Virginia Jury Finds Man Guilty In $485 Million Life Settlement Scheme

May 1, 2012

Published April 30, 2012 Associated Press RICHMOND, Va. –  A federal jury in Virginia convicted a former Costa Rican insurance executive on Monday of all counts in a $485 million fraud scheme in which he was accused of lying to clients and investors about the financial stability of his company. Minor Vargas Calvo, 60, was president of Provident Capital Indemnity Ltd. Provident sold bonds guaranteeing funding for life settlement companies, which buy life insurance policies from insured people at less than face value and collect the benefits when those people die. The government originally claimed Provident sold $670 million in bonds based on fraudulent financial statements, but an accounting done by an Internal Revenue Service investigator verified only $485 million. According to prosecutors, Vargas not only misrepresented the company’s assets but also lied when he told clients, investors and regulators that Provident was protected by reinsurance agreements with major companies. After a five-day trial, the jury deliberated about three hours before finding Vargas guilty of one count of conspiracy and three counts each of mail fraud, wire fraud and money laundering. Vargas, who stood stoically as the verdict was read, is scheduled for sentencing Oct. 23 and could face a maximum of 170 years in prison. “We’re disappointed, obviously,” defense attorney Jeffrey Everhart said outside the courtroom. “It was a pretty complex case, and there was a lot of evidence that obviously wasn’t good for us.” He said he was unsure about an appeal. U.S. Attorney Neil MacBride said in a written statement that the fraud affected thousands of victims worldwide, including some who lost their life savings by investing in life settlements based on Provident’s worthless guarantees. “Mr. Vargas may have thought he was safe operating his scheme from overseas, but his conviction is yet another example to global fraudsters: You can run but you can’t hide,” MacBride said. In closing arguments, U.S. Justice Department lawyer Albert Stieglitz Jr. said witness testimony and a mountain of emails and other documents proved that Vargas deliberately and repeatedly lied to clients and investors about Provident’s financial stability and credit rating. He also said Vargas, who has a doctorate in economics, also improperly spent Provident funds on himself, his family and a professional soccer team that he owned. “The bottom line is you can’t lie to get people’s money,” Stieglitz said. “That’s what Dr. Vargas did over and over and over again.” Everhart acknowledged in his closing that Vargas made mistakes but argued that prosecutors failed to prove their case beyond a reasonable doubt. Everhart said an accountant first falsified the financial statements before Vargas took over the company. “Mr. Vargas inherited a mess and did the best he could to try to make it right,” Everhart said. The accountant, Jorge Luis Castillo of Hackettstown, N.J., testified last week against Vargas. Castillo, who testified that the Provident financial statements were fabricated, pleaded guilty last year to conspiring to commit mail and wire fraud and faces up to 20 years in prison at his sentencing, set for Sept. 5. The government’s evidence against Vargas included several email exchanges between Castillo and Vargas. In […]

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SEC Charges Goldman, Sachs & Co. Lacked Adequate Policies And Procedures For Research “Huddles”

Apr 12, 2012

FOR IMMEDIATE RELEASE 2012-61 Washington, D.C., April 12, 2012  — The Securities and Exchange Commission today charged that Goldman, Sachs & Co. lacked adequate policies and procedures to address the risk th at during weekly “huddles,” the firm’s analysts could share material, nonpublic information about upcoming research changes. Huddles were a practice where Goldman’s stock research analysts met to provide their best trading ideas to firm traders and later passed them on to a select group of top clients. Additional Materials Order Goldman agreed to settle the charges and will pay a $22 million penalty. Goldman also agreed to be censured, to be subject to a cease-and-desist order, and to review and revise its written policies and procedures to correct the deficiencies identified by the SEC. The Financial Industry Regulatory Authority (FINRA) also announced today a settlement with Goldman for supervisory and other failures related to the huddles. “Higher-risk trading and business strategies require higher-order controls,” said Robert S. Khuzami, Director of the Commission’s Division of Enforcement. “Despite being on notice from the SEC about the importance of such controls, Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients.” The SEC in an administrative proceeding found that from 2006 to 2011, Goldman held weekly huddles sometimes attended by sales personnel in which analysts discussed their top short-term trading ideas and traders discussed their views on the markets. In 2007, Goldman began a program known as the Asymmetric Service Initiative (ASI) in which analysts shared information and trading ideas from the huddles with select clients. According to the SEC’s order, the programs created a serious risk that Goldman’s analysts could share material, nonpublic information about upcoming changes to their published research with ASI clients and the firm’s traders. The SEC found these risks were increased by the fact that many of the clients and traders engaged in frequent, high-volume trading. Despite those risks, Goldman failed to establish adequate policies or adequately enforce and maintain its existing policies to prevent the misuse of material, nonpublic information about upcoming changes to its research. Goldman’s surveillance of trading ahead of research changes — both in connection with huddles and otherwise — was deficient. “Firms must understand that they cannot develop new programs and services without evaluating their policies and procedures,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement. In 2003, Goldman paid a $5 million penalty and more than $4.3 million in disgorgement and interest to settle SEC charges that, among other violations, it violated Section 15(f) of the Securities Exchange Act of 1934 by failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information obtained from outside consultants about U.S. Treasury 30-year bonds.  The 2003 order found that although Goldman had policies and procedures regarding the use of confidential information, its policies and procedures should have identified specifically the potential for receiving material, nonpublic information from outside consultants. Goldman settled the SEC’s 2003 proceeding without admitting or denying the findings. The order issued today […]

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Florida Man Charged By SEC In Affinity Fraud Case

Apr 9, 2012

Washington, D.C., April 6, 2012 — The Securities and Exchange Commission today charged that a South Florida investment manager defrauded investors by making false claims about his investment track record and providing bogus account statements that reflected fictitious profits. Additional Materials SEC Complaint Ask Questions — Questions You Should Ask About Your Investments Affinity Fraud In the complaint filed in the U.S. District Court for the Southern District of Florida, the SEC alleges that since 2005, George Elia and International Consultants & Investment Group Ltd. Corp., pulled in at least $11 million from investors by falsely claiming annual returns as high as 26%, and that Elia transferred more than $2.5 million of investor funds to two entities he controlled, Elia Realty, Inc., and 212 Entertainment Club, Inc. Elia, age 67, and until recently a resident of Oakland Park, Florida, told investors that he had extensive experience in day trading stocks and exchange-traded funds, but his trading resulted in losses or only marginal gains, and the quarterly account statements he sent to clients overstated their returns, the SEC alleged. According to the SEC’s complaint, Elia typically met and pitched prospective investors over meals at expensive restaurants in and around Fort Lauderdale. The SEC said his clients typically came to him through word-of-mouth referrals among friends and relatives.  A significant number of the victims of his scheme were members of the gay community in Wilton Manors, Florida. “Elia’s blatant fraud and cruel deceptions have wrecked the lives of investors and their families,” said Eric I. Bustillo, Regional Director of the SEC’s Miami Regional Office. “This is a sad lesson that investors must always be skeptical of claims of high and steady investment returns, even when the manager is recommended by trusted friends or members of one’s own community.” In a parallel criminal case, the U.S. Attorney for the Southern District of Florida announced that Elia was indicted on April 5 on one count of wire fraud. The SEC alleges that Elia and ICIG operated through an informal “Investor Funding Club” and through funds including Vision Equities Fund II, LLC and Vision Equities Fund IV, LLC. It alleges that Elia sent one investor a statement for the first three quarters of 2009, showing returns of 3.48%, 3.48%, and 3.52% respectively.  The SEC alleges the statement was false and misleading because the returns exceeded Elia’s trading gains for the period.  In at least one instance, the SEC alleges Elia reassured an investor by showing him falsified statements that grossly overstated account balances. The SEC’s complaint charges that Elia and ICIG violated antifraud provisions of U.S. securities laws and that Elia aided and abetted violations by the firms.  The SEC is seeking permanent injunctions against Elia and ICIG, disgorgement of ill-gotten gains plus pre-judgment interest, and civil penalties.  The complaint also named Elia Realty, Inc. and 212 Club Entertainment, Inc. as relief defendants. The Commission thanks the U.S. Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation for their assistance in this matter. SEC Senior Investigative Counsel Robert H. Murphy and Staff Accountant Timothy J. Galdencio conducted the SEC’s investigation under […]

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Retirees’ Make Financial Mistakes

Mar 14, 2012

By Dave Carpenter Associated Press Despite the best intentions, retirees make the same money mistakes over and over again. If you don’t break the pattern of financial neglect, your money may not hold up. Here’s a look at some errors and how to avoid them: Being too conservative with money. Treasury bonds, certificates of deposit, and other savings instruments with scant yields can give retirees a false sense of security. They guarantee some income, however small, and can provide soothing protection from dizzying stock market volatility. But they do not provide even a fighting chance to keep up with inflation. The safer move, most financial planners say, is to devote a healthy portion of your portfolio to stocks. “Retirees tend to be too willing to sacrifice future safety for incremental yields today,” says Bob Wiedemer, managing director of Absolute Investment Management, of Bethesda, Md. Inflation’s effect is real, and ravaging over time. To illustrate its effect to his clients, financial adviser Allan Flader of RBC Wealth Management in Phoenix reminds them of the change in the price of a stamp during the last three decades – the length of many retirements nowadays. The cost of mailing a letter has gone from 18 cents in 1981 to 34 cents a decade ago to 45 cents today. The fix: A rough guideline for asset allocation is to own a percentage in stocks equal to 110 or 120 minus your age. In other words, a 70-year-old would have 40 percent or 50 percent of her portfolio in stocks. Putting off planning. This is not just a matter of missing out on investment opportunities or tax advantages. It can get you in trouble later, when you are no longer at the top of your game mentally. The fix: Prepare thorough financial and estate plans and discuss future aging-related scenarios with an adviser. Bailing out the kids. Kelley Long, a personal-finance expert with the National CPA Financial Literacy Commission, says too many retirees are overly concerned about leaving a legacy, “when in fact their children would trade their inheritance for the knowledge that their parents were living out their days in comfort.” The fix: Put your financial needs in retirement first. Make sure you know how much you can safely spend from your savings each year. Paying too much in taxes. Retirees usually are in lower tax brackets than when they worked. But they often fail to adjust accordingly. Putting off taking withdrawals from an individual retirement account until they are required at age 701/2 also can be costly. That’s because such amounts are taxable and often bump retirees into a higher tax bracket. A plan of gradual withdrawals starting in your 60s can be a more effective strategy. Seniors who do regular volunteer work tend to leave tax deductions for mileage and out-of-pocket costs on the table. And snowbirds often do not know they could save thousands of dollars by changing their legal residency to a state with a smaller or even no income tax. The fix: Have a plan to minimize the tax effect of withdrawals, keep your receipts for volunteering costs, don’t miss out on any […]

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Why I Am Leaving Goldman Sachs

Mar 14, 2012

A great example of how wall street culture places its own profits before its client’s interests By GREG SMITH TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for. It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief. But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied. I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work. When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival. Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in […]

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Financier Stanford Convicted In $7 Billion Fraud

Mar 6, 2012

HOUSTON — Texas tycoon R. Allen Stanford, whose financial empire once spanned the Americas, was convicted Tuesday on all but one of the 14 counts he faced for allegedly bilking investors out of more than $7 billion in massive Ponzi schemes he operated for 20 years. Jurors reached their verdicts against Stanford during their fourth day of deliberations, finding him guilty on all charges except a single count of wire fraud. Stanford, who was once considered one of the wealthiest people in the U.S., looked down when the verdict was read. His mother and daughters, who were in the federal courtroom in Houston, hugged one another, and one of the daughters started crying. Prosecutors called Stanford a con artist who lined his pockets with investors’ money to fund a string of failed businesses, pay for a lavish lifestyle that included yachts and private jets, and bribe regulators to help him hide his scheme. Stanford’s attorneys told jurors the financier was a visionary entrepreneur who made money for investors and conducted legitimate business deals. Stanford, 61, who’s been jailed since his indictment in 2009, will remain incarcerated until he is sentenced. He faces up to 20 years for the most serious charges against him, but the once high-flying businessman could spend longer than that behind bars if U.S. District Judge David Hittner orders the sentences to be served consecutively instead of concurrently. With Stanford’s conviction, a shorter, civil trial will be held with the same jury on prosecutors’ efforts to seize funds from more than 30 bank accounts held by the financier or his companies around the world, including in Switzerland, the United Kingdom and Canada. The civil trial could take as little as a day. Stanford was once considered one of the wealthiest people in the U.S. with an estimated net worth of more than $2 billion. But he had court-appointed attorneys after his assets were seized. During the more than six-week trial, prosecutors methodically presented evidence, including testimony from ex-employees as well as emails and financial statements, they said showed Stanford orchestrated a 20-year scheme that bilked billions from investors through the sale of certificates of deposit, or CDs, from his bank on the Caribbean island nation of Antigua. They said Stanford, whose financial empire was headquartered in Houston, lied to depositors from more than 100 countries by telling them their funds were being safely invested in stocks, bonds and other securities instead of being funneled into his businesses and personal accounts. The prosecution’s star witness _ James M. Davis, the former chief financial officer for Stanford’s various companies _ told jurors he and Stanford worked together to falsify bank records, annual reports and other documents in order to conceal the fraud. Stanford had wanted to testify and jurors were told he would do so, but his attorneys apparently convinced him not to take the witness stand. Stanford’s attorneys told jurors the financier was trying to consolidate his businesses to pay back investors when authorities seized his companies. Stanford’s attorneys highlighted his work to build up Antigua’s economy as well as his philanthropic efforts on the island. Stanford, the […]

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Former CEO Testifies Stanford Conspired In Investment Fraud

Feb 3, 2012

Former CEO testifies Stanford conspired in investment fraud By Bloomberg – Friday, February 3rd, 2012. James Davis, the former Stanford Financial Group Co finance chief, testified as a government witness that R Allen Stanford, the company founder, conspired with him in an investment fraud. Davis, 63, pleaded guilty to three felony charges in August 2009 and agreed to cooperate with prosecutors. He testified today against his former boss and Baylor University roommate at Stanford’s criminal trial in federal court in Houston. Assistant US Attorney William Stellmach asked Davis if he committed any crimes at Houston-based Stanford Financial Group. “Yes, sir, I did,” he replied. Stanford, 61, is accused of leading a $7 billion investment fraud scheme. He maintains he’s not guilty of the 14 criminal counts he’s charged with. They include mail fraud, wire fraud and obstructing a US Securities and Exchange Commission investigation. Stanford’s lawyers have argued that while their client was the public face of the organisation, he was misled about its financial health by Davis and other executives. Davis pleaded guilty to conspiring to commit mail and wire fraud, mail fraud and conspiring to obstruct the SEC probe. He told the jury today he faces as long as 30 years imprisonment. “My obligation is to tell the truth,” Davis said of his plea deal with prosecutors. Dressed in a dark suit and a silver tie, he testified in a quaking voice about his association of more than 30 years with Stanford. The financier leaned forward at the defense table and glared at his former colleague. Davis testified that he lied about financial statements of Stanford International Bank Ltd, the Antigua-based financial institution prosecutors say sold fraudulent certificates of deposit to investors. “I lied about overstating the value of these investments, and I lied about the nature of these investments,” he said. “Who conspired with you to commit those crimes?” Stellmach asked. “Mr Allen Stanford and others,” Davis said. Stellmach asked why Davis agreed to lie about overseeing the bank’s professional money managers, who weren’t under his supervision. “I wanted to please Mr Stanford,” he said, his voice choked. “I was proud, embarrassed. I was a coward.” He described Stanford’s management style as that of a “charismatic dictator.” “In his charismatic way, he controlled by money, flattery, intimidation and fear,” Davis said. “He used to say it is much better to be feared as a leader than loved – get better results.” Davis said he was well paid while working for Stanford. He also said the financier at one point refused to speak with him for three months. Stanford once invited him for a ride in his new Mercedes Benz, he said. “We went 170 miles per hour down the freeway,” Davis said. “Scared me to death. He paid well, flattered you, instilled intimidation and fear.” The case is US v Stanford, 4:09-cr-00342, U.S. District Court, Southern District of Texas (Houston) Bloomberg.

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Finra Brings Charges Against Charles Schwab

Feb 2, 2012

FINRA Charges Charles Schwab & Co With Violating FINRA Rules by Using Class Action Waiver in Customer Agreements WASHINGTON – The Financial Industry Regulatory Authority (FINRA) announced today that it has filed a complaint against Charles Schwab & Company charging the firm with violating FINRA rules by requiring its customers to waive their rights to bring class actions against the firm. FINRA’s complaint charges that in October 2011, Schwab amended its customer account agreement to include a provision requiring customers to waive their rights to bring or participate in class actions against the firm. Schwab sent the amended agreements to nearly 7 million customers. The agreement also included a provision requiring customers to agree that arbitrators in arbitration proceedings would not have the authority to consolidate more than one party’s claims. FINRA’s complaint charges that both provisions violate FINRA rules concerning language or conditions that firms may place in customer agreements. FINRA’s complaint seeks an expedited hearing because Schwab’s conduct is ongoing, as the firm has continued to use account agreements containing these provisions in opening more than 50,000 new customer accounts since October 2011. The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings in the complaint have not been made, and does not represent a decision. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution. The FINRA complaint may be found at http://www.finra.org/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=P125516 If you have an investment claim against Charles Schwab, you are entitled to arbitrate your case before FINRA. Contact us a www.investmentfraudlaw.com

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Welcome To Our Miami Securities Law Blog

Dec 22, 2011

We established this blog to share stories and information about topics relevant to our practice. Our intent is to highlight local stories, as well as national subject matter, that we think you will find interesting. We will regularly update this blog and encourage you to share your thoughts on these posts.

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