Florida Securities Fraud Lawyer Blog

Jonathan Curshen of Sarasota, Florida and San Jose, Costa Rica and Nathan Montgomery of Las Vegas, Nevada were found guilty of conspiracy to commit securities fraud and wire fraud for their roles in a $7 million stock manipulation scheme that defrauded investors.

Curshen was the principal of Red Sea Management ("Red Sea") and Sentry Global Securities ("Sentry"), both located in San Jose, Costa Rica. Red Sea and Sentry provided offshore accounts and facilitated trading in penny stocks. Montgomery was a Las Vegas stock promoter.

According to the Department of Justice, the evidence at trial showed that in early 2007, Curshen and Montgomery schemed to illegally manipulate the stock price of a company called CO2 Tech.

According to the evidence at trial, Curshen, Montgomery and their co-conspirators, Robert Weidenbaum, Timothy Barham, Jr. and Ryan Reynolds, engaged in coordinated trades in conjunction with false and misleading press releases designed to artificially inflate the price of CO2 Tech stock.

According to the evidence at trial, the false press releases made it appear that the company had significant business prospects including Boeing, when it did not. According to the evidence at trial, the press releases and coordinated trades were used to create the appearance of legitimate buying interest by legitimate investors when in reality, Montgomery and his co-conspirators pumped the price of the stock then facilitated sales of the shares through Red Sea and Sentry to unsuspecting investors, including investors in South Florida. The evidence also showed that Montgomery, Weidenbaum, Reynolds and Barham were paid $1 million in cash to participate in the sham stock trades of CO2 Tech.

In addition, the evidence revealed that, from 2003 to 2008, Curshen laundered money through Red Sea and Sentry, including the proceeds from the stock fraud. Curshen was convicted of conspiracy to commit international money laundering in addition to the fraud charges.

Weidenbaum, Barham and Reynolds previously pleaded guilty to conspiracy to commit securities fraud, wire fraud and mail fraud. They are scheduled to be sentenced by Judge Richard Goldberg, United States District Court, Southern District of Florida on May 9, 2012. The sentencing for Curshen and Montgomery by Judge Goldberg is set for May 11, 2012.

Investors nationwide who have incurred investment losses, and who may have a FINRA arbitration claim, may contact the Florida securities arbitration lawyers at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

The Financial Industry Regulatory Authority ("FINRA") issued an alert to investors warning them that a compromised email account can not only lead to identify theft, but also to the theft of their money.

FINRA's investor alert was issued in response to a growing number of reports of investor monies being stolen by individuals, who first gained access to the investor's email account, and then emailed instructions to the investor's financial institution directing it to transfer funds outside of the account.

According to a joint fraud alert recently issued by the Federal Bureau of Investigation, Financial Services Information Sharing and Analysis Center, and Internet Crime Complaint Center, these types of crimes follow a typical pattern. After gaining access to an investor's email account, the fraudster searches the contact lists and emails looking for information about the investor's broker or brokerage firm. The fraudster then uses the investor's email account to send an email to the investor's broker or brokerage firm with instructions to wire funds to a third-party account, often overseas. The instructions may be accompanied by a fraudulent letter of authorization, also sent from the investor's email account.

FINRA cautions that fraudsters can be quite persuasive in stressing the urgency of the requested transfer, pressuring brokerage firms to transfer the funds without verifying the authenticity of the instructions. Oftentimes, the fraudster fabricates tales of woe involving a death in the family, or some grave illness which prevents the investor from contacting the firm by telephone.

To prevent this from happening, investors should immediately notify their brokerage firm and other financial institutions if they believe someone has gained unauthorized access to their email account. Investors should also check their financial accounts for unauthorized transactions and ask the firm to investigate any that are discovered. Investors should also change their username, password and PIN for all financial accounts and change their email account password.

Florida businessman, Gaston Cantens ("Cantens"), pleaded guilty today to wire and mail fraud in connection with a real estate scheme that targeted members of South Florida's Cuban-American community. Cantens faces up to five years in prison when he is sentenced on April 4.

According to Federal prosecutors, more than 150 investors, including the Belen Jesuit Preparatory School in Miami ("Belen"), lost approximately $47 million dollars between 2003 and 2008. Cantens graduated from the Belen school when it was still located in Havana, Cuba, prior to its move to Miami in 1961.

Prosecutors claimed that Cantens used his prominent standing in South Florida's Cuban-American community to induce investors to invest in real estate through his company Royal West Properties, Inc. ("Royal"), promising returns as high as 16 percent. According to court documents, Royal sold real estate investments in Florida beginning in 1993, got into financial trouble around 2002, and ultimately declared bankruptcy in 2009.

According to prosecutors, Cantens used money received from newer investors to pay older investors like a Ponzi scheme. Many of the harmed investors were vulnerable, elderly members of the Cuban-American community who trusted Cantens with their life savings.

Eric Bustillo, Regional Director of the Securities and Exchange Commission's Miami office called it a typical affinity fraud. Affinity fraud refers to an investment scam that preys upon members of an identifiable group, such as a religious or ethnic community. In this case, prosecutors claim that Cantens preyed on individuals associated with the Belen school and members of the Cuban-American community.

Investors nationwide who have been the victim of investment fraud, may contact the Florida investment fraud attorneys at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

On November 10, 2011, the SEC brought charges against a San Diego-based investment advisory firm and its president for securities fraud based on its failure to disclose a conflict of interest to investors and falsely represented the liquidity of a hedge fund they managed.

The SEC claims that Western Pacific Capital Management LLC and its president, Kevin James O'Rourke, encouraged investors to purchase a security without informing them that Western Pacific received a 10% commission. Western Pacific and O'Rourke also (1) failed to register as a broker, (2) failed to give required written disclosures to investors, (2) wrongly redeemed one hedge fund client's interest before another's, and (4) materially misrepresented to clients about the fund's liquidity.

According to Marshall Strung, an Assistant Director within SEC Enforcement Division, "Investment advisers have a fiduciary duty to act in the best interests of their clients and be forthcoming with them. Western Pacific and O'Rourke fraudulently breached that duty by failing to disclose the commissions they would receive for the recommended investments and lying to clients about the liquidity of the fund they managed."

Specifically, the SEC alleges that Western Pacific and O'Rourke acted as brokers in the non-public stock offering by Ameranth Inc. during 2005 and 2006. In return, Ameranth paid Western Pacific a 10% "success fee." Although Western Pacific and O'Rourke told investors to invest in Ameranth, they failed to advise each investor that they would make money off these investments, and failed to give investors the mandatory written disclosures as to their role in the offering.

Further, the SEC claims that from 2005-2008, Western Pacific and O'Rourke falsely represented the liquidity of The Lighthouse Fund LP, a hedge fund that they formed and managed. Western Pacific and O'Rourke always maintained that illiquid assets comprised only 25% of the Lighthouse Fund, when in reality 90 percent of the fund's assets were comprised of illiquid securities.

The SEC has charged two South Floridians, posing as money managers, with an illegal scheme of selling shares of stock before the shares had been paid for. According to allegations filed in federal court in New Jersey, the SEC has charged Scott Kupersmith of Boca Raton and Frederick Chelly of Miami Beach of opening accounts with broker-dealers, on behalf of several purported "investment funds," and ultimately causing millions in losses.

Kupersmith and Chelly would open "Delivery Versus Payment/Receipt Versus Payment" ("DVP") brokerage accounts in the name of their purported investment funds. Chelly opened a DVP in the name of Antibe Arbitrage Group, Inc., while Kupersmith opened DVP's in the name of Atlantic Southern Capital Group, Fullerton Capital Group, Inc., and Northbrea Capital Group, Inc. Kupersmith and Chelly opened these accounts by convincing broker-dealers that they held sufficient cash and securities with a third-party bank to cover their trades. Of course, Kupersmith and Chelly held no such funds or assets to cover their trades.

Then, the two would engage in illegal "free-riding," where they would buy and sell the same quantity of the same stock in different accounts with the intent of profiting from swings in the price of the stock. In most instances, Kupersmith and Chelly used the proceeds from their stock trades to purchase the same shares over again. When their trades were profitable, Kupersmith and Chelly kept the profits. When the trades resulted in loss, however, Kupersmith and Chelly did not cover the sales they had ordered and left the broker-dealers to settle the trades at a significant loss.

The scheme fell apart when Kupersmith and Chelly started failing to deliver the shares necessary to settle sales in their various DVP's. This forced broker-dealers to purchase replacement shares to cover the sales transaction. Because the broker-dealers had to purchase replacement shares at higher prices than those at which the shares were sold, the broker-dealers suffered losses equivalent to the difference between the replacement purchase price and the proceeds from the sale.

By the end, Kupersmith and Chelly had caused over $2 million in losses to broker-dealers. The two men reaped over $600,000 in illicit profits. The SEC has charged both men with violations of section 17(a) of the Securities Act and section 10(b) of the Exchange Act, seeking an injunction against further violations, disgorgement of "ill-gotten gains," and civil penalties. Kupersmith also faces charges in New York, including first and second-degree grand larceny, scheming to defraud, and violating New York's General Business Law.

On October, 6, 2011, the SEC received an emergency court order to stop a Ponzi scheme that promised investors high returns on water-filtering natural stone pavers, but defrauded them of over $26 million during a four-year period. The SEC's complaint states that, among others, convicted felon Eric Aronson bilked investors in PermaPave Companies, a web of companies based in Long Island, N.Y., and controlled by Aronson.

The scheme involved over 140 investors during 2006-2010, many of whom worked in the construction or landscaping business. Representations were made to investors that PermaPave Companies had a high volume of orders for the pavers, which would yield monthly returns to investors of 7.8% to 33%. In reality, there was not much demand for the pavers, and its cost far exceeded sales revenue.

Without the promised returns, Aronson and two other PermaPave Companies executives, Vincent Buonauro Jr., and Robert Kondratick, had to pay earlier investors with funds from new investors and then took a large portion of the funds for themselves. In doing so, they bought luxury cars, gambling trips to Las Vegas, and jewelry. Aronson also used investors' funds to satisfy court-ordered restitution payments to victims of an earlier scheme that he operated in 2000.

According to the SEC New York Regional Office's Director, George S. Canellos, "Aronson and his associates operated the PermaPave Companies as a classic Ponzi scheme. They created the façade of a profitable business, promised investors extraordinary rates of return, and used much of their investors' money to fund their own lavish lifestyle."

On September 15, Americans awoke to news that a rogue 31-year-old UBS trader, Kweku Adoboli, had sustained losses of over $2 billion for UBS's investment banking arm through "unauthorized trades." The bank immediately informed the press that no client money had been lost in the transactions.

Adoboli worked on UBS's "Delta One" desk, where clients invest or hedge on a basket of securities. The Delta One desk also uses UBS's own funds for trades. Adoboli speculated in S&P 500, DAX, and EuroStoxx index futures over a three-month period, leading to the loss. According to UBS, the risk from the trades was covered up by fictitious positions and hedging trades. Once he realized the scope of his loss, Adoboli reported his actions, and UBS turned him over to London police.

British officials have charged Adoboli with fraud and false accounting going back to 2008. The two false accounting charges stem from his alleged falsification of "exchange traded funds" records between October 2008 and December 2009 and between January 2010 and September 2011. Likewise, one fraud charge involves conduct from October 2008 to December 2010, while the other involves conduct in 2011 while Adoboli traded global synthetic equities. UBS has not identified any particular wrongdoing dating to 2008, but prosecutors intended the charges to cover the entire period of Adoboli's employment at the Delta One desk. Adoboli has since issued a statement that he was "sorry beyond words" for his "disastrous miscalculations."

UBS chief executive Oswald Grübel has resigned in the wake of the $2.3 billion loss the bank posted as a result of the rogue trader. Grübel accepted responsibility for the loss and resigned against the advice of UBS's board of directors, according to board chairman Kaspar Villiger. Sergio Ermotti has been appointed interim chief executive. Meanwhile, Carsten Kengeter, the head of UBS's investment banking arm, has received praise with minimizing the impact of the trader's malfeasance. UBS plans to keep Kengeter in his position.

In the wake of the disastrous loss, UBS has rejected calls to abandon its investment banking arm. The bank has indicated that its investment bank will be "less complex" and "carry less risk."

The SEC recently charged a Texas man, Jody Dunn, with securities fraud for soliciting more than $3.45 million from thousands of deaf investors. Dunn claimed he would invest the funds in Imperia Invest IBC, a company that allegedly raised more than $7 million from investors while promising guaranteed returns of 1.2 percent a day. Last year, the SEC charged Imperia with absconding with investor's funds by depositing the money into foreign bank accounts and froze the company's assets.

Dunn used the money he received from investors to pay his mortgage, car payments, car insurance, and a variety of other personal expenses. The remaining funds he sent to Imperia's offshore bank accounts. Even after the SEC froze Imperia's assets, Dunn continued to reassure investors that Imperia was a legitimate investment and that investors would be repaid.

According to the SEC, Imperia claimed to invest in foreign viatical settlements. Investors were required to invest at least $50, after which customers could obtain an $80,000 loan from an unspecified foreign bank that would be used to purchase one of the viatical settlements. Imperia purportedly traded the viaticals and paid a guaranteed return of 1.2 percent per day. Imperia also required investors to purchase Visa debit cards to access their investment proceeds and charged fees ranging from $145 to $450 for the cards. Visa, however, never authorized investors to use its name and trademarks on Imperia's products.

Dunn told investors he would help them invest with Imperia, but no investor funds were used to purchase any viaticals. In fact, Dunn never met anyone affiliated with Imperia. He would ask investors to send money orders, which he would then cash and deposit into his own accounts. Then, he would electronically transfer the money to foreign accounts in places like Costa Rica, Cyprus, and New Zealand, with no apparent link to Imperia. Dunn made no effort to verify whether Imperia made the promised investments or any effort to verify Imperia's licensure or registration with any federal or state agency.

On September 7, FINRA fined five broker-dealers for assessing improper handling fees against customers. The firms, including Boca Raton-based Pointe Capital, Inc. (now known as JHS Capital Advisors, Inc.), were fined for charging excessive handling fees that greatly exceeded the cost of the handling services provided by the firms. FINRA concluded that the fees were a way to charge customers additional commissions without reflecting those charges on trade confirmations and fee schedules.

As part of a targeted review of fees charged by broker-dealers, FINRA found that certain firms charged customers roughly $100 per transaction. Pointe Capital, for instance, charged up to $95 per trade on top its standard commission. FINRA determined that these firms earned a substantial percentage of their revenue from these fees.

The other firms sanctioned include John Thomas Financial of New York; First Midwest Securities, Inc., of Bloomington, Illinois; A&F Financial Securities, Inc., of Syosset, New York; and Salomon Whitney LLC of Babylon Village, New York. The fines ranged from $60,000 to $300,000. In addition, each firm agreed to disclose the specific services performed and all related fees on transaction confirmations and fee schedules. The firms also agreed to revise their supervisory and training procedures regarding commissions, reasonable fees, and the appropriate disclosures to make to customers.

The firms denied any wrongdoing but consented to the entry of FINRA's findings.

The SEC has charged St. Louis-based brokerage firm Stifel, Nicolaus & Co. and a former senior executive with defrauding several Wisconsin school districts by selling them unsuitably risky and complex investments funded largely with borrowed money.

The SEC is alleging that Stifel and Senior Vice President David W. Noack created a proprietary program to help the school districts fund retiree benefits by investing in notes linked to the performance of synthetic collateralized debt obligations (CDOs).

The school districts established trusts that invested $200 million in three paid for largely with borrowed funds. Stifel and Noack misrepresented the risk of the investments and failed to disclose material facts to the school districts. The investments proved a failure and generated significant fees for Stifel and Noack.

Stifel and Noack represented that it would take "15 Enrons" for the investments to fail, and that 30 of the 105 companies in the portfolio would have to default before the school districts would suffer a loss of their principal.

Stifel and Noack sold the school districts an unsuitable product that did not meet their investment needs. They also used heavy leverage and the structure of the synthetic CDOs exposed the school districts to a heightened risk of catastrophic loss.

The SEC has charged UBS Financial Services Inc. (UBS) with fraudulently rigging more than one hundred municipal bond transactions.

UBS has agreed to pay $47.2 million to settle the transactions. The money will be returned to the impacted municipalities. UBS and its affiliates have further agreed to pay $113 million to settle parallel cases brought by other federal and state authorities.

When investors purchase municipal securities, the municipalities typically temporarily invest the proceeds of the sales in reinvestment products before the money is used for the intended purposes. Under IRS rules, the proceeds of tax-exempt municipal securities must generally be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.

But UBS's fraudulent practices and misrepresentations undermined the competitive bidding process and affected the prices that municipalities paid for the reinvestment products being bid on by the provider of the products. Its fraudulent conduct at the time also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted.

In some cases, UBS gave a favored provider information on competing bids in a practice known as "last looks." In other instances, UBS deliberately obtained off-market "courtesy" bids or arranged "set-ups" by obtaining purposefully non-competitive bids from others so that the favored provider would win the business. UBS also transmitted improper, undisclosed payments to favored bidding agents through interest rate swaps.

While the SEC has done a good job with this investigation and result, the magnitude of UBS' illicit practices is further evidence that the major banks and wire houses are incented to engage in such practices until caught. This is one of many examples for the need for improved funding and resources in the area of securities regulation.

In response to the $6.4 billion lawsuit filed by Irving Picard, the trustee for Bernie Madoff, JPMorgan Chase has stated that it had no legal obligation to discover Madoff was perpetrating a Ponzi scheme. The bank claims Picard is holding the bank to accountability standards not prescribed under the law. In addition to the purported non-existent standard to investigate clients, JPMorgan Chase is also challenging Picard's standing to bring this lawsuit. The bank believes the lawsuit is essentially a class action litigation, which should be in federal district court to be heard by a jury, and not in bankruptcy court.

Picard has alleged in his lawsuit, seeking $1 billion in fees and another $5.4 billion in damages, that the bank knew there were problems with Madoff's accounts. In support, Picard cites to emails and other documents where JPMorgan Chase employees expressed concerns over Madoff's operation and its unusual performance given the performance of the market. Despite these red flags, the trustee maintains the bank willfully ignored the fraud.

On January 28, 2011, the SEC received a court order freezing the assets of a Stamford, Connecticut-based investment adviser and its principal, Francisco Illarramendi, claiming that both misappropriated over $53 million in investor money and used the funds for their own gain.

The SEC claims that Illarramendi defrauded investors in his managed hedge funds by wrongly diverting the investors' money into bank accounts controlled by him. Illarramendi then invested the money for his own benefit or for the benefit of the entities that he controlled, rather than for the benefit of the hedge fund investors.

According to David P. Bergers, the SEC's Boston Regional Office Director, "Illarramendi treated his clients' money like it was his own, diverting millions of dollars that did not belong to him. He abused his position of trust with his clients and breached his responsibilities as an investment adviser."

The SEC's complaint states that Illarramendi is the majority owner of the Michael Kenwood Group LLC -- a holding company for, among other entities, investment adviser Michael Kenwood Capital Management LLC. Via this adviser entity, Illarramendi manages several hedge funds, including a fund with over $540 million in assets. The SEC's complaint claims that Illarramendi misappropriated over $53 million in investor funds out of this particular hedge fund without the investors' authorization.

The SEC requested an asset freeze because it claimed that Illarramendi was about to place more investments using the investor funds without their authorization. Since the filing of the complaint, the U.S. District Judge for the District of Connecticut has held several hearings relating to the SEC seeking emergency relief against Illarramendi and Michael Kenwood Capital Management. The Court then entered an order freezing the assets of the defendants.

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On December 29, 2010, the Financial Industry Regulatory Authority (FINRA) announced that it expelled APS Financial Corporation (APS), barred the firm's former President, George Conwill, and the firm's former broker, Peter Aman, for engaging in a scheme which overcharged an elderly investor by $1.2 million.

FINRA found that Aman charged mark-ups ranging from 4.15% to fraudulently excessive mark-ups up to 67% when executing forty-five transactions for APS customers. Forty-three of these excessive or fraudulent mark-ups were related to transactions involving a single elderly investor's accounts. Aman overcharged this investor by over $1.2 million through undisclosed mark-ups, including $767,000 in fraudulently excessive mark-ups.

FINRA also barred Conwill and expelled APS for rule violations relating to trading in corporate high yield bonds, collateralized mortgage obligations and collateralized debt obligations. APS and Conwill were also cited for charging excessive mark-ups and supervision violations.

According to Thomas Gira, the Executive Vice President of FINRA's Department of Market Regulation, "FINRA is committed to ensuring that firms charge their customers reasonable fees in connection with the purchase and sale of fixed income and other debt securities. There is no room in the securities industry for those who prey upon elderly investors."

In total, APS overcharged customers on fifty-nine transactions. Conwill approved all fifty-three mark-ups over 5%, including forty-two of the forty-three excessive or fraudulent mark-ups for the elderly investor's accounts.

FINRA also determined that APS did not establish or maintain an adequate supervisory system and also did not reasonably and properly supervise the firm and its registered representatives so that it would detect and prevent the mark-up violations. FINRA found that Conwill, as the president of APS, did not take reasonable steps to ensure that APS established and maintained an adequate supervisory system, and failed to reasonably and properly supervise the firm's registered representatives.

Robert Barnes, attorney for Sarasota resident Beau Diamond, has appealed his client's conviction to the U.S. Court of Appeals for the Eleventh Circuit. As a result of a Ponzi scheme where he defrauded nearly 200 investors by convincing them they were trading in foreign currency, Diamond was convicted on 18 felony counts. On December 22, Judge James Moody of Tampa sentenced Diamond to 15 ½ years in prison, as well ordering him to pay $23 million in restitution.

While Barnes has maintained his client received an unfair trial throughout the litigation, Judge Moody actually did not sentence Diamond to the 22-year prison sentence recommended by the prosecution. Judge Moody reduced the sentence to 15 ½ years because he did agree with the prosecution's argument that Diamond abused the trust of in investors. Instead, Judge Moody found that many of Diamond's clients chose his services because they trusted his father.