Among recent enforcement actions were the arrest of a former attorney on contempt charges in the wake of violations of the Employee Retirement Income Security Act.
In addition, the Securuties and Exchange Commission has charged the operators of a shell factory with creating phony companies and, in another case, charged two attorneys with fraud for defrauding escrow clients, while the Financial Industry Regulatory Authority charged a company and its CEO with fraudulent municipal bond sales.
Former Attorney Held for Contempt in ERISA Violations Case
A disbarred attorney and former employee benefit administrator has been arrested by federal marshals on a bench warrant after a court found him in contempt of orders to transfer assets in an ERISA case.
John Koresko V is being held pending his cooperation with a court order that would have had him transfer to the court-appointed independent fiduciary $1.68 million in assets he had taken from the Regional Employers Assurance Leagues Voluntary Employees’ Beneficiary Association and the Single Employer Welfare Benefit Plan Trusts. The court also ordered him to transfer the title of ownership to real estate in the Caribbean island of Nevis that Koresko purchased using trust assets.
In February 2015, the court had awarded nearly $40 million to more than 400 death benefit plans across the country. The award resolved a 2009 U.S. Department of Labor lawsuit that followed an investigation by the Employee Benefits Security Administration that found Koresko and other defendants diverted tens of millions of dollars in plan assets through more than 21 accounts using more than 18 different entities at more than eight different banks.
The scheme spanned more than 12 years and saw assets from the plans’ trusts used for real estate purchases in South Carolina and Nevis, to pay outside attorneys, lobbying expenses, operational expenses of Penn-Mont Benefit Services Inc., and Koresko’s law firms, and for Koresko’s personal expenses, such as boat rentals and utilities.
The court ordered Koresko to give the independent fiduciary power of attorney over the Nevis bank account, but instead he failed to comply, transferring the $1.68 million to another bank account under his control. He has also failed to transfer the real estate title as ordered by the court. As a result he was found in contempt of the court’s orders and ordered to surrender to the Office of the U.S. Marshal, to be held until he complied; this he also failed to do. He was subsequently arrested.
SEC Charges Shell Factory Operators
A California stock promoter and a New Jersey lawyer have been charged by the SEC with fraud for creating sham companies and selling them until they were stopped by the SEC.
According to the agency, Imran Husain and Gregg Evan Jaclin essentially operated a shell factory enterprise by filing registration statements to form various startup companies and misleading potential investors to believe each company would be operating and profitable. The pair never intended to make the companies they started functional, instead simply planning to make money from their sale as empty shells. Husain and Jaclin created nine shell companies and sold seven, using essentially the same pattern. Husain created a business plan for each company, never intending to complete more than a few initial steps, and then convinced a friend, relative or acquaintance to become a puppet CEO to approve and sign corporate documents at his direction.
For his part, Jaclin supplied bogus legal documents that Husain used to conduct sham private sales of a company’s shares of stock to “straw shareholders” who were recruited and given cash to pay for the stock they purchased plus a commission. Some of the recorded shareholders were not even real people.
The pair filed registration statements for initial public offerings, claiming that a particular business plan would be implemented when they had no intention of doing so. They also failed to include in the registration statements any mention of Husain starting and controlling the company.
They then filed phony quarterly and annual reports once a company was publicly registered, using a lot of the same faked information they’d already used in the registration statements.
Husain brought in about $2.25 million in total proceeds when the empty shell companies were sold, and Jaclin and his firm received nearly $225,000 for their legal services.
The SEC is seeking disgorgement of ill-gotten gains plus interest and penalties, permanent injunctions, and penny stock bars, as well as an officer-and-director bar against Husain.
Attorneys Charged by SEC with Fraud on Escrow Accounts
Jay Mac Rust and Christopher Brenner have been charged with fraud by the SEC for making undisclosed risky investments and, in some cases, for outright theft of money from escrow accounts of small-business owners seeking commercial loans.
The pair collected $13.8 million acting as escrow agents between their clients and a purported loan company called Atlantic Rim Funding. Rust and Brenner assured clients that their deposits of 10% of the desired loan amount would be held safe and only used to purchase liquid, government-backed securities that Atlantic would then leverage to obtain their loans.
But Atlantic had neither the ability nor the intention to make the loans. Even when Rust and Brenner knew this, they continued to lie to clients and collect more money. Rust siphoned $662,000 and Brenner took $595,000 in client funds to pay themselves and others, and they gambled on risky securities derivatives with the remainder of the money.
Each of the two opened numerous securities accounts at broker-dealers to make their trades, and hid the fact by lying that the money being used was their own cash rather than client assets. SEC examiners found the scheme when examining one of the brokerage firms where trades were being placed.
The SEC seeks permanent injunctions and disgorgement of ill-gotten gains plus interest and penalties. FINRA Charges Firm, CEO on Fraudulent Municipal Bond Sales
FINRA has filed a complaint against Phoenix-based Lawson Financial Corp.(LFC) and against Robert Lawson, the firm’s president and chief executive officer, charging them with securities fraud in connection with the sale of millions of dollars of municipal revenue bonds to customers.
In addition, Robert Lawson and Pamela Lawson, LFC’s chief operating officer, have been charged with self-dealing by abusing their positions as co-trustees of a charitable remainder trust and improperly using the trust funds to indirectly prop up the struggling offerings. Based on the transfers of millions of dollars from the charitable remainder trust account, the complaint also charges Robert Lawson with misuse of customer funds.
The bonds include a $10.5 million bond offering in October 2014 for bonds relating to an Arizona charter school as underwritten by LFC and sold to LFC customers, as well as subsequent sales of these bonds to LFC customers in the secondary market; secondary market bond sales to LFC customers in 2015 of earlier-issued municipal revenue bonds relating to the corporate predecessor of the same Arizona charter school; and secondary market sales to LFC customers between January 2013 and July 2015 of earlier-issued municipal revenue bonds concerning two different assisted living facilities in Alabama.
According to FINRA, Robert Lawson and LFC knew about financial difficulties faced by the municipal revenue bond conduit borrowers (the charter school in Arizona and the two assisted living facilities in Alabama), but hid that information from LFC customers who bought the bonds.
Robert Lawson and LFC carried out the scheme by transferring millions of dollars from a deceased customer’s charitable trust account to parties associated with the conduit borrowers to hide the financial condition of the bond borrowers and the risks posed to the municipal revenue bonds.
In particular, LFC and Robert Lawson hid from the bond purchasers that Robert Lawson, in his role as co-trustee of the charitable trust account, and with the knowledge of his wife, was transferring those millions from the charitable remainder trust account to various parties associated with the bond borrowers when the borrowers couldn’t pay their operating expenses and, for certain of the bonds, couldn’t make the required interest payments on the bonds.
LFC and the Lawsons 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.
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