June 7 2012
LOS ANGELES – A former investment fund manager pleaded guilty this morning to federal fraud charges, admitting among other things that he bilked investors out of millions of dollars by falsely promising to purchase corporate bonds backed by the Troubled Asset Relief Program (TARP).
John Farahi, 54, of Bel Air Estates, pleaded guilty to four felony counts – mail fraud, loan fraud, selling unregistered securities and conspiracy to obstruct justice while collaborating with his corporate counsel to cover-up the fraud. Farahi formerly ran the Beverly Hills-based New Point Financial Services, Inc.
In a plea agreement filed in United States District Court, Farahi acknowledged that the scheme caused losses of more than $7 million, while prosecutors reserved the right to argue that losses to victims are in excess of $20 million.
In the plea agreement, Farahi specifically admitted that he engaged in a scheme that started as early as November 2005 to defraud numerous victims by using their funds for a range of unauthorized purposes, including paying off prior investors and subsidizing options futures trading. Farahi also admitted that he extended his fraud scheme in 2008 by drawing down on personal lines of credit based upon false statements to federally insured banks, including Bank of America, Sunwest Bank and U.S. Bank. Farahi also acknowledged that he violated federal securities laws by selling unregistered securities and failing to comply with the SEC’s rules and regulations for selling unregistered securities. Farahi further admitted that he conspired with his attorney to obstruct an SEC investigation by, among other things, altering documents that were turned over to the SEC and providing false and misleading testimony under oath to the SEC on three separate occasions.
The case against Farahi and Tamman is the result of an investigation by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the Federal Bureau of Investigation. The SEC also provided substantial assistance during the investigation.
“Mr. Farahi used a variety of schemes, including the use of false promises about corporate bonds backed by TARP, to victimize both private investors and federally insured banks,” said United States Attorney André Birotte Jr. “The United States Attorney’s Office will continue to work with all its law enforcement partners, including the FBI, the SEC and SIGTARP, to aggressively pursue investment fraud schemes and to protect investors at both the public and private level.”
Special Inspector General Christy Romero of SIGTARP stated: “Facing significant investment losses in late-2008, Farahi exploited TARP as a way to double-down on his long-running Ponzi scheme. In order to attract fresh capital and to pay-off existing investors, Farahi touted the safety of his purported low-risk investments in various companies backed by TARP. When investor cash ran short, Farahi also defrauded three different banks, two of which were TARP recipients, in order to keep his scheme going.”
The statutory maximum penalty for the four charges to which Farahi pleaded guilty is 75 years in federal prison. Under the terms of the plea agreement, the government agreed to recommend a sentence of no more than 10 years in prison. The final decision on a sentence will be made by United States District Judge Phillip S. Gutierrez on January 14, 2013.
“Mr. Farahi took advantage of investors’ trust, as well as their money,” said Steven Martinez, Assistant Director in Charge of the FBI’s Los Angeles Field Office. “Farahi’s admitted crimes resulted in millions of dollars in losses and should remind those seeking to invest to use extreme caution when turning over their money in an environment where fraud is all too common.”
A federal grand jury in December indicted Farahi and attorney David Tamman, 44, of Santa Monica. Tamman was charged with conspiring with Farahi to obstruct the SEC investigation into Farahi’s fraud scheme. At the time of the alleged obstruction, Tamman, who is now a sole practitioner with offices in Century City, served as corporate counsel for Farahi’s investment company and was a law firm partner. Tamman, who is presumed to be innocent until proven guilty in court, is scheduled to go on trial before Judge Gutierrez on October 23.
The SEC filed a federal civil complaint alleging violations of the federal securities laws against Farahi and others in January 2010. The lawsuit alleged that Farahi and others conducted an unregistered offering fraud aimed at Iranian-Americans in the Los Angeles area (see: http://www.sec.gov/news/press/2010/2010-3.htm). The SEC subsequently obtained a permanent injunction, as well as orders freezing Farahi’s and New Point’s assets and appointing a receiver over New Point Financial Services. In January 2011, the SEC initiated public administrative proceedings against Tamman, citing improper professional conduct during an SEC examination (see: http://www.sec.gov/news/press/2011/2011-29.htm).
CONTACT: Assistant United States Attorney Aaron May
Major Frauds Section
(213) 894-0363List your legal jobs on the LawFuel Network