4 October 2004 LAWFUEL – Best law news, US attorney, criminal law, legal, law firm newsMarcos Daniel Jiménez, United States Attorney for the Southern District of Florida; Michael S. Clemens, Special Agent in Charge, Federal Bureau of Investigation; Stephen M. Cutler, Director, Division of Enforcement, United States Securities and Exchange Commission, Washington, D.C.; Dave Nelson, Regional Director, Securities and Exchange Commission, Miami, Florida; Don Saxon, Commissioner, Office of Financial Regulation, State of Florida; and Michael S. Reiter, Chief, Palm Beach Police Department, announced today the recent conviction of defendant, Charles J. Kerns, Sr., following a two (2) week jury trial in Fort Lauderdale, Florida, before United States District Judge Kenneth Marra, in the case of United States v. Charles J. Kerns, Sr., et al., Case Number 03-80146-Cr-Marra.
On September 2, 2004, a federal jury in Fort Lauderdale found Kerns guilty on
seventeen (17) counts of a total of nineteen (19) counts of the Third Superseding
Indictment. The jury found Kerns guilty of one (1) count of conspiring to commit
securities and wire fraud, nine (9) counts of securities fraud, six (6) counts of
wire fraud, and one (1) count of money laundering, in violation of Title 18, United
States Code, Section 371, Title 15, United States Code, Section 78j(b), Title 18,
United States Code, Section 1343, and Title 18, United States Code, Section 1957,
respectively.
Kerns’ sentencing hearing is scheduled for December 10, 2004 at 2:30 p.m. before
Judge Marra. Kerns faces a maximum sentence of five (5) years’ imprisonment on the
conspiracy count, twenty (20) years’ imprisonment on each of the securities and
wire fraud counts, and twenty (20) years’ imprisonment on the money laundering
count. Kerns also faces restitution to the victims of his crimes of at least $12
million.
Losses to borrowers totaled over $12 million and losses to several companies in
market capital losses could exceed $50 million. Evidence at trial showed that Kerns
spent a large amount of the money he defrauded out of borrowers on an extravagant
life style that included homes and an office on Palm Beach, and several Mercedes
Benz, Jaguars, and a Bentley, as well as clothing and jewelry that was worth well
over $100,000.
With Kerns’ conviction, all of the defendants in this wide-ranging securities fraud
prosecution have been convicted. This case centered on the now-defunct Boca Raton
broker/dealer Geek Securities, Inc., an online retail brokerage operation owned and
controlled by co-defendant, Kautilya “Tony” Sharma. Sharma and other charged
defendants used Geek Securities for a variety of illegal schemes, including an
illegal mutual fund trading known as “market timing” and “late trading.” “Market
timing” refers to the practice of short term buying and selling of mutual fund
shares in order to exploit inefficiencies in mutual fund pricing. “Late trading”
refers to the practice of placing orders to buy or sell mutual fund shares after
the close of the market at 4:00 p.m. EST, but paying the price as of the 4:00 p.m.
EST close. “Late trading” typically enables the trader to gain an advantage by
capitalizing on news and information that occurs after 4:00 p.m. Otherwise put, the
late trader profits from market events that occur after the 4:00 p.m. EST market
close, but that are not reflected in that day’s closing price. The other schemes
for which Geek Securities was used included illegal sales to the public of
unregistered stock and fraudulent stock loan deals. In the latter scheme, stock
pledged by consumers was stolen as a result of the conspiracy engaged in by Kerns,
Sharma, and co-defendant, Lewis Hodge.
Preceding Kerns’ conviction at trail were the guilty pleas of the four (4)
co-defendants. On June 23, 2004, co-defendant, Brett Dohner, pleaded guilty to one
(1) count of conspiring to commit securities fraud and one (1) count of securities
fraud in connection with the stock loan scheme. Dohner faces a maximum statutory
sentence of five (5) years in prison on the conspiracy fraud count and twenty (20)
years in prison on the securities fraud count. His sentencing hearing is currently
set for December 10, 2004 at 10:00 a.m. before Judge Marra.
On July 27, 2004, Sharma pleaded guilty to one (1) count of conspiring to commit
securities fraud in connection with the mutual fund “market timing” and “late
trading” scheme and one (1) count of conspiring to sell unregistered securities.
Sharma is scheduled to be sentenced on October 15, 2004 at 11:00 a.m. before Judge
Marra.
On July 28, 2004, the day after Sharma’s guilty plea, co-defendant, Neal Wadhwa,
pleaded guilty to one (1) count of conspiring to commit securities fraud in
connection with the mutual fund “market timing” and “late trading” scheme.
Wadhwa faces a maximum statutory sentence of five (5) years in prison. Wadhwa’s
sentencing hearing is scheduled for December 10, 2004 at 10:00 a.m. before Judge
Marra.
The convictions of Sharma and Wadhwa are believed to represent the first federal
court criminal convictions for mutual fund “market timing” and “late trading” in
the nation.
On August 16, 2004, Hodge pleaded guilty to one (1) count of conspiring to commit
securities fraud in connection with the stock loan scheme. Hodge faces a maximum
statutory term of five (5) years in prison. Hodge’s sentencing hearing is
scheduled for November 2, 2004 at 11:00 a.m. before Judge Marra.
Mr. Jiménez commended the investigative efforts of the Federal Bureau of
Investigation, United States Securities and Exchange Commission, Palm Beach Police
Department, and State of Florida, Office of Financial Regulation. This case is
being prosecuted by Assistant United States Attorney Emalyn H. Webber, Special
Assistant United States Attorney James M. Fay, and Colleen Conry, Trial Attorney,
Frauds Section, Criminal Division, United States Department of Justice.
