Securities Industry Commentator by Bill Singer Esq

Federal Court Grants Summary Judgment in Racial Discrimination Case Involving FINRA BrokerCheck (BrokeAndBroker.com Blog)

Head Of Merchant Bank Sentenced To 24 Months In Prison In Connection With Multimillion-Dollar Securities Fraud Scheme (DOJ Release)

Serbian Man Extradited to U.S., Charged with $70 Million Fraud in North Texas (DOJ Release)

Oregon Biotech Consultant Charged in Insider Trading Scheme (DOJ Release)

SEC Charges Former Consultant and Board Member with Insider Trading (SEC Release)

SEC Charges Two Individuals with Engaging in Fraudulent Securities Offering (SEC Release)

SEC Files Fraud and Other Charges in Connection with a Fraudulent Investment Adviser and Private Fund Enterprise (SEC Release)

CRAIG ZABALA was the chairman, CEO, and president of various affiliated and intertwined purported financial services companies:  Holdings, Concorde Group, Inc. ("Group"), Blackhawk Capital Group BDC, Inc. ("Blackhawk"), DBL Holdings, LLC, d/b/a "Drexel Burnham Lambert" ("DBL"), Concorde Investment Managers, LLC ("CIM"), and Concorde Europe, Ltd. ("Concorde Europe").  In or about August 2019, FINRA barred ZABALA from the broker-dealer industry, including because of his failure to cooperate with a FINRA investigation.

Holdings was a Delaware corporation formed in or about 2015, with an office in Jersey City, New Jersey, and a mailing address in New York, New York.  Holdings purported to provide financial services, including merchant banking, investment banking, asset management, and securities brokerage services, to entrepreneurs, investors, and businesses in the middle market, meaning small to mid-sized companies with revenue and market capitalizations of less than $1 billion, in North America, Europe, and Asia.  Holdings' purported affiliates included Group, DBL, Blackhawk, CIM, and Concorde Europe.  ZABALA was a majority owner of Holdings.

Group was a Delaware corporation formed in or about 1995, based in New York, New York, that purported to provide the same types of financial services as Holdings.  Group's purported affiliates included DBL, Blackhawk, CIM, and Concorde Europe.  ZABALA was a majority owner of Group.  Between in or about 2001 and in or about 2014, Group purportedly raised approximately $18 million from investors.

From at least in or about 2015 through in or about 2020, ZABALA and others perpetrated a scheme to defraud at least approximately 17 investors out of approximately $4.38 million in Holdings notes, warrants, and equity.  Almost all of these investors invested in a private offering by Holdings of $25 million in senior secured notes with attached warrants paying 13 percent interest (the "Holdings Offering"). 

ZABALA falsely represented that the proceeds from the offerings would be used to grow Holdings' purported merchant banking business by investing in and buying other financial services companies.  In truth and in fact, and as ZABALA well knew, Holdings did not make any investments in or buy other companies; it was a shell company.

ZABALA falsely represented that Holdings was successfully raising money from investors, claiming that Holdings had raised nearly all of the $25 million targeted in the Holdings Offering and that the family office of a wealthy German family had invested millions of dollars in Holdings.  In truth and in fact, and as ZABALA well knew, Holdings only raised a few million dollars (the majority from one investor), and the family office never invested in, and never committed to invest in, Holdings.

ZABALA falsely represented to Holdings Investors that Holdings would soon have an initial public offering ("IPO"), which would result in large profits to Holdings investors.  In truth and in fact, and as ZABALA well knew, Holdings was not close to an IPO.

ZABALA converted at least approximately 70 percent of the approximately $4.38 million in Holdings investor funds in the form of cash withdrawals and other transfers to himself, payments to his girlfriend, payments of his personal credit card bills, and repayment of Group investors in a Ponzi-like fashion.

[T]he defendants allegedly helped create and market more than 20 fraudulent investing platforms, including Options Rider, Bancde Options, Start Options, Dragon Mining, BTC Mining Factor, and Trinity Mining.

From their home bases in China, Serbia, and elsewhere, the defendants allegedly targeted investors around the globe - including several in north Texas - soliciting "investments" in binary options and cryptocurrency mining.

Online, they billed their binary options platforms as "the world's market leader in binary options," boasted an average payout of 80 percent, and promised 20 percent refunds on every lost trade. On the cryptocurrency mining platforms, meanwhile, they claimed investors could "purchase bitcoin at half market price!!" due to a "24-7 mining" at facilities "worldwide." 

The defendants concocted profiles - complete with names and photographs, mostly female - for these non-existent investing companies' officers and chair people, and even used fake names during video conference calls in order to convince potential investors the company was legitimate.

After instructing investors to wire money through an international bank account, the defendants allegedly provided logins for a bogus online investment portal, which consistently showed positive returns on investments. They allegedly fabricated trading activity, withdrawal history, and wire receipts. In actuality, no actual trading had occurred and the so-called "investment" money was used to cover defendants' personal expenses, to pay commissions, and to further the scheme.

Overall, the conspiracy allegedly duped investors worldwide out of more than $70 million.

[F]rom April to August 2017, Ahn, a long-time senior corporate executive and board director for biotech companies, worked as a consultant for a New York firm, and advised it during its efforts to acquire Dimension Therapeutics, Inc., a biotech firm formerly headquartered in Cambridge, Mass. In the course of his work for the New York firm, Ahn learned Dimension's intention to be acquired by another biotech firm, the details and the timing of his employer's proposals to acquire Dimension and gained access to confidential information about Dimension's business. Ahn thereafter bought Dimension stock while in possession of that nonpublic information. When Dimension announced that it would be acquired in August 2017, its stock increased 262% in one day. . . .

[F]rom January 2013 through mid-2019, Parnas and Correia raised over $2 million from investors through investments in their entity, Fraud Guarantee. According to the complaint, Parnas and Correia told potential investors that their funds would be used to develop products that would help customers recoup losses resulting from investment or consumer fraud. The complaint further alleges that despite Parnas's and Correia's representations, the funds were instead largely used for personal expenses including travel, jewelry, cars, and disbursements at a casino.  As alleged, Parnas and Correia also falsely told potential investors that they had raised millions of dollars from other investors and that they had invested hundreds of thousands of dollars of their own money into Fraud Guarantee.

[D]uring 2018 and 2019, Moleski, Michael, and Jones solicited investors to purchase securities offered by a pair of unaffiliated companies. As alleged, approximately 30% of the funds raised from investors in connection with these two securities offerings were paid, directly or indirectly, to the defendants as commissions. The complaint alleges that none of the defendants were registered as broker-dealers or affiliated with registered broker-dealers at the time. The complaint also alleges that Moleski and Michael, operating through various business entities, acted as investment advisers in connection with three private investment funds that they and their agents, such as Jones, offered and sold to investors beginning in 2019. Moleski and Michael, the complaint alleges, misled investors into believing that the monies investors entrusted to Moleski and Michael would be invested in one or more securities. According to the complaint, however, very little of the money was invested; the complaint alleges that Moleski and Michael instead misappropriated the money and used it to pay personal and business expenses, including sales commissions to agents such as Jones.

• Securities Industry Commentator
• Bill Singer