On May 30, 2018, the Securities and Exchange Commission (“SEC”) charged a former Long Island registered representative with defrauding long-standing brokerage customers in an $8 million investment scam. According to the SEC, Steven Pagartanis, who was an associate with a broker-dealer in Long Island, NY, defrauded investor and retiree customers, that he would invest their funds in either a public or private land development company.   The SEC’s complaint, charges Pagartanis with violating the anti-fraud provisions of the federal securities laws.

The SEC alleges, Steven Pagartanis, who was an associate with a registered broker-dealer in Long Island, NY, falsely told investor and retiree customers that he would invest their funds in either a public or private land development company.  He assured that the funds would be safe and promised guaranteed monthly interest payments on the investments.  Pagartanis’s directed his customers to write checks payable to an entity that Pagartanis secretly controlled.  As a result, the customers invested approximately $8 million to Pagaratanis. Pagartanis used the funds to pay personal expenses and make the promised “interest” payments to his customers.  To defraud customers,  Pagartanis created fake account statements reflecting ownership interests in the land development companies. The scheme became public earlier this year when Pagartanis quit making the phony interest payments to customers. Read More

On May 16th, 2018, the Securities and Exchange Commission (“SEC”) charged three former executives for Constellation Healthcare Technologies Inc. (Constellation), a Houston- based company, who falsified financial and other information they provided to a private firm while negotiating the private firm’s acquisition of a majority stake in Constellation. A little more than a year after the January acquisition, Constellation filed for bankruptcy in March.

According to the SEC, the executives persuaded a private firm to acquire a majority of Constellation’s equity and provided fake information, including financial statements for three fictitious subsidiaries supposedly acquired for more than $62 million. The complaint alleges that the former executives funded the bogus acquisitions with stock sales in London and then pocketed the proceeds for themselves.  The complaint charges former Constellation chief executive Parmjit (Paul) Parmar, former chief financial officer Sotirios (Sam) Zaharis, and former company secretary Ravi Chivukula. In September 2017, amid doubts about Constellation’s financial condition, Parmar resigned and Zaharis and Chivukula were put on administrative leave.  Similarly, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Parmar, Zaharis, and Chivukula.

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On May 16, 2018, the Securities and Exchange Commission (“SEC”) charged Chardan Capital Markets LLC (Chardan Capital) and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), a New York City based brokerage firm, alleging the report of suspicious sales of 12.5 billions in penny stock shares.

According to the SEC, from October 2013 to June 2014, Chardan, an introducing broker, liquidated more than 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions.  Chardan failed to file any SARs even though the transactions raised red flags, including similar trading patterns and sales in issuers who lacked revenues and products.  The SEC found that ICBCFS similarly failed to file any SARs for the transactions despite ultimately prohibiting trading in penny stocks by some of the seven customers. As noted in the complaint, guidance for preparing SARs from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) clearly states that “[e]xplaining why the transaction is suspicious is critical.” To help detect potential securities law and anti-money laundering practices, broker-dealers are required to file Suspicious Activity Reports (SARs) that describe suspicious transactions that take place through their firms. Read More

On April 4, 2018, the Securities and Exchange Commission (“SEC”) charged Gregory Bercowy with a fraudulent scheme to manipulate the stock price of Aureus, Inc., a penny stock company incorporated in Nevada.

The SEC alleges that between August 4 and August 15, 2016, Gregory Bercowy, who is associated with a state-registered investment adviser, sold shares of certain Fortune 500 companies, including Abbott and Apple, in his relative’s brokerage account in order to buy over three million shares of Aureus at a total cost of more than $2.8 million. According to the SEC’s complaint, while Gregory Bercowy was accumulating these shares of Aureus, he entered (and later cancelled) a large number of orders to buy Aureus shares at prices higher than the then-current price of the stock. The orders allegedly were intended solely to maintain or boost the stock’s price. The price per share of Aureus securities increased from $0.52 on August 4, 2016, to $1.62 on August 16, 2016. According to the SEC’s complaint, Gregory Bercowy stated in recorded phone calls with a representative of a brokerage firm that he and others were trying to boost Aureus’s stock price. Read More

On April 13, 2018, the Securities and Exchange Commission charged Andrew Kandelapas with making false and misleading statements in the company’s SEC filings and press releases and with manipulating the company’s stock.

The SEC’s complaint against Andrew Kandalepas, the CEO of Wellness Center USA, Inc. (Wellness), filed in the U.S. District Court for the Northern District of Illinois, alleges that Andrew Kandelapas took $450,000 in unauthorized withdrawals from the company and then concealed his actions by causing Wellness to characterize his withdrawals as salary, prepayments, or loans in false and misleading Forms 10-K and 10-Q. The complaint further alleges that Andrew Kandelapas caused the company to issue false and misleading press releases touting non-existent sales of medical devices by a Wellness subsidiary.

According to the complaint, Andrew Kandelapas also manipulated the market for Wellness stock through secret trading in a friend’s brokerage account and pocketed more than $130,000 from his secret trading. According to the complaint, Andrew Kandelapas coordinated trading with Matthew Mushlin, who Andrew Kandelapas hired as an unregistered broker to solicit investments in Wellness through private placement agreements.

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On April 17, 2018, a federal district court sentenced the John Milne to two years imprisonment for violating the conditions of his supervised release by failing to pay court-ordered disgorgement in a civil action brought by the Securities and Exchange Commission.

In 2008, the SEC charged John Milne and others with fraud for engaging in a series of fraudulent transactions to meet URI’s forecasts and analyst expectations. A federal grand jury in the District of Connecticut also indicted John Milne in a parallel criminal action. John Milne subsequently pleaded guilty and agreed to settle the SEC’s charges. The judgment entered against John Milne in the SEC’s action ordered him, among other things, to pay disgorgement and interest of $6.25 million. Before John Milne was sentenced, he paid $1 million to the SEC. As part of John Milne’s criminal sentence, the court ordered him to pay the remaining $5.25 million to the SEC as a condition of his supervised release.

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On April 6, 2018, the Securities and Exchange Commission charged Clifton Stanley in a $2.4 million Ponzi scheme and in a related, $1.4 million offering fraud targeting retirees.

The SEC’s complaint alleges that, from 2010 to 2017, Clifton Stanley ran a Ponzi scheme through his retirement planning and real estate investment business, The Lifepay Group, LLC. Clifton Stanley is alleged to have lured at least thirty elderly victims to invest approximately $2.4 million of their retirement savings with baseless promises and claims of outsized investment returns. He kept the scheme afloat for years by paying early investors with later investors’ funds and by convincing investors to roll over their investments. The SEC further alleges that Clifton Stanley pilfered from the estate of an elderly woman’s family trust, diverting nearly $100,000 to fund the Lifepay Ponzi scheme. In addition, the SEC’s complaint alleges that, beginning in 2015, Clifton Stanley and Michael E. Watts orchestrated a second offering fraud through a company they controlled, SMDRE, LLC. Clifton Stanley and Watts allegedly used a collection of misrepresentations and empty promises to convince a group of predominantly elderly victims to invest roughly $1.4 million in SMDRE. Read More

On April 11, 2018, a federal district court has ordered Christopher Lee aka Rashid Khalfani, whom the Securities and Exchange Commission charged in 2015 with pocketing money raised from investors, to pay over $3.8 million in disgorgement and civil penalties.

The SEC charged Christopher Lee, who operated under an alias Rashid Khalfani, and hid his past criminal convictions with raising nearly $2 million through his firm Capital Cove Bancorp LLC, for purported investments in two private funds that invested in distressed real estate. Rashid Khalfani allegedly enticed investors by falsely boasting that REO Opportunities Fund II LLC and Rittenhouse Square Trust LLC were “vetted, qualified, and registered” with the SEC and several other government agencies. Rashid Khalfani allegedly stole investor money from both funds, and in some instances used it to purchase his own real estate. Read More

On April 5, 2018, the Securities and Exchange Commission charged Saverio Barbera with tipping his brother and father with material nonpublic information about an upcoming corporate acquisition.

The SEC’s complaint, filed in the United States District Court for the Eastern District of New York, alleges that, in 2014, Saverio Barbera (“Barbera”), learned that Owens & Minor, Inc., a Virginia-based healthcare logistics company, was going to acquire all of the outstanding shares of Medical Action Industries, Inc. (“Medical Action”), a Brentwood, New York, medical products supplier. According to the complaint, Saverio Barbera then told his father and brother that they should purchase Medical Action stock in advance of the acquisition so that they could profit from the deal. The SEC alleges that Saverio Barbera obtained the information that he tipped to his father and brother from his close friend, the Chief Executive Officer and a member of the Board of Directors of Medical Action. According to the SEC’s complaint, soon after receiving this tip and less than a week before the public announcement of the deal, Saverio Barbera’s father and brother purchased a combined total of 22,000 shares of Medical Action common stock, which they then sold at a profit following the deal’s announcement. The SEC alleges that, as a result of their trading, Saverio Barbera’s father and brother realized combined trading profits of approximately $145,000. Read More

On April 5, 2018, a federal district court in Richmond, Virginia has entered a final judgment against Merrill Robertson, Jr., a former football player charged by the Securities and Exchange Commission with defrauding investors, including coaches he knew from his time playing football for the Fork Union Military Academy and the University of Virginia.

The SEC alleged that Merrill Robertson and the company they co-owned, Cavalier Union Investments LLC, promised to invest in diversified holdings but stole nearly $6 million of the more than $10 million they raised from investors. They spent the stolen $6 million on personal expenses such as cars, family vacations, repayment of mortgage and credit-card debt, luxury goods, clothing, entertainment, educational expenses for family members, and a luxury suite at a football stadium. They also used the stolen money to make various donations and gifts to alma maters, churches, and other third parties. Merrill Robertson, who was criminally charged based on the conduct alleged by the SEC, was sentenced to 40 years’ imprisonment. Read More

On April 18, 2018 the Securities and Exchange Commission charged John Jumper with stealing approximately $5.7 million from a Pennsylvania company’s pension plan.

According to the SEC’s complaint filed in federal court in Memphis, Tennessee, on three separate occasions between March 2015 and February 2016, John Jumper stole millions of dollars from Snow Shoe Refractories, LLC’s pension plan. John Jumper allegedly forged documents, including fake Board of Directors resolutions, to steal the funds. John Jumper allegedly used the stolen funds to capitalize other businesses he owned, to repay personal debts and, in one instance, to invest in another business that paid a significant fee to a broker-dealer that John Jumper co-owned. Read More

On September 29, 2017, the Securities and Exchange Commission charged Shane Fleming, a middleman tipper, and six traders with insider trading ahead of the announcement that the company would be purchased and taken private.

In a complaint filed in U.S. District Court in the Northern District of Illinois, the SEC alleges that Shane Fleming a former vice president of sales at Life Time Fitness, learned of the merger discussions on or before Feb. 23, 2015 and tipped his friend and business partner Bret J. Beshey with the understanding that Beshey would use the information to make a profit and split those profits with Shane Fleming. The SEC alleges that rather than trade in his own name, Beshey tipped his friends Christopher M. Bonvissuto and Peter A. Kourtis with the understanding that both men would kick back a portion of their trading proceeds to Beshey. According to the SEC’s complaint, Kourtis tipped his friends Alexander T. Carlucci, Dimitri A. Kandalepas, Austin C. Mansur, and Eric L. Weller, and asked Carlucci, Mansur, and Weller to give him a portion of any profits they made from trading on the information, which they agreed to do. Read More

On April 4, 2018, the Securities and Exchange Commission charged Michael Scronic with fraud stemming from lies to retail investors about the value of their investments in a Ponzi-like scheme.

The SEC alleges that, starting in approximately 2010, Michael Scronic began to raise money from at least 42 friends and acquaintances, many of whom were from his suburban community, in order to invest in a risky options trading strategy. He allegedly lured investors by informing them that he had a long and impressive track record of proven returns. He also allegedly lied to investors about the liquidity of investments, telling one investor that “what’s cool about my fund is that i’m [sic] only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless.” However, the SEC alleges that Michael Scronic was actually hemorrhaging investor money through massive trading losses, with at least $15 million in investment losses since April 2010. For the period ending June 30, 2017, Michael Scronic allegedly reported to investors total assets of at least $21,837,475. However, the balance in his brokerage account on June 30, 2017 was just under $27,500. Read More

On April 4, 2018, the Securities and Exchange Commission charged Michael Liberty, the founder of the fintech startup now known as Mozido, Inc., with a fraudulent scheme to trick hundreds of investors into investing in his shell companies instead of Mozido. Michael Liberty and his accomplices then stole most of the more than $48 million raised to fund a lavish lifestyle that included private jet flights, multi-million dollar residences, expensive cars, and movie production ventures.

The SEC’s complaint, filed March 30, 2018, alleges that Michael Liberty, his wife, Brittany Liberty, his cousin, Richard Liberty, Paul Hess, and attorney George Marcus induced investors to purchase unregistered interests in shell companies controlled by Michael Liberty that supposedly owned transferable interests in Mozido. In reality, the shell companies either did not own, or were not permitted to transfer, interests in the company. The SEC also alleges that Michael Liberty and his accomplices lied to investors about Mozido’s valuation and finances, the amount Michael Liberty had personally invested in Mozido, and the use of their funds. According to the complaint, Michael Liberty and his accomplices later orchestrated a series of transactions in which they used the investors’ own money to heavily dilute their interests and duped investors into trading securities for those worth more than 90% less. Read More

On March 29, 2018, a federal district court in Connecticut granted the SEC’s motion for summary judgment as to the liability of Iftikar Ahmed alleged to have fraudulently diverted money from the venture capital funds he advised.

The SEC’s action alleges that Iftikar Ahmed, formerly a general partner at a venture capital firm with offices in Connecticut, used fraudulent and deceptive means to divert into his personal bank accounts more than $67 million from ten different venture capital investments. In its ruling on the SEC’s summary judgment motion, the court found that, with respect to each of the ten investment deals, Iftikar Ahmed violated certain anti-fraud provisions and related rules of the Investment Advisers Act of 1940, the Securities Exchange Act of 1934 and/or the Securities Act of 1933. In the same ruling, the court also denied summary judgment motions filed by Iftikar Ahmed and relief defendants. Read More

On April 16, 2018, the Securities and Exchange Commission charged Amrit Chahal with orchestrating an investment scheme over several years.

The SEC’s complaint alleges that, from at least February 2015, Amrit Chahal, of Fairfax, Va., used his company, Kane Capital Investment Group, LLC, to fraudulently solicit approximately $1.4 million from about 50 individuals, including friends and family members. According to the complaint, Amrit Chahallured investors by falsely claiming to be an experienced and successful trader who could generate above-market returns for clients through a low-risk trading strategy. The SEC alleges that, in reality, Amrit Chahal had substantially no experience working in the financial or securities industry or trading securities on behalf of clients. The complaint further alleges Amrit Chahal initially invested client funds in a variety of investments, but suffered significant trading losses. According to the complaint, instead of disclosing the losses, Amrit Chahal lied to his clients about their investment returns, continued raising funds, then used the money for his personal benefit, including to pay for his luxury car, rent, travel, dining, and other living expenses, and to make Ponzi-like payments to earlier investors. Read More

On September 28, 2017, the Securities and Exchange Commission charged William Gennity and Rocco Roveccio with making unsuitable recommendations that resulted in substantial losses to customers and hefty commissions for the brokers. One of the brokers agreed to pay more than $400,000 to settle the charges.

Brokers must make recommendations that are compatible with their customers’ financial needs, investment objectives, and risk tolerances. An SEC examination of the firm Alexander Capital L.P. detected potential misconduct among certain brokers, and the ensuing investigation has led to the filing of an SEC complaint against William Gennity and Rocco Roveccio. The SEC also issued an order against Laurence Torres.

The SEC’s complaint alleges that William Gennity and Rocco Roveccio recommended investments that involved frequent buying and selling of securities without any reasonable basis to believe their customers would profit. According to the complaint, since customers incur costs with every transaction, the price of the security must increase significantly during the brief period it is held in an account for even a minimal profit to be realized. Read More

On April 4, 2018, Christopher Lollar has agreed to settle SEC charges that he conducted insider trading ahead of a market-moving announcement about the company’s discovery of a significant new oil source.

The SEC alleges in its complaint, filed on November 1, 2017, that Christopher Lollar traded on nonpublic information while working in the company’s San Antonio office that was performing the geologic and geophysical work to explore and develop the newly-discovered resource play called Alpine High. Christopher Lollar allegedly conducted trades in Apache shares and call options in the days and weeks leading up to the company’s Alpine High announcement on Sept. 7, 2016. The value of Christopher Lollar ‘s brokerage account skyrocketed approximately 2,700 percent after the announcement, and his alleged profits from insider trading totaled $214,295.07. Read More

On April 10, 2018, the U.S. District Court for the Western District of Washington entered a final judgment against Vincent Cassano for his role in a fraudulent stock promotion scheme. According to the SEC’s complaint, Lidingo Holdings, LLC hired writers like Vincent Cassano to publish hundreds of bullish articles on its clients, which appeared to be independent research pieces but, in fact, were paid advertisements.

The final judgment permanently enjoins Vincent Cassano from violating Sections 17(a) and 17(b) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Vincent Cassano consented to the entry of the final judgment, and neither admitted nor denied the allegations in the SEC’s complaint. Read More

Author: Mitchell Collins

Laws regarding the growing, selling and using of cannabis have been trending toward decriminalization and legalization for years, but the path to full legalization has been long and winding. The subject of cannabis is complicated by a number of factors including its cultural history, diversity of applications, differing state and federal regulations, emerging testing technologies and debated psychoactive, addictive and medical effects. Here’s an overview of cannabis law trends and an outlook of things to come.

Ironically enough, American history, and human civilization in general, is marked with the cultivation of cannabis for industrial purposes. The laws of Virginia of 1633 included a stipulation that “every planter as soon as he may, provide seed of flax and hemp and sow the same.” George Washington cultivated hemp on all of his farms in Virginia. Hemp is taken from the fibrous parts of the cannabis plant and used for making rope, canvas, fishing nets and other materials. Additionally, the cannabis seeds can be used for making oil, useful for cooking, making paints and burning in lamps. Hemp and hemp-seed oil proved to be vital and profitable commodities in colonial America.

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On March 27, 2018, the Securities and Exchange Commission (SEC) announced a settled administrative proceeding against broker-dealer J.H. Darbie & Co., Inc., and Robert Y. Rabinowitz, Darbie’s majority owner and CEO.  On its surface, the suit is both simple and unexciting:  between September 2015 and July 2016, Darbie operated with a net capital deficiency, and failed to record it properly.  It therefore violated Section 15(c)(3) of the Securities Exchange Act of 1934, which provides that broker-dealers “at all times have and maintain net capital” no less than the greatest of the minimum requirement applicable to its business.  But the legal action is related to several others involving a variety of unsavory players in the penny stock world.

Darbie is a small New York firm that’s been sanctioned by its regulator, the Financial Industry Regulatory Authority (FINRA), a number of times.  In 2015, it and Wolf A. Popper, Inc., a brokerage controlled by Rabinowitz and Wolf Popper, were the subjects of a complex FINRA  enforcement action involving violations that had taken place between 2008 and early 2014.  According to FINRA, the violations were mostly Darbie’s; the firm had, the regulator said, “facilitated the deposit and liquidation of billions of shares of low-priced, microcap stocks for customers without having in place adequate procedures to assure that such liquidation transactions were scrutinized sufficiently.” Read More

On February 27, 2018, the United States District Court for the District of New Jersey entered an amended judgment against Verto Capital Management LLC and William Schantz, of Moorestown, New Jersey. Verto Capital Management LLC and William Schantz had previously agreed to pay more than $4 million to settle charges that they used new investor money to repay earlier promissory note investors, tapped investor funds for William Schantz’s personal use, and made misrepresentations to investors about the safety of the notes and life settlement collateral underlying them. As reflected in the amended judgment, Verto Capital Management LLC and William Schantz have agreed to pay an additional $620,594 to cover investments that were identified after the initial judgment and to correct the amount of interest owed to some investors on certain notes. Without admitting or denying the allegations, Verto Capital Management LLC and William Schantz consented to this additional relief as well as the pledge of a policy and property to repay investors. A Fair Fund has been created and has been returning money collected in the settlement to harmed investors. Read More

On April 5, 2018, The Securities and Exchange Commission charged Charlie Chen for making an extraordinarily profitable series of unlawful trades in the securities of Massachusetts-based VistaPrint, N.V.

According to the SEC’s complaint, Charlie Chen used private information obtained directly or indirectly from a VistaPrint insider to place illegal trades in advance of eight VistaPrint quarterly earnings announcements over a two-year period. Each time, Charlie Chen’s trades were consistent with the news – whether good or bad-in VistaPrint’s pending earnings announcements. On some occasions, Charlie Chen placed extremely aggressive bets, wagering a substantial portion of his retirement savings on risky VistaPrint options before the company’s announcement of disappointing earnings results in April 2014. Charlie Chen generated approximately $390,000 on the April 2014 trade and more than $900,000 in illicit profits over the course of the scheme.

In addition to detailing Charlie Chen’s uncannily successful pattern of trading, the SEC also alleges that upon being questioned by the Federal Bureau of Investigation, Charlie Chen claimed that he did not know anyone who worked at VistaPrint and falsely denied having a close relationship with a VistaPrint insider and her husband with whom he had vacationed. Read More

On October 25, 2017, the Securities and Exchange Commission charged Mohammed Rashid, a former senior partner at Apollo Management L.P., with defrauding his fund clients by secretly billing them for approximately $290,000 in personal expenditures, including his family vacations, visits to a hair salon, and purchases of designer clothing and high-end electronics.

The SEC’s complaint alleges that Mohammed Rashid falsely claimed that certain individuals accompanied him to dinners to make it appear his various personal expenses had a business purpose, and he doctored a receipt in an effort to justify his purchase of a $3,500 suit for his father as a business expense. Read More