Securities Industry Commentator by Bill Singer Esq

December 18, 2017

Manhattan U.S. Attorney Announces Charges Against President Of Park Avenue Art Gallery In Manhattan For Defrauding Art Dealers And Collectors Of Valuable Artwork And Millions Of Dollars / Gallery President Defrauded Art Dealers into Sending Him Money and Artwork Worth Millions of Dollars (DOJ Press Release) Ezra Chowaiki  was charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum potential sentence of 20 years in prison, and one count of interstate transportation of stolen goods, which carries a maximum potential sentence of 10 years in prison. READ the FULL TEXT Criminal Complaint

As set forth in part in the federal Complaint:

Until November 2017, EZRA CHOWAIKI was the president and the minority owner of a private art gallery located on Park Avenue in New York, New York (the "Gallery").  CHOWAIKI founded the Gallery in or about 2004, and since that time, CHOWAIKI has used the Gallery to facilitate the purchase, sale, and consignment of works of fine art, as well as for the hosting of various art exhibitions featuring works of art and sculptures by well-known artists such as Pablo Picasso, Alexander Calder, Marc Chagall, and others.  CHOWAIKI lost control of the Gallery in or about November 2017 when the Gallery filed for bankruptcy and was taken over by a trustee to oversee its liquidation.

Between at least in or about 2015 and 2017, through the Gallery, CHOWAIKI engaged in a scheme to deceive other dealers and collectors of fine artwork into sending him money or valuable artwork under the false pretenses that CHOWAIKI would engage in legitimate transactions such as the purchase, sale, or consignment of those artworks.  In truth, however, CHOWAIKI did not, and often could not, conduct the transactions as promised, and instead kept funds and artwork for himself and the Gallery, or sold them to others both in and outside the United States, without authorization.

For example, a number of victims reported being asked by CHOWAIKI to invest money to purchase artwork through the Gallery that would then be sold by the Gallery, thereby generating profit for the investors.  After a number of these investors sent hundreds of thousands of dollars to CHOWAIKI, CHOWAIKI did not use the funds to purchase the artwork, nor did he return the money to the investors.  Similarly, other victims reported consigning artwork to CHOWAIKI for sale by the Gallery.  After these victims attempted to cancel the consignments, CHOWAIKI refused to return the artwork and, in some cases, purported to sell the artwork to other galleries and auctioneers located in the United States and abroad with the authorization of the work's rightful owner.

At the time the Gallery filed for bankruptcy and CHOWAIKI was removed as president, the Gallery purported to have only approximately $276,681 in assets, whereas the Gallery owed at least approximately $11.8 million in claims to dozens of art dealers and others, including those who had sent money to the Gallery to buy artwork or who had consigned artwork to the Gallery that was never returned.

Investment Fund Manager Sentenced in Brooklyn Federal Court to 55 Months' Imprisonment for Orchestrating Multi-Million Dollar Fraud Schemes / Defendant Used Investors' Money to Pay for Outside Business Ventures and Personal Expenses (DOJ Press Release)

After pleading guilty to two counts of securities fraud in connection with two separate schemes, John R. Lakian, a manager of Capital L Financial Group, LLC (Capital L) and Aegis Capital Fund, LLC (Aegis Capital Fund), was sentenced to 55 months' imprisonment and ordered to pay  $15,640,582.46 restitution. In February 2016, Lakian's co-defendant, Diane Lamm, pleaded guilty and is awaiting sentencing in January 2018. As set forth in part in the DOJ Press Release:

Between 2009 and 2013, Lakian was involved in two schemes to steal investors' money.  In the first, he and his co-defendant, Diane Lamm, obtained more than $11 million by promising Capital L investors that their money would be used to purchase, consolidate, and sell registered investment advisory businesses.  Instead, Lakian and his co-defendant diverted more than $3 million to themselves and to entities, including hospitality businesses, that they owned and controlled.  In the second scheme, Lakian and his co-defendant embezzled money through their management of Aegis Capital Fund, a North Carolina-based investment fund that was placed into liquidation in 2011.  Prior to the liquidation, Lakian and his co-defendant directed more than $2.4 million of Fund assets into hospitality businesses without informing the Fund's investors that Lakian and his co-defendant owned and controlled these businesses.  More than $1.9 million of the $2.4 million of fund assets was never recovered by the investors.  Additionally, following the Fund's liquidation, instead of returning investment proceeds to investors, Lakian and his co-defendant diverted more than $2 million of investors' money to themselves and to their hospitality businesses.  The government has identified credit card charges and company expenses or purposes unrelated to the purchase, consolidation and sale of registered investment advisers.  Charges were incurred, for example, for clothing, furniture and fine art from luxury stores such as Bergdorf Goodman, Gucci, and Paul Stewart; stays at the Palace and Waldorf Astoria hotels in New York City; getaways at luxury resorts; and items for Lakian and his co-defendant's restaurant business.

Victim Blamed For Victimizing Victimizers In ATM Federal Appeal ( Blog) up to an ATM machine reminds me of the harrowing scene in the movie "Marathon Man," when Laurence Olivier asks Dustin Hoffman: "Is it safe?" From the second I place my bank card into the reader, I imagine all sorts of things that are unsafe about the transaction. There could be a skimmer on the ATM. Someone could be across the street with a telescope trying to steal my password. The machine may be broken and I will be charged for cash that I never got. My credit card may get stuck in the reader and I can't retrieve it. That guy standing at the other machine may pull out a gun and steal my money. Other than that, what's to worry about? In today's Blog we present the fascinating case of two ATM programmers who rigged the machines to become very friendly piggy-banks. Not so much a Christmas layaway as a takeaway but, these days, it's about as uplifting a Christmas tale as your gonna get. 

SEC Charges Former Employee and Friend with Insider Trading in Securities of International Rectifier Corporation (SEC Litigation Release 24015) In Securities and Exchange Commission v. Lanny Brown, et al., (Complaint, United States District Court for the District of Arizona, 17-CV-04630), the SEC charged Defendants Brown and Fox with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The defendants consented to a permanent injunction and are ordered to pay jointly and severally, $369,720 disgorgement with $43,147.79 prejudgment interest with a credit for the monetary amount they have agreed to pay in a parallel criminal case. READ the FULL TEXT SEC Complaint. As set forth in part in the SEC Litigation Release:

The SEC alleges that Lanny Brown learned that Infineon Technologies AG planned to acquire his then-employer, International Rectifier Corp. (IRC), before the deal was publicly announced. According to the SEC's complaint, Brown tipped his friend, Sean Fox, about the deal and both of them then acquired IRC call options. The SEC further alleges that Brown and Fox concealed Brown's involvement in the trading by depositing approximately $12,000 of their combined funds into Fox's brokerage account, and then used this account to purchase the call options for both of them. The SEC also alleges that Fox closed out the option positions after the acquisition was publicly announced, and the two defendants made $369,720 in illicit profits. To further hide Brown's role in the trading, Fox allegedly funneled Brown's share of the trading profits by paying several of Brown's personal expenses and by writing checks to Brown's children and stepchildren. Brown and his wife then endorsed those checks and used the funds.