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In a step that has securities attorneys and law experts all praise for the Securities and Exchange Commission, former Countrywide Financial Corp. chief executive Angelo Mozilo has been charged with securities fraud.

The SEC has charged Mozilo, former chief operating officer David Sambol, and former chief financial officer Eric Sieracki with misleading investors about risks the company took to increase its market share. The three have been accused of falsely telling investors Countrywide Financial avoided underwriting risky loans. According to Robert Khuzami, the SEC’s enforcement director, Countrywide Financial promoted its image as a company that used “high underwriting standards” and was engaged in underwriting prime quality mortgages. However, behind the scenes, the company functioned recklessly, taking on high risks.  

According to the SEC, Mozilo also made $140 million selling Countrywide financial shares around the same time he, in email messages, referred to the company’s loan products as “toxic “ and “poison”. The agency, which cited these emails, says they proved Mozilo mislead investors about the company’s risky lending practices.  Mozilo has been charged with insider trading, because he sold Countrywide stock based on “non public information”.

The civil suit filed by the SEC is one of the most important filed against people involved in the mortgage crisis. Countrywide was the country’s largest mortgage lender and was heavily engaged in offering housing loans to high risk borrowers.

The company also faces a class action lawsuit filed by several New York City pension funds that have lost tens of millions of dollars because of the company's recklessness. 

The SEC, in recent years, has seen its reputation erode as a result of the financial crisis. It has been heavily criticized by securities attorneys for its failure to enforce federal securities laws. However, the agency, under new leadership, has been embarking on a campaign to clear its reputation and add more bite to its enforcement actions.

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The Securities and Exchange Commission (SEC) is hoping Congress will increase its authority to seek civil penalties for investment fraud.

The Agency's Director of Enforcement, Robert Khuzami, testified before the Senate Banking Subcommittee on Securities and said the SEC would like to have increased authority to impose penalties on those who help defendants in violation of the Investment Advisers Act. Khuzami also told the Senate the agency needs the authority to subpoena people in civil cases across the country. This would save the agency travel expenses as well as staff resources, because duplicate depositions would be avoided.  Khuzami also pointed out several areas in the enforcement division that need more resources. The agency would benefit, he said, from hiring more trial lawyers, as well as chief operating officers to manage the division.  He also asked for more resources in the form of enhanced paralegal and administrative support, as well as better technological resources. 

Khuzami spoke to the panel in response to a report by the Government Accountability Office, which made suggestions for enhancements in SEC operations. The report analyzed agency operations and found there was a delay in cases and lowered settlement amounts in investment fraud cases, because of outdated penalty policies.  Under one of these policies agency enforcement staff was forced to obtain approval on a settlement before discussing penalties with public companies. That policy was revoked by SEC Chairman Mary Schapiro.

The agency has also suffered from a shortage of staffing and resources, resulting in a backlog of cases. Since the Bernard Madoff investment fraud was exposed last year, the SEC has come under increased pressure to enhance its operations. The appointment of Khuzami was one of the first moves Schapiro made to strengthen the division.

Attempts at SEC Improvement

Last month we discussed other moves that could strengthen the SEC and fine tune its ability to crack down on investment fraud much faster. These include the proposed formation of specialized teams to deal with specific frauds. The SEC is also proposing increased cooperation with criminal authorities and enhancing the management model currently in place at the agency. 

It may be a while before these proposed measures actually move toward becoming implemented at the agency, but securities attorneys, who have been critical of the agency's failures to crack down on investment fraud, believe any enhancements are worth the wait.

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A businessman in Amarillo, Texas has been arrested for investment fraud involving $1 million and at least 100 people.

Last week, Amarillo police arrested John Langford of Langford and Associates on nine felony charges. He faces charges of securities fraud and selling unregistered securities. He is being held at the Potter county jail on a $500,000 bond for each charge.

According to reports, Langford promised high rates of return to new investors. He then used new investor funds to pay off earlier investors. According to the district attorney, John Langford probably does not own sufficient assets to cover the amount he has defrauded. Anxious investors have been contacting the DA, worried about their investments.  So far, Sims says, the number of investors seems to be more than 100 people, and these numbers are expected to increase as the investigation progresses.

We are still waiting to hear more details from the DA’s office but to securities attorneys, this much is clear:

• Langford seems to have operated a Ponzi scheme.
• A number of elderly people appear to have been included as victims. Sims has confirmed that many of the victims are senior citizens who purchased annuities, but received no benefits when Langford defaulted.

Langford is facing a total of nine felonies:

• One second degree charge of fraudulent sales of securities
• One third degree felony charge of selling securities without being a registered dealer
• Three third degree charges of selling unregistered securities in Texas
• Four first degree felony charges of fraudulent sales of securities

According to Sims, his office worked together with the Securities and Exchange Commission (SEC) for about two weeks before moving in. Sims is asking investors who purchased annuities from Langford to contact the DA's office.

Hopefully the SEC's proposed plans to crack down on securities fraud with specialized groups will come to light and operate succesfully. Too many ponzi schemers and investment fraudsters are still on the loose, taking advantage of naive investors.

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A former Dallas Cowboys player is being sued by the Security Exchange Commission (SEC) for misleading clients about investments.  

Mike Kiselak played for the Dallas Cowboys between 1998 and 1999.  According to reports, Kiselak falsely claimed that his Westlake investment fund generated two percent monthly profits by trading treasury bills. Kiselak allegedly entrusted the funds to a California-based Venture capital firm, Gemstar Capital Group Inc. The firm and its president, Jeffrey Sykes, have also been named in the SEC suit.

Investors were mostly friends and family members and rather than going into treasury bills, much of the funds went to venture capital investments, including a vineyard. When Kiselak asked for accounts statements, Gemstar provided a false statement that showed about $7 million missing from the funds. According to the SEC suit, Kiselak also failed to disclose to investors that he would charge a 35 percent performance fee. In April this year, he charged investors a performance fee based on Gemstar's supposed 9.6 percent gains during the first quarter of 2009.

Investment Fraud

Investment planners and advisors are required to disclose to investors the risks of their investments. These securities professionals must also make suitable recommendations appropriate for the needs and objectives of the investor.

Failure to disclose is one offense that has been highly visible in recent months. Several investment fraud cases have been linked, in part at least, to the planner's failure to properly present investment techniques and methods to investors. From sub-prime mortgage backed securities schemes that have left thousands of investors with billions dollars losses, to smaller frauds like the one operated by Kiselak, investors have been at the receiving end of the recklessness and greed of their investment planners.

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Securities attorneys have been following efforts by the Securities and Exchange Commission (SEC) to fine-tune its capabilities for cracking down on investment fraud.

According to the Wall Street Journal, those methods run the gamut from specialist teams for specific frauds all the way down to Twitter. Former federal prosecutor Robert Kuzami is working on plans to create specialized task forces to deal with specific fraud cases. Currently, the agency operates under a more traditional pattern, using general enforcement personnel. Kuzami discussed his plans at a recent meeting with 150 senior SEC officials.

Separate teams are not entirely unheard of at the SEC. Currently the agency has a separate team for internet enforcement, and sometimes, temporary teams are created for dealing with specific abuses. Kuzami’s plans will create specialized teams that will focus exclusively on specific securities investment fraud areas.

There are critics of Kuzami's plans and, at this point, they are still in the nascent stages. However, as financial products become more complex and the nature of financial frauds changes, making it harder to detect schemes, the agency will need specialized teams to enhance its efficiency. Specialized teams could make it simpler for the agency to be pro-active in detecting investment frauds, rather than finding out only after billions of dollars have been lost.

Meanwhile, the agency seems to be making efforts to break away from its conservative, insulated image. One of the most severe criticisms against the SEC is regarding its failure to be open and transparent, and engage the public in its activities; that is changing. The agency launched three separate Twitter feeds on general news, investor education, and job opportunities. The feeds are still in the early stages, but it is a promising first step to sharing more with a critical public. With all these new developments, is it too much for securities attorneys to hope that change is finally coming to the SEC?

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An attorney in Marietta, Georgia was allegedly soliciting more than just elder abuse cases – he has been charged with luring investors and operating a Ponzi scheme worth $40 million.

Last week, Robert P. Copeland pled guilty to a single count of wire fraud. Copeland solicited investments through elder law and estate planning seminars arranged by his law firm. He recruited unsuspecting elderly clients from Georgia, Florida, Missouri, Texas, and South Carolina. He worked with six investment planners who were paid commissions for referring victims to him.

According to investigators, Copeland began soliciting investors about 10 years after he began practicing as an attorney. He promised investors that their funds would be used as short term loans for real estate investment. He told them that when he was able to sell the properties, he would be able to pay them returns as high as 15 to 18 percent. Copeland operated a firm called Advance Asset Strategies, assuring investors in his brochure that ”your loan is secured by the actual property that the real estate investor purchases”. 

It helped Copeland that he was a reputed, licensed attorney who regularly spoke at seminars and had co-authored a book on estate planning. He combined investors’ funds with money that flowed in from his law practice. Very little of this money actually found its way into real estate developments, and there were, therefore, no profits from the project. In the classic workings of a Ponzi investment fraud, Copeland began to recruit new investors furiously, using their money to pay off earlier investors.

Copeland's sentencing is set for July 10th. The Securities and Exchange Commission has ordered Copeland to repay stolen investor money. From senior citizens to Madoff’s duped charities, it seems no one was too weak or vulnerable for these Ponzi scheme fraudsters to prey on.

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From Colorado, where Shawn Merriman defrauded investors of $20 million and channeled the money into a collection of hundreds of art masterpieces, to Hawaii, where a promoter siphoned funds solicited from the Deaf at community centers, to the big daddy of them all, Bernard Madoff; Ponzi schemes are rearing their ugly heads left and right.

We have the recession to thank for the manner in which the words "Ponzi scheme" have become a part of main stream American culture in recent months. In December of 2009, the U.S. Securities and Exchange Commission (SEC) was bringing in an average of three Ponzi schemes a month. We are just four months into 2009 and that figure has leaped to more than 24. With each new Ponzi scheme that comes to light, it becomes more clear that we have yet to see the end of the fraudulent schemes.

In most cases, Ponzi fraudsters use investor money partly to fund their lavish lifestyles, while the rest is used to pay off early investors and keep the scheme afloat. The recklessness with which fraudsters squander investor money is a common feature of many of the Ponzi schemes that have been exposed. 

Texas financial promoter Ray White has been accused of running a Ponzi scheme worth $10.9 million, some of which was diverted into boosting the auto racing career of his son. Shawn Merriman seems to have used his investment funds to undertake hunting safaris in Africa, filling his home with stuffed animal heads. Everything seemed to have been going well for many of these people until the credit crunch came about and funds stopped flowing in as freely as before. Anxious investors began to worry about the high returns they had been promised, which typically lead to the scheme's reveal.

Since January 1st, the SEC has filed more than two dozen emergency enforcement actions in order to stop Ponzi scams. Securities attorneys have been flooded with calls from worried investors. Last week alone, new action was taken against alleged frauds in Hawaii, California, and Montana.

Avoid Ponzi Schemes

Ponzi schemes tend to work perfectly until funds begin to dry up, which is why the worst recession in decades has led to the discovery of so many of these cases. The internet seems to have provided a good home for these fraudsters. Last week, the Council of Better Business Bureaus warned that several scams are beginning to move online and are targeting people with financial woes.

If you or a loved one has lost funds due to a Ponzi scheme or other fraudulent act a securities attorney can help you recover lost investments. For a free evaluation of your case and to find answers to your questions, contact a securities attorney at Arnold & Itkin LLP.

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In what has been called a Ponzi scheme with a twist, a California investment firm operated a $23 million fraud, specifically targeted at Latino investors.

The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against the El Segundo-based investment firm, Maximum Return Investments Inc., accusing the owner Clelia A. Flores of operating a Ponzi scheme. Flores solicited investments from 150 investors in New York, Georgia, California, Texas, Utah, Illinois, and Nevada between 2006 and 2008.  She promised investors she would invest the money in banking, real estate, and oil exploration; and offered returns of up to 25%. Instead, Flores simply took money from new investors and paid interest to older investors.

According to the SEC lawsuit, as much as $3.5 million was spent on lavish personal expenses, including a down payment on a $1.9 million home. She also threw a grand party to celebrate the company’s "success" at the Ritz Carlton in Marina Del Ray, which unsuspecting investors paid for.  Of the $23 million, approximately $13 million was spent making interest payments to investors while more than $5 million was lost in speculative investments. There is no information yet on whether there is a criminal investigation into Flores' actions. The SEC lawsuit is seeking restitution and penalties.

Securities attorneys deal with Ponzi fraud schemes all the time, but this one is slightly unusual because it seems to have been specifically targeted at the Latino community. Flores used old fashioned and effective methods of attracting investors. Not only did she promise high returns, but she also offered a referral fee of 10% to clients who referred other clients to her.

Ponzi Scheme Attorney

A Ponzi scheme investment fraud can only succeed when the numbers of investors are limited and there is a free flow of funds. When the funds dry up or when the number of investors balloons out of control, and the fraudster does not have sufficient funds to pay off anxious investors, the scheme begins to disintegrate. The credit squeeze has unraveled a number of Ponzi schemes from Bernard Madoff's $65 billion Ponzi fraud to smaller frauds like the one Clelia Flores operated.

If you have lost money in a Ponzi scheme the experienced investment fraud attorneys at Arnold & Itkin LLP can help you recover your investments. Contact a securities attorney at Arnold & Itkin LLP to discuss your case.

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In the latest Ponzi scheme uncovered, a Colorado investment manager faces civil charges in connection with a $20 million investment fraud.

Shawn Merriman has been accused of operating a Ponzi scheme that defrauded at least 38 investors in Minnesota, Utah, and Colorado. The fraud is believed to have been conducted from 1994 to 2009, and is estimated to be worth $17 to $20 million. According to the lawsuit filed by the U.S. Securities and Exchange Commission (SEC), Merriman operated the fraud through his firm, Market Street Advisors. In a classic investment fraud tactic, Merriman promised his investors returns of up to 20%, but lost approximately $400,000 from the initial funds. It was then that Merriman started another fund to pay investors in a Ponzi scheme operation. As the scale of the fraud grew, he added two more funds to pay withdrawals. He traded securities during the first year of his scam, but eventually stopped and focused completely on his scheme. The SEC asked that Merriman‘s assets be frozen and that he be ordered to pay his investors back with interest.

Merriman used some of the money for lavish personal expenses, including the purchase of Rembrandts, vehicles, sports memorabilia, and properties in Aurora and Idaho. His art collection includes more than 375 pieces that have been featured in the media. Some of his Rembrandts were displayed at the Church of Jesus Christ of Latter Day Saints properties in Denver in 2008. There were also motorcycles, a gun collection, and a boat.  All of these have been seized by U.S. Marshals.

Investigators are still trying to determine the scale of investor losses. They are also looking into the possibility that Merriman may have used his position in the Mormon Church to lure investors.  If that turns out to be true, Merriman would not be the first fraudster to use his church connections to sell his scheme. Stanford group employees were not averse to pitching their dubious certificates of deposit to members of their church.  According to securities fraud experts, it is a common ploy – people are less likely to suspect someone they see at Church every Sunday of operating a fraud.

Ponzi Scheme Fraud

In a Ponzi scheme investor funds are used to pay off earlier investors. The success of a Ponzi scheme depends, to a large extent, on word of mouth spread by early investors who, thrilled with the kind of returns they see, spread the word to other investors. In 2009 alone, the SEC has acted to halt more than 12 Ponzi schemes. With new Ponzi frauds surfacing every day, it looks like the SEC and securities attorneys will be busy for quite a while.

If you've lost money in a Ponzi scheme or other investor fraud, contact a securities attorney at Arnold & Itkin LLP for a free evaluation of your claim.

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Under criticism for its failure to prevent the $65 billion Bernard Madoff investment fraud, among many others, the Securities and Exchange Commission (SEC) is looking at innovative ways to help uncover fraud.

The new chairman of the SEC, Mary Schapiro, said she is looking at new ways of enforcing anti-fraud laws, including the use of private sector agencies. The SEC currently relies on approximately 400 staff members to oversee more than 11,000 investment advisors. While increasing staff strength to cope with these huge demands is in the cards, the regulator concedes that it will also have to ‘’leverage third parties’’, like auditors, to help uncover scams.

The SEC’s shortcomings were glaringly evident in the way Bernard Madoff managed to operate his Ponzi scheme for years, undetected. Once the extent of the scam came to light, it became clear that the SEC had not bothered to inspect Madoff's investment advisory arm since 2006, when the business was registered with the SEC. While this could be blamed on a shortage of staff and resources at the SEC, there were other failures too. The agency is desperately in need of more skilled personnel and Schapiro has plans to hire new personnel skilled in forensic accounting and other necessary techniques.

Since Schapiro took over the beleaguered agency two months ago, she has been working hard to accelerate the process of bringing cases forward after an investigation and has also spoken about encouraging investment fraud tips through whistleblower incentive laws. These laws could allow the SEC to attract high quality fraud tips that lead to well developed cases.

It is no secret that the SEC has faced a severe credibility crisis in recent years. What is needed is a major overhaul of the agency’s investigating processes; the measures Schapiro has introduced are a promising first step.

Investment Fraud Lawsuits

The number of investment frauds exposed in recent months has caused concerns among investors who feel let down by the SEC’S failure to protect them.  Where government agencies fail to protect investor money from scams, a securities attorney can help recover lost investments. 

If you've suffered losses in an investment fraud, contact a securities attorney at Arnold & Itkin LLP for free consultation.

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On February 25th, a man named James M. Nicholson was arrested for, allegedly, running a $900 million hedge fund investment fraud. The Securities and Exchange Commission (SEC) has accused the 42-year-old, of securities fraud and bank fraud.

Nicholson managed a hedge fund under his company Westgate Capital Management LLC of Pearl River, NY, which is not registered with the SEC. The fraudster, allegedly, convinced investors to hand over money with misleading and untrue sales material and outright lies, much like the recently infamous Allen Stanford. He fallaciously told investors he managed assets totaling $600 to $900 million and he produced fake financial statements through a fake accounting firm he dreamed up called Havener & Havener.

According to the SEC, since 2004 the schemer swindled nearly $900 million from naive investors. Soon after Bernie Madoff's Ponzi scheme was busted, Westgate investors, like many others, began to worry and attempted to retrieve their investments. When checks started to bounce in December the SEC began an investigation. To date, about 24 checks written to investors, totaling nearly $5 million, have bounced. In addition to the bounced checks other investors have unsuccessfully attempted to recover more than $10 million from Nicholson.

Nicholson is being represented by Madoff's attorney Ira Sorkin and is currently under house arrest with bail set at $10 million.

Investment Fraud Attorney

Investment fraud can be difficult to recover from on your own. If you have been decieved by a crooked hedge funds manager a securities attorney can help you recover lost investments. Contact an experienced securities attorney at Arnold & Itkin LLP for a free consultation.

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Christian Milton, AIG's long-time vice president of reinsurance was sentenced to 4 years in prison, fined $200,000 and faces deportation upon serving his sentence for securities fraud, conspiracy, mail fraud and making false statements to the Securities and Exchange Commission.

Last Tuesday, 61 year old, England transplant Milton was handed a 4-year sentence and fined $200,000 for "manipulating AIG's financial statements to falsely inflate AIG's reported loss reserves" which benefited his personal compensation plan as it was tied to AIG's stock. Four former General Re Corp. executives were also charged in the investigation for their participation in falsifying reports and, ultimately, AIG's financial health. General Re Corp, in collusion with AIG, took out reinsurance policies with AIG boosting AIG's stock price and "inflating the reserves by $500 million." The judge overseeing the case, Christopher Droney, said "[Milton] surely knew this was a scam from the very start," "This was no momentary lapse in judgement."

One of the four former Gen Re executives was sentenced to 2 years and fined $200,000 in December, the rest await sentencing.

Securities Attorneys

If you have incurred financial losses due to fraudulent acts or advice of a financial planner or advisor, a securities attorney may be able to help you claim compensation for your losses.

If you or a loved one have been affected by securities fraud, contact a securities attorney at Arnold & Itkin LLP.

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In a decidedly unfunny move, Tim Dougherty has been charged with stock fraud, involving purchasing huge amounts of the stock of humor company National Lampoon in a bid to drive up stock prices. The CEO of the company which owns the rights to the "Vacations" series of movies, as well as another consultant at the company have also been charged with securities fraud and conspiracy.

The case has been under investigation for a while now, with the participation of the Federal Bureau of Investigation and the Securities Exchange Commission (SEC).   According to the SEC, Daniel Laikin had paid kickbacks amounting to $68,000 for purchase of stock in the company in a bid to drive up stock prices fraudulently. The stock purchases went on for a number of days and involved Laikin, Dennis Brasky, a National Lampoon consultant and a third party who was secretly working for the government.   The company's stock has been hovering at $2 per share, and Laikin and the others wanted to inflate it to $5 per share. The company believed that an increase in stock price would place it in a better position to enter into partnerships with other entertainment companies. Laikin has since resigned from his position at the company. Dougherty meanwhile faces the possibility of serving up to 25 years in prison if convicted of securities fraud. 

The scam seems to run deep at the comedy company that owns some very lucrative rights to movie franchises, including the "Animal House" series of films. Besides movies, the company also distributes TV shows and websites, and has developed a licensed brand around its name.

Stock Fraud

Stock fraud to drive up prices of shares can occur in a number of ways. Stockbrokers may withhold important information that could influence a buyer's decision to buy stocks, or they may, as in the case of National Lampoon, resort to artificial inflation of stock prices by buying back their own stock to drive up prices. In every case, deception is the key to a successful stock fraud scam, and investors may realize only when it's too late and they have lost substantial sums of money that their stocks are not worth what they paid. As of last week, National Lampoon's stock was trading at 73 cents, which amounts to a significant loss for investors who have been duped by these fraudulent stock price inflation tactics.

When an investor loses money in stock fraud, he can file a securities fraud lawsuit against the company with the help of a stock fraud lawyer in an attempt to recover losses. Securities attorneys who specialize in litigating stock fraud scams with big firms have the resources to pursue a case for your benefit.

If you have lost investments due to stock fraud, contact a securities attorney at Arnold & Itkin LLP, for a free evaluation of your case. We can help you understand your options for claiming compensation for your loss.

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Today the Securities and Exchange Commission (SEC) filed a lawsuit accusing Internet entrepreneur turned Dallas Mavericks owner of insider trading.  At issue is a 4-year-old stock sale that Mr. Cuban has written about on his blog. The U.S. Securities and Exchange Commission alleges that Mr. Cuban avoided a $750,000 loss by selling his 6 percent stake in Momma.com, an Internet search engine company, after company executives told him confidentially about a stock offering restricted to major investors.

"It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market," said Scott W. Friestad, the SEC's deputy director of enforcement.

Cuban has flatly denied the allegations and a statement from his lawyer posted in Cuban's blog said that he would fight the civil complaint.

When company investors or executives with access to privileged information engage in insider trading, it puts other investors and shareholders at an unfair disadvantage. If you have suffered a financial loss as a result of insider trading or other corporate stock fraud, you may be entitled to compensation.  A securities attorney with the Texas business litigation law firm Arnold & Itkin LLP in Houston, Texas can help you understand your rights and options you may have to claim compensation for your loss.

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