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.

CFTC SETTLES WASH SALES CASE INVOLVING BITCOIN

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

September 24, 2015

CFTC Settles with TeraExchange LLC, a Swap Execution Facility, for Failing to Enforce Prohibitions on Wash Trading and Prearranged Trading in Bitcoin Swap

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against TeraExchange LLC (Tera), a provisionally registered Swap Execution Facility (SEF), for failing to enforce its prohibition on wash trading and prearranged trading on the SEF platform.  The CFTC Order requires Tera to cease and desist from future violations relating to its obligations to enforce rules on trade practices.  Tera is based in Summit, New Jersey.

Specifically, the CFTC Order finds that Tera offered for trading on its SEF a non-deliverable forward contract based on the relative value of the U.S. Dollar and Bitcoin, a virtual currency (the Bitcoin Swap).  On October 8, 2014, the only two market participants authorized at that time to trade on Tera’s SEF entered into two transactions in the Bitcoin Swap.  The transactions were for the same notional amount, price, and tenor, and had the effect of completely offsetting each other.  At the time, these were the only transactions on Tera’s SEF.

Tera arranged for the two market participants to enter into the transactions.  Tera brought together the market participants, telling one that the trade would be “to test the pipes by doing a round-trip trade with the same price in, same price out, (i.e. no P/L [profit/loss] consequences) no custodian required,” according to the Order.

However, subsequent to the transactions, Tera issued a press release and made statements at a meeting of the CFTC’s Global Markets Advisory Committee (GMAC) announcing the transactions, creating the impression of actual trading interest in the Bitcoin swap.  Neither Tera’s press release nor the statements at the GMAC meeting indicated that the October 8 transactions were pre-arranged wash sales executed for the purpose of testing Tera’s systems.

As a provisionally registered SEF, Tera is required under the SEF Core Principles of the Commodity Exchange Act (CEA) and CFTC Regulations to enact and enforce rules prohibiting certain types of trade practices on the SEF, including wash trading and prearranged trading.  Tera’s rulebook, in fact, prohibited those practices.

The CFTC noted in the Order that “[t]hese facts should be distinguished from a situation where a SEF or other designated contract market runs pre-operational test trades to confirm that its systems are technically capable of executing transactions and, to the extent that these simulated transactions become publicly known, makes it clear to the public that the trades do not represent actual liquidity in the subject market.”

The CFTC appreciates the assistance of the Division of Market Oversight. CFTC Division of Enforcement staff members responsible for this case are Andrew Ridenour, Kim Bruno, Daniel Jordan, and Rick Glaser.

CFTC ORDERS CARGILL DE MEXICO TO PAY $500,000 FOR ROLE IN WASH SALES SCHEME

FROM:  COMMODITY FUTURES TRADING 

CFTC Orders Cargill de México SA De CV to Pay $500,000 for Unlawfully Executing Wash Sales on the CBOT and KCBT

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against commodities trading company Cargill de México SA De CV (Cargill de México) for executing wash trades involving corn, soybean, and wheat futures contracts on the Chicago Board of Trade (CBOT) and wheat futures contracts on the Kansas City Board of Trade (KCBT). The CFTC order requires that Cargill de México pay a $500,000 civil monetary penalty.

The Order finds that on multiple occasions between March 2010 and August 2014 Cargill de México engaged in wash sales and unlawful non-competitive transactions in certain agricultural futures products, including corn, soybeans, and wheat on the CBOT, as well as in hard red wheat traded on the KCBT. Before orders for these trades were entered on an exchange, Cargill de México employees, either acting alone or with another employee, entered equal and opposite transactions in the same futures contract for another account that was also owned by Cargill de México, and matched the product, quantity, price, and timing of those orders and trades. The Order finds that by so prearranging, structuring, and entering these orders, which negated the risk incidental to an open and competitive marketplace, Cargill de México also engaged in noncompetitive transactions.

In addition to imposing the $500,000 civil monetary penalty, the Order also requires Cargill de México to comply with certain undertakings. First, the Order requires Cargill de México to conduct training for certain personnel addressing the ethics, compliance, and legal requirements of the Commodity Exchange Act (CEA) and CFTC regulations with regard to prearranged, fictitious, or noncompetitive trading. Second, the Order requires Cargill de México to submit a report to the CFTC’s Division of Enforcement representing (i) that Cargill de México has adopted policies and procedures designed to prevent any potential prearranged, fictitious, or noncompetitive trading in violation of the CEA and CFTC regulations, (ii) that Cargill de México has conducted certain training sessions for relevant personnel, and (iii) that Cargill de México has begun using the self-match prevention technology available on the front end system provided by its primary clearing firm. Finally, the Order requires Cargill de México to cease and desist from further violations of Section 4c(a)(1) of the CEA and CFTC Regulation 1.38(a), as charged.

The CFTC thanks the CME Group, Inc. for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Trevor Kokal, James G. Wheaton, Lenel Hickson Jr., and Manal M. Sultan.

SEC ACCUSES COMPANY PRESIDENT OF TRANSFERRING TWO-THIRDS OF INVESTOR FUNDS INTO PERSONAL ACCOUNT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION F

Litigation Release No. 23354 / September 18, 2015

Securities and Exchange Commission v. Robert DeWayne Milligan, Civil Action No. 2:15-cv-07308 (C.D. Cal.)

SEC Charges President of America's Natural Energy with Oil and Gas Investment Fraud

The Securities and Exchange Commission today announced charges against Robert DeWayne Milligan, who was president of a California-based business known as America’s Natural Energy (“ANE”), for engaging in the fraudulent offering of unregistered securities.

According to the SEC’s complaint filed in the U.S. District Court for the Central District of California, from at least May 2010 through May 2014, Milligan raised over $1.3 million from approximately 39 investors in multiple states for ANE, which he represented to be a business engaged in oil and gas exploration in the Williston Basin of North and South Dakota. According to the complaint, ANE was, in reality, primarily a scheme that Milligan used to fund his personal lifestyle, which included cash withdrawals, gambling, travel, and shopping. The SEC alleges that, in raising funds from investors, Milligan made material misstatements and omissions regarding, among other things, the status of ANE’s drilling projects, his business experience, and the use of investor funds, including his transfer of nearly two-thirds of the funds he raised for ANE into his personal bank accounts. As a result of Milligan’s alleged misconduct, ANE’s investors have suffered substantial losses.

The Complaint charges Milligan with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b) thereunder. The Commission is seeking a permanent injunction, an accounting, disgorgement of ill-gotten gains plus prejudgment interest, and civil monetary penalties against Milligan.

This matter was investigated by Lee Robinson and Anne Romero under the supervision of Ian Karpel, all of the SEC’s Denver Regional Office. Zachary Carlyle will lead the litigation.

CALIFORNIA MAN CHARGED BY CFTC WITH FRAUD RELATED TO PRECIOUS METALS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

September 11, 2015

CFTC Charges California Resident Hannes Tulving, Jr., through his company, The Tulving Company, Inc., with Misappropriation and Fraudulent Solicitation in a $17.8 Million Precious Metals Scheme

At Least 381 Customers Nationwide Allegedly Defrauded in the Scheme

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today filed a civil Complaint against Defendants Hannes Tulving, Jr. of Newport Beach, California, and his company, The Tulving Company, Inc., charging them with fraudulent solicitation and misappropriation in connection with the precious metals markets. Neither Defendant has ever been registered with the CFTC.

In its enforcement action, the CFTC alleges that the Defendants fraudulently offered contracts of sale of commodities in interstate commerce, namely, contracts for the sale of gold, silver, platinum, and palladium bullion and coin (precious metals). In offering these contracts, the Defendants obtained and misappropriated at least $17.8 million from at least 381 customers located throughout the United States for the purchase and sale of precious metals, according to the Complaint.

In their solicitations, the Defendants allegedly made false and fraudulent representations, including that The Tulving Company was a highly reputable, stable, and established precious metals firm that delivered precious metals to customers; that it bought and sold in excess of $2.1 billion in precious metals from 1999 through March 2013; and that precious metals were shipped quickly to customers after placement of orders and receipt of customer funds. These representations were false, according to the Complaint.

The Defendants allegedly purchased and sold little or no precious metals with the funds they collected from customers. Instead, according to the Complaint, the Defendants defrauded customers by lying to them and misappropriating their funds for improper and unauthorized uses, including for the Defendants’ own financial benefit.

To conceal their fraud, according to the Complaint, the Defendants made false and/or deceptive statements, including falsely representing that (1) customers owned specific amounts of precious metals when, in fact, they did not, (2) customers holdings in precious metals had significant value when, in fact, the non-existent holdings had no value whatsoever, and (3) customers were realizing profits from their investments when, in fact, no profit whatsoever had been realized.

In its continuing litigation, the CFTC seeks restitution to defrauded customers, disgorgement of ill-gotten gains, a civil monetary penalty, permanent registration and trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Luke B. Marsh, Richard Foelber, Dmitriy Vilensky, and Paul G. Hayeck.

Keynote Address by Commissioner Sharon Y. Bowen before ISDA North America Conference

Keynote Address by Commissioner Sharon Y. Bowen before ISDA North America Conference