Securities Industry Commentator by Bill Singer Esq

November 11, 2019

featured in today's Securities Industry Commentator:
After pleading guilty to one count of wire fraud in the United States District Court for the Eastern District of Missouri, Morgan Bullock, 33, was sentenced to 12 months in prison and ordered to pay $136,458.68 in restitution. As alleged in part in the DOJ Release; 

[B]ullock owned and operated Bullock Building and Development, a construction company he operated out of Camdenton, Missouri.  During 2015, Bullock and two partners purchased approximately five acres of land at 425 Emmerson Avenue, and planned to build eight residential homes in what they called Emmerson Estates.  Bullock and his partners took out a loan to purchase the land from a local bank.  Bullock then applied with the City of Kirkwood for approval of his development plan, and building permits.  Before giving approval to build the subdivision, the city required Bullock to obtain approval from the Metropolitan Sewer District (MSD) and also to post a letter of credit as a performance guarantee from a financial institution in the amount of approximately $500,000.  Bullock never obtained approval for the construction from MSD, and he was unable to find a financial institution willing to issue him and his company the performance guarantee.  Thus, Bullock never obtained final approval from Kirkwood to develop the subdivision.  Nevertheless, during 2017, Bullock marketed the new home construction in Emmerson Estates, and obtained lot deposits from six families based upon his false representations that he would build their new homes on the selected lots.  Bullock never advised the homebuyers that he did not have approval from Kirkwood to develop the subdivision and build their promised homes.  Despite promising that he would only use their lot deposits in the construction of their new homes, Bullock instead used the victim homebuyers' funds for his own personal use and to pay off contractors working on a separate unrelated construction project in the Camdenton, Missouri area.  Bullock made numerous false representations to the homebuyers as to why construction had not begun on their homes, blaming the delays on purported weather issues, contractor problems, and other false excuses.  Ultimately, one of the homebuyers demanded his family's deposit back, and Bullock wrote him a $50,000 insufficient funds check, knowing that there were not sufficient funds in his bank account.  Finally, the lender foreclosed on the Emmerson Estates land for nonpayment by Bullock, and Bullock's scheme was fully discovered.  The six victim homebuyers included families with young children as well as retirees who used substantial portions of their life savings to make the lot deposit payments to Bullock.  The total loss to the victim homebuyers was approximately $400,000.

As one victim stated in a letter to the court, "Morgan Bullock never appeared even the slightest bit remorseful about his scam.  Even when it became completely obvious that we were victims an intentional fraudulent scam, Bullock remained smug, arrogant, and unphased.  When I informed him to the authorities, he simply said, ‘Do what you think you have to do, I don't care.  But you won't get your money back that way.'"
In a Complaint filed in the United States District Court for the Eastern District of Virginia, the SEC alleged that Roberto J. Clark, Jr. and his company KRM Services, LLC engaged in violations of the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. The SEC seeks permanent injunctions, disgorgement, prejudgment interest, and civil money penalties against defendants. Criminal charges were filed in a parallel case. As alleged in part in the DOJ Release, the Defendants:

raised hundreds of thousands of dollars from retail investors by falsely telling them the money would be used to develop and market motorized surfboards. The SEC alleges that to facilitate the scheme Clark showed investors a forged contract for surfboard orders from a major cruise line, made misrepresentations about purported orders from water sports vendors in Florida, and marketed the investment in his company using baseless revenue projections. In fact, the complaint alleges, Clark misappropriated most of the investors' money and used it for personal expenses including high-end apparel, a luxury automobile, event tickets, and patronage of adult entertainment establishments.

Four Additional Individuals Charged for Role in Multi-Million Dollar Investment Fraud Scheme (DOJ Release)
In a Superseding Indictment filed in the United States District Court for the Northern District of Texas, 
Suzanne Aileen Gagnier; Joe Edward Duchinsky; Joseph Lucien Duplain; and Russell Filippo were each charged with one the count of conspiracy to commit mail and wire fraud and 10 counts of mail fraud. Further, Gagnier, Duchinsky, and Duplain were also charged with 10 counts of wire fraud; and Filippo with eight counts of wire fraud.  Previously named in the original Indictment filed on March 5, 2019 were Co-Defendants Cengiz Jan "CJ" Comu, John Mervyn Price, Harley E. "Buddy" Barnes III, Richard Lawrence Green and Daniel Thomas Broyles Sr.  Comu, Price, Barnes, Green and Broyles were charged with one count of conspiracy to commit mail and wire fraud.  Further, Comu, Price, Barnes and Green were each charged with 10 counts of mail fraud and 10 counts of wire fraud. In the Superseding Indictment, Comu, Price and Barnes are additionally charged with money laundering.  A trial date is currently set for March 30, 2020. Previously, Donald Andrew Rothman pled guilty to one count of conspiracy to commit mail and wire fraud as charged in an information for his role in the scheme. As alleged in part in the DOJ Release:

[B]eginning in or around 2013 and continuing through in or around May 2019, the defendants participated in a scheme to defraud victims in the United States, the United Kingdom and Canada by fraudulently selling them stock in a company named EarthWater.  To induce victims to purchase EarthWater stock, the defendants falsely promised victims the opportunity to earn a high-rate of return in a short period of time by offering them stock at a low price on what they falsely claimed was the eve of EarthWater's initial public offering (IPO).  In truth, EarthWater had no ability or actual plans to go public.  The defendants also repeatedly lied to victims about how their money would be used, telling victims that nearly all of their money would be reinvested in EarthWater's business (including to launch the IPO).  In truth, the defendants stole most of the victims' money and treated EarthWater's accounts like their own personal piggybank.

The superseding indictment further alleges that the defendants targeted elderly victims and also selected victims whom they had swindled in the past and therefore believed to be more susceptible.  For example, when the defendants successfully defrauded a victim by selling them EarthWater stock, the defendants would repeatedly call that victim to sell them more shares. 

According to the superseding indictment, the defendants' scheme lasted for more than five years and defrauded at least 300 victims of over $9.5 million.
The co-founders and operators of the Loss Mitigation Services, LLC, Gabriel T. Tavarez and Jaime L. Mulvihill, were charged with conspiracy to commit wire fraud; and Tavarez was additionally charged with aggravated identity theft  in connection with defrauding mortgage lenders and investors out of nearly $500,000 in proceeds from about 90 short sale transactions. The Defendants allegedly defrauded the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the U.S. Department of Housing and Urban Development. As alleged in part in the DOJ Release:

[F]rom 2014 to 2017, Tavarez and Mulvihill, directly or through their employees, falsely claimed to homeowners, real estate agents, and closing attorneys that mortgage lenders had agreed to pay Loss Mitigation Services fees known as "seller paid closing costs" or "seller concessions" from the proceeds of the short sales. In reality, the mortgage lenders had never approved Loss Mitigation Services to receive those fees. When the short sales closed, at the instruction of Tavarez or Mulvihill, or others working with them, settlement agents paid Loss Mitigation Services the fees, which typically were 3% of the short sale price above and beyond any fees to real estate agents, closing attorneys and others involved in the transaction. To deceive mortgage lenders about the true nature of the fees, Tavarez or Mulvihill filed, or caused others to file, false short sale transaction documents with mortgage lenders, including altered settlement statements and fabricated contracts and mortgage loan preapproval letters. Tavarez and Mulvihill fabricated the transaction documents, or caused them to be fabricated, in order to justify the additional fees and conceal that they were being paid to Loss Mitigation Services. In addition, Tavarez created fake letters from mortgage brokers claiming that the brokers had approved buyers for financing, in order to convince mortgage lenders to approve the additional fees.