Securities Industry Commentator by Bill Singer Esq

March 12, 2020

Easton-Area Attorney Pleads Guilty to Defrauding Estate Out of Hundreds of Thousands of Dollars (DOJ Release)

Youngsville Man Pleads Guilty to Running a Million Dollar Investment Fraud and Ponzi Scheme / Defendant bilked investors out of $1,215,530 (DOJ Release)

Additional Key South Florida-Based Microcap Fraudsters Settle with SEC in Multi-Defendant Litigation (SEC Release)

SEC Settles False Edgar Filing Case Against Trading Entities and Obtains Default Judgment Against Individual (SEC Release)

SEC Obtains Final Judgment Against Former Investment Adviser Charged with Defrauding Clients (SEC Release)
The former founder/Chief Executive Officer of Five Star Financial Services of America, Mehmet Fatih Biyikoglu, a/k/a "John B." pled guilty in the United States District Court for the Central District of California to one count of wire fraud, and he was sentenced to 121 months in prison and ordered to pay $3,561,300 in restitution. In January 2019, eight months after his arrest and while free on bond, Biyikoglu had removed his location-monitoring ankle bracelet and attempted to flee to Mexico; and, thereafter, he was arrested at the U.S.-Mexico border, carrying $1,300 in cash, 8,700 pesos and a significant amount of luggage. 
After pleading guilty to conspiracy to commit wire fraud and subscribing to a false tax return, Five Star's former President/Chief Operating Officer Anna Marie Holt, was sentenced to three-years in prison. 
Five Star's sales agent and Defendant Biyikoglu's ex-wife, Ida Shaghoian, pled guilty to wire fraud and subscribing to a false tax return, and she was sentenced to four years in prison -- in addition to her role in the Five Star fraud, Shaghoian also fraudulently diverted investors' retirement savings into a risky real estate venture called Island Sea LLC; and she defrauded an 86-year-old man out of $100,000 after meeting him at a restaurant and later leading him to believe she had become his girlfriend. 
As alleged in part in the DOJ Release:

[F]rom 2014 through 2016, he solicited more than $4 million from investors, many of whom were elderly, retired or financially unsophisticated. Biyikoglu falsely told investors that their money would be placed in a Chase Bank certificate of deposit (CD), where it would earn 9 to 13 percent interest with little risk to the investors' principle.

In reality, the Chase Bank CD did not exist and Biyikoglu stole the investors' money. Biyikoglu used the pilfered funds to finance his own lavish lifestyle, including the purchase of a Rolls Royce and other luxury automobiles. By comparison, Five Star investors lost nearly everything, including one 70-year-old victim who lost nearly all of his $1.6 million investment.

To cover up his scheme, Biyikoglu created fraudulent account statements - which included the Chase Bank logo - to deceive investors into believing their money was held in a segregated account at Chase Bank and was earning interest as promised.

During the course of the scheme, 11 investors transferred just over $4 million into Five Star. These victims suffered losses of approximately $3.45 million. Another victim lost just over $100,000 to Biyikoglu.
Angelo Perrucci, Jr., pled guilty in the United States District Court for the Eastern District of Pennsylvania to five counts of wire fraud. As alleged in part in the DOJ Release:

The defendant is an attorney licensed to practice law in New Jersey and Pennsylvania. In 2015, he was contacted by his former neighbor to provide end-of-life legal services for her ill father. Following the father's death in early 2016, Perrucci filed a motion in court seeking to be appointed as the administrator of the estate. The court granted the motion, and the defendant opened a bank account in the name of the estate. Within two weeks of opening the estate account, Perrucci withdrew more than $36,000 for his own personal use. He continued this fraud for over three years. Between March 2016 and May 2019, Perrucci fraudulently issued more than 80 checks to himself, stealing more than $300,000 and depleting the estate account.
Kirbyjon H. Caldwell, senior pastor of Windsor Village United Methodist Church in Houston, Texas, pled guilty in the United States District Court for the Western District of Louisiana to conspiracy to commit wire fraud; and previously, Co-Defendant Gregory A. Smith, an investment advisor, pled guilty to the same charge. As alleged in part in the DOJ Release:

[C]aldwell and Smith conspired to use their influence and status to persuade multiple victims to "invest" approximately $3.5 million with them. The victims' investments were purportedly in historical Chinese bonds, which are bonds issued by the former Republic of China prior to losing power to the Communist government in 1949. These bonds are not recognized by China's current government and, accordingly, have no investment value.

Smith began approaching existing clients and acquaintances in the spring of 2013 about what he described as an opportunity to invest in historical Chinese bonds. His usual sales pitch to investors was that Caldwell was (1) putting the bond deal together on behalf of investors, (2) had the bonds in his possession or was obtaining them, and (3) was brokering a deal to sell the bonds. Smith also promised that by investing money with him and Caldwell, the victims would obtain a partial ownership of the bonds and would quickly receive exponential returns on their investments. The victims were not told of the true nature of the bonds nor were they informed that no previous investor had ever obtained the promised return on an investment. The victims were encouraged to cash out any other investments they might have if they could not otherwise afford to participate.

After Smith made the fraudulent pitch, the victims were instructed to wire funds to various bank accounts under Caldwell's control. In 2013 and 2014, approximately $3.5 million was "invested." The funds were divided between Caldwell, Smith, and others. Caldwell used the approximately $900,000 that he received to pay down personal loans, mortgages, and credit cards, and maintain his lifestyle. Smith received $1.08 million. He used this money to pay down loans, purchase two luxury sport utility vehicles, place a down payment on a vacation property, and maintain his lifestyle. After time passed and investors began to question why they had not received the promised returns, Caldwell and Smith offered excuses, defended the legitimacy of the deals, and assured victim-investors that they would receive the promised returns.

Youngsville Man Pleads Guilty to Running a Million Dollar Investment Fraud and Ponzi Scheme / Defendant bilked investors out of $1,215,530 (DOJ Release)
Donnie Laing Jr. pled guilty in the United States District Court for the Western District of Louisiana to wire fraud. As alleged in part in the DOJ Release:

According to court documents, from April 2018 through November 2018, Laing operated a Ponzi scheme through Capital, a company that he used to set up a business bank account and solicit money from the victims of his scheme. Laing represented himself to be the owner of a legitimate business, Capital, that purchased and rented out oil and gas equipment - promising investors high rates of return on their investments. Investors believed that Capital would use their money to invest in oil and gas equipment, and then lease such equipment to companies engaged in oil and gas exploration activities for a profit.  Instead, Laing used the victims' investments for his own purposes.

Throughout the scheme, Laing submitted false proposals and contracts to his victims to persuade them to invest their money with Capital. He also used funds from new investors to make payments to previous investors under the guise that the payments represented legitimate profits and returns on the victims' investments. These payments allowed the defendant to avoid detection and obtain additional funds from his victims. Laing also used his relationship with a former business associate living in northeast Louisiana to solicit money from investors.  Throughout the course of the scheme, Laing defrauded multiple investors and received nine investor payments during the period from April 25, 2018 to October 29, 2018, totaling $1,215,530.
As of today, many of the country's major universities have canceled classes and are requiring students to attend online. All of New York City's law schools are requiring their students to attend classes online. No more lecture halls, seminar rooms, or student lounges. No one's going back to their old school. Aegis Frumento, Esq. hopes that this may be the event that pulls back the curtain and allows all of us, and especially students and employers, to see that online classwork is every bit as valid as in-class learning. When even those getting degrees from Harvard, Columbia, NYU, Stanford, Ohio State, and many more will have fulfilled perhaps a whole semester of class work on line, off-campus learning will not be so easily denigrated again. That should open the door to inexpensive certificated off-campus learning for everyone who wants it. 

Additional Key South Florida-Based Microcap Fraudsters Settle with SEC in Multi-Defendant Litigation (SEC Release)
In a Complaint filed in the United States District Court for the Southern District of New York and as amended, the SEC had alleged that a group of purported microcap fraudsters led by Barry Honig and including John O'Rourke III, John Stetson, and Michael Brauser had manipulated the stock of three public companies in pump-and-dump schemes -- in which Brauser, O'Rourke and Stetson also used their corporate entities Grander Holdings, Inc., ATG Capital LLC, Stetson Capital Investments, Inc. ("SCI") and HC Contrarian Investments LLC ("HSCI"). As alleged in the SEC Release:

The court entered consent judgments enjoining Brauser, Stetson, O'Rourke, Grander, ATG, SCI and HSCI from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as the reporting provisions of Section 13(d) of the Exchange Act and Rule 13d-1(a) thereunder. In addition, the judgments enjoin Brauser and Grander from violating the securities registration provisions of Sections 5(a) and (c) of the Securities Act, and enjoin O'Rourke and ATG from violating the anti-manipulation provisions of Sections 9(a)(1) and 9(a)(2) of the Exchange Act. Further, the judgments include permanent penny stock bars and conduct-based injunctions for Brauser, Grander, O'Rourke and ATG and 10-year penny stock bars and conduct-based injunctions for Stetson, SCI and HSCI. Finally, the judgments order Brauser, O'Rourke and Stetson to pay disgorgement, prejudgment interest and civil penalties totaling $1,175,176, $1,153,326, and $1,154,669, respectively. Monetary remedies against HSCI will be determined by the court at a later date upon motion of the SEC. The defendants neither admitted nor denied the SEC's allegations.

Without admitting or denying the allegations in an SEC Complaint, Strategic Capital Partners Muster Limited and Strategic Wealth Investments, Inc. agreed to the entry of final judgments that  permanently enjoins them from violations of the federal securities laws, orders them to pay disgorgement plus prejudgment interest totaling approximately $31,270, and also orders these defendants to pay combined civil penalties of $1,000,000. Separately, the Court granted a default judgment against Nedko Nedev by which he is permanently enjoined from violations of the federal securities laws and ordered to pay a $470,000 civil penalty. Defendants PTG Capital Partners LTD and PST Capital Group LTD (characterized in the SEC Release as "fictitious entities") were dismissed. As alleged in part in the SEC Release:

[T]his case involved defendants' coordinated attempts to fraudulently manipulate the securities in three issuers, Avon Products, Inc., Tower Group International, Ltd., and Rocky Mountain Chocolate Factory, Inc., through filing false tender offers on the SEC's EDGAR database and issuing a fraudulent press release. According to the complaint, defendants held securities in these companies and manipulated the companies' stock prices in an attempt to benefit their positions, thereby profiting from the resulting price increase as to each.


SEC Obtains Final Judgment Against Former Investment Adviser Charged with Defrauding Clients (SEC Release)
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged former investment adviser E. Herbert Hafen with securities fraud for promoting a fraudulent investment opportunity. Allegedly, Hafen instructed his clients to withdraw their money from the financial institution where he worked, including liquidating stock holdings and personal retirement accounts, deposit that money into their personal bank accounts, and then transfer or wire the money to his personal bank account. Upon receipt of his clients' money, Hafen allegedly did not invest as promised but diverted the funds for his own personal purposes, including paying house, car, and credit card expenses for himself and family members.In a parallel action, Hafen pled guilty and was sentenced to 30 months in prison. and ordered to pay $745,000 in restitution and to forfeit $806,750. As set forth in the SEC Release:

The Court entered a final judgment against Hafen based upon his consent to resolve all claims. The final judgment enjoins Hafen from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission has also entered an order barring Hafen from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.

The SEC adopted a Final Rule to purportedly simplify and streamline disclosures to investors about variable annuities and variable life insure contracts. As set forth in part in the SEC Release:

[T]he new rule permits a person to satisfy its prospectus delivery obligations under the Securities Act for a variable contract by providing a summary prospectus to investors and making the statutory prospectus available online. The new summary prospectus framework leverages both technology and a layered disclosure approach to improve the ability of investors to understand and evaluate variable contracts.