scam

Executives Charged with Securities Fraud

Austin, Texas: The Federal Bureau of Investigation (FBI) announced today that ArthroCare Corporation has agreed to pay $30 million in a monetary penalty to resolve charges that senior executives in the company engaged in securities fraud.

ArthoCare is a multi-business medical device company that manufactures, develops, and markets medical devices. However, members of the company’s executive staff have been charged with perpetrating securities fraud that resulted in more than $400 million in losses to investors. According to information released by the FBI ArthoCare perpetrated the fraud between December 2005 and 2008. ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock. On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.

“Truthful corporate earnings reports are critical to the soundness of our financial system. Today’s indictment alleges that those at the top of ArthroCare deceived investors and regulators by manipulating the company’s reports to inflate its stock, ultimately causing hundreds of millions in losses in shareholder value. The Criminal Division will continue to aggressively pursue corporate executives who undermine our financial markets for personal gain.” said Acting Assistant Attorney General Raman.

In a deferred prosecution agreement with prosecutors, ArthoCare admitted that senior executives inflated the company’s revenues by millions of dollars, artificially driving the shares higher. The company also admitted that its senior executives had conducted a number of sham transactions which were used to manipulate ArthoCare’s the earnings reports delivered to investors. Other revelations included a systematic “parking” of millions of dollars’ worth of medical devices at distribution facilities and then reporting these shipments as sales in its quarterly and annual filings, causing the company to appear to have met or exceeded external earnings forecasts

Two senior vice presidents John Raffle and David Applegate had previously plead guilty to conspiracy to commit securities and wire fraud in connection with the fraud scheme. David Applegate, 54, pleaded guilty before U.S. Magistrate Judge Mark Lane in Austin, Texas, to two counts of a superseding information which charges him with conspiracy to commit securities, mail and wire fraud, and with a false statements violation. Applegate admitted that he and other co-conspirators inflated falsely ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors and that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 with the U.S. Securities and Exchange Commission that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings.  Other executives are also facing charges in 2014. ArthroCare’s former chief executive officer, Michael Baker, and chief financial officer, Michael Gluk, are scheduled to stand trial on related charges on May 5, 2014.

“These senior corporate executives participated in a scheme to artificially inflate their company’s stock prices, cheating shareholders and the investing public out of hundreds of millions of dollars,” Assistant U.S. Attorney General Lanny Breuer said in a statement.

Childrens’ Courses Pyramid Scheme Busted

SEC Busts Pyramid Scheme for Investing in Online Childrens Educational Courses

 

The SEC froze the assets of five entities that collectively went by “CKB” and “CKB168”.  A string of international organizations participated in this world wide Ponzi scheme that targeted Asian Americans.  The company offered “risk free” investments in their online childrens educational courses.  The three main executives, living overseas, and their US based promoters raised over $20 million from US investors, with additional investors coming from China and Hong Kong.  They leveraged relationships within the Asian American community to raise these funds.p

CKB put out promotional material, videos, websites, and seminars to make the company appear to be legitimate.  However, this was all smoke and mirrors.  Behind the lovely façade there was no actually operating company.  They were not selling consumer products, as they claimed to be.  In fact they did not generate any revenue at all.  The only funds brought into the company were from investors.  The majority of those funds were paid out to CKB executives and their promoters.

Antonia Chion, an associate director in the SEC’s Division of Enforcement said, “CKB’s operators and promoters profited by abusing relationships of trust within the Asian-American community and promising investors they can earn more money by recruiting other investors instead of selling actual products.  What CKB really sells is the false promise of easy wealth.”

The SEC has formerly charged the following executives and promoters of CKB:

  • Rayla Melchor Santos
  • Hung Wai (“Howard”) Shern
  • Rui Ling (“Florence”) Leung
  • Daliang (David) Guo
  • Yao Lin
  • Chih Hsuan (“Kiki”) Lin
  • Wen Chen Hwang (“Wendy Lee”)
  • Toni Tong Chen
  • Cheongwha (“Heywood”) Chang
  • Joan Congyi Ma
  • Heidi Mao Liu

It appears as though CKB attempted to structure its dealings to avoid the SEC, however, that strategy did not work.  The SEC considers their dealing to be the improper sale of unregistered securities.  The company told people that wanted to purchase an educational course that they had to invest in CKB, then they would receive “Profit Reward Points”.  When the points increased in value the investor would supposedly see a return.  They were also promised that the company would go public on the Hong Kong Stock Exchange in 2014, giving them another opportunity to earn money.

The investors were also promised that they could make more money by recruiting additional investors.  The promises were lavish, Kiki Lin even added, “And for those who really want to make money, who are really hard working, in a short time you would all be like John,” who she claimed “made money to buy five houses in Las Vegas.”  They would turn investors into recruiters and continued to grow through this practice until eventually enough investors complained and the SEC got involved.

This is a clear example of why it is important to conduct due diligence.  As an investor you should be leery of companies that are promising that you can make money by getting other people to contribute money.  Companies traditionally make money by selling goods and services, not be recruiting investors.  The SEC publishes regular information on scams and companies that have been busted.  Read our blog and their reports before you make an investment to be sure that the company you are interested in isn’t on the watch list.

 

 

SEC Shuts Down EB5 Scam in Texas

The Securities and Exchange Commission (SEC) announced today that they were filing fraud charges against a Texas based couple for allegedly stealing funds from investors based in foreign countries, while promising these investors a path to citizenship in the United States of America (US) through the EB-5 visa program.

In a joint release with U.S. Citizenship and Immigration Services (USCIS), the Securities Exchange Commission gave a joint statement giving details about the EB-5 program with the intention of preventing investors from become likely targets.

According to the statement The EB-5 program provides certain foreign investors, who can demonstrate that their investments are creating jobs in this country, with a potential avenue to lawful permanent residency in the United States. Business owners apply to USCIS to be designated as “regional centers” for the EB-5 program.  These regional centers offer investment opportunities in “new commercial enterprises” that may involve securities offerings.  Through EB-5, a foreign investor who invests a certain amount of money that is placed at risk, and creates or preserves a minimum number of jobs in the United States, is eligible to apply for conditional lawful permanent residency.

The complaint filed in the US District Court for the Southern District of Texas alleges that Marco and Bebe Ramirez, a married couple, targeted internationally based investors for investment in their three companies. The investors were promised that the investments would be invested as part of an EB-5 Immigration Pilot Program. However the money, once deposited with USA Now LLC, USA Now Energy Capital Group LP, and Now Co Loan Services, never actually invested the money in any such program. Rather large sums of the money was diverted to the Ramirez’s personal expenses and to other, undisclosed entities. There is at least one case of a Ponzi like situation where the Ramirez family paid off a previous investor using the funds from new investment.

“Through their investment scheme, the Ramirezes abused a program intended to attract foreign capital to create U.S. jobs. The Ramirezes misappropriated investor funds for their own purposes without any regard for the harm they caused investors who were seeking an avenue to U.S. residency.” said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office.

In 2010 the Ramirez’s applied with the USCIS to be part of the EB-5 program, a decision had not yet been reached. However, the non-issue of the status did not stop the couple from soliciting investors with false promises about how their money would be invested. Other employees of USA Now LLC were also involved in the hoodwinking of investors. As part of the scheme, the Securities Exchange Commission complaint alleges, the Ramirez family would tell investors that their investments would be held in an escrow account until they had received the USCIS decision. In truth the money was instantly diverted to other places, often the same day as the investor would place the funds into their account. Among the misappropriation was the starting of a Cajun themed restaurant, settling of an unrelated law suit, and purchasing of gifts for themselves and their employees. Initially targeting investors from Mexico, the Ramirezes and their companies soon expanded their scheme to include investors from Nigeria and Egypt as well and were able to raise over $5 million from gullible investors seeking a path to US citizenship.

“Even though investors provided the Ramirezes with at least $5 million, none of them have ever received conditional visas let alone green cards. Instead, the Ramirezes opened a restaurant and purchased other assets for themselves and their employees.” said David Peavler, Associate Director of the Securities Exchange Commission Fort Worth Regional Office.

The SEC was successful in seeking the courts approval to freeze the assets and accounts of the Ramirezes and their three companies, effectively precluding them from raising any more money or spending the money already raised through the scheme. The SEC is charging Marco and Bebe Ramirez and their companies with violating, aiding and abetting in the violations of the antifraud provisions of the Securities Act of 19330.

Fraud can rear its head in almost any situation, and the EB-5 program is one of the most simplistic areas for cheats to take advantage of those seeking a better life in the United States. Investors in the United States have also been targeted in the past trying to bring their loved ones into the country. Any time a person invests there is always a chance that the person on the other end may be someone out to steal the investment for their own personal gain, which is why having the right vetting mechanisms, stringent due diligence, and keeping abreast of the current schemes being perpetrated are all good ideas.

Father & Son Defrauded Terminally Ill

Lexington, SC: The Securities and Exchange Commission (SEC) today charged a father and son duo, in Lexington South Carolina, of running a fraudulent investment scheme designed to specifically target some of society’s most vulnerable citizens, the terminally ill. The two are charged with profiting illegally from the deaths of their victims.

According to the charges filed in Columbia, SC., Benjamin S. Staples and his son Benjamin O. Staples designed a scheme by which they defrauded brokerage firms and bond issuer’s alike making over $6.5 million in profits in the process. The Staples recruited terminally ill individuals to their program by preying on these individuals fear of the high costs of a funeral. The duo lured people in with the promise that they, the Staples, would agree to pay the funeral expenses if the sick individuals would agree to open joint accounts with the Staples. The father, son team also had the individuals sign documents which relinquished ownership in the accounts or any assets that may be in them.

“The Staples exploited the tragic circumstances surrounding a terminally ill diagnosis and turned the misfortune of others into a profit-making enterprise for themselves.

The Staples deceived brokerage firms and bond issuers by casting themselves as survivors of a joint ownership situation when the deceased had no legal ties to the bonds at all.” said Kenneth Israel, Director of the SEC’s Salt Lake Regional Office that investigated the case.

The SEC alleges that once the two men had sole control of the joint account opened with the terminally ill patient, they would purchase discount corporate bonds containing a “survivor’s option”. Essentially this allowed them to redeem the bond for the full principal amount prior to maturity if the joint owner of the bond died. Naturally, knowing that their “joint owner” was terminally ill, the Staples had every reason to believe that they would be collecting shortly. Following the death of one of their terminally ill patients the Staples would redeem the bond using the “survivor’s option” to swindle the brokerage firm and by misrepresenting that the deceased individual had rights to the bond. They would then pocket the difference between the discounted price at which they had purchased the bonds and the full purchase price they collected when they redeemed the bonds early.

The investigation found that the Staples operated what they called the Estate Assistance Program and had recruited over 44 individuals into the program purchasing approximately $26.5 million in bonds from at least 35 issuers.

When an individual signed up for their program the Staples required the terminally ill individuals to sign three documents: an application to open a joint brokerage account with them, an estate assistance agreement, and a participant letter.  The latter two documents required the terminally ill participant to relinquish any ownership interest in the assets in the joint account, including the bonds that the Staples later purchased. Once the terminally ill person had passed, the Staples would send a letter to the brokerage firm exercising the “survivor clause” and falsely representing that the deceased was the “owner” of the bond. The agreements between the Staples and their clients were never revealed to the brokerage companies.

The SEC’s complaint charges Ben S. Staples and Ben O. Staples with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5

The frailest in our society are also the easiest for someone to scam. From the first time investor, to the sick and elderly scam artists are always looking for ways to either scam the public or use the public to scam someone else. Making sure that due diligence is followed, leads are legitimate, and that businesses or businessmen are not just con artists looking for a quick buck are essential parts of the investment community and should always be followed.

 

JPMorgan Chase Traders Charged By the SEC

 

Two Former JPMorgan Chase Traders Charged By the SEC

 


Two traders from JPMorgan Chase & Company have been charged by the Securities and Exchange Commission (SEC) with fraudulently overhauling investments that were designed to hide massive losses in the portfolios being managed by the two traders.

According to the complaint, which was filed in the US District Court for the Southern District of New York, Javier Martin-Artajo and Julien Grout, concocted and implemented a scheme to deliberately mismark hundreds of positions in order to hide the huge losses they were experiencing. Instead of following U.S. generally accepted accounting principles and JPMorgan’s own internal accounting policies, which would have required the duo to mark the positions at mid-market values, Martin-Artajo and Grout fraudulently marked the positions by maximizing their value. The mismarking scheme caused JPMorgan’s reported first quarter earnings to be overstated by $660 million, before tax expense.

Martin-Artajo and Gout worked at JPMorgan’s chief investment office (CIO) which created the portfolio known as Synthetic Credit Portfolio (SCP). The SCP was designed to act as a hedge against adverse credit events and primarily invested in credit derivative indices or tranches.  When the market value of SCP’s positions began to steadily decline in early 2012 due to improving credit conditions, as well as recent changes in investment strategy, Martin-Artajo and Grout began concealing those losses by providing management with fraudulent valuations of SCP’s investments.

The complaint further alleges that Martin-Artajo directed Gout to revise the manner in which he was marking the SCP’s investments by marking them with the most aggressive end of the dealer’s bid offer spread. Allegedly, and for a period of time, Gout maintain a spreadsheet to keep track of the differences between his marks and the mid-mark prices previously used to value the SCP’s positions. By the middle of March, this spreadsheet showed that the discrepancy had grown to over $432 million. This however, was not the end of the concealment which continued into late April. Martin-Artajo further instructed Gout on March 30th, contrary to JPMorgan’s accounting policies, to wait for better prices after the close of trading in London in the hope that activity in the U.S. markets could support better marks for SCP’s positions.

According to George S. Canellos, Co-Director of the SEC’s Division of Enforcement “The trading instruments were complex but these traders had a simple rule to follow: tell the truth about their fair value,” He continued, “Yet these traders brazenly accumulated a massive position in derivatives with lax oversight, and then lied to cover up their massive losses when the market turned against them.”

In a simultaneous action, the US Attorney’s Office for the Southern District of New York today announced criminal charges against Martin-Artajo and Grout.

The SEC’s investigation is ongoing, but the complaint already filed alleges that Martin-Artajo and Grout violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1, and aided and abetted pursuant to Section 20(e) of the Exchange Act violations of Sections 13(a) and 13(b)(2)(A) and Rules 12b-20, 13a-11 and 13a-13.

 

Three Men Arrested for Conspiracy

Three Men Arrested for Conspiracy – Investors Looking for Money

Three men were arrested this May in Miami for conspiracy to commit wire fraud as a result of a recent investigation conducted by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations.

The court documents read like a classic case of flamboyant salesmen who set their sights on conning investors out of their money. The complaint stated that starting in 2009, Antonino Castro, Betsy Aguilar Molina, and Anibangel Molina made false representations to investors, failed to pay dividends, and allocated money for their personal expenses. At the same time they were representing to investors that they were purchasing commodities, and offering trading opportunities in precious metals, oil and foreign currency.

The three ran their scheme through their company Bancard Financial Services, through which they also offered high interest checking accounts to their clients. To make themselves seem more legitimate Bancard Financial Services presented customers and investors a fraudulent bond certificate that was supposed to be issued by Lloyds of London. Investors were led to believe that Lloyds indemnified Bancard Financial Services LLC against losses for any one client for up to $2.2 million. Even more bizarrely Aguilar Molina, who acted as the companies Operation Manager, told at least one client that U.S. President Barack Obama had signed a law which guaranteed their investments. Wow!

The scheme has a definite Hollywood flair to it being that none of the three individuals, nor their company, are registered or licensed to trade in commodities, securities, or currency. Nor are they registered to act as a broker for any of these items. Instead the trio lured investors in by television advertisements offering classes in foreign exchange currency trading in Miami. Once the bait had been taken, people who attended these seminars were then given the opportunity to have Bancard Financial Services invest their money in foreign currency markets, commodities, or in high interest paying checking accounts. Once the money was invested, the trio went about spending the money on their personal purchases which included a 2012 Land Rover Evoque, purchased by Aguilar Molina for Anibangel Molina.

The scammers were very successful, raising around $4 million in investments from more than 50 individual investors between November 2011 and November 2012. Since then numerous investors have contacted Castro, who functioned as the Office Manager, and Molina, the company’s President, requesting that their accounts be closed and their monies returned. Till date no money has been returned.

This dubious trio face up to 20 years in prison, if they are convicted of the allegations. Investors should always double check the credentials of people who are seeking large sums of money. Investing with people who are registered, have certifications, and a track record of delivering are far more likely to be the real deal than underhanded con artists who rely heavily on peoples naivety and using a classic bait and switch. Once the “seminars” turned to a session on giving these folks money, serious questions should have been asked about their qualifications and their motives. A little research could have saved a lot of people the hassle and heartache of trying to get their money back from con men.