Unregistered Securities Result in $135 Million South Florida Ponzi Scheme

The founders and co-owners of the Miami-based real estate development company Royal West Properties, Inc. have been charged with fraud for conducting a $135 million Ponzi scheme. The Securities and Exchange Commission (SEC) alleges that Gaston E. Cantens and his wife allegedly sold promissory notes to investors after acquiring various properties and later financing their sale.

According to the civil complaint filed by the SEC, the Cantens targeted members of the Cuban-American community. Well-known within the close-knit community, the couple gained the trust of mostly elderly investors whom they met at charitable and religious gatherings, and at events hosted at their Miami home. Mr. Cantens also allegedly used his connections as an alumnus and board member at the Belén Prep School to recruit investors. Outside of their immediate community, investors were attracted by televised commercials broadcast on Spanish-language channels nationwide.

Despite the Cantens not being registered with the SEC under the federal securities laws to make securities offerings to investors, reportedly no questions were asked of the couple that a community regarded as old friends.

In a statement given by Director of the SEC’s Miami Regional Office, Eric I. Bustillo commented on the couples’ recruiting tactics, saying that “They portrayed themselves as a pious couple closely involved with educational and religious organizations, while in reality they were living lavishly off money from defrauded investors.”

Along with allegedly using investor money to repay earlier investors, the SEC also contends that the Cantens misappropriated more than $20 million to fund personal business ventures, pay themselves high salaries, and allocated an estimated $1 million to their children and grandchildren citing “consulting fees”.

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U.S. SEC charges Miami couple in Ponzi scheme

U.S. securities regulators charged a prominent Miami couple on Wednesday with running a $135 million Ponzi scheme that victimized elderly Cuban-Americans living in South Florida.

In a complaint filed in Miami federal court, the Securities and Exchange Commission alleged that Gaston and Teresita Cantens, founders and co-owners of real estate developer Royal West Properties Inc in Miami, had enticed investors with promises of 9 to 16 percent returns.

Instead, beginning no later than 2002, they used new investor money to repay earlier investors and the company’s operating costs, the SEC charged. All told, the couple raised $135 million from hundreds of investors, many from South Florida’s Cuban-exile community, the complaint alleged.

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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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Flawyer Lawyer Charged With $1 Billion Investment Fraud

A once high-flying attorney who courted politicians and celebrities was arrested today on federal racketeering and fraud charges alleging he operated a $1 billion investment scheme involving phony legal settlements.

Lawyer Scott Rothstein was led into the Miami FBI office in handcuffs following his early morning arrest on five charges, including a violation of the Racketeer Influenced and Corrupt Organizations, or RICO law, often used against the Mafia and other criminal organizations.

Rothstein was also charged with wire fraud, money laundering, and mail and wire fraud conspiracy. The combined maximum prison term for convictions on all counts is 100 years, according to court documents.

A few hours after his arrest, Rothstein pleaded not guilty in federal court even though the information charging document — rather than an indictment — used by prosecutors typically means a defendant has agreed to eventually plead guilty.

“There is no deal at this point in time,” said Rothstein attorney Marc Nurik.

Nurik added that Rothstein — shackled and wearing a black T-shirt and blue jeans in court — intends to repay as many investors as possible. “At the end of the day, the people who deserve to get money back hopefully will,” Nurik said.

Rothstein was ordered held without bail by U.S. Magistrate Robin Rosenbaum, who noted that Rothstein had wired some $16 million to a bank account in Morocco and flew on a chartered jet there in late October before returning to Florida. Rothstein carried up to $500,000 in cash on that trip, she said citing evidence from prosecutors.

“At least at some point, Mr. Rothstein intended to flee,” Rosenbaum said.

The charging document cites unnamed “other conspirators” who also played key roles in the fraud, suggesting that more people could face charges. The document also said that Rothstein paid “gratuities” to unidentified police officials “to deflect law enforcement scrutiny” of his activities.

The criminal case was seen as inevitable after Rothstein returned from Morocco early last month amid mounting questions from investors and the FBI about missing money.

Federal agents have seized Rothstein’s boats, including an 87-foot yacht, as well as 20 luxury cars and numerous other assets, including his share of the Miami Beach mansion formerly owned by fashion designer Gianni Versace. Prosecutors are also going after 21 homes and other properties linked to Rothstein in Florida, New York and along Rhode Island’s Narragansett Bay.

Meanwhile, the once fast-growing law firm Rothstein Rosenfeldt Adler is defunct and Rothstein has been disbarred by the Florida Supreme Court. Several investors have already filed lawsuits seeking their money back, including one case demanding more than $100 million in damages.

Rothstein promised huge returns on investments in legal settlements he said would pay out over time. Prosecutors say most of the settlements never existed and that Rothstein operated a Ponzi scheme, using money from new investors to pay older ones.

Shortly after the scandal broke, the Florida Democratic Party returned $200,000 in contributions from Rothstein and his law firm. The state Republican Party gave back $150,000, and Gov. Charlie Crist returned $9,600 that Rothstein and his wife, Kim, had donated to Crist’s campaign for the U.S. Senate.

Rothstein’s office is filled with photos of him with politicians from around the country, including former President George W. Bush, former Alaska Gov. Sarah Palin, Arizona Sen. John McCain and California Gov. Arnold Schwarzenegger. He was also close to Miami Dolphins [team stats] great Dan Marino and many South Florida business and community leaders.

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Florida Investors Awarded $7 Million Combined Settlement

Three dozen mostly elderly South Florida investors have been awarded more than $7 million in damages in a case involving former Boca Raton stockbroker Gary J. Gross.

The award, issued Aug. 14, came from a federal Financial Industry Regulatory Authority arbitration, based on investors’ allegations of fraud. Their complaints were consolidated into 1 case.

The arbitrators decided Gross violated state law and Financial Industry Regulatory Authority rules by selling unsuitable securities.

Gross has a long record - about 100 pages - describing disputes with customers and regulators. His former employers have paid $4.6 million to settle 33 disputes over eight years, according to the industry publication Registered Rep.

Florida’s main securities regulator, the Florida Office of Financial Regulation, renewed Gross’s state securities license in 2003, with a provision that his employer watch his work closely.. A spokeswoman said the office looked into investor complaints at that time, but felt it didn’t have enough to deny the license or to prevail in a dispute with Gross.

A $7 million award is unusual, said Rick Ryder, publisher of Securities Arbitration Commentator in Maplewood, N.J. He estimated that fewer than 100 of the 44,000 awards compiled in 21 years of arbitration are that large.

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SEC Sues Eight in Three States in Penny Stock Ring

The U.S. Securities and Exchange Commission sued eight people in Florida, California and Delaware, claiming they generated more than $6.2 million in illicit profits by manipulating stock prices in four companies.

The group allegedly pumped up prices of GH3 International Inc., Asia Global Holdings Inc., Playstar Corp. and Xtreme Motorsports of California Inc., the SEC said today in a statement. Delaware’s Acting U.S. Attorney David C. Weiss separately announced indictments in the case.

“The integrity of our nation’s public stock markets requires protection from those greedy few who engage in market manipulation at the expense of many,” Weiss said in a statement.

Pawel Dynkowski, 24, of Newark, Delaware, is accused of carrying out the scheme with people he met through a penny stock Web site called InvestorsHub.com, operated by Matthew Brown, 26, of Aliso Viejo, California, according to the SEC complaint filed yesterday in federal court in Wilmington, Delaware. The group timed manipulative trading to coincide with false and misleading press releases purportedly issued by the companies to “hype the stock,” the SEC said in its statement.

In addition to Brown and Dynkowski, those sued by the SEC are Jacob Canceli, 50, of Mission Viejo, California; Gerard J. D’Amaro, 38, of Pompano Beach, Florida; Joseph Mangiapane Jr., 43, of Laguna Niguel, California; and Marc J. Riviello, 50, of Redwood City, California.

Delaware Indictments

Mangiapane is the chief executive officer of Rubicon Financial Inc. The SEC also charged Nathan M. Michaud of Boston, a Web site designer, and Adam S. Rosengard of Voorhees, New Jersey, who was a student at the University of Delaware.

GH3, based in Las Vegas, provides an anti-aging formula, according to the complaint. Asia Global, based in Hong Kong, is a media company. Woodbridge, Ontario-based Playstar was involved in communications and Xtreme, based in Bakersfield, California, makes dune buggies, according to the complaint.

Indicted in Delaware were Dynkowski, Mangiapane, Riviello, Brown, Canceli and D’Amaro. A nine-count indictment filed on April 16 and unsealed today charges Dynkowski and Mangiapane with securities fraud, wire fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and money laundering offenses.

Dynkowski and D’Amaro are also charged in a four-count indictment filed on April 30. The other men are charged in separate indictments. Angelo R. “Bill” Panetta is charged with one count of perjury and one count of obstruction of justice in connection with his testimony before a grand jury.

Mangiapane and Riviello didn’t immediately return messages seeking comment on the case. The others either couldn’t immediately be located by e-mail or through business and residential phone directories.

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Florida Lawmakers Looking to Better Protect Investors

Florida’s attorney general and a couple of state lawmakers are looking to beef up laws protecting securities investors.

Bill McCollum, along with Rep. Tom Grady, R- Naples, and Sen. Garrett Richter, R- Naples, unveiled a legislative proposal Wednesday that would give state authorities the ability to investigate and go after securities fraud, as well as enhance the registration requirements for investment advisers, dealers and others in the field.

The proposed law would also allow the attorney general to participate in civil investigations with the approval of the Office of Financial Regulation. “Recent headlines and alleged fraud have clearly identified the need to have an ‘all hands on deck’ approach when helping protect Floridians and their investments,” McCollum said in a press release.

Grady, a securities attorney and expert in securities regulation, drafted the bill and is sponsoring it in the House.

“In order to have a strong economy, investors must have confidence in the market,” he said in a press release. “By increasing the tools available to the state to prosecute violators of our securities laws, we protect investors and foster needed trust in the system.”

Richter, a banker and chairman of the Senate Banking & Insurance Committee, is sponsoring the bill in the Senate.

The proposed legislation would reinforce existing regulations and will give authorities the means to take swift action, said Alex Hager, interim commissioner of the Office of Financial Regulation.

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