Among recent enforcement actions taken by the Securities and Exchange Commission (SEC) were charges against a man who was high school dropout and a phony “investment advisor” who spent his clients’ funds on drugs and gambling; charges against a group of former high school buddies who were engaging in insider trading; and charges against the operators of a Ponzi scheme purporting to be a secret European trust.
Phony ‘Advisor’ Who Was High School Dropout Charged With Fraud
Stephen Colangelo, Jr. was charged by the SEC with defrauding investors whom he convinced to invest in his startup businesses. Instead he spent their money on illegal drugs and gambling. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Colangelo.
The SEC alleges that Colangelo repeatedly misled investors while raising $3 million in investments for four startup companies he created. He also persuaded three other investors to let him act as their investment advisor and they gave him more than $1 million to invest in the markets on their behalf.
Colangelo boasted a phony professional and educational background and hid his past criminal activities from potential investors, and he falsely claimed to have historically achieved extremely high returns buying and selling securities.
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of New York, Colangelo’s fraudulent scheme began in 2009 when he induced investors to invest more than $750,000 in the Brickell Fund LLC, a pooled investment vehicle that he created, advised and controlled.
In March 2009 when the Brickell Fund did not have any investors and Colangelo was not buying and selling securities on behalf of the fund, he sent numerous e-mails to potential investors boasting phony information. For instance, one e-mail claimed, “BEST TRADING DAY OF MY LIFE!!!!!!!. . . . Up over 400% and documented. Mind boggling to say the least.” In reality, Colangelo did not make any trades that day.
Meanwhile, Colangelo siphoned off at least $1 million in investor funds to pay such unauthorized personal expenses as his federal income taxes, illegal narcotics, gambling, cigars, and travel for him and his family.
The SEC alleges that after spending or losing all of the money invested in the Brickell Fund, Colangelo continued to fraudulently raise funds from investors for three other startup businesses he created: Hedge Community LLC, Start a Hedge Fund LLC, and Under the Radar SEO LLC. Some individuals provided Colangelo with funds directly to invest on their behalf. Colangelo continued to use investor funds for a variety of purposes that weren’t disclosed to investors, namely personal expenses and unrelated business expenses.
According to the SEC’s complaint, Colangelo created a profile on the LinkedIn website used for professional networking and misrepresented that he had studied finance at Nyack College from 1986 to 1989. Colangelo provided a link to his profile to potential and existing investors in one of his startup companies. His representations to investors were false because he never attended Nyack College and has not even graduated from high school.
The SEC’s complaint charges Colangelo with violations of the anti-fraud provisions of the federal securities laws, and seeks permanent injunctions, financial penalties, and disgorgement of ill-gotten gains plus prejudgment interest.
Former High School Buddies Charged With Insider Trading
On Monday the SEC charged three health care company employees and four others in a New Jersey-based insider trading ring, who had been friends in high school, generating $1.7 million in illegal profits and kickbacks by trading in advance of 11 public announcements involving mergers, a drug approval application, and quarterly earnings of pharmaceutical companies and medical technology firms.
The SEC alleged that Celgene Corp.’s director of financial reporting John Lazorchak, Sanofi S.A.’s director of accounting and reporting Mark Cupo, and Stryker Corp.’s marketing employee Mark Foldy each illegally tipped confidential information about their companies for the purpose of insider trading. Typically the nonpublic information involved upcoming mergers or acquisitions, but Lazorchak also tipped confidential details about Celgene’s quarterly earnings and the status of a Celgene application to expand the use of its drug Revlimid.
The SEC alleges that Cupo’s friend Michael Castelli, along with Lawrence Grum, who attended high school with Castelli, were the primary traders in the scheme. The other two traders charged are Lazorchak’s high school friends Michael Pendolino and James Deprado, who now live in New Hampshire and Virginia, respectively. The others live in New Jersey. In a parallel criminal action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Lazorchak, Cupo, Foldy, Castelli, Grum and Pendolino.
According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, the scheme began in late 2007 when Lazorchak and Cupo, who were friends and colleagues at Sanofi, discussed Lazorchak’s new position at Celgene where he’d have access to nonpublic information about mergers and acquisitions. Lazorchak told Cupo that he was initially working on Celgene’s possible acquisition of another pharmaceutical company, Pharmion.