Florida Securities Fraud Lawyer Blog

The Department of Justice and U.S. Postal Inspection Service announced that Boca Raton, Florida resident, James Cummings ("Cummings"), was sentenced to one year and a day in prison in connection with a fraudulent coffee machine business opportunity.

The government alleged that, from December 2003 to February 2008, in return for a minimum investment of $10,000, Cummings sold potential investors a business package that purportedly included coffee vending machines, locations in which to place the vending machines, and on-going support in the operation of the machines. The government also alleged that the buyers incurred a total loss on their investments and some never received the purchased coffee machines.

As a part of his guilty plea, Cummings admitted making false claims to potential investors regarding potential profits, that they would recoup their entire investment in 12 to 18 months, and that the locations they would be given to place their coffee machines would be high traffic, high profit locations.

In addition to one year and a day in prison, Cummings was sentenced to three years supervised release and ordered to pay $137,000 in restitution. Cummings pleaded guilty on November 29, 2011 to conspiracy to commit mail fraud for his involvement in three Florida companies: M & D Gourmet Coffee, Inc. of Boca Raton, Florida; Coffee Heaven LLC of Deerfield Beach, Florida; and Divino Trio Coffee and Vending Company of Ft. Lauderdale, Florida.

According to the Justice Department, Cummings' co-conspirator, Manuel Rodriguez, was convicted of conspiracy and wire fraud. In December 2011, he was sentenced to 120 months in prison.

Investors nationwide who have incurred 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 Securities and Exchange Commission ("SEC") charged Illinois resident Kenneth A. Dachman ("Dachman") with misappropriating more than $1.8 million in investor funds and making material misrepresentations to potential investors in connection with offerings for three companies for which he was the Chairman - Central Sleep Diagnostics, LLC, Central Sleep Diagnostics of Florida, LLC, and Advanced Sleep Devices, LLC. The broker for the three offerings, Scott A. Wolf, and his company, Stone Lion Management, Inc., were also charged by the SEC for their roles in selling unregistered securities.

According to the Complaint, between July 2008 and June 2010, Dachman raised $3.5 million from investors in 13 states and overseas on behalf of Central Sleep Diagnostics, a purported provider of outpatient diagnostic sleep studies. The Complaint states that, between December 2008 and April 2010, Dachman raised an additional $568,000 on behalf of Central Sleep Diagnostics of Florida and Advanced Sleep, a purported provider of medical devices.

The SEC alleges that Dachman made numerous misrepresentations to potential investors including, how their funds would be used and his academic and professional backgrounds. The SEC also claims Dachman misappropriated at least $1.8 million of investor funds, representing over 45% of the total funds raised, for such things as a 10,000 square foot home, lavish family vacations, a new Range Rover and other personal expenses.

Investors nationwide who have incurred investment losses, and who may have a FINRA arbitration claim, may contact the Florida securities 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 Securities and Exchange Commission ("SEC") has charged Fort Lauderdale-based First Resource Group LLC ("First Resource") and its principal, David Stern ("Stern") of Tamarac, Florida, with running a boiler room stock scheme.

The SEC's complaint alleges that First Resource employed telemarketers who fraudulently solicited investors to purchase securities in two microcap companies, TrinityCare Senior Living, Inc. and Cytta Corporation. The SEC claims that First Resource's employees cold-called potential investors on a list given to them by Stern, and using a script prepared by Stern, falsely touted the stock in the two companies by providing grossly inflated sales projections.

The SEC also claims that, while Stern was selling these securities, he also purchased small amounts of the stock at prices above the market to raise the market price and to create the false impression of legitimate trading activity. The complaint asserts that Stern then took advantage of the manipulated stock prices by selling large amounts of First Resource's shares at the fraudulently elevated prices and then transferred the proceeds of these stock sales from First Resource's brokerage accounts to his personal account.

Investors nationwide who have incurred investment losses, and who may have a FINRA arbitration claim, may contact the Florida securities 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 Florida Office of Financial Regulation announced that Boynton Beach resident, Anthony Cutaia, was sentenced yesterday to 51 months in prison for his role in a $6 million Ponzi scheme perpetrated on 35 Florida investors. Cutaia pleaded guilty to mail and wire fraud for misleading investors and misappropriating funds.

Cutaia began soliciting potential investors in March 2003 through his Boca Raton based company, CMG Property Investment Group. He told investors their investments would be used as down payments on commercial real estate transactions. In return for their investments, they would share in any profits and be paid interest.

Prosecutors alleged that Cutaia used investor money to make payments to earlier investors and to fund his personal and business expenses such as cruises, trips to casinos, gambling debts, overdue office rent and a DirecTV subscription.

Many investors were solicited through a local real estate talk show Cutaia hosted "Talk About Mortgages and Real Estate," which was broadcast on PAX TV Network and WSBR radio, as well as through the church Cutaia attended.

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.

The Securities and Exchange Commission's Office of Investor Education and Advocacy issued an investor alert aimed at helping investors protect themselves against online investment fraud. The alert was prompted, in part, by the SEC's recent charges against an Illinois man who used various social media sites, such as LinkedIn, to promote more than $500 billion in fictitious securities. The postings generated interest from numerous potential buyers in the fictitious offerings.

The alert offers five ways to help avoid becoming the victim of online investment fraud:

1. Unsolicited Investment Opportunities Exercise extreme caution when you receive any unsolicited message from someone you do not know regarding an investment opportunity. Many scammers use spam to reach potential victims. If you receive any post on your wall, tweet or e-mail from someone you do not know regarding a "can't fail" investment opportunity, the safest thing to do is delete it.

2. Know the common warning signs If an investment sounds "too good to be true," promises "guaranteed" returns or is promoted as a "once-in-a-lifetime" opportunity, you should be very wary.

3. Be aware of "affinity fraud" Affinity fraud refers to scams that prey upon members of identifiable groups such as religious, ethnic or professional organizations. You should never make an investment solely based upon the recommendation of a member of a group you belong to without thoroughly investigating the investment. Even if the individual recommending the investment is known to you and seems trustworthy, remember that the individual may have been tricked in to believing the investment is legitimate when it is not.

4. Online Privacy Settings Unless you guard your personal information, it will be available to anyone with access to the internet, including fraudsters. Review and adjust the security and privacy settings on the social media websites your use to avoid unwanted access to your private information.

5. Do Your Homework You should research every investment opportunity before handing over your hard earned money. You should never rely on a "testimonial" or take the investment promoter's word at face value, no matter how sincere or trustworthy he or she seems. You can check out the legitimacy of many investments through your state's securities division or the SEC's online database (http://investor.gov/). You can review the employment and complaint history of a stockbroker through the Financial Industry Regulatory Authority (FINRA)'s BrokerCheck database
(www.finra.org/Investors/ToolsCalculators/BrokerCheck) and investment advisors at the SEC's Investment Adviser Public Disclosure database (www.adviserinfo.sec.gov).

A copy of the SEC's Investor Alert: "Social Media and Investing - Avoiding Fraud" can be found at http://investor.gov/news-alerts/investor-alerts/investor-alert-social-media-investing-avoiding-fraud.

The Daily Business Review reported that separate lawsuits have been filed in Broward, Miami-Dade and Palm Beach counties by former NFL players Terrell Owens, Clinton Portis and Duane Starks against the law firm Greenberg Traurig and one of its West Palm Beach shareholders, Pamela Linden.

According to the Daily Business Review, the players claim that the Miami-based Greenberg Traurig firm and Ms. Linden failed to advise them against investing in an Alabama casino that turned out to be a scam, resulting in millions of dollars in losses. According to the complaint, Terrell Owens alone invested $2 million and was promised a return of 15%.

The complaints allege that Ms. Linden and Pro Sports Financial used powers of attorney granted them by the athletes to invest in the proposed Alabama casino project know as Country Crossing.

The lawsuits claim that the players were not advised by Ms. Linden or Pro Sports that charity fundraisers are the only form of legalized gambling in Alabama and that NFL rules prohibit investments in gambling ventures. The Daily Business Review reported that the project developer, Ronnie Gilley, previously entered a guilty plea in response to federal charges involving a scheme to buy votes in Alabama for gambling legislation.

A complaint filed on November 17, 2011 in Manhattan federal court, by the Securities and Exchange Commission (SEC) alleges that Florida residents John A. Mattera (Mattera) and John R. Arnold (Arnold) and several others engaged in a scheme to defraud investors across the country out of at least $12 million during the past 15 months.

The complaint charges the defendants with numerous federal securities violations and fraud and seeks an emergency court order to freeze the assets of Mattera, Arnold, Joseph Almazon of Hicksville, NY, David E. Howard II of New York City, Bradford Van Siclen of Montclair, N.J. and eight different entities, as well as injunctive relief, financial penalties and disgorgement of the defendants' ill-gotten gains.

According to the SEC's press release, the U.S. Attorney's Office for the Southern District of New York conducted a parallel criminal investigation which resulted in the arrest of Mattera at his Ft. Lauderdale home on Thursday.

The SEC complaint alleges that Mattera and several others used a hedge fund registered in the British Virgin Islands, The Praetorian Global Fund, Ltd. (Praetorian), to solicit funds from investors. According to the SEC, prospective investors were led to believe that Praetorian and its affiliated entities owned tens of millions of dollars worth of shares in privately-held companies such as Facebook, Twitter, and Groupon that were expected to soon hold initial public offerings (IPOs).

The SEC complaint asserts that Praetorian never owned the pre-IPO shares. The complaint further alleges that Mattera and others gave investors a false sense of security by telling them their money would be held by a Florida escrow agent (Arnold) at his firm First American Service Transmittals, Inc. (FAST) when in reality; Arnold simply transferred the investors' money to personal accounts owned by Mattera and Arnold. According to the SEC, investor funds were misappropriated by Arnold and Mattera to pay their co-conspirators for their roles in the scheme and to finance private jets, luxury cars, art, jewelry and other lavish expenses.

The case is SEC v. John A. Mattera, Bradford Van Siclen, The Praetorian Global Fund, et al., (United States District Court for the Southern District of New York, Civil Action No. 11-CV-8323).

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 Aug. 29, 2011, the SEC charged two Florida men for running a Ponzi scheme set up as an alleged private equity fund that fraudulently raised over $22 million from more than 100 investors, including many Florida teachers or retirees.

The SEC's complaint alleges that James Davis Risher of Sanibel handled the fund's trading operations, and Daniel Joseph Sebastian of Lakeland marketed the fund, including distributing offering materials and soliciting investors. Risher falsely informed investors that he had years of experience in trading equities and providing wealth and asset management services. Instead, Risher had no such experience but rather a vast criminal history, spending 11 of the last 21 years in prison.

The SEC claims that Risher and Sebastian falsely told investors that the "fund" generated annual returns between 14% and 124% percent by purchasing public equity securities. They sent investors fabricated account statements showing these inflated returns to support their misrepresentations. Indeed, only a small portion of the raised capital was actually invested, as Risher instead spent investor funds on personal, lavish gifts, such as jewelry, and property in North Carolina and Florida. Moreover, Risher and Sebastian also paid themselves millions of dollars in fake management and performance fees.

Based on the SEC's complaint, Risher and Sebastian solicited the "fund" using the names Safe Harbor Private Equity Fund, Managed Capital Fund, and Preservation of Principal Fund. They described themselves in offering documents as "two unique individuals" who had the necessary expertise to "create an investment vehicle that would allow investors to capitalize from both bull and bear markets."

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 August 31, 2011, the SEC announced it froze the assets of a Chicago-based money manager and his hedge fund advisory firm for lying to prospective investors in their startup hedge fund.

The SEC claims that Belal K. Faruki and his firm, Neural Markets LLC, solicited highly sophisticated individuals to invest in the "Evolution Quantitative 1X Fund," a hedge fund they managed that allegedly employed a proprietary algorithm to conduct an arbitrage strategy involving trading in liquid exchange-traded funds (ETFs). Faruki and Neural Markets misrepresented the amount of investor capital and that trading was creating returns when, in reality, it incurred losses. They defrauded at least one investor out of $1 million before admitting the losses, and were still seeking other wealthy investors prior to the SEC obtaining a court order to stop the scheme.

According to Bruce Karpati, the Co-Chief of the SEC's Asset Management Unit, "Faruki and Neural Markets lied throughout this elaborate scheme in order to attract capital from sophisticated investors. Even sophisticated institutional investors should be wary of unscrupulous hedge fund managers who cloak their misrepresentations in lofty pitches about a complex investment strategy."

The SEC's complaint filed in federal court in Chicago alleges that Faruki and Neural Markets informed investors that the hedge fund started trading in 2009. From January 2010 until approximately October 2010, Faruki and Neural Markets misrepresented the hedge fund's performance results, falsely claimed that wealthy investors invested $5 million into the fund, and misstated that it employed a top-notch auditor to help prepare the fund's financial statements. Faruki also misrepresented to investors that he invested his own funds into the hedge fund so that his own interests were the same as other investors.

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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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.

Following the 14-year prison sentence handed to Ponzi schemer Art Nadel, prosecutors are now seeking a longer sentence for a fellow Southwest Florida fraudster. Prosecutors will be asking the court to sentence Beau Diamond to between 17 ½ and 22 years in prison. This prison term will be in addition to the forfeiture money judgment of $37.7 million against Diamond. Prosecutors will also request the forfeiture order be incorporated into Diamond's sentence, and that the court retain jurisdiction over money or property which could serve as a substitute asset. The trustee in Diamond's bankruptcy case will be on a similar mission of finding assets for jilted investors.

Prosecutors cite to the egregiousness of Diamond's scheme and the profile of a large number of his investors as justification for the heavy recommended sentence. Among those investors highlighted by the prosecution were a husband and wife, battling multiple sclerosis and cancer, and whose sole source of income came from their investment in Diamond Ventures. Despite communications from the couple emphasizing the need for safety in their investments, Diamond continually lied, telling them that their money was "in the safest place in the world."

NFL players are finding themselves abused by brokers with bad investments in Ponzi and other fraudulent schemes.

Hall of Fame Quarterback, John Elway, recently disclosed that he and his partner gave $15 million to a hedge fund manager, who was allegedly running a Ponzi scheme.
New Orleans Saint, Alex Brown, sued his financial advisors over $3.9 million in losses, alleging they had "abused the trust," including bad investments in airplane hangars.
Broker Mary Wong pleaded guilty to stealing more than $3 million from investors, including Eagles quarterback Michael Vick.

These cases come as the NFL Players Association, the union representing 1,800 players, looks to strengthen the screening process for its financial adviser program, which has come under attack in recent years.

Professional athletes are susceptible to being taken advantage of when it comes to investing their money. They often are unsophisticated investors and have a high net worth.

After adviser William "Tank" Black was convicted of stealing $11 million from players he represented, a program was started that requires advisers have appropriate financial qualifications, such as a certified financial planner mark or FINRA registration to be included on a select list for players.

These advisers must also undergo a background check, and pay $1,500 to be included on the list and $500 annually to remain on it. There are currently about 450 advisers on the list.

Pro athletes are considered targets for investment scams and unscrupulous brokers. Such athletes often place heavy reliance upon their advisors and do not pay attention to, or understand, the details of sophisticated investment products.