Federal Litigation - Russell L. Forkey

FAQ’s Civil Conspiracy in Florida – South and Central Florida Litigation and Arbitration Attorney

Russell L. Forkey — Fri, 13 Dec 2019 19:38:11 GMT

The elements required for pleading a civil conspiracy in Florida are (1) a conspiracy between two or more parties, (2) to do an unlawful act or to do a lawful act by unlawful means, (3) the doing of some overt act in furtherance of the conspiracy, and (4) damage to the plaintiff as a result of the acts, performed in furtherance of the conspiracy. Under Florida law, civil conspiracy is a derivative of the underlying claims which form the basis of the conspiracy. The gist of a civil conspiracy is not the conspiracy itself but the civil wrong which is done through the conspiracy which results in injury to the Plaintiff. There is no independent action for civil conspiracy. Thus, generally an actionable conspiracy requires an actionable underlying tort or wrong. An act which does not constitute a basis for a cause of action against one person cannot be made the basis for a civil action for conspiracy. However, there is an exception to the rule where the plaintiff can show some peculiar power of coercion posses by the conspirators by virtue of their combination, which power an individual would not possess.

Please keep in mind that the above information is being provided for educational purposes only. It is not intended to be complete in all material respects. If you have any questions concerning the contents of the post, you should contact qualified counsel.

Contact Us:
With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

SEC Halts Ponzi Scheme Targeting Seniors and Small Business Owners – Neil Burkholz and Frank Bianco.

Russell L. Forkey — Wed, 20 Nov 2019 17:14:55 GMT

The Securities and Exchange Commission recently announced that it has filed an emergency action and obtained a temporary restraining order and asset freeze against two individuals and two companies they control in connection with an alleged $6 million Ponzi scheme that defrauded at least 55 investors, many of whom are senior citizens or small business owners.

According to the SEC’s complaint, Neil Burkholz of Boca Raton, Florida, and Frank Bianco, of Pembroke Pines, Florida, through their companies Palm Financial Management LLC and Shore Management Systems LLC, solicited investors by falsely representing that their proprietary options trading strategies were highly profitable. In reality, as alleged in the complaint, defendants invested less than half of investor funds, and those investments resulted in near-total losses. The complaint alleges that defendants misappropriated the remaining funds by using them to repay other investors and by transferring approximately $880,000 of investor funds to themselves and their spouses for personal use. According to the SEC’s complaint, the defendants sent false reports to investors to conceal their fraudulent conduct and give the investors the false impression they were generating positive returns.

The SEC’s complaint, filed in federal court in Miami, Florida on Nov. 14, and unsealed Monday, Nov. 18, charges the defendants with securities fraud and seeks certain emergency relief, as well as permanent injunctions, return of allegedly ill-gotten gains with prejudgment interest, and civil penalties. The complaint names Burkholz’s wife, Rhoda Burkholz, and Bianco’s wife, Suzanne Bianco, as relief defendants.

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

Pure Bills of Discovery – FAQ’s – South Florida Civil Litigation Attorney

Russell L. Forkey — Sun, 10 Nov 2019 15:40:23 GMT

A Pure Bill of Discovery is an equity pleading which is granted pursuant to the Court’s auxiliary jurisdiction. A Court’s jurisdiction usually consists of the right to decide a case or controversy between parties; however, Florida Courts, also have the auxiliary power and jurisdiction to enter orders that a person or organization provide documents, submit to depositions or to otherwise comply with the Florida Rules of Civil Procedure presuit. A Pure Bill of Discovery can be utilized for a number of reasons. For example, in a recently filed case a company had its computer system hacked. Someone, then currently unknow, was able to access the company’s bank account electronically and directed the company’s bank to send two wire transfers to two seperate bank account created, by unknown parties, at a nationwide banking institution. Both the company’s bank and the bank that received the funds into these third party accounts refused to provide, to the company, any of the written communications between the banks relative to this matter and the receiving bank has refused to provide any information to the company about who ownes the accounts that received the funds. Hence, the necessity of filing a Pure Bill of Discovery so that this information can be discovered and acted upon by the company. Obviously, time is of the essence in this type of circumstance.

A suit for discovery is initiated by a party filiing a “Complaint For Pure Bill Of Discovery” with either the county or circuit court as appropriate. The complaint should allege the following: (1) the matters concerning which the discovery asked for is sought; (2) the interests of the several parties in the subject of the inquiry; (3) the complainant’s right to have the relief prayed, its title and interest and what the relationship of the same is to the discovery claimed and that the discovery so attempted to be had is material to the complainant’s rightss that have been duly brought into litigation on the common-law side of the couurt under circumstnaces that entitle the complainant to a disclosure of what is necessary to maintain its own claim in that litigation, and not that of the defendant in the case. If the Complaint is granted, then the plaintiff, in this case the comapny, can ask the court for leave to conduct discovery using any of the methods allowed by the Florida Rules of Civil Procedure.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. If you have any questions concerning the contents of this post you should contact a qualified professional.

Justifiable Reliance – Orange County Florida Commercial Litigation and Arbitration Attorney

Russell L. Forkey — Thu, 31 Oct 2019 15:21:40 GMT

In examining the concept of justifiable reliance, the Florida Supreme Court opined that the question is whether the recipient of a misrepresentation or omission is justified in relying upon its truth. For if the recipient “knows that it [the statement] or [omission] is false or its falsity is obvious to him/her, his/her reliance is improper, and there can be no cause of action for fraudulent misrepresentation. This is particularly important in circumstances where the misrepresentation or omission is subsequently referenced in a written contract. In such a circumstance, the Court has determined that notwithstanding oral misrepresentations prior to the making of a contract, a party cannot establish justifiable reliance and “may not recover in fraud for an alleged false statement when proper disclosure of the truth is subsequently revealed in a written agreement between the parties.

Fraud in the Inducement – South Florida Commercial Litigation and Arbitration Attorney

Russell L. Forkey — Thu, 31 Oct 2019 15:06:22 GMT

In Florida, the essential elements to establish a claim for fraudulent inducement are: (1) a false statement of material fact; (2) the maker of the false statement knew or should have known of the falsity of the statement; (3) the maker intended that the false statement induce another’s reliance; and (4) the other party justifiably relied on the false statement to its detriment.

Please keep in mind that this information if being provided for educational purposes only and is not designed to be complete in all material respects. If you have any questions, you should contact a qualified attorney.

Contact Us:

Fraudulent Day Trading Scheme – Boca Raton, Florida Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 19 Nov 2014 16:03:43 GMT

Boca Raton, Florida – Fraudulent Day Trading Scheme FINRA Arbitration and Litigation Attorney:

SEC Charges Unregistered Broker in Tampa Area With Stealing From Investors in Fraudulent Day Trading Scheme

The Securities and Exchange Commission recently charged an unregistered broker living outside Tampa, Fla., with stealing investor funds as part of a fraudulent day trading scheme.

The SEC alleges that Albert J. Scipione and his business partner solicited investors to establish accounts at their company called Traders Café for the purposes of day trading, which entails the rapid buying and selling of stocks throughout the day in hope that the stock values continue climbing or falling for the seconds to minutes they own them so they can lock in quick profits. Scipione touted Traders Café’s software trading platform and made a series of false misrepresentations to investors about low commissions and fees, high trading leverage, and safety of their assets. More than $500,000 was raised from investors who were assured that funds invested with Traders Café would be segregated and used only for day trading or other specific business purposes. However, many customers encountered technical service problems that prevented them from trading at all, and Scipione and his business partner squandered nearly all of the money in investor accounts for their personal use. Meanwhile, Traders Café was never registered with the SEC as a broker-dealer as required under the federal securities laws.

The SEC previously charged Scipione’s business partner Matthew P. Ionno, who agreed to settle the case and has been barred from the securities industry. Financial penalties will be decided by the court at a later date.

In a parallel action, the U.S. Attorney’s Office for the Middle District of Florida today announced that Scipione has pleaded guilty to criminal charges. The U.S. Attorney’s Office previously brought a criminal case against Ionno.

According to the SEC’s complaint filed against Scipione in federal court in Tampa, customers across the country deposited approximately $367,000 with Traders Café from December 2012 to October 2013 with the intention of opening day trading accounts. Traders Café also received approximately $150,000 from an investor who invested directly in Traders Café’s business. Customers encountered problems with Traders Café from the outset, and many of them cancelled their accounts and requested refunds of their remaining account balances. Scipione and Ionno tried to cover up their fraudulent scheme by offering excuses and delays for why customers could not get refunds. Eventually less than $1,200 remained in Traders Café’s accounts primarily due to the repeated misuse of investor funds by Scipione and Ionno.

The SEC’s complaint against Scipione alleges that he violated Section 17(a) of the Securities Act of 1933 as well as Section 15(a) and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctive relief to enjoin Scipione from future violations of the federal securities laws.

Contact Us:

Boca Raton, Florida Misappropriation and Theft Litigation and Arbitration Attorney

Russell L. Forkey — Sun, 19 Oct 2014 02:00:09 GMT

Boca Raton, Florida Misappropriation and Theft Litigation and Arbitration Attorney:

Securities and Exchange Commission v. Dennis F. Wright, Civil Action No. 1:14-cv-01896-SHR (M.D. Pa)

Final Judgment and Administrative Order Entered Against Pennsylvania-Based Registered Representative Who Stole Funds from Customers

The Securities and Exchange Commission (the “Commission”) recently announced that the United States District Court for the Middle District of Pennsylvania entered a final judgment by consent in a previously filed enforcement action against defendant Dennis F. Wright, a former registered representative based in Lewistown, Pennsylvania. The final judgment permanently enjoins Wright from violating 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. Wright is also ordered to disgorge his ill-gotten gains of $1,533,416.33 and prejudgment interest thereon of $490,618.77, which will be deemed satisfied by the entry of an order of restitution in a parallel criminal case.

According to the Commission’s complaint filed on September 30, 2014, Wright misappropriated more than $1.5 million from at least 28 customers. Wright fraudulently induced his customers to redeem securities held in their securities accounts, including variable annuities and mutual funds, by falsely representing that he would invest the proceeds from the redemptions in a managed account that held other securities that yielded higher returns than their existing securities accounts. Instead, Wright deposited his customers’ funds in a bank account he controlled and from which he misappropriated the funds in order to pay his personal expenses as well as to fund customer withdrawals. Wright concealed his fraud by providing his customers with falsified account statements purportedly showing that they had purchased and owned interests in the non-existent managed accounts with appreciating balances.

On October 16, 2014, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b)(6) of the Securities and Exchange Act and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (“”Order”) against Wright. The Order permanently bars Wright from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and also bars him from participating in any offering of a penny stock. Wright consented to the issuance of the Order.

Contact Us:

Anthony Coronati and Bidtoask LLC. – Boca Raton, Florida Investment and Advertising

Russell L. Forkey — Sun, 19 Oct 2014 01:38:43 GMT

Boca Raton, Florida Investment and Advertising Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney:

SEC Charges Staten Island Man With Conducting Fraudulent Offerings and Stealing Investor Funds

The Securities and Exchange Commission trecently charged the operator of an online stock recommendation business with conducting several fraudulent securities offerings and siphoning some of the money raised from investors for a Caribbean vacation and plastic surgery.

An SEC investigation found that Anthony Coronati, who lives on Staten Island, initially held himself out as an investment adviser to a hedge fund that he claimed would invest in equity securities. But the hedge fund was fictitious and Coronati used investor money for other purposes. When the money began drying up, he went on to defraud investors in additional schemes involving his New Jersey-based company Bidtoask LLC. Coronati and Bidtoask sold membership interests in the company for the purpose of investing in promising technology companies that had yet to hold initial public offerings (IPOs). Investors were told that Bidtoask would invest directly in pre-IPO Facebook shares without charging any fees, commissions, or markups to investors. However, Bidtoask’s Facebook-related investments actually did require the payment of significant fees that Coronati and Bidtoask concealed from investors. Bidtoask did not even own the shares of other technology companies in which it was supposedly investing, and these companies were not actually in the process of an IPO.

Coronati and Bidtoask have agreed to settle the SEC’s charges. Coronati must pay back $400,000 in funds stolen from investors, and the money will be deposited into a Fair Fund for distribution to victims of the fraud schemes. Coronati also agreed to be permanently barred from the securities industry.

Coronati, who operates the website BidToAsk.com that offers stock recommendations to subscribers, was the subject of a subpoena enforcement action filed by the SEC late last yearwhen he failed to produce documents or appear for scheduled testimony during the SEC’s investigation. As a result of his continued failure to comply with SEC subpoenas in spite of a court order, Coronati was held in contempt of court and arrested earlier this year.

According to the SEC’s order instituting a settled administrative proceeding, Coronati conducted his schemes from at least 2009 to 2013. As the various schemes unraveled, he faced increasing concerns from investors. Coronati placated certain investors by making Ponzi-like payments to them using other investors’ money, and he sent a phony account statement to at least one investor purporting a position in the fake hedge fund that was worth more than $120,000. The account statement also purported that the fictitious hedge fund was more than 80 percent invested in well-known public companies such as Apple. Meanwhile, Coronati used investor funds to pay business expenses and such personal expenses as the Caribbean vacation and plastic surgery, and he also used investor money to purchase securities in a personal brokerage account he held in his own name.

The SEC’s order finds that Coronati and Bidtoask violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Coronati additionally violated Sections 206(1), 206(2), 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. Without admitting or denying the findings, Coronati and Bidtoask consented to the SEC’s order requiring them to cease and desist from further violations of those provisions of the securities laws and SEC rules. Information about the Fair Fund will be available at: www.sec.gov/litigation/fairfundlist.htm.

Contact Us:

Luciano Andres Battioli – Boca Raton, Florida Account Executive Conversion and Theft FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sun, 05 Oct 2014 13:37:44 GMT

Luciano Andres Battioli – Boca Raton, Florida Account Executive Conversion and Theft FINRA Arbitration and Litigation Attorney

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

September 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Luciano Andres Battioli (CRD #6229734, Huntington Beach, California) submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Battioli consented to the sanction and to the entry of findings that he converted funds belonging to customers of his member firm’s affiliate bank, and forged and falsified bank documents. (FINRA Case #2013039521501)

Wealth Strategy Partners, LC, Harvey Altholtz, Stevens Resource Group, LLC and George Stevens – Boca Raton, Florida Investment Fund and Investment Advisor Fraud and Mismanagement Litigation and Arbitration Attorney

Russell L. Forkey — Sun, 05 Oct 2014 13:18:59 GMT

Wealth Strategy Partners, LC, Harvey Altholtz, Stevens Resource Group, LLC and George Stevens – Boca Raton, Florida Investment Fund and Investment Advisor Fraud and Mismanagement Litigation and Arbitration Attorney

Securities and Exchange Commission v. Wealth Strategy Partners, LC, et al., Civil Action No. 14-CV-02427-JDW-TGW

SEC Charges General Partner and Investment Advisers to the Stealth and Adamas Funds with Fraud

The Securities and Exchange Commission filed a civil injunctive action on September 25, 2014 charging Wealth Strategy Partners, LC (“Wealth Strategy”), a Sarasota, Florida company, and its principal, Harvey Altholtz of Sarasota, Florida, and Stevens Resource Group, LLC (“Stevens Resource”), a Washington company, and its principal, George Stevens of Lacey, Washington, with securities fraud involving the fraudulent offers and sales of securities in two investment funds – The Stealth Fund, LLLP and The Adamas Fund, LLLP. Wealth Strategy and Altholtz controlled and managed the two funds and later served as investment advisers to the funds. Stevens Resource and Stevens also served as investment advisers to both funds.

According to the Commission’s complaint filed in the United States District Court for the Middle District of Florida, the Stealth and Adamas Funds, combined, raised approximately $30.8 million from over 143 investors nationwide between 2007 and November, 2009. The complaint alleges that, from October 2008 through April 2010, the defendants failed to disclose in offering materials distributed to investors that Stealth’s assets could be used to guarantee certain loans that Altholtz’s family made to two portfolio companies that Stealth invested in and that his family also made loans to Adamas and Stealth in violation of the funds’ operating agreements. The complaint also alleges that Wealth Strategy and Altholtz committed fraud by giving an Altholtz family trust, who was an investor in Adamas, preferential treatment with regard to redemptions over other investors. The complaint further alleges that the defendants made misstatements and omissions in newsletters to investors regarding the financial condition of some of the funds’ portfolio companies.

The SEC’s complaint charges the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against all of the defendants, and officer and director bars against Altholtz and Stevens. Stevens and Stevens Resource have agreed to settle the case against them by consenting to, among other things, the entry of a judgment permanently enjoining them from future violations of the securities laws, imposing a permanent officer and director bar against Stevens, and ordering them to pay disgorgement and civil penalties, in amounts to be determined by the Court later.

Contact Us:

Oscar F. Villarreal – Boca Raton, Florida Investment and Investment Advisor Fraud Litigation and Arbitration Attorney

Russell L. Forkey — Sun, 05 Oct 2014 12:34:45 GMT

Securities and Exchange Commission v. Oscar F. Villarreal, Civil Action No. 14-cv-01891

Former Cleveland-Area Investment Promoter Oscar F. Villarreal Indicted

On September 16, 2014, the United States Attorney for the Northern District of Ohio obtained a Grand Jury indictment charging Oscar F. Villarreal with ten counts of wire fraud, seven counts of money laundering, one count of securities fraud, and one count of investment adviser fraud.

The Indictment’s allegations are based on the same conduct underlying the Commission’s August 26, 2014 Complaint against Villarreal filed in the United States District Court for the Northern District of Ohio.

The SEC’s Complaint alleges that from March 2009 through December 2010, Villarreal conducted a fraudulent offering, known as Fund III, which raised $9.2 million from 46 investors. According to the complaint, Villarreal told investors that their money was to be used to make private equity investments in companies in the petroleum, steel, and other industries in Mexico. Villarreal lied to these investors about the success of a previous fund he operated, lied in saying that he used their money to purchase and profitably operate a Mexican pipeline manufacturer, and lied by telling investors that Fund III had ownership interests in several U.S. and Mexican drilling companies. Villarreal instead used $7.4 million of Fund III assets to trade in publicly traded securities in a brokerage account-contrary to his representations to investors-and sustained heavy losses, and also stole $5.8 million for himself. By November 2011, Fund III was essentially insolvent.

The Commission’s complaint also alleges that, between August 2010 and March 2011, Villarreal conducted a second fraudulent offering, known as the Standard Asset Management Fund I, (“SAM Fund”), which raised $9 million from 11 investors, six of whom had previously invested in Fund III. According to the complaint, Villarreal told these investors that the SAM Fund would invest in companies listed on the Mexican stock exchange. Villarreal made numerous misrepresentations to these investors. Among other things, Villarreal repeated his earlier lies about Fund II and Fund III’s purported acquisition and profitable operation of a Mexican pipeline manufacturer, he stole at least $327,000 of SAM Fund assets, and Villarreal’s trading was a massive failure, resulting in an 83% loss for the SAM Fund.

The complaint also alleges that Villarreal defrauded the SAM Fund investors between March 2012 and May 2012 by offering to “exchange” limited partnership units he claimed he owned in Fund III for the SAM Fund investors’ limited partnership units in the SAM Fund. Eight SAM Fund investors accepted Villarreal’s offer and exchanged their SAM Fund units, which they had purchased for a total of $3.1 million. Villarreal, however, lied about the number of Fund III limited partnership units he owned and the value of the Fund III units. Villarreal did not disclose to these investors that the Fund III limited partnership units were worthless.

The SEC’s Complaint alleges that Villarreal violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The Commission’s complaint seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.

Contact Us:

Scam Websites (Affinity Fraud) – Buyer Beware – South Florida Investment and Securities Fraud Litigation and Arbitration Attorney

Russell L. Forkey — Sat, 27 Sep 2014 11:50:58 GMT

Affinity and Elder Financial Abuse and Exploitation Fraud, Misrepresentation and Theft – Boca Raton, Delray Beach, Lake Worth, Boynton Beach and Deerfield Beach, Florida Litigation and Arbitration Attorney:

SEC Announces Cases Targeting International Pyramid Scheme Operators

The Securities and Exchange Commission recently announced charges against the operators of an international pyramid scheme that raised more than $129 million from investors worldwide, primarily in the U.S., China, and Taiwan. The case follows another against a separate pyramid scheme that lured investors in the U.S., China, and Korea with seminars, webinars, and YouTube videos.

The newest case, filed in federal court in San Francisco, charges Hong Kong-based eAdGear Holdings Limited and California-based eAdGear, Inc., along with operators Charles S. Wang and Qian Cathy Zhang, of Warren, N.J., and Francis Y. Yuen, of Dublin, Calif. According to the SEC complaint, even though eAdGear claimed to be a successful Internet marketing company, nearly all of its revenue was generated by investors, not its products or services.

The complaint alleges that eAdGear’s operators used money from new investors to pay earlier investors as well as to repay a personal loan and purchase million-dollar homes for themselves. It alleges the operators concealed and perpetuated the scheme by displaying sham websites on eAdGear’s own site to make it appear as if it had real, paying customers and manipulated revenue distributions to investors to appear profitable.

“eAdGear and its operators falsely claimed that they were running a profitable Internet marketing company when in reality, they were operating a Ponzi and pyramid scheme that preyed on Chinese communities and caused investors to lose millions of dollars,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office.

The eAdGear case follows one filed Monday in federal court in Georgia against Zhunrize Inc. and CEO Jeff Pan for allegedly defrauding investors of more than $105 million since 2012. Despite its claims to be a legitimate multi-level marketing company, Zhunrize derived most of its funds from selling memberships, not products, according to the SEC complaint.

“Zhunrize claimed to offer investors the opportunity to be an ‘e-commerce Business Owner’ selling products to customers through a website. In fact, it was a pyramid and ‘profits’ came from fees paid by later investors,” said William Hicks, associate regional director of the SEC’s Atlanta Regional Office.

In both cases, the courts granted the SEC’s request for an asset freeze and issued a temporary restraining order. In the case of eAdGear, that order bars the defendants from soliciting investors, including through websites they have used until now – www.eadgear.com, www.eadgear.net, www.winteam777.com, and www.winteam168.com. A court hearing has been scheduled for October 10, 2014.

Contact Us:

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Annuity and Insurance Fraud and Misrepresentation – Boca Raton, West Palm Beach and Fort Lauderdale, Florida Litigation and Arbitration Attorney

Russell L. Forkey — Sat, 27 Sep 2014 11:39:03 GMT

Annuity and Insurance Fraud and Misrepresentation – Elder Financial Abuse and Exploitation Litigation and Arbitration Attorney:

SEC Charges Four Insurance Agents in Securities Fraud Targeting Elderly Investors

The Securities and Exchange Commission recently announced charges against four insurance agents for unlawfully selling securities in what turned out to be a multi-million dollar offering fraud targeting elderly investors.

The SEC previously charged a Colorado man who allegedly orchestrated the scheme and recruited active insurance agents to help him solicit investors in Colorado and several other states. The scheme raised approximately $4.3 million during a nearly 18-month period. The SEC’s investigation further found that the four insurance agents charged today solicited funds without registering with the SEC as a broker-dealer as required under the federal securities laws.

“When individuals act as a broker and sell securities to the public, they must comply with registration, supervision, and compliance requirements that exist to protect investors,” said Julie K. Lutz, Director of the SEC’s Denver Regional Office. “These insurance agents improperly operated outside of that regulatory framework and thereby placed their clients at risk.”

According to the SEC’s order instituting administrative proceedings, the scheme primarily targeted retired annuity holders by using insurance agents to sell interests in a company called Arete LLC, which was controlled by the Colorado man orchestrating the scheme: Gary Snisky. The insurance agents told investors that their funds would be used by Snisky to purchase government-backed agency bonds at a discount. However, Snisky did not purchase bonds or conduct any such trading, and he misappropriated approximately $2.8 million of investor funds to pay commissions and make personal mortgage payments.

The SEC’s Enforcement Division alleges that the following three brokers raised approximately $1.5 million for Snisky and received almost $90,000 in commissions:

Kenneth C. Meissner of Fair Oaks Branch, Texas
James Doug Scott of Perkasie, Penn.
Mark S. “Mike” Tomich of Belmont, Mich.

The other insurance agent – David C. Sorrells of Linden, Texas – entered into a cooperation agreement with the SEC. Without admitting or denying the findings, Sorrells consented to an order finding that he violated Section 15(a) of the Securities Exchange Act of 1934. He agreed to be barred from the securities industry, cease and desist from future violations of Section 15(a), and pay disgorgement of $207,213.34. He also is subject to an additional financial penalty. The settlement reflects substantial assistance that Sorrells provided in the SEC’s investigation.

The SEC’s Enforcement Division alleges that Meissner, Scott, and Tomich violated Section 15(a) of the Exchange Act, and is seeking disgorgement, penalties, and securities industry bars in the matter, which will be litigated before an administrative law judge. The SEC’s case against Snisky, filed in November 2013, is still pending in federal court in Colorado.

Contact Us:

Microcap and Penny Stock Market Manipulation and Fraud – Boca Raton, Florida Federal and State Court Litigation Attorney

Russell L. Forkey — Thu, 18 Sep 2014 19:51:37 GMT

Microcap and Penny Stock Market Manipulation and Fraud – Boca Raton, Fort Lauderdale and West Palm Beach, Florida State and Federal Court Litigation Attorney:

SEC Charges Eight for Roles in Widespread Pump-and-Dump Scheme Involving California-Based Microcap Company

The Securities and Exchange Commission recently charged a ring of eight individuals for their roles in an alleged pump-and-dump scheme involving a penny stock company based in California that has repeatedly changed its name and purported line of business over the past several years.

The SEC alleges that the scheme was orchestrated by Izak Zirk de Maison, who was named Izak Zirk Engelbrecht before taking the surname of his wife Angelique de Maison. Both de Maisons are charged by the SEC in the case along with others enlisted to buy, sell, or promote stock in the company now called Gepco Ltd. Zirk de Maison installed some of these associates as officers and directors of Gepco while he secretly ran the company behind the scenes. Collectively, they amassed large blocks of shares of Gepco common stock while the de Maisons manipulated the market to create the appearance of genuine investor demand, allowing an associate to sell his stock at inflated prices to make hundreds of thousands of dollars in illicit profits.

In a parallel action, the U.S. Attorney’s Office for the Northern District of Ohio and the Cleveland Division of the Federal Bureau of Investigation today announced criminal charges against Zirk de Maison.

The SEC has obtained an emergency court order to freeze the assets of the de Maisons and others who profited illegally through the alleged scheme.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Zirk de Maison has secretly controlled the shell company now known as Gepco since its incorporation in 2008 under a different name. During the next five years, he caused the company to enter into a number of reverse mergers and its reported business evolved from equipment leasing to prepaid stored value cards related to electronic devices until the company eventually became known as WikiFamilies and claimed to own and operate a social media website. The company name changed to Gepco in 2013, and after a failed attempt to merge it into a private mixed martial arts company, de Maison created his own private company purportedly in the high-end diamond business and merged Gepco into it.

The SEC alleges that the de Maisons, who reside in Redlands, Calif., brought at least six others into the fold to coordinate various components of the scheme. They each are charged in the SEC’s complaint:

Jason Cope of Gates Mills, Ohio, is a longtime associate of Zirk de Maison and has a past record of securities fraud with a court judgment against him in a previous SEC enforcement action. On Cope’s behalf, Louis Mastromatteo of Bay Village, Ohio, allegedly dumped more than 2.5 million shares of Gepco stock through a nominee into the public market for hundreds of thousands of dollars in illicit profits that were kicked back to Cope.
Trish Malone, who lives in Santee, Calif., serves as Gepco’s president, CFO, and secretary. She allegedly used Gepco to issue stock to Zirk de Maison and others so that they could conduct two unregistered and illegal distributions of the securities.
Peter Voutsas, who lives in Santa Monica, Calif., and owns a jewelry store in Beverly Hills, serves as Gepco’s CEO and chief investment officer even though Zirk de Maison runs the company behind the scenes. Along with Angelique de Maison, Voutsas allegedly made a materially misleading statement about Gepco to the public while the de Maisons manipulated the market for Gepco’s stock.
Ronald Loshin of San Anselmo, Calif., served as Gepco’s chief creative officer and allegedly failed to make required regulatory filings to report his transactions in Gepco stock as an insider. Furthermore, Loshin enabled de Maison to deceptively hide his own trading by allowing him to use a brokerage account held in Loshin’s name.
Kieran Kuhn of Port Washington, N.Y., allegedly promoted Gepco stock through his firm Small Cap Resource Corp. and inflated the stock value to help the scheme succeed. He then conducted one of the unregistered and illegal distributions of Gepco-related securities for Zirk de Maison’s benefit.

According to the SEC’s complaint, Zirk de Maison exchanged e-mails and text messages with many of his co-conspirators as they openly discussed coordinating their promotional activities and manipulative trading in Gepco’s stock in order to create a false impression of market activity. They stood to earn exponentially more illicit profits given that they continue to beneficially own tens of millions of shares of Gepco stock, so the SEC suspended trading in Gepco securities in order to prevent any further manipulation or dumping of the stock.

The SEC’s complaint, which additionally charges several companies connected to the scheme, alleges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 9 and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a permanent injunction and disgorgement of ill-gotten gains along with prejudgment interest, financial penalties, and penny stock bars. The SEC also seeks officer-and-director bars against the de Maisons and Malone.

Contact Us:

South Florida Elder and Retirement Financial Abuse and Exploitation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Mon, 15 Sep 2014 21:54:01 GMT

Fort Lauderdale, Boca Raton, Delray Beach, Lantana, Lake Worth and West Palm Beach, Florida Elder Financial Abuse and Exploitation Litigation and FINRA Arbitration Attorney:

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers

The Securities and Exchange Commission recently charged a broker based in Roanoke, Va., with defrauding elderly customers, including some who are legally blind, by stealing their funds for her personal use and falsifying their account statements to cover up her fraud.

According to the SEC’s complaint filed in U.S. District Court for the Western District of Virginia, Donna Jessee Tucker siphoned $730,289 from elderly customers and used the money to pay for such personal expenses as vacations, vehicles, clothes, and a country club membership. Tucker ensured that the customers received their monthly account statements electronically, knowing that they were unable or unwilling to access their statements in that format. The SEC further alleges that Tucker engaged in unauthorized trading and other financial transactions while making misrepresentations to customers about their investment accounts and forging brokerage, banking, and other documents.

The SEC’s investigation resulted from a broker-dealer examination of the firm where Tucker worked that was conducted by the SEC’s Philadelphia Regional Office.

In a parallel action, the U.S. Attorney’s Office for the Western District of Virginia announced criminal charges against Tucker.

Tucker has agreed to settle the SEC’s charges and disgorge the $730,289 in ill-gotten gains either in the criminal case or the civil case. She consented to the entry of an order permanently enjoining her from violating Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The settlement is subject to court approval.

Contact Us:

Boiler Room and Securities Fraud and Misrepresentation – Boca Raton, West Palm Beach and Fort Lauderdale, Florida Litigation and Arbitration Attorney

Russell L. Forkey — Mon, 15 Sep 2014 21:22:04 GMT

Boiler Room and Securities Fraud and Misrepresentation Litigation and Arbitration Attorney – West Palm Beach, Boca Raton and Fort Lauderdale, Florida.

Securities and Exchange Commission v. DDBO Consulting, Inc., et al., Civil Action No. 0:14-cv-61685-MGC (S.D. F.L.)

Securities and Exchange Commission v. CalPacific Equity Group, LLC, et al., Civil Action No. 2:14-cv-05754-JFW-AGR (C.D. C.A.)

SEC Charges Ddbo Consulting, Inc., Calpacific Equity Group, LLC, and Principals with Fraud and Registration Violations

The Securities and Exchange Commission (Commission) recently announced that on July 24, 2014, it filed civil actions in U.S. District Court against individuals and companies behind a boiler room scheme that hyped a company whose new technology was purportedly to be used in the Super Bowl. The SEC previously charged the operators of the scheme based in the South Florida and Los Angeles areas. Seniors and other investors were pressured into purchasing stock in Thought Development Inc. (TDI), an unaffiliated Miami Beach-based company that stated its signature invention is a laser-line system that generates a green line on a football field for a first-down marker visible not only on television but also to players, officials, and fans in the stadium.

The SEC charged four executives who helped make the scheme possible and three companies they operate – DDBO Consulting, Inc., DBBG Consulting, Inc., and CalPacific Equity Group, LLC. Approximately $1.7 million was raised through these companies from more than 110 investors who were told that an initial public offering (IPO) in TDI was imminent and that their money would be used to develop the ground-breaking technology. Instead, the SEC alleges that the IPO was not forthcoming as promised, and at least 50 percent of the offering proceeds were merely retained by these companies or paid to sales agents through undisclosed commissions and fees. Certain executives, their sales agents and their companies lured investors by misrepresenting that TDI’s technology was about to be used by the National Football League (NFL). One investor even made an additional $75,000 investment on top of an initial $2,500 investment after being told that NFL Commissioner Roger Goodell purchased TDI’s technology for use in the 2013 Super Bowl. In fact, there was no such arrangement.

In addition to the their companies, the SEC’s complaints charge brothers Dean R. Baker of Coral Springs, Fla., and Daniel R. Baker of Valley Village, Calif., along with Bret A. Grove of Delray Beach, Fla., and Demosthenes Dritsas of Newhall, Calif. The SEC’s complaints allege violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The defendants all agreed to settle the SEC’s charges. In parallel actions, the U.S. Attorney’s Office for the Central District of California announced criminal charges against Daniel Baker and Dritsas, and the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Dean Baker and Grove.

Contact Us:

Accounting Malpractice and Negligence – Boca Raton, West Palm Beach and Fort Lauderdale, Florida Litigation Attorney

Russell L. Forkey — Fri, 12 Sep 2014 15:19:10 GMT

Accounting Malpractice and Negligence – Boca Raton, West Palm Beach and Fort Lauderdale, Florida Commercial Litigation and Elder Financial Abuse Attorney:

SEC Charges Bank Holding Company in Delaware with Improper Accounting and Disclosure of Past Due Loans

The Securities and Exchange Commission recently announced accounting and disclosure fraud charges against a Delaware-based bank holding company for failing to report the true volume of its loans at least 90 days past due as they substantially increased in number during the financial crisis.

An SEC investigation found that as the real estate market declined in 2009 and 2010 and its construction loans began to mature without repayment or completion of the underlying project, Wilmington Trust Company did not renew, extend, or take other appropriate action for 90 days or more on a material amount of its matured loans. Instead of fully and accurately disclosing the amount of these accruing loans as required by accounting guidance, Wilmington Trust improperly excluded the matured loans from its public financial reporting.

Wilmington Trust, which was acquired by M&T Bank in May 2011, has agreed to pay $18.5 million in disgorgement and prejudgment interest to settle the SEC’s charges.

According to the SEC’s order instituting a settled administrative proceeding, Wilmington Trust omitted from its disclosures in the third and fourth quarters of 2009 approximately $338.9 million and $330.2 million, respectively, in matured loans 90 days or more past due. Instead, it disclosed just $38.7 million in such loans for the third quarter and only $30.6 million in its annual report following the fourth quarter. Wilmington Trust also materially misreported this category of loans in the first and second quarters of 2010. Furthermore, Wilmington Trust failed to accurately disclose during the second half of 2009 the amount of non-accruing loans in its portfolio, and materially understated its loan loss provision and allowance for loan losses during this same period.

Wilmington Trust consented to the entry of the order finding that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 as well as the reporting, books and records, and internal controls provisions of the federal securities laws. In addition to the monetary sanctions, Wilmington Trust agreed to cease and desist from committing or causing any violations and any future violations of these provisions.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation,, accounting negligence and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

Investment Advisory Conflict of Interest – West Palm Beach, Florida Investment Advisor Conflict of Interest Attorney

Russell L. Forkey — Tue, 02 Sep 2014 16:04:09 GMT

South Florida, including West Palm Beach and Boca Raton Investment Advisor Conflict of Interest FINRA Arbitration and Litigation Attorney:

Houston-Based Investment Advisory Firm and Co-Owners Charged With Failing to Disclose Conflict of Interest to Clients

The Securities and Exchange Commission recently announced fraud charges against a Houston-based investment advisory firm accused of recommending that clients invest in particular mutual funds without disclosing a key conflict of interest: the firm was in turn receiving compensation from the broker offering the funds.

An SEC Enforcement Division investigation found that Robare Group Ltd. received a percentage of every dollar that its clients invested in certain mutual funds through an undisclosed compensation agreement with the brokerage firm. Therefore, unbeknownst to investors, Robare Group and its co-owners Mark L. Robare and Jack L. Jones Jr. had an incentive to recommend these funds to clients over other investment opportunities and generate additional revenue for the firm. Robare Group ultimately received approximately $440,000 in such payments from the brokerage firm during an eight-year period.

“Payments to investment advisers for recommending certain types of investments may taint their ability to provide impartial advice to their clients,” said Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit. “By failing to fully disclose its agreements with the brokerage firm, Robare Group deprived its clients of important information they were entitled to receive.”

The Asset Management Unit has undertaken an enforcement initiative to shed more light on undisclosed compensation arrangements between investment advisers and brokers. For example, the SEC previously charged an Oregon-based investment adviser for failing to disclose revenue sharing payments and other conflicts of interest to clients.

According to the SEC’s order instituting administrative proceedings against Robare Group and its co-owners, the firm revised its Form ADV in December 2011 to disclose the compensation agreement, but this and later disclosures falsely stated that the firm did not receive any economic benefit from a non-client for providing investment advice. The disclosures also were inadequate because they stated that Robare Group may receive compensation from the broker when in fact the firm was definitively receiving payments.

The SEC Enforcement Division further alleges that Robare Group and the broker entered into a new agreement in late 2012 that provided similar payments. But it wasn’t until June 2013 that the firm disclosed the conflict of interest associated with its arrangement with the broker, and even then it failed to disclose the incentive to recommend buying and holding certain mutual funds through the broker’s platform or the magnitude of the conflict. Robare reviewed and approved the Forms ADV, and Jones reviewed and signed all but one of the filings.

The SEC’s Enforcement Division alleges that Robare Group and Robare willfully violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Jones aided and abetted these violations. The Enforcement Division further alleges that Robare Group, Robare, and Jones each willfully violated Section 207 of the Advisers Act.

Contact Us:

Accounting Fraud and Misrepresentation – South Florida Accounting Fraud, Misrepresentation and Negligence Litigation Attorney

Russell L. Forkey — Sun, 24 Aug 2014 13:57:43 GMT

South Florida, including Boca Raton, Delray Beach, Lantana, West Palm Beach and Fort Lauderdale, Florida Accounting Fraud, Misrepresentation and Negligence Litigation Attorney:

California-Based Telecommunications Equipment Firm and Two Former Executives Charged in Revenue Recognition Scheme

The Securities and Exchange Commission recently announced charges against a Newport Beach, Calif.-based telecommunications equipment company and two former executives accused of improperly recognizing as revenue more than a million dollars’ worth of inventory that was shipped to a Florida warehouse but not actually sold.

They’re also accused of defrauding an investor from whom they secured a $2 million loan for the company based on misstatements and omissions associated with the inventory shipments.

The SEC’s Enforcement Division alleges that AirTouch Communications Inc., former president and CEO Hideyuki Kanakubo, and former CFO Jerome Kaiser orchestrated a fraudulent revenue recognition scheme that violated Generally Accepted Accounting Principles (GAAP), which establish that revenue cannot be recognized unless it is “realized or realizable” and “earned.” When AirTouch reported net revenues of a little more than $1.03 million in its quarterly report for the third quarter of 2012, it included approximately $1.24 million in inventory that had been shipped to a company in Florida that agreed to warehouse AirTouch’s products in anticipation of future sales. AirTouch’s revenue recognition was improper because the Florida company had not purchased the inventory, and AirTouch had not sold the inventory to any of its customers. AirTouch would have had zero revenue to report for the quarter if it had not recorded the shipments as purported revenue from the Florida company.

According to the SEC’s order instituting an administrative proceeding, AirTouch develops and sells telecommunications equipment, including a product called the U250 SmartLinx that was designed in early 2012 for sale to Mexico’s largest provider of landline telephone services. Later that year, AirTouch contacted the Florida company about the possibility of it warehousing U250 SmartLinx units for potential future sale to the Mexican entity or other AirTouch customers. During contract negotiations for the warehousing arrangement, the CEO of the Florida company told Kanakubo that it would not buy the product from AirTouch, but rather warehouse the U250 SmartLinx inventory and provide logistics for eventual delivery to the Mexican entity or other AirTouch customers who purchased the product. AirTouch shipped approximately $1.24 million of inventory to the Florida company. Despite not receiving any payment from the Florida company or any commitment from the Mexican entity or any other customer that it would actually buy product, Kanakubo and Kaiser reported the shipped inventory as revenue on AirTouch’s Form 10-Q. They also signed certifications falsely attesting to the accuracy of the company’s financial results.

The SEC’s Enforcement Division further alleges that Kanakubo and Kaiser made false and misleading statements and omissions to an investor they solicited for a $2 million short-term bridge loan to the company in exchange for a promissory note and a warrant to purchase common stock. Among other things, Kanakubo falsely told the investor via e-mail that the inventory to be shipped by AirTouch to the Florida company pertained to an existing purchase order from the Mexican entity, and Kaiser did not disclose the existence of the agreement wherein the Florida company agreed merely to warehouse the inventory and provide associated fulfillment and logistics services. On Oct. 17, 2012, AirTouch received the loan of $2 million from the investor, and two days later Kanakubo approved a $15,000 bonus payment to Kaiser for his work on raising capital. The same day, Kanakubo authorized a $15,000 payment to himself in connection with unused vacation time.

According to the SEC’s order, Kanakubo, who lives in Irvine, Calif., and Kaiser, who lives in Chowchilla, Calif., withheld key information about the inventory shipments to the Florida entity from AirTouch’s board of directors and controller as well as its outside independent accountant.

The SEC’s order alleges that AirTouch, Kanakubo, and Kaiser violated the antifraud provisions of the federal securities laws, and asserts that Kaiser’s violations constituted willful conduct.

Contact Us:

Chimera Energy – IPO, Penny Stock and Microcap Fraud and Misrepresentation South Florida FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 16 Aug 2014 14:31:42 GMT

Microcap, Penny Stock and IPO Fraud and Misrepresentation Pump and Dump Scheme Litigation and Arbitration Attorney:

SEC Announces Charges in Houston-Based Scheme Touting Technology to End Fracking

The Securities and Exchange Commission recently announced charges against a Houston-based penny stock company and four individuals behind a pump-and-dump scheme that misled investors to believe the company was on the brink of developing revolutionary technology to enable environmentally friendly oil-and-gas production.

The SEC alleges that Andrew I. Farmer orchestrated the scheme by creating a shell company called Chimera Energy, secretly obtaining control of all shares issued in an initial public offering (IPO) in late 2011, and launching an aggressive promotional campaign midway through 2012 to hype the stock to investors. Chimera Energy issued around three dozen press releases in a two-month period about its supposed licensing and development of technology to extract shale oil without the perceived environmental impact of hydraulic fracturing known as fracking. However, Chimera Energy did not actually license or even possess the technology it touted and had not achieved the claimed results in commercially developing it. While the stock was being pumped by the false claims, entities controlled by Farmer dumped more than 6 million shares on the public markets for illicit proceeds of more than $4.5 million.

The SEC suspended trading in Chimera Energy stock in 2012 and prevented Farmer and his associates from dumping additional shares or misleading new investors into their scheme.

In addition to Chimera Energy and Farmer, the SEC’s complaint charges a pair of figurehead CEOs installed by Farmer. The SEC alleges that Charles E. Grob Jr. and Baldemar Rios approved the misleading press releases and operated Chimera Energy at the minimum level necessary to lend the company a veneer of legitimacy while concealing Farmer’s involvement altogether. The SEC’s complaint also charges Carolyn Austin with helping Farmer profit from his scheme by dumping shares of Chimera Energy stock in the midst of the promotional efforts.

According to the SEC’s complaint filed in federal court in Houston, Farmer obtained control of all 5 million shares of Chimera Energy stock issued in the IPO by disguising his ownership through the use of nominee shareholders. Farmer’s name and the nature of his control over the company were not disclosed to investors in any of Chimera Energy’s public filings. Following the IPO, Farmer directed the press release barrage along with an Internet advertising campaign designed to increase investor awareness of Chimera Energy’s claims. The initial press release issued by the company on July 30, 2012, sported the headline: CHMR Unveils Breakthrough Shale Oil Extraction Method to Safely and Effectively Replace Hydraulic Fracturing.

The SEC alleges that Chimera Energy disclosed in public filings that an entity named China Inland had granted the company an “exclusive license to develop and commercialize cutting edge technologies related to Non-Hydraulic Extraction.” The technology that China Inland purportedly licensed to Chimera Energy was described as an “environmentally friendly oil & gas extraction procedure for shale to replace hydraulic fracturing.” The SEC’s investigation found that the purported acquisition of a license to develop such technology and the license agreement itself are entirely fictitious. No legitimate entity known as China Inland even exists.

The SEC’s complaint charges Chimera Energy, Farmer, Grob, Rios, and Austin with securities fraud, registration violations, and reporting violations. The SEC seeks permanent injunctions, disgorgement with prejudgment interest and financial penalties, penny stock bars, and officer-and-director bars.

Contact Us: