had requested to withdraw funds from their investment portfolios. Newsholme also provided his clients phony account statements, security instruments, and other documentation showing the purported investments made on his clients’ behalf. Overall, Newsholme’s alleged scheme caused investment losses of over $1.8 million.

The mail and wire fraud counts each carry a maximum potential penalty of 30 years in prison and a $1 million fine. The securities fraud count carries a maximum potential penalty of 20 years in prison and $5 million fine.

In a separate civil action, the U.S. Securities and Exchange Commission (SEC) today filed a complaint against Newsholme in Trenton federal court.

Acting U.S. Attorney Fitzpatrick credited special agents of the FBI, Newark Division, Red Bank Resident Agency, under the direction of Special Agent in Charge Timothy Gallagher, and special agents of IRS-Criminal Investigation, under the direction of Special Agent in Charge Jonathan D. Larsen, with the investigation. He also thanked the SEC’s New York Regional Office, under the direction of Andrew Calamari, and the N.J. Bureau of Securities, under the direction of Bureau Chief Christopher Gerold, for their assistance.

The government is represented by Assistant U.S. Attorney J. Brendan Day of the U.S. Attorney’s Office’s Criminal Division in Trenton.

The charges and allegations contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

If you believe you are a victim of or otherwise have information concerning this alleged scheme, you are encouraged to contact the FBI at 973-792-3000.

Defense Counsel: Gregory E. Tomczak Esq., Scottsdale, Arizona

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Financial Fraud: Common Investment Frauds

Investment scams prey on your hope to earn interest or a return on investment on the amount of money that you invest. The Securities and Exchange Commission (SEC) offers overviews of many common investment frauds, and tips to avoid being a victim.

If you are the victim of an investment fraud, you can file a complaint with the SEC or with your state’s securities administrator.

Types of Fraud

Investment fraud comes in many forms. Whether you are a first-time investor or have been investing for many years, here are some basic facts you should know about different types of fraud.

Affinity Fraud
Advance Fee Fraud
Binary Options Fraud
High Yield Investment Programs
Internet and Social Media Fraud
Microcap Fraud
Ponzi Scheme
Pre-IPO Investment Scams
Pyramid Schemes
“Prime Bank” Investments
Promissory Notes
Pump and Dump Schemes

Information on the following frauds is available on the Commodity Futures Trading Commission website at the links below.

Commodity Pool Fraud
Foreign Currency Trading Fraud
Precious Metals Fraud

Affinity Fraud

Affinity frauds target members of identifiable groups, such as the elderly, or religious or ethnic communities. The fraudsters involved in affinity scams often are – or pretend to be – members of the group. They may enlist respected leaders from the group to spread the word about the scheme, convincing them it is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraud they helped to promote.

These scams exploit the trust and friendship that exists in groups of people. Because of the tight-knit structure of many groups, outsiders may not know about the affinity scam. Victims may try to work things out within the group rather than notify authorities or pursue legal remedies.

Affinity scams often involve “Ponzi” or pyramid schemes where new investor money is used to pay earlier investors, making it appear as if the investment is successful and legitimate.

Advance Fee Fraud

Advance fee frauds ask investors to pay a fee up front – in advance of receiving any proceeds, money, stock, or warrants – in order for the deal to go through. The advance payment may be described as a fee, tax, commission, or incidental expense that will be repaid later. Some advance fee schemes target investors who already purchased underperforming securities and offer to sell those securities if an “advance fee” is paid, or target investors who have already lost money in investment schemes. Fraudsters often direct investors to wire advance fees to escrow agents or lawyers to give investors comfort and to lend an air of legitimacy to their schemes. Fraudsters also may try to fool investors with official-sounding websites and e-mail addresses.

Advance fee frauds may involve the sale of products or services, the offering of investments, lottery winnings, found money, or many other so-called opportunities. Fraudsters carrying out advance fee schemes may:

  • Offer common financial instruments such as bank guarantees, old government or corporate bonds, medium or long term notes, stand-by letters of credit, blocked funds programs, “fresh cut” or “seasoned” paper, and proofs of funds;
  • Offer to find financing arrangements for clients who pay a “finder’s fee” in advance; or
  • Pose as legitimate U.S. brokers or firms and offer to help investors recover their stock market losses by exchanging worthless stock, but requiring investors to pay an upfront “security deposit” or post an “insurance” or “performance bond.”

Binary Options Fraud

Much of the binary options market operates through Internet-based trading platforms that are not necessarily complying with applicable U.S. regulatory requirements and may be engaging in illegal activity.  Investors should be aware of fraudulent promotion schemes involving binary options and binary options trading platforms.

What is a Binary Option?

A binary option is a type of options contract in which the payout depends entirely on the outcome of a yes/no proposition and typically relates to whether the price of a particular asset will rise above or fall below a specified amount.  Once the option is acquired, there is no further decision for the holder to make regarding the exercise of the binary option because binary options exercise automatically.  Unlike other types of options, a binary option does not give the holder the right to buy or sell the specified asset.  When the binary option expires, the option holder receives either a pre-determined amount of cash or nothing at all.

Investor Complaints Relating To Fraudulent Binary Options Trading Platforms

The SEC has received numerous complaints of fraud associated with websites that offer an opportunity to buy or trade binary options through Internet-based trading platforms.  The complaints fall into at least three categories:

  1. Refusal to credit customer accounts or reimburse funds to customers

These complaints typically involve customers who have deposited money into their binary options trading account and who are then encouraged by “brokers” over the telephone to deposit additional funds into the customer account.  When customers later attempt to withdraw their original deposit or the return they have been promised, the trading platforms allegedly cancel customers’ withdrawal requests, refuse to credit their accounts, or ignore their telephone calls and emails.

  1. Identity theft

These complaints allege that certain Internet-based binary options trading platforms may be collecting customer information (including copies of customers’ credit cards, passports, and driver’s licenses) for unspecified uses.  Do not provide personal data.

  1. Manipulation of software to generate losing trades

These complaints allege that the Internet-based binary options trading platforms manipulate the trading software to distort binary options prices and payouts.  For example, when a customer’s trade is “winning,” the countdown to expiration is extended arbitrarily until the trade becomes a loss.

Beware of Overstated Investment Returns for Binary Options

Additionally, some binary options Internet-based trading platforms may overstate the average return on investment by advertising a higher average return on investment than a customer should expect, given the payout structure.

For example, a customer may be asked to pay $50 for a binary option contract that promises a 50% return if the stock price of XYZ company is above $5 per share when the option expires.  Assuming a 50/50 chance of winning, the payout structure has been designed in such a way that the expected return on investment is actually negative, resulting in a net loss to the customer.  This is because the consequence if the option expires out of the money (approximately a 100% loss) significantly outweighs the payout if the option expires in the money (approximately a 50% gain).  In this example, an investor could expect — on average — to lose money.

Always Check the Background of a Firm or Financial Professional

Before investing, check out the background, including registration or license status, of any firm or financial professional you are considering dealing with through the SEC’s Investment Adviser Public Disclosure (IAPD) database, available on Investor.gov, and the National Futures Association Background Affiliation Status Information Center’s BASIC Search.  If you cannot verify that they are registered, don’t trade with them, don’t give them any money, and don’t share your personal information with them.

High Yield Investment Programs

The Internet is awash in so-called “high-yield investment programs” or “HYIPs.” These are unregistered investments typically run by unlicensed individuals – and they are often frauds. The hallmark of an HYIP scam is the promise of incredible returns at little or no risk to the investor. A HYIP website might promise annual (or even monthly, weekly, or daily!) returns of 30 or 40 percent – or more. Some of these scams may use the term “prime bank” program. If you are approached online to invest in one of these, you should exercise extreme caution – it is likely a fraud.

Financial Fraud: Jared Mitchell Sentenced In Securities Fraud For His Role in The Fraudulent Market Manipulation of ForceField Energy Inc.

Forcefield Energy Investor Relations Professional Sentenced To 36 Months In Prison For Role In A $131 Million Market Manipulation Scheme

Jared Mitchell, an investor relations professional, was sentenced earlier today to 36 months’ imprisonment, to be followed by three years of supervised release, after having pleaded guilty to securities fraud for his role in the fraudulent market manipulation of ForceField Energy Inc. (ForceField), a publicly traded company previously listed on the NASDAQ under the ticker symbol “FNRG.”

The sentencing was announced by Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office.

According to court filings and facts presented at the sentencing hearing, between 2009 and 2015, Mitchell and others engaged in a scheme to defraud investors in ForceField, a purported worldwide distributor and provider of LED lighting products and solutions, by artificially controlling the price and volume of traded shares of ForceField. Mitchell and others committed this crime by, among other means: (1) secretly using nominees to purchase and sell ForceField stock without disclosing this information to investors and potential investors; (2) orchestrating the trading of ForceField stock to create the misleading appearance of genuine trading volume and interest in the stock; and (3) concealing secret payments to stock promoters and broker dealers who promoted and sold ForceField stock to investors and potential investors while falsely claiming to be independent of the company. The fraudulent scheme caused a loss of approximately $131 million to the investing public.

Between October 2014 and April 2015, a ForceField executive paid secret commissions, or kickbacks, to Mitchell. Mitchell then paid a portion of the kickbacks to registered brokers in exchange for the registered brokers’ purchasing ForceField stock in their clients’ brokerage accounts. Mitchell kept the remaining portion of the kickbacks for himself. The registered brokers did not disclose to their clients the kickbacks they were receiving for purchasing ForceField stock. Mitchell and his co-conspirators took pains to conceal their participation in the fraudulent scheme by using prepaid, disposable cellular telephones and encrypted, content-expiring messaging applications to communicate with each other, and by paying kickbacks in cash during in-person meetings.

Today’s proceeding, which took place before United States District Court Judge Brian M. Cogan, is the fourth sentencing to take place in connection with the ForceField securities fraud. Four other defendants who pleaded guilty in this matter, and one defendant convicted after trial, remain to be sentenced.

The government’s case is being handled by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys Mark E. Bini and Lauren H. Elbert are in charge of the prosecution.

The Defendant:

JARED MITCHELL

Age: 35

Residence: Brooklyn, New York

E.D.N.Y. Docket No. 16-CR-234 (BMC)

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Investment Fraud: PATRICK MURACA Charged With Wire Fraud, In Connection With a Scheme To Defraud Investors

Manhattan U.S. Attorney Announces Arrest In Scheme To Defraud Investors In Purported Medical And Pharmaceutical Businesses

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal Complaint charging PATRICK MURACA with wire fraud, in connection with a scheme to defraud investors in purported medical and pharmaceutical companies owned and controlled by MURACA. MURACA was arrested this morning in Pittsfield, Massachusetts, and is expected to be presented in federal court in Springfield, Massachusetts, later today.

Acting U.S. Attorney Joon H. Kim said: “Patrick Muraca promised investors their money would be used to expand his businesses, but as alleged, he instead used those funds to line his pockets. Thanks to the investigative work of the FBI, Muraca must now answer for his fraud.”

FBI Assistant Director-in-Charge William Sweeney said: “The prevalence of fraud in today’s society is simply troubling. Misappropriating investor funds for one’s own indulgences will never be taken lightly, and fraud of any kind will be thoroughly investigated.”

According to the allegations in the Complaint[1] unsealed today in Manhattan federal court:

MURACA, the former President of Nuclea Biotechnologies, Inc., which filed for bankruptcy in August 2016, founded two new businesses in 2016: NanoMolecularDX LLC (“NanoMolecular”) and MetaboRx LLC (“Metabo”). In sworn testimony during a deposition conducted by the Securities and Exchange Commission (“SEC”) in April 2017, MURACA stated that NanoMolecular’s primary business is to develop medical diagnostic tests and that Metabo is a pharmaceutical company.

From at least in or about May 2016 up to and including in or about June 2017, MURACA solicited and received a total of more than approximately $1 million from investors by making false and misleading representations that the investors’ money would be used to expand the business of NanoMolecular and Metabo. MURACA then misappropriated hundreds of thousands of dollars of these investors’ funds and used the misappropriated money for personal expenses. For example, MURACA spent tens of thousands of dollars of investor funds on rent, utilities, and food distributor expenses related to the operation of a restaurant owned by his fiancée. In addition, MURACA wrote approximately $176,000 in checks to himself from the bank accounts associated with NanoMolecular and Metabo, and he used investor funds to make purchases of hundreds of dollars each at a cigar store, an online ticket retailer, and a tattoo and piercing establishment, among other businesses.

MURACA, of Pittsfield, Massachusetts, is charged in the Complaint with one count of wire fraud, which carries a maximum sentence of 20 years in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Kim praised the investigative work of the FBI in this case, and thanked the SEC, which has filed civil charges in a separate action.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney David Abramowicz is in charge of the prosecution.

The charge contained in the Complaint is merely an accusation, and the defendant is presumed innocent unless and until proven guilty.

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Financial Fraud: Anthony J. Klatch II Sentenced For Conspiracy, Securities Fraud, Wire Fraud, and Money Laundering

Tampa Investment Scheme Mastermind Sentenced To More Than Nine Years In Federal Prison

Tampa, Florida – U.S. District Judge James D. Whittemore today sentenced Anthony J. Klatch II (36, previously of Tampa) to nine years and seven months in federal prison for wire fraud. The Court also ordered that he serve this sentence consecutive to a 39-month sentenced imposed in December 2016, in the Southern District of Florida for access device fraud and identity theft. Klatch also must pay $516,754.94 in restitution to the victims of his investment scheme.

According to court documents, in or around 2011, Klatch pleaded guilty to federal charges of conspiracy, securities fraud, wire fraud, and money laundering in the Southern District of Alabama. In December 2014, after his release from federal prison, he began serving a term of supervised release in Tampa.

While on supervised release, Klatch directed the establishment of and controlled a company called Assurance Capital Management, LLC (“ACM”) and maintained a bank account opened in that name. Between June 2015 and September 2015, Klatch used ACM to represent to investors and potential investors that ACM was a company with over $18 million in client assets under management and that ACM and those working for ACM engaged in profitable online stock trading on behalf of its investors. In truth, ACM was a shell company used by Klatch to induce and defraud investors.

In executing his scheme, Klatch would often disguise his true identity and tell investors that his name was “Larry Heim,” ACM’s fund manager. Klatch, often posting as “Larry Heim,” provided investors and potential investors false and fraudulent financial statements and other investment materials showing that ACM was profitable and had more than $18 million in online trading accounts and that its funds were profitably traded. In reality, ACM had few if any funds “under management,” and the funds ACM did have were either lost by Klatch during trading or used by him for personal expenditures. In total, Klatch defrauded investors out of more than $516,000.

In early 2016, while serving a nine-month sentence for violating his supervised release in the Alabama case, but before being charged in this case, Klatch absconded from a halfway house. He was rearrested approximately six months later in Miami. At the time of his arrest, he had approximately eight stolen identities in his possession that he had used to generate counterfeit credit cards to purchase such things as luxury automobiles and resort memberships.

This case was investigated by the Federal Bureau of Investigation, with assistance from the Commodities Futures Trading Commission. It was prosecuted by Assistant United States Attorney Mandy Riedel.

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Financial Fraud: THOMAS HEAPHY, JR., Indicted And Pleaded Guilty to Conspiracy And Tax Offenses Stemming

Long Island Man Pleads Guilty to Conspiracy and Tax Offenses Stemming from Stock “Pump and Dump” Scheme

Deirdre M. Daly, United States Attorney for the District of Connecticut, announced that THOMAS HEAPHY, JR., 42, of East Moriches, N.Y., waived his right to be indicted and pleaded guilty today in New Haven federal court to conspiracy and tax offenses stemming from his role in a securities fraud scheme.

According to court documents and statements made in court, between approximately 2011 and July 2016, HEAPHY conspired with others, including Christian Meissenn, William Lieberman and Damian Delgado, to defraud investors through a stock “pump and dump” scheme. HEAPHY and his co-conspirators induced investors to purchase securities by making false and misleading representations in calls, emails and press releases concerning the securities and the issuing companies, thereby causing the price of those securities to become falsely inflated. The issuing companies, which were essentially shell companies with virtually no legitimate business activities, included Terra Energy Resources Ltd. (stock symbol “TRRE”); Mammoth Energy Group, Inc. (stock symbol “MMTE”), a company that later became Strategic Asset Leasing Inc. (stock symbol “LEAS”); Trilliant Exploration Corporation (stock symbol “TTXP”); Hermes Jets, Inc. (stock symbol “HRMJ”), which later became Continental Beverage Brands Corporation (stock symbol “CBBB”); Dolat Ventures, Inc. (stock symbol “DOLV”), and Fox Petroleum, Inc. (stock symbol “FXPT”).

HEAPHY’s numerous misrepresentations induced investors to purchase securities, thus causing the share price of the securities to become artificially inflated. Certain of HEAPHY’s co-conspirators then sold their own preexisting positions in the securities at a profit. They then allowed he price of the securities to fall, leaving investors with worthless and unsalable stock. As a result, victim investors lost millions of dollars.

HEAPHY received approximately 25 percent of all money that he induced individuals to invest. His personal gain from the scheme totaled approximately $719,000. HEAPHY disguised the income by having the funds flow through the trust accounts of various attorneys, including Corey Brinson in Connecticut, into bank accounts in the name of various shell entities under HEAPHY’s control. HEAPHY’s failure to pay taxes on this income resulted in a loss of $147,345 to Internal Revenue Service.

HEAPHY pleaded guilty to one count of conspiracy to commit mail and wire fraud, which carries a maximum term of imprisonment of 20 years, and one count of tax evasion, which carries a maximum term of imprisonment of five years. He is scheduled to be sentenced by U.S. District Judge Jeffrey A. Meyer on October 20, 2017.

At sentencing, HEAPHY will be ordered to pay restitution to his victims, as well as back taxes, interest and penalties to the Internal Revenue Service.

On November 8, 2016, Meissenn, also known as “Christian Nigohossian,” of Suffield, Conn., pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of tax evasion. He awaits sentencing.

On January 20, 2017, Brinson, of Hartford, pleaded guilty to one count of engaging in a monetary transaction in property derived from specified unlawful activity. On April 13, 2017, he was sentenced to 36 months of imprisonment.

On May 10, 2017, Lieberman, of Boca Raton, Fla., pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of tax evasion. He awaits sentencing.

On May 12, 2017, Delgado, of Orlando. Fla., pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of tax evasion. He awaits sentencing.

This ongoing investigation is being conducted by the Federal Bureau of Investigation, Internal Revenue Service – Criminal Investigation Division and U.S. Postal Inspection Service, with assistance from the Connecticut Department of Banking and the Hartford and Stamford Police Departments. This case is being prosecuted by Assistant U.S. Attorneys Avi M. Perry and Peter S. Jongbloed.

Citizens with information that may be helpful to this ongoing investigation, or who believe they may have been victimized by this scheme, are encouraged to contact the FBI at (203) 777-6311.

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Investment Fraud: Jill M. Evans Sentenced For Wire Fraud And Money Laundering

Littleton Woman Sentenced to Seven Years in Federal Prison for Oil and Investment Scheme

DENVER – Jill M. Evans, age 51, of Littleton, Colorado, was recently sentenced by U.S. District Court Judge John L. Kane to serve 84 months (7 years) in federal prison for wire fraud and money laundering, the U.S. Attorney’s Office, FBI and Internal Revenue Service – Criminal Investigations announced. Following her prison sentence, Evans was ordered to serve 3 years on supervised release. She was also ordered by Judge Kane to pay $2,094,500 in restitution. Evans was indicted by a federal grand jury on May 21, 2015 and pled guilty on January 23, 2017. She was remanded to the custody of the U.S. Marshals at the end of the hearing.

According to the indictment and plea agreement, in September 2011 and continuing through May 2015, Evans devised a scheme to defraud at least eight individuals whom she solicited to invest in alleged oil transactions. Evans represented to potential investors that she or one of her companies, Paramount Mortgage or Evcom, had a contract with a Russian company to purchase tankers of diesel oil and jet fuel. She claimed that the oil deals could not be completed until certain fees or other expenses related to the deals could be paid.

Evans falsely told investors they would receive a return on their investment ranging from fifty percent to fifty times their original investment within a matter of days or weeks. She told investors that their funds would be held in an escrow account and would be fully refundable if the oil deal did not close. Evans instructed investors to transfer funds to bank accounts. Investors’ funds were not used as represented and were also sent to personal bank accounts that Evans controlled.

Evans told investors that oil deals were nearing successful completion and that disbursements of profits were imminent. She forged e-mails and letters from an attorney at Salans, a major international law firm now merged with Dentons, stating the deal was proceeding and certain steps in the transaction were being completed. She represented that this law firm and Barclays Bank were vetting the deal, when they were not. She created false wire confirmations that she sent to her victims to conceal the disposition of their funds. Evans also sent e-mails attaching fabricated court documents regarding the status of civil litigation purporting to award Evans or related parties substantial sums of money.

Furthermore, Evans concealed from her victims her December 2011 criminal indictment by a State of Colorado grand jury and her subsequent March 2013 criminal conviction for theft and forgery. Evans’s bond conditions prohibited her from entering into any financial transactions in excess of $1,000, and the terms of her subsequent state sentence prohibited her from investing money, entering into any financial contracts or arrangements, and having access to or control of any funds of any individual.

“This is long-term, deliberate, professional stealing,” said Acting U.S. Attorney Bob Troyer. “Luckily for the victims, our prosecutors and the IRS CI and FBI investigators are even more skilled and dogged at rooting out rank theft from innocent victims. And the defendant will have a nice chunk of time to reflect on that.”

“Honest and law abiding citizens are fed up with the likes of those who use deceit and fraud to line their pockets with other people’s money,” said Steven Osborne, IRS-Criminal Investigation, Special Agent in Charge, Denver Field Office. “IRS-Criminal Investigation is proud to bring our forensic accounting skills to this joint venture and help put a stop to this and other types of white collar crime.”

“This sentence sends a strong message to anyone considering deceiving others with fraudulent investment schemes.” said FBI Denver Special Agent in Charge Calvin Shivers. “The FBI will continue to work with our law enforcement partners to protect innocent victims from being preyed upon.”​

This case was investigated by IRS – Criminal Investigation and the FBI. The case was prosecuted by Assistant U.S. Attorneys Anna K. Edgar and Rebeca Weber.

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Investment Fraud: Jesse Holovacko Convicted In Six Counts of Wire Fraud And One Count of Investment Advisor Fraud

Former Investment Advisor Who Stole Client’s Retirement Savings Guilty On All Counts Of Wire Fraud And Investment Advisor Fraud

TRENTON, N.J. – A former financial advisor entrusted with advising clients on investments was convicted by a federal jury today for defrauding his client, a former factory worker, out of his retirement savings and using the funds for his own benefit, Acting U.S. Attorney William E. Fitzpatrick announced.

Jesse Holovacko, 39, of Sayreville, New Jersey, was convicted on all counts of an indictment charging him with six counts of wire fraud and one count of investment advisor fraud following a five-day trial before U.S. District Judge Michael A. Shipp in Trenton federal court. The jury deliberated for approximately one hour before returning the guilty verdicts.

According to documents filed in this case and the evidence at trial:

Holovacko was an investment advisor at a financial institution located in New Jersey. In 2012, Holovacko went to the factory where the victim worked, met with the victim and some of his co-workers, and signed the victim on as a client, transferring the victim’s pension savings into an Individual Retirement Account (IRA). The victim entrusted Holovacko with managing the victim’s retirement savings.

From December 2013 through August 2014, Holovacko falsely told the victim that he would use retirement account funds to purchase bonds for him and advised the victim to transfer the retirement money to the victim’s bank account and then provide cashier’s checks made out directly to the financial advisor, telling the victim it would make it easier to purchase the bonds. Based on these false representations, Holovacko obtained 18 cashier’s checks totaling approximately $255,000.

Holovacko deposited all of the cashier’s checks into his own personal bank account and spent it for his car loan and mortgage payments, dining out, concerts and clubs, baseball game tickets, as well as taking out approximately $150,000 in cash. In order to continue deceiving the victim, Holovacko promised the victim documentation of the purported investments in bonds.

The wire fraud charges on which Holovacko was convicted each carry a maximum potential penalty of 20 years in prison and a $250,000 fine, or twice the gross gain or loss from the offense. The investment advisor fraud charge carries a maximum potential penalty of five years in prison and a maximum fine of $10,000. Sentencing is set for Aug. 8, 2017.

Acting U.S. Attorney Fitzpatrick credited postal inspectors with the U.S. Postal Inspection Service, under the direction of Inspector in Charge James V. Buthorn in Newark, and agents with the U.S. Secret Service, under the direction of Special Agent in Charge Mark McKevitt, with the investigation leading to today’s verdict. He also thanked the Financial Industry Regulatory Authority (FINRA) and the N.J. Bureau of Securities of the New Jersey Attorney General’s Office for their assistance.

The government is represented by Assistant U.S. Attorneys Jihee G. Suh and Zach Intrater of the U.S. Attorney’s Office Criminal Division in Newark.

Defense counsel: Paul Condon, Jersey City, New Jersey

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Investment Fraud: John Quadrino Charged With Wire Fraud Conspiracy For Orchestrating a Ponzi Scheme

Oceanside Man Indicted In Multi-Million-Dollar Fraud Scheme

John Quadrino Charged With Defrauding Over 80 Investors in a Ponzi Scheme, Resulting in Losses of More Than $6 Million

A six-count indictment was unsealed this morning in federal court in Central Islip, New York, charging John Quadrino, the owner/operator of Princess Cut Industries, Inc., Sassy Jewelry Buyers, Inc., and Golden Glitter Trading, Inc. (collectively referred to as the “Gold Purchasing Companies”).  The defendant is charged with wire fraud and wire fraud conspiracy for orchestrating a Ponzi scheme over the course of more than five years utilizing the Gold Purchasing Companies.  The defendant will be arraigned at the federal courthouse in Central Islip this afternoon before United States Magistrate Judge Arlene R. Lindsay.

The charges were announced by Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation (“FBI”), New York Field Office, and Madeline Singas, Nassau County District Attorney.

As set forth in the indictment, the charges against the defendant stem from a multi-year investigation by the United States Attorney’s Office, the FBI and the Nassau County District Attorney’s Office (“NCDAO”).  The investigation revealed that the defendant represented to potential investors that the Gold Purchasing Companies were involved in the sale of gold, jewelry and diamonds to refineries and jewelers.  The defendant asked investors to invest large sums of money for fixed periods of time in exchange for a guaranteed, fixed rate of return at the end of the agreed upon time period.  Contrary to the representations made by the defendant to investors, the defendant never actually purchased gold, jewelry or diamonds in any significant quantities.  Instead, he systematically engaged in a classic Ponzi scheme over the course of five years, returning investor principal and interest from the investor capital of other victims.  As a result, more than 80 investors invested approximately $13.1 million with the Gold Purchasing Companies and  suffered total losses of approximately $6.3 million.   The defendant used investor capital to, among other things, issue checks to himself and to pay for his personal gambling expenses.

“As alleged, the defendant deceived investors with the promise of purchases of gold and other valuables and guaranteed returns, leading to his own enrichment and victim losses of over $6 million,” stated Acting United States Attorney Rohde.  “We will not permit such conduct to go unanswered.”  Ms. Rohde expressed her appreciation to the FBI and NCDAO for their assistance during the course of this multi-year investigation.

“As alleged, rather than carrying out his plan as promised, Quadrino dangled a shiny prospect in front of his victims while funneling their money into a scheme to defraud others and enrich himself,” said FBI Assistant Director-in-Charge Sweeney, Jr.  “People know there’s risk involved in investing, but they shouldn’t have to start out with the odds stacked against them. Along with our partners, we remind the public how seriously we take offenses of this nature.”

“This defendant is accused of pilfering the savings of dozens of innocent investors by promising them great returns, but instead he allegedly gambled their money away,” DA Singas said. “Fortunately, working with our law enforcement partners at the Eastern District of the U.S. Attorney’s Office and the FBI, we were able to end this alleged Ponzi scheme before more investors were victimized.”

The charges in the indictment are allegations, and the defendant is presumed innocent unless and until proven guilty.  If convicted of the offense, the defendant faces a maximum sentence of 20 years’ imprisonment per count.

The government’s case is being handled by the Office’s Long Island Criminal Division.  Assistant United States Attorney Mark E. Misorek is in charge of the prosecution with assistance provided by Special Assistant United States Attorney Matthew Sotirhos of the Nassau County District Attorney’s Office.

The Defendant

JOHN QUADRINO

Age:  51

Oceanside, New York

E.D.N.Y. Docket No. 17-CR-153 (DRH)

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Investment Fraud: EDWARD J. SERVIDER Pled Guilty to Defrauding Approximately 100 Investors

Staten Island Man Pleads Guilty In Manhattan Federal Court To Defrauding Investors Of Over $2 Million

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced today that EDWARD J. SERVIDER, a/k/a “Nick Halden,” pled guilty to defrauding approximately 100 investors of over $2.4 million through his firm EJS Capital Management, LLC. SERVIDER pled guilty to one count of conspiracy to commit commodities fraud before U.S. District Judge Jed S. Rakoff.

Acting Manhattan U.S. Attorney Joon H. Kim said: “Edward Servider lured investors into his scheme by falsely telling them he had achieved high annual rates of return through his Forex trading. In fact, he never made a single trade or achieved any returns for any of his nearly 100 investor-clients. Instead, he used his investors’ money to pay for personal luxuries like hotels, cars, and an engagement ring. I want to thank the FBI for their great work in putting a stop to this fraud.”

According to allegations contained in the Complaint and the Indictment filed against SERVIDER and statements made in related court filings and proceedings:

In March 2013, SERVIDER set up a retail foreign currency exchange (“Forex”) trading firm, called EJS Capital Management, LLC (“EJS”), in Brooklyn. SERVIDER and his business partner (“CC-1”) ran EJS from March 2013 through July 2014. EJS employed salespeople (“cold callers”) who made unsolicited telephone calls to prospective investors. SERVIDER and the EJS cold callers told prospective investors that their funds would be used to trade in Forex transactions, and provided them with a “performance report” that falsely claimed that between 2010 and 2013, EJS had achieved gross annual returns for its investors of approximately 18 percent, 22 percent, 49 percent, and 77 percent (the “EJS Performance Report”). In truth, EJS had never conducted any trading or achieved any returns for its investors. To sustain the fraud, SERVIDER directed EJS employees to send account statements to the EJS investors, falsely showing positive returns on their investments.

In fact, instead of using the investor funds to execute Forex trading, the majority of the moneys was misappropriated and used to pay SERVIDER and CC-1’s personal expenses and purported business expenses for EJS. For example, SERVIDER used investor funds to purchase an engagement ring, to lease a BMW vehicle for his girlfriend, and to pay for hotel rooms, rental cars, and parking tickets.


SERVIDER, 29, pled guilty to one count of conspiracy to commit commodities fraud, which carries a maximum term of five years in prison and a maximum fine of the greatest of $250,000, twice the gross gain from the offense, or twice the gross loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

SERVIDER’s sentencing is scheduled for July 27, 2017, at 4:00 p.m.

Mr. Kim praised the work of the FBI, and thanked the U.S. Commodity Futures Trading Commission for its assistance.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Christine I. Magdo is in charge of the prosecution.

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Investment Fraud: JOSEPH A. CASTELLANO Pleaded Guilty And Sentenced For Operating Ponzi Scheme

Wallingford Man Admits Operating Ponzi Scheme

Deirdre M. Daly, United States Attorney for the District of Connecticut, announced that JOSEPH A. CASTELLANO, 59, of Wallingford, pleaded guilty today in Hartford federal court to fraud and money laundering offenses stemming from an investment scheme that defrauded individuals of nearly $1.5 million.

According to court documents and statements made in court, CASTELLANO operated various entities out of offices in Wallingford, including Casbo Investments, Wallingford Investors Limited Partnership, AIM Realty Investors, and Castellano & Co., LLC.  As a Certified Public Accountant and owner of Castellano & Co., LLC, CASTELLANO prepared federal and state tax returns for individuals and local businesses.  In connection with his tax preparation business, CASTELLANO established a base of clients to which he offered financial services and investment opportunities in addition to preparing their taxes.

Beginning in approximately July 2007, CASTELLANO falsely represented to victim-investors that he had clients who were in need of capital to fund businesses or real estate development projects, but were unable to secure funding from traditional sources such as financial institutions.   CASTELLANO told victim-investors that he would obtain for them a consistent rate of return of between approximately six percent and eight percent annually on their money by taking their money and placing it with, or loaning it to, one or more of his other clients.  CASTELLANO, through Casbo Investments, prepared and executed official-looking documents and investment contracts termed “Demand Notes,” which contained a promise to return the principal amount, with interest, at any time.

In fact, there were no actual investments or investment opportunities, and the money was not invested with or loaned to other clients of CASTELLANO.  CASTELLANO diverted the funds for his own use and benefit, including making “interest” payments to other victim-investors.  CASTELLANO also made false statements to certain victim-investors to explain various delays in the purported interest payments.

Through this scheme, CASTELLANO defrauded more than 10 victim-investors of approximately $1.45 million.

CASTELLANO was arrested on April 6, 2016.

CASTELLANO pleaded guilty to one count of mail fraud and one count of money laundering.  He is scheduled to be sentenced by U.S. District Judge Robert N. Chatigny on December 22, 2016, at which time he faces a maximum term of imprisonment of 30 years.  He is released on a $250,000 bond pending sentencing.

This matter is being investigated by the Federal Bureau of Investigation, Internal Revenue Service – Criminal Investigation Division, and U.S. Postal Inspection Service.  The case is being prosecuted by Assistant U.S. Attorneys Michael McGarry and John Pierpont.

JOSEPH A. CASTELLANO Sentenced to More Than 5 Years in Federal Prison for Operating Ponzi Scheme

Deirdre M. Daly, United States Attorney for the District of Connecticut, today announced that JOSEPH A. CASTELLANO, 59, of Wallingford, was sentenced yesterday by U.S. District Judge Robert N. Chatigny in Hartford to 68 months of imprisonment, followed by three years of supervised release, for operating an investment scheme that defrauded individuals of more than $1.4 million.

According to court documents and statements made in court, CASTELLANO operated various entities out of offices in Wallingford, including Casbo Investments, Wallingford Investors Limited Partnership, AIM Realty Investors, and Castellano & Co., LLC. As a Certified Public Accountant and owner of Castellano & Co., LLC, CASTELLANO prepared federal and state tax returns for individuals and local businesses. In connection with his tax preparation business, CASTELLANO established a base of clients to which he offered financial services and investment opportunities in addition to preparing their taxes.

Beginning in approximately July 2007, CASTELLANO falsely represented to victim-investors that he had clients who were in need of capital to fund businesses or real estate development projects, but were unable to secure funding from traditional sources such as financial institutions. CASTELLANO told victim-investors that he would obtain for them a consistent rate of return of between approximately six percent and eight percent annually on their money by taking their money and placing it with, or loaning it to, one or more of his other clients. CASTELLANO, through Casbo Investments, prepared and executed official-looking documents and investment contracts termed “Demand Notes,” which contained a promise to return the principal amount, with interest, at any time.

In fact, there were no actual investments or investment opportunities, and the money was not invested with or loaned to other clients of CASTELLANO. CASTELLANO diverted the funds for his own use and benefit, including for international travel. He also used some of the invested funds to make phony “interest” payments to other victim-investors.

During the scheme, CASTELLANO made false statements to certain victim-investors to explain various delays in the purported interest payments.

Through this scheme, CASTELLANO defrauded 18 victim-investors of a total of $1,447,151. Multiple victims lost most of their retirement savings.

CASTELLANO was arrested on April 6, 2016. On September 16, 2016, he pleaded guilty to one count of mail fraud and one count of money laundering.

CASTELLANO, who had been released on a $250,000 bond, was remanded to the custody of the U.S. Marshals Service at the conclusion of the sentencing proceeding.

This matter was investigated by the Federal Bureau of Investigation, Internal Revenue Service – Criminal Investigation Division, and U.S. Postal Inspection Service. The case was prosecuted by Assistant U.S. Attorneys Michael McGarry and John Pierpont.

Original PressReleases: Plead GuiltySentenced

Investment Fraud: Stanley Jonathan Fortenberry Charged And Sentenced For Running Fraudulent Investment Companies

Texas Man Charged With Running Fraudulent Investment Companies

WASHINGTON – A Texas man was charged with fraud and obstruction of justice in an indictment unsealed today involving two investment companies that allegedly defrauded investors resulting in losses of approximately $900,000.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney John R. Parker of the Northern District of Texas and Special Agent in Charge Thomas M. Class Sr. of the FBI’s Dallas Office made the announcement.

Stanley Jonathan Fortenberry, 50, of San Angelo, was charged with three counts of mail fraud, two counts of wire fraud and one count of obstructing an official proceeding.  Fortenberry was arrested this morning and made his initial appearance in court this afternoon.

According to the indictment, from 2013 to 2014, Fortenberry ran Wattenberg Energy Partners, which raised funds for oil and gas drilling projects in northern Colorado.  Fortenberry allegedly set up the company in his son’s name because Texas and Pennsylvania state securities regulators had previously ordered Fortenberry to not sell unregistered securities in oil drilling projects.  The indictment alleges that Fortenberry used a network of salespeople to call and solicit individuals to invest in drilling projects.  Rather than designate investors’ funds for drilling projects as promised, the indictment alleges that Fortenberry spent the vast majority of the funds on himself and the company’s fundraising operation.  The indictment also alleges that in order to make Wattenberg more appealing to investors, Fortenberry misled investors into believing that Wattenberg had substantive control over the drilling projects when, in reality, Wattenberg was merely a fundraising operation that passed along funds to other companies that actually had control.

From 2010 to 2012, Fortenberry also allegedly ran a separate fraudulent scheme conducted through Premier Investment Fund.  According to the indictment, through Premier, Fortenberry raised funds from investors for social media projects run by another company connected to the country music industry.  The indictment alleges that Fortenberry misrepresented to investors the profitability of the company and how he would be compensated.  The company earned no profits and Fortenberry spent approximately half of the funds raised on himself, according to the indictment.

In total, the indictment alleges that Fortenberry defrauded investors out of approximately $900,000 through both companies.

In October 2014, Fortenberry allegedly gave false and misleading testimony in an administrative proceeding before the U.S. Securities and Exchange Commission (SEC), which was investigating Fortenberry at the time for misusing funds that investors had entrusted to Premier.

The charges in the indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The FBI’s Dallas Office investigated the case.  Trial Attorney William E. Johnston of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Sean Long of the Northern District of Texas are prosecuting the case.  The SEC has provided assistance in this matter.

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Texas Man Sentenced to 78 Months in Prison for Running Fraudulent Investment Companies and Obstructing Securities and Exchange Commission Investigation

WASHINGTON – A San Angelo, Texas, man was sentenced to 78 months in prison today for running two investment fraud schemes that defrauded investors out of approximately $900,000 over a four-year period and obstructing a Securities and Exchange Commission (SEC) investigation.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, U.S. Attorney John R. Parker of the Northern District of Texas and Acting Special Agent in Charge Michael A. Costanzi of the FBI’s Dallas Office made the announcement.

Stanley Jonathan Fortenberry, 51, was sentenced by U.S. Districts Judge Sam R. Cummings of the Northern District of Texas. Judge Cummings also ordered the defendant to pay $890,310 in restitution and to forfeit $311,254. On Nov. 18, 2016, Fortenberry pleaded guilty on to two counts of mail fraud and one count of obstruction of justice.

In November 2016, when Fortenberry pleaded guilty to fraud and obstruction of justice charges, he admitted that he ran an investment company called Premier Investment Fund (Premier), which raised funds from investors for social media projects run by another company with ties to the country music industry. Fortenberry misled investors about the profitability of the company and about the destination of the investors’ funds. Fortenberry admitted that he diverted approximately half of investors’ funds into his own pocket and to pay the expenses of his fundraising operation.

Fortenberry also admitted that, from 2013 to 2014, he ran Wattenberg Energy Partners (Wattenberg), which raised funds for oil and gas drilling projects in northern Colorado. Fortenberry admitted that he set up the company in his son’s name because he was then under investigation by the SEC for misusing the Premier investors’ funds. He used a network of salespeople to solicit individuals over the phone to invest in drilling projects. Fortenberry admitted that he spent the vast majority of the funds on himself and the company’s fundraising operation. In October 2014, at an administrative hearing with the SEC, Fortenberry falsely denied having control of or working for Wattenberg.

Fortenberry admitted that the total loss to victims of both schemes was $887,311.

The FBI’s Dallas Office investigated the case. Trial Attorney William E. Johnston of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Sean Long of the Northern District of Texas are prosecuting the case. The SEC has provided substantial assistance in this case and referred this matter to the department.

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Investment Fraud: HAENA PARK Pled Guilty To Commodities Fraud In Connection With Scheme To Defraud Investors

Manhattan Woman Pleads Guilty In Manhattan Federal Court To Commodities Fraud In Connection With Scheme To Defraud Investors Of More Than $23 Million

Preet Bharara, the United States Attorney for the Southern District of New York, announced that HAENA PARK pled guilty in Manhattan federal court today to commodities fraud. The charge relates to PARK’s scheme to defraud more than 40 individual investors out of more than $23 million. PARK solicited investments for the purpose of trading in a variety of securities and commodities, including off-exchange foreign currency contracts, through the use of false and misleading statements about, among other things, her historical trading performance. PARK was arrested on June 2, 2016, in Manhattan, New York, and pled guilty today before United States District Judge Ronnie Abrams.

U.S. Attorney Preet Bharara said: “Through her guilty plea today, Haena Park has admitted to commodities fraud, lying about her rates of return and trading expertise to lure prospective investors to her fund and then losing almost all of the $23 million she raised through her lies. To keep her fraud scheme alive, Park sent fake account statements to her investors and used new investor money to pay back old ones.”

According to the Indictment and statements made at today’s plea hearing:

From September 2009 through June 2016, PARK raised more than $23 million from more than 40 individual investors, purportedly for the purpose of trading in a variety of securities and commodities, including equities, futures, and off-exchange foreign currency (“forex”) transactions, through the use of her firms, Phaetra Capital Management LP and Argenta Group, LLC. In connection with the scheme, PARK made a series of false and misleading representations to investors, including that PARK was an accomplished forex trading adviser earning annualized returns as high as 48.9 percent for her investors. In truth and in fact, PARK was not an accomplished forex trader, her trading was consistently unsuccessful, and the trading results emailed to investors by PARK were false and did not reflect the trading losses actually incurred by PARK. Rather, from September 2009 through June 2016, PARK lost approximately $19.5 million of the $20 million that she traded, including in commissions and fees, principally in highly leveraged futures and forex transactions.

To prevent or forestall redemptions by investors, and to continue to raise money from investors to fund her scheme, PARK generated fictitious account statements, which she sent to investors on a monthly basis. Instead of accurately reporting the trading losses PARK was suffering, the account statements indicated that the investors were making money nearly every month. To hide her trading losses, PARK used new investor funds to pay back other investors in a Ponzi-like fashion. In total, PARK distributed approximately $3 million back to investors from funds deposited by new investors.

* * *

PARK, 41, of Manhattan, New York, faces a maximum sentence of 10 years in prison and a maximum fine of $1 million, or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. PARK is scheduled to be sentenced by Judge Abrams on April 28, 2017, at 2:30 p.m.

Mr. Bharara praised the work of the Department of Homeland Security, Homeland Security Investigations and the El Dorado Task Force. He also thanked the Commodity Futures Trading Commission and the Securities and Exchange Commission for their assistance.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Christine I. Magdo is in charge of the prosecution.

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