LawFuel – Law news for lawyers – Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced that seven defendants were arrested today and charged with orchestrating a scheme to defraud investors and a Native American tribal entity of tens of millions of dollars.
JASON GALANIS and HUGH DUNKERLEY were arrested in the Central District of California. JASON GALANIS will be presented later today before a U.S. Magistrate Judge in Los Angeles and DUNKERLEY will be presented before a U.S. Magistrate Judge in Santa Ana, California. GARY HIRST was arrested in the Middle District of Florida and will be presented later today before a U.S. Magistrate Judge in Orlando. JOHN GALANIS, a/k/a “Yanni,” was arrested in the Southern District of California and will be presented later today before a U.S. Magistrate Judge in San Diego. BEVAN COONEY was arrested in the District of Nevada and will be presented later today before a U.S. Magistrate Judge in Reno. DEVON ARCHER was arrested in the Eastern District of New York. MICHELLE MORTON was arrested in New Jersey. ARCHER and MORTON will be presented later today before United States Magistrate Judge Ronald L. Ellis in Manhattan.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants induced an Oglala Sioux Native American tribal entity to issue bonds through lies about how the bond proceeds would be invested. Instead of investing the proceeds in a way that would provide capital for development and help cover the interest payments, the defendants allegedly pocketed most of it to pay for their own personal expenses, homes, cars, travel, and jewelry. The defendants’ alleged fraud did not stop with the tribe. The defendants also allegedly duped unwitting investors into buying the bonds by hiding material facts about them, including their lack of liquidity. The defendants’ alleged fraud has left devastation in its wake: a tribe with tens of millions in bond obligations it cannot pay, and investors out tens of millions, left holding bonds they did not want.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “The alleged fraudsters named in this case didn’t just see an opportunity to steal money when they thought no one was looking, they allegedly hatched a plan to scam a municipal entity from the start. The most egregious fallout from this scheme is that the bondholders now hold worthless securities, and the tribe can’t make the interest payments due.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “These individuals allegedly took advantage of their clients, by luring them into creating bonds the defendants allegedly knew would never pay any returns to investors. White-collar criminals always believe their crimes and abilities are above the law, but Postal Inspectors and their law enforcement partners are very skilled at bringing these fraudsters to justice for their illegal financial schemes.”
According to the Complaint unsealed today in Manhattan federal court: As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth below constitute only allegations, and every fact described should be treated as an allegation.
From at least in or about March 2014 through in or about April 2016, JASON GALANIS, GARY HIRST, JOHN GALANIS, a/k/a “Yanni,” HUGH DUNKERLEY, MICHELLE MORTON, DEVON ARCHER, and BEVAN COONEY engaged in a fraudulent scheme to cause a Native American tribal entity to issue more than $60 million in municipal bonds and then misappropriate the proceeds from their sale. JASON GALANIS and JOHN GALANIS used the millions of dollars in illicit profits derived from the scheme to pay for a variety of personal and business expenses, including house payments, car payments and tax obligations, and to make food, travel and jewelry purchases. JASON GALANIS also used the proceeds to make millions of dollars of payments to other defendants, including to HIRST, DUNKERLEY, and COONEY, as well as to asset management firms run by MORTON.
To accomplish the scheme, JASON GALANIS and JOHN GALANIS first induced the Wakpamni Lake Community Corporation (“WLCC”), an Oglala Sioux tribal entity, to issue tens of millions of dollars in municipal bonds (the “Tribal Bonds”) based on false and misleading representations. MORTON and HIRST, at the direction of JASON GALANIS, used approximately $40 million of funds belonging to clients of two related investment advisers run by MORTON – Hughes Capital Management, Inc. (“Hughes”) and Atlantic Asset Management, LLC (“Atlantic”) – to purchase the Tribal Bonds, even though those defendants were well aware that material facts about the Tribal Bonds had been withheld from clients in whose accounts they were placed, including the fact that the Tribal Bond purchases fell outside the investment parameters of certain Hughes clients and of the Atlantic investment vehicle in which the Tribal Bonds were placed. In addition, those defendants failed to apprise the Hughes and Atlantic clients of substantial conflicts of interest relating to the defendants – including that HIRST and DUNKERLEY were on multiple sides of the deal with respect to the issuance and placement of the Tribal Bonds. When Hughes and Atlantic clients learned about the purchase of the Tribal Bonds, several of them demanded that the Tribal Bonds be sold. However, because there was no ready secondary market for the Tribal Bonds, the Tribal Bonds remain in their accounts.
Moreover, certain defendants, including JASON GALANIS and DUNKERLEY, falsely represented to the WLCC that proceeds from the sale of the Tribal Bonds would be placed with an investment manager who would invest the proceeds in investments that would generate annuity payments sufficient to pay the interest on the Tribal Bonds and provide additional funds to the WLCC to be used for tribal economic development purposes. In fact, none of the proceeds of the Tribal Bonds were turned over to the investment manager specified in the closing documents. Instead, the defendants misappropriated significant portions of the proceeds for their own personal use.
Some of the misappropriated proceeds were recycled and provided by JASON GALANIS to entities affiliated with ARCHER and COONEY in order to facilitate the purchase of additional Tribal Bonds issued by the WLCC in subsequent offerings induced by JOHN GALANIS. As with the first offering of Tribal Bonds, none of the proceeds of the Tribal Bonds were actually turned over to the investment manager specified in the closing documents. Instead, the defendants again misappropriated substantial portions of the proceeds for their own use. As a result of the defendants’ fraudulent scheme, the investors in whose accounts the Tribal Bonds were placed now hold worthless securities that cannot be sold, and the WLCC has no means of paying the interest payments due on the Tribal Bonds.
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JASON GALANIS, HIRST, JOHN GALANIS, DUNKERLEY, MORTON, ARCHER, and COONEY are each charged with one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense; and one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. JASON GALANIS, HIRST, and MORTON are also charged with conspiracy to commit investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense; and investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $10,000. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Mr. Bharara praised the investigative work of the FBI and USPIS, and thanked the SEC, which has filed civil charges in a separate action.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Brian Blais, Aimee Hector, and Rebecca Mermelstein are in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth below constitute only allegations, and every fact described should be treated as an allegation.