NJ Adviser Settles SEC Case In Multimillion-Dollar Fraud

The Securities and Exchange Commission has settled allegations that a New Jersey investment adviser and her three entities engaged in securities fraud by selling million of dollars of phony promissory notes.

The agency said many of the victims “are retired or unsophisticated in investments.”

The SEC charged and concurrently settled the case involving Sandra Venetis, along with three advisory firms she owns. She allegedly received at least $11 million from investors over the past 13 years by pitching a product that would generate annual returns of 6% to 11% from funding loans to doctors that would be backed by Medicare-reimbursement payments to those doctors.

Investors also were told the profit will be tax-free due to a loophole in the tax code. But SEC found Venetis, through Systematic Financial Services Inc., instead of investing the money used it to pay business debt as well as for personal uses. Some money was given to her relatives.

Venetis agreed to settle the charges and consent to a court order that freezes assets and requires repayment, the amount of which will be determined later. Under the settlement, Venetis also will be barred from any future investment-advising and broker-dealer activities.

Bruce Karpati, co-chief of the SEC’s asset-management unit, said that given “Venetis abused her position of trust to target older investors who were the most vulnerable to her egregious lies and misrepresentations,” the regulator will “ensure that she will never work in the securities industry again.”

Regulators has been ramping up efforts to strike down securities fraud in recent years, as Bernard Madoff’s massive Ponzi scheme that induced some $65 billion in losses has brought a spotlight to such cases.

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John R. Montague Fraud Investigation Seemingly Put on Hold

Last June securities fraud attorney Jacob Zamansky wrote about about a double-standard when it comes to prosecuting fraudsters.  In the post entitled, “Two Americas and the Prosecution of Securities Fraud,” I detailed a case we filed against a financial advisor in Southern New Jersey named John R. Montague of Questar Capital Corporation, which is a subsidiary of the insurance behemoth, Allianz.

Mr. Montague’s working class, retirement age clients allege that he stole millions and ran a Ponzi-like scheme to defraud them.  Unfortunately, while law enforcement agencies have concentrated their efforts on criminals like Bernard Madoff and Kenneth Starr who bilked the rich and famous, while Mr. Montague has walked around a free man.  Apparently, fraudsters who prey on working class investors are low on the priority list.

While the FBI and other agencies are not devoting the proper amount of resources to investigating John Montague, Mr. Zamansky is devoted to recovering the losses suffered by the working class people (many of them elderly) that he defrauded. John Montague’s ponzi-like scheme will not stand if Mr. Zamansky has anything to say about it.

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Securities Attorney: John Montague and the Prosecution of Securities Fraud

Former presidential candidate  Senator John Edwards is hardly someone to be cited in a blog post about morality and fairness, but he was spot on in his rallying cry about there being two Americas.  This painful reality was driven home to me in recent weeks while pursuing a case in New Jersey’s Gloucester County, a predominantly working class area in the backyard of my hometown, Philadelphia.

The case involves a purported “financial advisor” named John R. Montague, who was a registered representative with Questar Capital Corporation. The FBI has been investigating Montague since at least last August and possibly longer, but there appears to be no movement in the case.  I represent some elderly investors who Montague defrauded for over $1 million. Given that there are likely many other victims of  Montague’s alleged wrongdoing, it’s quite possible that Montague’s misappropriation of funds is well in excess of what  has already been documented.

Read more about John Montague defrauding investors from Jacob Zamansky.

Tags: John Montague
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Goldman, Not Yet Officially Served by SEC on Fraud Charges, Ramps Up Settlement Talks

Attorneys for Goldman Sachs (GS: 142.77, -0.618, -0.43%) have ramped up efforts to settle civil fraud charges over whether the firm misled investors who bought a package of toxic mortgage debt from the big Wall Street firm after the Securities and Exchange Commission decided not to officially “serve” Goldman the complaint, a move some legal experts say could show a willingness by the SEC to settle the case as well, FOX Business has learned.

By not officially serving Goldman, the SEC has given the firm an additional 60 days (instead of 30) to file either a motion to dismiss or answer the complaint with its defense of the charges. Those charges allege that the firm committed securities fraud by not alerting investors who purchased a pool of collateralized debt obligations during the early stages of the financial crisis that a prominent short seller had both helped create the CDO, and then bet against it.

That additional time, some legal experts say, will allow both sides to work out a settlement.
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Zamansky: Goldman Sachs Shareholder Losses

Zamansky & Associates has launched an investigation into allegations that Goldman Sachs’ directors and officers failed to disclose material information to shareholders.  Shareholders of Goldman Sachs’ common stock are urged to contact us to discuss potential claims.

We are investigating specific allegations that Goldman Sachs and its officers and directors failed to disclose:

• Facts and circumstances concerning the formation and sale of the ABACUS 2007-AC1 deal to investors such that it had engaged in misleading conduct

• Inappropriate positions against its clients and the alleged fraudulent construction of collateralize debt obligations that were likely, if not designed, to fail

• A Wells Notice from the SEC about the ABACUS transaction that led to substantial losses in the Company’s stock price

Source: Goldman Sachs Shareholder Losses

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In Goldman Sachs We Do Not Trust

Although Goldman Sachs  ( GS  -  news  -  people ) is widely considered to be the smartest and certainly most profitable investment firm in market history, it is also regarded with enormous suspicion and now it’s slapped with formal charges. Friday the U.S. Securities and Exchange Commission charged Goldman and one of its vice presidents with fraud in a synthetic collateral debt obligation, Abacus-2007 AC1, tied to subprime lending on mortgage backed securities.

The SEC alleges that Goldman Sachs received $15 million from a hedge fund manager for structuring and marketing this synthetic CDO to the specifications of the manager and then selling it to its clients. The hedge fund then took bearish positions in specific tranches of the Abacus CDO. Buyers lost $1 billion on the CDO.

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Sale of Stanford Assets Nets Fraud Victims $14 Million

The SEC announced today that approximately $14.2 million has been secured for the benefit of the worldwide victims of R. Allen Stanford’s alleged multi-billion dollar fraud scheme. The Receiver expects these funds to be returned to the receivership estate by June 2010.

R. Allen Stanford is the sole stockholder of an entity that wholly owned a bank and brokerage business in Panama City, Republic of Panama, known as Stanford Bank (Panama) S.A. (SPB) and Stanford Casa de Valores, S.A. (SCV). On February 17, 2009, after the Commission filed its enforcement action against R. Allan Stanford and others, the Superintendencia de Bancos de Panamá, the Panamanian banking regulator, and the Comisión Nacional de Valores, the Panamanian securities regulator, assumed control, operation and subsequent reorganization of SBP and SCV, with a perspective of bringing those entities under new ownership and reopening them

Ultimately, with the approval of the Superintendencia de Bancos de Panamá, the Receiver negotiated and concluded a contract to sell SBP, SCV and certain other assets in Panama to the third party purchasers. This contract specifically conditioned the sale on the approval of the U.S. Court, and the unfreezing of SBP accounts in foreign jurisdictions in which SBP depositor accounts were located. The sale of SBP and SCV was approved by United States District Judge David C. Godbey, Northern District of Texas, on February 10, 2010 and the sales contract was closed on March 31, 2010.

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Connecticut AG Sues Moody’s and S&P, Alleging Tainted Credit Ratings for Risky Investments

Connecticut Attorney General Richard Blumenthal today sued Moody’s and Standard & Poor’s, alleging that they knowingly assigned tainted credit ratings to risky investments backed by sub-prime loans.  The lawsuits are sovereign enforcement actions brought under the Connecticut Unfair Trade Practices Act.

According to the press release, Moody’s and S&P’s lack of independence and objectivity, violating the Connecticut Unfair Trade Practices Act, manifested itself in several ways, including:

Moody’s and S&P modified rating methodologies to make more money: In short, in direct contrast to their public representations, and unbeknownst to investors and other market participants, Moody’s and S&P’s rating methodologies were directly influenced by a desire to please their clients and enhance their own revenue. Assessing actual credit risk was of secondary importance to revenue goals and winning new business.

Ratings shopping: Issuers unhappy with a credit rating agency’s initial analysis can attempt to influence the process by informing the rating agency of a more desirable rating that one of its competitors is willing to assign. As a result, the rating agency knows that it must meet its competitor’s rating or forgo the revenue altogether. Both Moody’s and S&P knuckled under to this pressure and allowed it to influence the ratings they assigned to structured finance securities.

Despite public representations of vigilant monitoring of conflicts of interest inherent to the Issuer Pays business model, Moody’s marginalized its own compliance departments and even punished employees who raised concerns about its lack of independence and objectivity. In some cases, compliance employees were given poor performance evaluations, less compensation and even demoted for interfering with Moody’s ability to please the large issuers of structured finance securities that paid the majority of Moody’s fees.

The Attorney General previously brought litigation against all three credit rating agencies — Moody’s, S&P and Fitch — that was filed in July 2008. The earlier lawsuits allege that the agencies knowingly gave state, municipal and other public entities lower credit ratings as compared to other forms of debt with similar or even worse rates of default. Those cases remain pending.

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S.E.C. Charges Psychic With Securities Fraud

It may read as if it’s ripped from the pages of The Onion, but yes, it’s real.

The Securities and Exchange Commission on Thursday sued a well-known fortune teller who called himself “America’s Prophet,” charging him with securities fraud for swindling investors out of $6 million with the promise that he could accurately predict market moves. (Read the lawsuit after the jump.)

The fortune teller, Sean David Morton, 51, is accused of inducing more than 100 investors into pouring money into the Delphi Investment Group through his newsletter, Web site and guest spots on a nationally syndicated radio show.

Among his pitches: “I have called ALL the highs and lows of the market giving EXACT DATES for rises and crashes over the last 14 years.”

S.E.C. officials on Thursday were less impressed by his claims.

“Morton’s self-proclaimed psychic powers were nothing more than a scam to attract investors and steal their money,” George S. Canellos, the director of the S.E.C.’s New York regional office, said in a statement.

Mr. Morton’s wife, Melissa Morton, and their nonprofit religious organization, Prophecy Research Institute, were listed as relief defendants, meaning that while they are not accused of a crime, the S.E.C. is seeking a disgorgement of their share of the ill-gotten gains.

Neither the couple, nor a representative for their organization could be reached for comment.

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SEC Charges Broker with Defrauding Two Florida Municipalities

The SEC today charged Harold H. Jaschke, a Houston-based broker, with engaging in unauthorized and unsuitable trading on behalf of two Florida municipalities, putting them at risk of losing millions of dollars while he reaped commissions of more than $14 million for himself.  According to the agency, Jaschke, while associated with the brokerage firm First Allied Securities, Inc., churned the accounts of the City of Kissimmee, Fla., and the Tohopekaliga Water Authority and lied to both customers about his trading practices on their behalf.

The SEC’s complaint, filed in federal court in Orlando, Fla., alleges that Jaschke engaged in a high-risk, short-term trading strategy involving zero-coupon U.S. Treasury bonds that were very sensitive to interest rate changes. According to the SEC’s complaint, Jaschke’s risky trading strategy involved buying and selling the same bond within a matter of days, and sometimes within the same day. Jaschke exposed the municipalities to greater risks when he leveraged their accounts using repurchase agreements to finance the bond purchases that they otherwise would not have been able to afford. This strategy dramatically increased the risks as Jaschke caused the municipalities to borrow large sums of money to hold larger bond positions.

The SEC alleges that Jaschke knew the municipalities’ ordinances prohibited his trading strategy and required that their funds be invested with the paramount consideration to be safety of capital. Jaschke also knew that the municipalities’ ordinances prohibited the use of repurchase agreements for investment. According to the SEC’s complaint, had the bond market not swung sharply in Jaschke’s favor allowing the municipalities to close their accounts with a modest profit, they could have lost approximately $60 million over a two-year period as a result of his misconduct.

The SEC’s complaint alleges that Jaschke violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aided and abetted violations of the broker-dealer books and records provisions, Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder. The SEC’s complaint seeks a permanent injunction and disgorgement with prejudgment interest and a financial penalty.

In a related enforcement action, the SEC charged Jeffrey C. Young, First Allied’s former vice president of supervision, for failing to reasonably supervise Jaschke, failing to respond adequately to red flags relating to Jaschke, and failing to take reasonable steps to ensure that First Allied’s procedures regarding suitability were followed. Young agreed to settle the SEC’s enforcement action without admitting or denying the findings. The SEC’s order instituting settled administrative proceedings against Young suspends him from acting in a supervisory capacity for nine months and orders him to pay a $25,000 penalty.

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