FOUNDERS OF CANOPY FINANCIAL, INC., SENTENCED TO 13 AND 15 YEARS IN PRISON FOR FRAUD

The following excerpt is from the SEC website:

February 23, 2012
United States v. Jeremy Blackburn and Anthony Banas, Criminal Action No. 09 CR 976 (N.D. Ill. March 1, 2010)
“The U.S. Securities and Exchange Commission (Commission) announced that on February 15, 2012, co-founders of the bankrupt Canopy Financial, Inc., a health care transaction-software company based in Chicago, were sentenced to 15 and 13 years in prison for defrauding investors and clients of more than $93 million. Anthony Banas, Canopy’s chief technology officer, was sentenced to 160 months in prison, while Jeremy Blackburn, Canopy’s former president and chief operating officer, was sentenced to 180 months in prison. Both men pleaded guilty in late 2010 to one count of wire fraud, admitting they engaged in a fraud scheme that cheated investors of approximately $75 million and also misappropriated more than $18 million from customer accounts intended for health care savings and expenses. In imposing sentence, United States District Judge Ruben Castillo of the Northern District of Illinois noted that this case was the most aggravated financial fraud he had seen in his 18 years on the federal bench. The judge ordered both men to pay mandatory restitution and forfeiture totaling $93,125,918.

According to their plea agreements, Blackburn and Banas used false information about Canopy’s financial condition, including a bogus auditor’s report and falsified bank statements, to fraudulently obtain approximately $75 million from several private equity investors in 2009. Approximately $39 million of that money was used to redeem shares of other Canopy investors, including approximately $1.6 million that went to Blackburn and $975,000 that went to Banas, while another $29 million obtained from investors was deposited into Canopy operating accounts.

Also according to their plea agreements, Blackburn and Banas misappropriated Canopy operating funds for their own benefit. Blackburn took approximately $6 million in unauthorized withdrawals and transfers from Canopy bank accounts during 2009. Blackburn typically directed a Canopy employee, or occasionally Banas, to transfer Canopy funds to his bank accounts or to pay for his personal expenses, including credit card balances, luxury car purchases, and travel on a private jet. Blackburn also paid for personal home renovations, bought sports tickets and purchased jewelry and watches using misappropriated Canopy funds. Banas used misappropriated Canopy money to invest $300,000 in a nightclub. Banas also spent $400,000 between 2007 and 2009 on other personal expenses.

Blackburn admitted that he created phony bank statements during 2009 to conceal the transfer of more than $18 million from special health care accounts in which Canopy held funds as custodian for the benefit of more than 1,600 clients and customers to make payments to medical providers. The funds were transferred to Canopy’s own operating accounts, as well as to benefit Blackburn and Banas personally.
The Commission’s cases against Blackburn (SEC v. Canopy Financial, Inc., et al., Case No. 09-CV-7429, USDC, N.D.IL (LR-21324) and Banas (SEC v. Anthony T. Banas, Case No. 10- CV 3877 USDC N.D. IL) (LR-21566) resulted in permanent injunctions against both individuals for violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], ordered disgorgement of $1,779,759.83 and prejudgment interest of $71,182.03 against Blackburn in April 2011 and disgorgement of $975,548.25 and prejudgment interest of $32,910.45 against Banas in June 2010.”

SEC ALLEGES FRIENDS AND FAMILY INVESTMENT FRAUD

The following excerpt is from the SEC website:

“The Securities and Exchange Commission announced today that on January 30, 2012 the Honorable Richard M. Berman of the United States District Court for the Southern District of New York entered a final judgment against defendants Christopher T. Vulliez and Amphor Advisors, LLC. The final judgment imposes a permanent injunction against future violations of the antifraud provisions of the federal securities laws and orders defendants to pay disgorgement.

The Commission’s Complaint alleged that, between March 2010 and January 2011, Vulliez and Amphor misappropriated at least $700,000 from his closest family and friends. According to the complaint, Vulliez made false and misleading statements to his clients that he would invest their funds in a biotech company. Instead, he and Amphor misappropriated the funds. The Complaint charged Vulliez and Amphor with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.

The final judgment permanently enjoins defendants Vulliez and Amphor from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. In addition, the final judgment orders defendants to pay disgorgement, on a joint and several basis, of $820,500. Defendants consented to the entry of the final judgment.

In a related criminal action, on December 7, 2011, Vulliez pled guilty to, inter alia, one count of Scheme to Defraud in the First Degree in violation of Penal Law §190.65(1)(b) and ten counts of Securities Fraud in violation of General Business Law § 352-C(6), before the Supreme Court of the State of New York for the County of New York in The People of the State of New York v. Christopher T. Vulliez, Superior Court Information No. 5556/2011, Docket No. 2011NY087021. Pursuant to a plea agreement, Vulliez will receive a sentence of six months incarceration followed by five years of probation and be ordered to pay restitution in the amount of $2,176,755.48.

Earlier, on August 20, 2011, the Commission filed an Amended Complaint to name Sophie Pachella and EatStrong, LLC as relief defendants. The Amended Complaint alleged that Vulliez diverted a portion of the investor funds that he had misappropriated to EatStrong and Pachella. On August 31, 2011, Judge Berman entered a final judgment that ordered EatStrong and Pachella to pay disgorgement, on a joint and several basis, of $375,000. EatStrong and Pachella consented to the entry of the final judgment.
The Commission acknowledges the assistance provided by the Manhattan District Attorney’s Office.”

SEC ALLEGES TEXAS MAN TARGETED DEAF INVESTORS IN FRAUD SCHEME

The following is an excerpt from the SEC website: “Washington, D.C., Sept. 9, 2011 — The Securities and Exchange Commission has charged a Corinth, Texas man with securities fraud for soliciting more than $3.45 million from several thousand deaf investors in an investment scheme that the SEC halted last year. The SEC previously charged Imperia Invest IBC with securities fraud and obtained an emergency court order to freeze the investment company’s assets. In a complaint filed late yesterday, the SEC alleges that Dunn, who is deaf, solicited investments for Imperia over a three-year period from others in the deaf community, promising them he would invest in Imperia on their behalf. What Dunn did not tell investors is that he was misappropriating a portion of their funds to pay his mortgage, car payments, car insurance, and a variety of other personal expenses. Dunn sent the remaining amounts to Imperia’s offshore bank accounts. While Imperia guaranteed returns of 1.2 percent per day on these investments, investors have never been paid any interest after giving their money to Dunn to invest. Even after the SEC charged Imperia and issued an investor alert about the scheme, Dunn continued to reassure investors that Imperia was legitimate and they would be paid. “Dunn was aware that Imperia lost investor money and was not accurately crediting investor accounts, yet he continued to send investor money to Imperia without disclosing to investors what was happening,” said Kenneth D. Israel, Director of the SEC’s Salt Lake Regional Office. “To further take advantage of others in the deaf community, Dunn was siphoning off about 10 percent of the money he collected from investors to pay his own bills before sending the rest of money into the Imperia quagmire.” According to the SEC’s complaint filed in federal court in Plano, Texas, Imperia purported to invest in Traded Endowment Policies (TEP), which is the British term for viatical settlements that involve the sale of an insurance policy by the policy owner before the policy matures. The TEP investments offered by Imperia were investment contracts in which investors were required to invest at least $50, which purportedly allowed the customer to obtain an $80,000 loan from an unnamed foreign bank that would be used to purchase a TEP. Imperia then claimed to trade the TEPs and pay a guaranteed return to the investor of 1.2 percent per day. The SEC alleges that Dunn misrepresented to investors that he would help them invest with Imperia to purchase TEPs. No investor funds were used to purchase TEPs. Dunn also represented to investors that he had met and knew the individuals behind Imperia. However, Dunn had never actually met anyone affiliated with Imperia. According to the SEC’s complaint, Imperia also required that investors purchase a Visa debit card to access their investment proceeds. Imperia charged customers a fee to purchase the Visa debit card ranging from $145 to $450. Visa had not authorized Imperia to use its name or trademarks and sent Imperia a cease-and-desist letter instructing it to halt unauthorized use of the Visa name and logo. Nonetheless, Dunn solicited and collected investor money for these purported Visa debit card purchases. According to the SEC’s complaint, Dunn’s investors transferred funds to him via money orders that he then cashed and deposited into accounts he controlled. From there, he forwarded funds to Imperia. Dunn initially sent money to Paypal-like accounts in Costa Rica, Panama and the British Virgin Islands, but later wired it directly to bank accounts with no apparent link to Imperia in such various other countries as Cyprus and New Zealand. The SEC alleges that Dunn did not attempt to verify whether Imperia was actually investing the money as promised. He also failed to verify whether Imperia was licensed to sell securities in any state, whether any registration statements relating to the offers or sales of Imperia securities were filed with the SEC, or whether Imperia was registered with the SEC in any capacity. The SEC alleges that Dunn violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. This matter was investigated by Jennifer Moore and Scott Frost of the SEC’s Salt Lake Regional Office and the litigation will be led by Daniel Wadley. The SEC appreciates the assistance of the State of Maine Office of Securities, the Securities Commission of the Bahamas, the Vanuatu Financial Services Commission, and the Cyprus Securities and Exchange Commission.”