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Monday, September 28, 2015

SEC CHARGES FATHER, THREE SONS AND OTHERS WITH DEFRAUDING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23360 / September 24, 2015
Securities and Exchange Commission v. Jason W. Galanis, Civil Action No. 1:15-cv-07547 (Southern District of New York, Complaint filed Sept. 24, 2015)
SEC Charges Six in Stock Fraud Scheme

The Securities and Exchange Commission charged six men, including a father and three sons, with defrauding investors in Gerova Financial Group Ltd., whose shares once traded on the New York Stock Exchange.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against the six: Jason Galanis, his father John Galanis, brothers Derek Galanis and Jared Galanis, along with Gerova president and chairman Gary T. Hirst and investment adviser Gavin Hamels. Jason Galanis is a securities fraud recidivist who was charged by the SEC in 2007 and his father John Galanis has been a defendant in numerous SEC enforcement actions dating back to the early 1970s.

In a complaint filed in U.S. District Court in Manhattan, the SEC alleges that in early 2010, Jason Galanis and Hirst orchestrated a scheme to secretly issue $72 million of unrestricted Gerova shares to a Galanis family friend in Kosovo. According to the complaint, Jason Galanis, his father, and his brothers directed sales of the shares from the Kosovo friend’s brokerage accounts and had the proceeds wired to them and their associates who collectively realized at least $16 million in illicit profits.

In addition, the complaint names Gavin Hamels, an investment adviser that Jason Galanis allegedly bribed to purchase Gerova stock to help stabilize Gerova’s stock price as the shares were liquidated. The complaint alleges that many of the purchases were coordinated in matched trades with the Kosovo friend’s sales. Hamels is alleged to have purchased Gerova stock for clients based on arrangements with Jared Galanis regarding the times, prices, and amounts of stock to purchase, and is alleged to have failed to inform his clients of the bribe from Jason Galanis.

The complaint charges Jason Galanis, Jared Galanis, Derek Galanis and Hirst with violations of Sections 5(a) and (c) of the Securities Act of 1933 (“Securities Act”); Jason Galanis, Jared Galanis and Derek Galanis with violations of Section 17(a)(1) of the Securities Act; Jason Galanis, Jared Galanis, Derek Galanis and Hamels with violations of Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5(a) and (c) thereunder; John Galanis and Hirst with violations of Section 20(e) of the Exchange Act for aiding and abetting violations of Section 10(b) of the Exchange Act, and Rules 10b-5(a) and (c) thereunder; Jared Galanis with violations of Section 20(e) of the Exchange Act for aiding and abetting violations of Section 9(a)(1) of the Exchange Act; and Hamels with violations of Section 9(a)(1) of the Exchange Act, and Sections 206(1) and (2) of the Investment Advisers Act of 1940 (“Advisers Act”). In addition, the Commission alleges, in the alternative, that Derek Galanis violated Section 15(b) of the Securities Act by aiding and abetting violations of Section 17(a)(1); Jared Galanis and Derek Galanis violated Section 20(e) of the Exchange Act by aiding and abetting violations of Section 10(b) of the Exchange Act, and Rules 10b-5(a) and (c) thereunder; and Hamels violated Section 209(f) of the Advisers Act by aiding and abetting violations of Sections 206(1) and (2) of the Advisers Act.

The complaint seeks a final judgment permanently enjoining the defendants from committing future violations of these provisions, ordering them to disgorge their ill-gotten gains plus prejudgment interest, imposing financial penalties and barring Jason Galanis and Hirst from acting as officers or directors of a public company.

The SEC’s investigation was conducted by H. Gregory Baker, Christopher Ferrante, Leslie Kazon, and Sheldon Pollock of the New York Regional Office. The litigation will be led by Nancy A. Brown and Mr. Baker. The SEC thanks the U.S. Attorney’s Office of the Southern District of New York, the U.S. Postal Inspection Service, and the Federal Bureau of Investigation for their assistance in this matter.

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