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Regulation and Compliance > Federal Regulation > SEC

‘Hamilton’ Ticket Ponzi Schemer Sentenced to 6 Years in Prison: Enforcement

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Hamilton musical A scene from the “Hamilton” musical.

Joseph Meli was sentenced by a federal court in Manhattan to more than six years in prison in connection with a multimillion-dollar Ponzi scheme involving purported resales of tickets to popular concerts and Broadway shows.

The criminal case arises from the same conduct alleged in two enforcement actions filed against Meli by the Securities and Exchange Commission in 2017.

Meli was arrested in January 2017 and later pleaded guilty to securities fraud. In connection with his plea, Meli admitted to raising millions of dollars from investors including by providing some investors with fake agreements containing fraudulent signatures that claimed to show Meli’s company had agreements with various production and management companies to purchase large blocks of tickets.

On Tueday, a federal court sentenced Meli to 78 months imprisonment followed by three years of supervised release, and ordered him to pay forfeiture in the amount of $104 million and restitution in an amount to be finalized at a later date.

In 2017, the SEC filed two enforcement actions against Meli in federal district court in Manhattan. In the first action, the SEC alleged that Meli and his co-defendants solicited investments for the bulk purchase and resale of tickets to popular Broadway shows and concerts, but used the majority of the more than $97 million raised to make payments to earlier investors and to enrich Meli, his family and a co-defendant.

In the second action, the SEC alleged that Meli and New York sports radio personality Craig Carton raised millions from investors by falsely claiming that they had access to large blocks of face-value tickets to popular concert performances. Instead of purchasing tickets for resale, Carton and Meli allegedly misappropriated at least $3.6 million to repay earlier investors and to cover other expenses, including Carton’s gambling debts.

The SEC’s litigation against Meli and his co-defendants remains ongoing.

Ex-Philadelphia Eagle to Pay $8M for Defrauding Coaches

A federal court entered a final judgment against former Philadelphia Eagles linebacker Merrill Robertson Jr., ordering him to pay $8 million in disgorgement for defrauding investors including former coaches.

In December, Robertson was sentenced to 40 years in prison.

In 2016, the SEC charged Robertson with defrauding mainly elderly investors, including former coaches he knew from his time playing football for the Fork Union Military Academy and the University of Virginia, out of $6 million.

Robertson was a Merrill Lynch broker from 2008-2009.

The SEC alleged that Robertson, Sherman Vaughn Jr., and the company they co-owned, Cavalier Union Investments LLC, promised to invest in diversified holdings but stole nearly $6 million of the more than $10 million they raised from investors.

They spent the stolen $6 million on personal expenses such as cars, family vacations, repayment of mortgage and credit-card debt, luxury goods, clothing, entertainment, educational expenses for family members, and a luxury suite at a football stadium. They also used the stolen money to make various donations and gifts to alma maters, churches and other third parties.

Robertson, who was criminally charged based on the conduct alleged by the SEC, was sentenced to 40 years’ imprisonment.

At the time of the alleged misconduct, Robertson was not registered as a broker, and Vaughn never was registered with the SEC.

SEC Charges New York Man With Insider Trading

The SEC charged a New York resident with tipping his brother and father with material nonpublic information about an upcoming corporate acquisition.

The SEC’s complaint alleges that, in 2014, Saverio Barbera learned that Owens & Minor Inc., a Virginia-based health care logistics company, was going to acquire all of the outstanding shares of medical products supplier Medical Action Industries Inc.

According to the complaint, Barbera then told his father and brother that they should purchase Medical Action stock in advance of the acquisition so that they could profit from the deal. The SEC alleges that Barbera obtained the information that he tipped to his father and brother from his close friend, the chief executive officer and a member of the board of directors of Medical Action.

According to the SEC’s complaint, soon after receiving this tip and less than a week before the public announcement of the deal, Barbera’s father and brother purchased a combined total of 22,000 shares of Medical Action common stock, which they then sold at a profit following the deal’s announcement. The SEC alleges that, as a result of their trading, Barbera’s father and brother realized combined trading profits of approximately $145,000.

Barbera has agreed to settle the SEC’s charges by paying a penalty of $289,650, an amount twice the trading profits of his father and brother.

SEC Awards More Than $2.2 Million to a Whistleblower

The SEC announced a whistleblower award of more than $2.2 million to a former company insider whose tips helped the agency open an investigation that led to an enforcement action.

The whistleblower first reported the information to another federal agency and later provided the same information to the SEC.

This is the first award paid under the “safe harbor” rule, which provides that if a whistleblower submits information to another federal agency and submits the same information to the SEC within 120 days, then the SEC will treat the information as though it had been submitted to the SEC at the same time that it was submitted to the other agency.

The whistleblower voluntarily reported information to a federal agency covered by the rule, which referred the matter to the SEC. The SEC then opened an investigation. Within 120 days of the initial report, the whistleblower provided the same information to the SEC and later provided substantial cooperation in the investigation.

Although the SEC report came after the staff had opened its investigation, the SEC treated the submission as though it had been made when the whistleblower provided the information to the other agency.

The SEC has awarded more than $264 million to 54 whistleblowers since issuing its first award in 2012.

SEC Charges Massachusetts Man in Multiyear Trading Scheme

The SEC charged a Lexington, Massachusetts, resident for making an extraordinarily profitable series of unlawful trades in the securities of Massachusetts-based VistaPrint.

According to the SEC’s complaint, Charlie Jinan Chen used nonpublic information obtained directly or indirectly from a VistaPrint insider to place illegal trades in advance of eight VistaPrint quarterly earnings announcements over a two-year period. Each time, Chen’s trades were consistent with the news whether good or bad in VistaPrint’s pending earnings announcements.

On some occasions, Chen placed extremely aggressive bets, wagering a substantial portion of his retirement savings on risky VistaPrint options before the company’s announcement of disappointing earnings results in April 2014.

Chen generated approximately $390,000 on the April 2014 trade and more than $900,000 in illicit profits over the course of the scheme.

In addition to detailing Chen’s uncannily successful pattern of trading, the SEC also alleges that upon being questioned by the FBI, Chen claimed that he did not know anyone who worked at VistaPrint and falsely denied having a close relationship with a VistaPrint insider and her husband with whom he had vacationed.

The SEC’s complaint seeks disgorgement of ill-gotten gains plus interest, penalties and injunctive relief. The complaint also names Chen’s wife, Shui Foon Mok, as a relief defendant, seeking to have her disgorge illicit gains that Chen generated by trading in her brokerage account.

SEC Charges Florida Resident With Market Manipulation Scheme

The SEC charged Gregory Bercowy of St. Petersburg, Florida, with a fraudulent scheme to manipulate the stock price of Aureus Inc., a penny stock company incorporated in Nevada.

The SEC alleges that Bercowy, who is associated with a state-registered investment advisor, sold shares of certain Fortune 500 companies, including Abbott and Apple, in his relative’s brokerage account in order to buy more than 3 million shares of Aureus at a total cost of more than $2.8 million.

According to the SEC’s complaint, while Bercowy was accumulating these shares of Aureus, he entered (and later canceled) a large number of orders to buy Aureus shares at prices higher than the then-current price of the stock.

The orders allegedly were intended solely to maintain or boost the stock’s price. The price per share of Aureus securities increased from $0.52 on Aug. 4, 2016, to $1.62 on Aug. 16, 2016. According to the SEC’s complaint, Bercowy stated in recorded phone calls with a representative of a brokerage firm that he and others were trying to boost Aureus’ stock price.

The SEC seeks a permanent injunction against future violations, disgorgement of ill-gotten gains plus prejudgment interest, a penny stock bar and monetary penalties.

SEC Freezes $27M In Stock Sales of Purported Cryptocurrency Company

The SEC obtained a court order freezing more than $27 million in trading proceeds from allegedly illegal distributions and sales of restricted shares of Longfin Corp. stock. According to the complaint, shortly after Longfin began trading on Nasdaq and announced the acquisition of a purported cryptocurrency business, its stock price rose dramatically and its market capitalization exceeded $3 billion.

The SEC alleges that Amro Izzelden “Andy” Altahawi, Dorababu Penumarthi and Suresh Tammineedi then illegally sold large blocks of their restricted Longfin shares to the public while the stock price was highly elevated. Through their sales, Altahawi, Penumarthi and Tammineedi collectively reaped more than $27 million in profits. The SEC says Longfin’s founding CEO and controlling shareholder, Venkata Meenavalli, caused the company to issue more than 2 million unregistered, restricted shares to Altahawi, who was the corporate secretary and a director of Longfin, and tens of thousands of restricted shares to two other affiliated individuals, Penumarthi and Tammineedi, who were allegedly acting as nominees for Meenavalli.

The subsequent sales of those restricted shares violated federal securities laws that restrict trading in unregistered shares distributed to company affiliates. The complaint seeks injunctive relief, disgorgement of ill-gotten gains and penalties, among other relief.

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