CFTC ANNOUNCES COMMODITY POOL FRAUDSTER SENT TO PRISON FOR 17 YEARS

FROM:  U.S. JUSTICE DEPARTMENT 

September 9, 2015

Commodity Pool Operator Sentenced to 17 Years’ Incarceration for Fraud

Washington, DC — Donovan Davis Jr., one of three Principal Defendants charged by the CFTC for the fraudulent operation of Capital Blu Management, LLC of Melbourne, Florida, was sentenced to 17 years in a federal prison on August 27, 2015.

Davis was convicted on May 14, 2015 of multiple counts of criminal conspiracy, mail fraud, wire fraud, and money laundering in connection with the operation of a fraudulent $17 million commodity pool. The two other Co-Defendants in the CFTC action, Blayne Davis and Damien Bromfield, earlier pleaded guilty to similar criminal charges. B. Davis was sentenced to 9 years in prison; Bromfield’s sentencing is scheduled for September 24.

CFTC Enforcement Director, Aitan Goelman, said “These sentences serve as a strong reminder that those who engage in fraud in the commodities markets face the very real possibility of criminal prosecution and jail time in addition to the civil sanctions sought by the CFTC.”

In 2011, the U.S. District Court for the Middle District of Florida found these same Defendants liable for civil violations of the Commodity Exchange Act and CFTC Regulations and ordered them to pay more than $7 million each in restitution and civil monetary penalties and permanently barred them from engaging in any commodity-related activity (see CFTC Press Release, Order, and Judgment 6054-11, June 15, 2011, and CFTC Press Release and Complaint 5643-09, April 7, 2009).

The CFTC subsequently provided material assistance to the U.S. Attorney’s office responsible for the criminal prosecution of these Defendants.

THREE INDICTED IN ALLEGED $54 MILLION "GREEN ENERGY" FRAUD

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, September 3, 2015

Indictment Charges Three People with Running $54 Million “Green Energy” Ponzi Scheme

An indictment was unsealed today charging three people in an investment scheme, involving a Bala Cynwyd, Pennsylvania-based company, that defrauded more than 300 investors from around the country.  Troy Wragg, 34, a former resident of Philadelphia, Pennsylvania, Amanda Knorr, 32, of Hellertown, Pennsylvania, and Wayde McKelvy, 52, of Colorado, are charged with conspiracy to commit wire fraud, conspiracy to commit securities fraud, securities fraud and seven counts of wire fraud, announced U.S. Attorney Zane David Memeger of the Eastern District of Pennsylvania and Special Agent in Charge William F. Sweeney Jr of the FBI’s Philadelphia Division.

As the founders of the Mantria Corporation, Wragg and Knorr allegedly promised investors huge returns for investments in supposedly profitable business ventures in real estate and “green energy.”  According to the indictment, Mantria was a Ponzi scheme in which new investor money was used to pay “earnings” to prior investors since the businesses actually generated meager revenues and no profits.  To induce investors to invest funds, it is alleged that Wragg and Knorr repeatedly made false representations and material omissions about the economic state of their businesses.

Between 2005 and 2009, Wragg, Knorr and McKelvy, through Mantria, intended to raise over $100 million from investors through Private Placement Memorandums (PPMs).  In actuality, they raised $54.5 million.  Wragg and Knorr were allegedly able to raise such a large sum of money through the efforts of McKelvy.  McKelvy operated what he called “Speed of Wealth” clubs which advertised on television, radio and the internet, held seminars for prospective investors and promised to make them rich.  According to the indictment, McKelvy taught investors to liquidate all their assets such as mutual funds and 401k plans, to take out as many loans out as possible, such as home mortgages and credit card debt and invest all those funds in Mantria.  During those seminars and other programs, Wragg, Knorr and McKelvy allegedly lied to prospective investors to dupe them into investing in Mantria and promised investment returns as high as 484 percent.

It is further alleged that Wragg, Knorr and McKelvy spent a considerable amount of the investor money on projects to give investors the impression that they were operating wildly profitable businesses.  Wragg, Knorr and McKelvy allegedly used the remainder of the funds raised for their own personal enrichment.  Wragg, Knorr and McKelvy allegedly continued to defraud investors until November 2009 when the SEC initiated civil securities fraud proceedings against Mantria in Colorado, shut down the company, and obtained an injunction to prevent them from raising any new funds.  A receiver was appointed by the court to liquidate what few assets Mantria owned.

In order to lure prospective investors, it is alleged that Wragg, Knorr and McKelvy lied and omitted material facts to mislead investors as to the true financial status of Mantria, including grossly overstating the financial success of Mantria and promising excessive returns.

“The scheme alleged in this indictment offered investors the best of both worlds – investing in sustainable and clean energy products while also making a profit,” said U.S. Attorney Memeger.  “Unfortunately for the investors, it was all a hoax and they lost precious savings.  These defendants preyed on the emotions of their victims and sold them a scam.  This office will continue to make every effort to deter criminals from engaging in these incredibly damaging financial crimes.”

“As alleged, these defendants lied about their intentions regarding investors’ money, pocketing a substantial portion for personal use,” said Special Agent in Charge Sweeney Jr.  “So long as there are people with money to invest, there will likely be investment swindlers eager to take their money under false pretenses.  The FBI will continue to work with its law enforcement and private sector partners to investigate those whose greed-based schemes rob individuals of their hard-earned money.”

If convicted of all charges, the defendants each face possible prison terms, fines, up to five years of supervised release and a $1,000 special assessment.

The criminal case was investigated by the FBI and is being prosecuted by Assistant U.S. Attorney Robert J. Livermore.  The SEC in Colorado investigated and litigated the civil securities fraud charges which formed the basis of the criminal prosecution.      

An indictment is an accusation.  A defendant is presumed innocent unless and until proven guilty.

SEC CHARGES FORMER BANK ANALYST AND OTHERS WITH INSIDER TRADING IN FRONT OF CLIENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Former Investment Bank Analyst and Two Others With Insider Trading in Advance of Client Deals

08/25/2015 01:45 PM EDT

The Securities and Exchange Commission today charged a former investment bank analyst with illegally tipping his close friend with confidential information about clients involved in impending mergers and acquisitions of technology companies.  The SEC also charged his friend and another individual with trading on the inside information.

The SEC alleges that Ashish Aggarwal, who worked in J.P. Morgan’s San Francisco office, gleaned sensitive nonpublic information about two acquisition deals from colleagues who were working on them.  Aggarwal tipped Shahriyar Bolandian, who traded on the basis of the illegal tips in his own accounts as well as accounts belonging to his father and sister.  Bolandian also tipped his friend Kevan Sadigh so he could trade on the confidential information.  Bolandian worked at Sadigh’s e-commerce company, and together they made more than $672,000 in combined profits from their insider trading.

The SEC Enforcement Division’s Market Abuse Unit detected the insider trading through trading data analysis tools in its Analysis and Detection Center.

“We allege that Aggarwal, Bolandian, and Sadigh misused an investment bank’s confidential information for their personal benefit and victimized the bank, its clients, and investors,” said Robert A. Cohen, Acting Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “We will continue to proactively identify and combat serial insider trading schemes, particularly when it involves industry professionals.”

In a parallel action, the U.S. Department of Justice today announced criminal charges against Aggarwal, who lives in San Francisco, as well as Bolandian and Sadigh, who each live in Los Angeles.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California:

Aggarwal misappropriated confidential information about two J.P. Morgan-advised deals: Integrated Device Technology’s planned acquisition of PLX Technology in 2012 and salesforce.com’s acquisition of ExactTarget in 2013.
Aggarwal repeatedly communicated with Bolandian, his friend since college, in the days and weeks leading up to public announcements about the deals.

Bolandian and Sadigh bought the same series of call options in PLX Technology and ExactTarget.  Their trades were often within hours or even minutes of each other, and typically were 100 percent of the daily trading volume of those option series.
One of the brokerage accounts used by Bolandian was located offshore in the Bahamas.  He opened and funded the account with his credit card a week before the ExactTarget deal was announced.

Bolandian conducted various trades in his accounts on Aggarwal’s behalf in an arrangement that enabled Aggarwal to circumvent J.P. Morgan’s pre-clearance rules and potentially share in any profits.

The SEC’s complaint charges Aggarwal, Bolandian, and Sadigh with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3.  The complaint seeks a final judgment ordering Aggarwal, Bolandian, and Sadigh to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of these provisions of the federal securities laws.

The SEC’s continuing investigation is being conducted by Paul E. Kim and Deborah A. Tarasevich of the Market Abuse Unit with assistance from John Rymas in the unit’s Analysis and Detection Center.  The case is being supervised by Mr. Cohen and fellow Acting Co-Chief Joseph Sansone.  The SEC’s litigation will be led by David S. Mendel and Matthew P. Cohen.

The SEC appreciates the assistance of the Criminal Fraud Section of the U.S. Department of Justice, the U.S. Attorney’s Office for the Central District of California, and the Federal Bureau of Investigation.

SEC ACCUSES MAN OF COMMITTING FRAUD USING EB-5 IMMIGRANT INVESTOR PILOT PROGRAM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/25/2015 11:05 AM EDT

The Securities and Exchange Commission today announced an asset freeze obtained against a man in Bellevue, Wash., accused of defrauding Chinese investors seeking U.S. residency through the EB-5 Immigrant Investor Pilot Program by investing in his companies.

The SEC alleges that Lobsang Dargey and his “Path America” companies have raised at least $125 million for two real estate projects: a skyscraper in downtown Seattle and a mixed-use commercial and residential development containing a farmers’ market in Everett, Wash.  But Dargey diverted $14 million for unrelated real estate projects and $3 million for personal use including the purchase of his $2.5 million home and cash withdrawals at casinos.

“We allege that Dargey promised investors their money would be used to develop specific real estate projects approved under the EB-5 program, but he misused millions of dollars to enrich himself and jeopardized investors’ prospects for U.S. residency,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.

According to the SEC’s complaint filed yesterday in U.S. District Court for the Western District of Washington:

Under the EB-5 program, foreign citizens may qualify for U.S. residency if they make a qualified investment of at least $500,000 in a specified project that creates or preserves at least 10 jobs for U.S. workers.
Dargey and his companies obtained investments from 250 Chinese investors under the auspices of the EB-5 program.  Path America SnoCo and Path America KingCo operated as regional centers through which EB-5 investments could be made.
Dargey told U.S. Citizenship and Immigration Services (USCIS) and EB-5 investors that he would use investor money only for the Seattle skyscraper and Everett, Wash., projects.

Dargey and his companies misled investors about their ability to obtain permanent residency by investing in the Path America projects.  For example, Dargey knew that USCIS can deny investors’ residency applications if investor money is used for a project that materially departs from the approved business plan presented to USCIS.  Dargey failed to tell investors that he and his companies had departed from the business plan by using investor money for personal expenses and unrelated projects.

Late yesterday, the court granted the SEC’s request for an asset freeze and issued an order restraining Dargey and his companies from soliciting additional investors.  The SEC also was granted an order expediting discovery, prohibiting the destruction of documents, and requiring Dargey to repatriate funds he transferred to overseas bank accounts.

The SEC’s investigation was conducted by Brent Smyth and Michael Foley of the San Francisco office and supervised by Steven Buchholz.  The SEC’s litigation will be led by Mr. Smyth and Susan LaMarca.  The SEC appreciates the assistance of the USCIS.

SEC ANNOUNCES MAN CONVICTED OF INSIDER TRADING RECEIVES HOME CONFINEMENT SENTENCE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23323 / August 19, 2015

Securities and Exchange Commission v. Eric McPhail, et al., Civil Action No. 1:14-cv-12958 (District of Massachusetts, Complaint filed July 11, 2014)

Defendant in SEC Insider Trading Case Sentenced by Massachusetts Federal Court in Parallel Criminal Action

The Securities and Exchange Commission announced that, on August 17, 2015, Douglas Parigian was sentenced to eight months of home confinement and 3 years of supervised release for his role in an insider trading ring that traded on inside information about Massachusetts-based American Superconductor Corporation. Parigian had previously pled guilty to criminal charges of conspiracy and securities fraud for his conduct. The criminal charges against Parigian arose out of the same conduct that is the subject of a civil insider trading action filed by the Commission against Parigian and others in July 2014.

The U.S. Attorney's Office for the District of Massachusetts indicted Parigian and another defendant, Eric McPhail, in a Superseding Information dated May 11, 2015. The Information charged that McPhail had a history, pattern and practice of sharing confidences with an individual who had material, nonpublic information concerning American Superconductor's quarterly earnings and other business activities (the "Inside Information"). This individual provided McPhail with the Inside Information with the understanding that it would be kept confidential. Instead, McPhail used email and other means to provide the Inside information to his friends, including Parigian, with the intent that they profit by buying and selling American Superconductor stock and options. Parigian used this information to profit on the purchase and sale of American Superconductor stock and options.

In July 2014, the Commission filed a civil injunctive against Eric McPhail and six of his golfing buddies, including Parigian, alleging that McPhail repeatedly provided non-public information about American Superconductor. McPhail's source was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend. According to the complaint, from July 2009 through April 2011, the executive told McPhail about American Superconducter's expected earnings, contracts, and other major pending corporate developments, trusting that McPhail would keep the information confidential. Instead, McPhail misappropriated the inside information and tipped his friends, who improperly traded on the information. Four defendants settled the SEC's charges, without admitting or denying the allegations, by consenting to the entry of judgments permanently enjoining them from violating the antifraud provisions of the Exchange Act, paying disgorgement and civil penalties. The SEC's case against Parigian, McPhail and another individual, Jamie Meadows, is ongoing.

SEC CHARGES COMPANY FOUNDER WITH SELLING UNREGISTERED SECURITIES IN AN ALLEGED FRAUD SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23321 / August 17, 2015

Securities and Exchange Commission v. EnviraTrends, Inc., et al., Civil Action No. 8:15CV1903T27TGW (M.D. Fla., August 17, 2015)

SEC Charges Development Stage Company and Founder in Unregistered Offering Fraud Scheme

On August 17, 2015, the Securities and Exchange Commission filed a settled civil injunctive action against Russell Haraburda, the founder and Chief Executive Officer of EnviraTrends, Inc., a Sarasota, Florida-based development stage company purportedly in the business of selling pet memorial products. The Commission's action also charged EnviraTrends. The Commission's complaint alleges that Haraburda and EnviraTrends engaged in a fraudulent scheme to sell EnviraTrends securities to the public in unregistered offerings based on false and misleading statements regarding the company's activities and financial condition, and the purposes for which investors' funds would be used, while Haraburda misappropriated most of the money raised from investors for his own personal use. The Commission charges Haraburda and EnviraTrends with violating the antifraud, registration, and other provisions of the federal securities laws.

The Commission's complaint, filed in federal court in the Middle District of Florida, also alleges:

From mid-2009 until at least February 2014, Haraburda and EnviraTrends raised over $2.3 million through the sale of EnviraTrends stock to over 100 investors in thirteen states.

In soliciting these funds, Haraburda and EnviraTrends made numerous oral and written misrepresentations, including in filings with the SEC, regarding EnviraTrends' activities, operations, and finances. Haraburda and EnviraTrends repeatedly assured investors that their money would be used to build the company's business, including arranging for EnviraTrends' shares to be listed on a stock exchange or quoted on the OTC Bulletin Board. Contrary to these representations, Haraburda misappropriated $1.8 million, or 78% of the funds obtained from investors, spending it on personal expenses, including his mortgage payments, car and motorcycle payments, alimony, shopping sprees, and personal travel. EnviraTrends never developed or sold a product or service, never generated revenue, and a public market for EnviraTrends shares was never created.

In annual and quarterly reports and other filings EnviraTrends made with the Commission, Haraburda and EnviraTrends falsely stated that Haraburda had loaned funds to the company. But Haraburda did not make any loans to the Company. While there were occasional transfers of small sums from Haraburda's personal bank account to the company's bank accounts, the funds transferred were investor funds that Haraburda had previously misappropriated.

Haraburda further concealed his misappropriations by falsely stating to auditors that the company owed him hundreds of thousands of dollars, thus creating a pretext for his personal use of investor funds.

After the Commission's investigation of this matter began, Haraburda in 2014 created sham promissory notes purporting to show that he intended to repay the amounts he had misappropriated.

Haraburda and EnviraTrends, without admitting or denying the allegations in the complaint, have agreed to the entry of a final judgment providing permanent injunctive relief, barring Haraburda from serving as an officer or director of a public company, barring Haraburda from being associated with any offering of penny stock, and ordering Haraburda and EnviraTrends to disgorge their ill-gotten gains. The final judgment would provide permanent injunctive relief against Haraburda and EnviraTrends under the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5. The final judgment would enjoin Haraburda from violating the registration provisions of Sections 5(a) and (c) of the Securities Act; the certification requirements of Exchange Act Rules 13a-14 and 15d-14; and the prohibition against misrepresentations to auditors in Exchange Act Rule 13b2-2; and from aiding and abetting violations of the reporting provisions of Section 13(a) and 15(d)(1) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 15d-1. The final judgment would further enjoin EnviraTrends from violating Sections 5(a) and (c) of the Securities Act; and Section 13(a) and 15(d)(1) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 15d-1. The final judgment also would order Haraburda and EnviraTrends to jointly pay more than $2.3 million in disgorgement and prejudgment interest, but would waive these payments, except for $150,000, based their financial condition. The proposed settlement is subject to the approval of the District Court.

The SEC's investigation was conducted by Natalie Shioji, Ranah Esmaili, Donato Furlano, and Lisa Deitch, and assisted by Trial Attorney Michael Semler.

The SEC appreciates the assistance of the Florida Office of Financial Regulation.