By Securities Law on Jun 1, 2012 | In Criminal
The SEC has charged two South Florida residents for allegedly offering investors short-term promissory notes used to raise money for the purchase of legal settlements from former Florida attorney Scott Rothstein. Scott Rothstein is currently serving a 50-year prison sentence following the 2009 collapse of his Ponzi scheme in which he sold settlements that were not real and the supposed plaintiffs and defendants did not exist.
From 2007-2009, George Levin and Frank Preve reportedly raised more than $157 million from 173 investors by issuing the promissory notes from Levin’s company Banyon 1030-32 LLC. Levin and Preve also allegedly formed a private investment fund called Banyon Income Fund LP which strictly invested in Rothstein’s settlements.
According to the SEC complaint filed in federal court in Miami, Levin and Preve misrepresented to investors that they had procedural safeguards in place to protect investor money when in fact they often purchased settlements without first seeing any legal documents or doing anything to verify that the settlement proceeds were actually in Rothstein’s bank accounts. When Rothstein’s Ponzi scheme started to collapse, Leve and Preve reportedly continued seeking new investor money and failed to disclose that Rothstein had ceased making payments on a majority of the prior settlements they had purchased.
The SEC’s complaint seeks disgorgement of ill gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve to enjoin them from future violations of the federal securities laws.
By Securities Law on May 29, 2012 | In Criminal
Former Detroit mayor Kwame M. Kilpatrick and former city treasurer Jeffrey W. Beasley allegedly solicited and received $125,000 worth of private jet travel and other perks in exchange for investing the city’s public pension funds with MayfieldGentry Realty Advisors, LLC, according to an SEC complaint. The SEC charged Kilpatrick and Beasley, both trustees for the city’s pension funds, with violating the Securities and Exchange Act by secretly accepting gifts that eventually resulted in the board of trustees vote to invest approximately $117 million with MayfieldGentry.
According to the SEC’s complaint, in 2007 MayfieldGentry CEO Chauncey Mayfield recommended to the trustees that the pension funds invest in a real estate investment trust (REIT) controlled by the firm. In April 2007, MayfieldGentry paid more than $60,000 for a private jet and an all inclusive trip to Las Vegas for Kilpatrick, Beasley, and their associates, according to the complaint. In July 2007, a private jet allegedly took Kilpatrick and others to his second home in Tallahassee, Florida, costing MayfieldGentry more than $24,000. In October 2007, MayfieldGentry paid more than $34,000 for a private jet for Kilpatrick, his wife, Kilpatrick’s father and his girlfriend for a trip to Bermuda.
The lavish gifts were an alleged attempt by Mayfield to get back in Kilpatrick’s good graces after supporting Kilpatrick’s opponent in his 2005 re-election. Mayfield reportedly began footing the bill in 2007 for non-business travel taken by Kilpatrick, Beasley and others.
The SEC seeks disgorgement of ill-gotten gains, penalties, and permanent injunctions, including an injunction against Kilpatrick and Beasley to prohibit them from participating in any decisions involving investments in securities by public pensions.
Boston-based father-son hedge fund managers and their firms were charged by the SEC with securities fraud for misleading investors about their investment strategy and past performance.
Gabriel and Marco Bitran operated their hedge funds through GMB Capital Management LLC and GMB Capital Partners LLC. Gabriel founded GMB Capital Management in 2005 for the stated purpose of managing hedge funds using quantitative models he developed based on his academic optimal pricing research to trade primarily ETFs, according to the SEC’s order. He and his son allegedly lured investors by boasting a lengthy track record of success based on actual trades using real money, even though the SEC states that the record was reportedly based on hypothetical situations. Investors were allegedly misled to believe their money was being invested according to the quantitative optimal pricing model. The SEC claims that in reality the GMB hedge funds were merely investing in other hedge funds without Gabriel’s involvement.
According to the SEC order, the Bitrans raised more than $500 million over a period of three years for eight hedge funds and various managed accounts while allegedly making these misrepresentations to investors. The Bitrans and GMB Management reportedly marketed the hedge funds by distributing performance track records showing double-digit annualized return without any down years to investors. Both funds experienced a series of losses at the end of 2008 and GMB eventually dissolved them. The GMB funds also allegedly suffered significant losses in hedge funds that had invested with Bernard Madoff.
During an SEC examination of GMB Capital Management, the firm allegedly produced a false document that was created solely for the purpose of responding to the SEC staff’s request for books and records that supported GMB’s performance claims. The document reportedly showed a real-time record of Gabriel Bitran’s trades since 1998, according to the SEC’s order.
The Bitrans agreed to settle the SEC’s charges for $4.8 million and agreed to be barred from the securities industry. The GMB entities and the Bitrans neither admitted nor denied the SEC’s findings in settling the charges.
By Securities Law on Apr 16, 2012 | In Legal Actions
David Lerner Associates, Inc. (DLA) was fined $2.3 million for marking up municipal bond and collateralized mortgage obligation (CMO) transactions and ordered to pay $1.4 million in restitution plus interest to affected customers. The FINRA Panel also fined head trader William Mason $200,000 and suspended him for six months from the securities industry.
The FINRA Panel found that from January 2005 through January 2007, DLA and Mason charged retail customers excessive markups in more than 1,500 municipal bonds and in more than 1,700 CMO transactions from January 2005 through August 2007. According to the Panel’s decision, the Long Island-based company charged markups on municipal bonds ranging from 3.01 percent to 5.78 percent and charged markups on CMOs ranging from 4.02 percent to 12.29 percent. The price was reportedly marked up without consideration for the amount of money involved in the transaction.
The Panel also found that DLA failed to establish and maintain adequate procedures to monitor the fairness of pricing for municipal bonds and CMOs. DLA also allegedly failed to have adequate procedures in place to ensure that it recorded the time that municipal bond orders were received from customers and failed to records the order receipt time.
In 2004 DLA received a Letter of Caution regarding FINRA’s concerns with its markup practices. DLA reportedly continued its unfair pricing practice after receiving a Wells Notice concerning the matter in July 2009.
By Securities Law on Apr 16, 2012 | In Legal Actions
New York Mets owners Fred Wilpon and Saul Katz have agreed to settle with Madoff trustee Irving Picard for $162 million. Mr. Picard in turn agreed to drop all claims that the men were “willfully blind” to signs that Mr. Madoff was carrying out a fraud. The agreement includes a provision that neither side can make disparaging remarks about each other.
Mr. Picard originally sought to recover the $300 million that was withdrawn prior to the liquidation of Madoff’s business. The lawsuit centered on a “red flag” raised by the chief investment officer for a hedge fund owned by Messrs. Katz and Wilpon, Noreen Harrington. Ms. Harrington stated in a deposition that in 2003 she told Mr. Katz that Mr. Madoff was either trading illegally or reporting fictitious profits. When her advice was ignored and she didn’t have proof of wrongdoing, Ms. Harrington resigned, according to her deposition. According to court documents, the Mets owners said they were never given any specific evidence that Mr. Madoff was running any kind of fraud.
As part of the settlement, the Mets owners won’t have to make a payment for three years. If they are able to recover on their $178 million claim against the bankruptcy estate, $162 million will go to the trustee and Messrs. Katz and Wilpon are responsible to pay the difference.