SEC Charges Movie Director, Music Producer With Bilking Investors: Enforcement

In 2016, Daniel Adams, a film writer/director and tax felon, and Michael Flanders, a music producer, were trying to raise money to make a movie, according to the SEC.

But in doing so, the SEC says, they and the two companies they formed defrauded at least two investors.

The SEC charged Adams, Flanders and companies under their control with defrauding two investors in connection with financing a movie entitled “An L.A. Minute.”

The SEC’s complaint alleges that, in 2016, Adams and Flanders induced the two individuals to invest $160,000 through two companies, Spiderworx Media LLC and An L.A. Minute LLC, using a pattern of lies and deception.

According to the complaint, Adams and Flanders falsely stated to one of the investors that they had each invested in the film and would not receive any of the funds being raised until bank financing was obtained.

The complaint further alleges that Adams misrepresented how investor proceeds had previously been spent and fraudulently stated that the money the investor had provided would be used exclusively to pay attorneys.

In reality, Adams and Flanders received $21,062 and $18,500, respectively, from the $60,000 investment, and only $20,000 was paid to an attorney.

The complaint further alleges that Adams and Flanders also made misrepresentations to the second investor, who said he would invest $100,000 only if $200,000 was first raised elsewhere.

According to the complaint, Flanders forwarded the investor two fabricated emails Adams had prepared containing a fictitious wire transfer confirmation and a forged signature page, to create the false appearance that $200,000 had been raised from another investor.

The complaint alleges that Adams and Flanders personally received $29,000 and $10,000, respectively, from the $100,000 investment.

In 2012, Adams pleaded guilty to tax fraud and larceny was ordered to pay nearly $4.4 million in restitution to the state of Massachusetts, and served a 21-month prison term.

The complaint seeks injunctive relief, including a conduct-based injunction prohibiting Adams from participating in any unregistered securities transactions, disgorgement of ill-gotten gains plus prejudgment interest by Adams and Flanders, and penalties against all the defendants.

SEC Halts $3.6M Alt Investments Scheme Targeting Retail Investors

The Securities and Exchange Commission announced fraud charges and an asset freeze against the operators of a South Florida-based investment fund scheme, one of whom has a prior felony conviction and is on parole after nearly 20 years in prison.

The SEC filed an emergency action in federal district court against Castleberry Financial Services Group LLC President T. Jonathon Turner, formerly known as Jon Barri Brothers, and CEO Norman Strell, alleging that they have defrauded at least 15 investors out of $3.6 million since February 2018.

According to the SEC’s complaint, Castleberry falsely represented to investors it had hundreds of millions of dollars in capital invested in local businesses and a portfolio of hundreds of investment properties. “In truth, Castleberry never had millions of dollars invested in businesses or real estate and never derived significant revenue from investments,” the complaint states.

Castleberry claimed to offer high yields while protecting investors’ principal by having it “fully insured and bonded” by CNA Financial Corp. and Chubb Group, when the insurance companies had no relationship with Castleberry and did not authorize it to use their logos in Castleberry’s sales materials.

According to the SEC, Turner and Strell diverted and misappropriated significant sums of investor funds through cash withdrawals, payments for personal expenditures, and bank transfers to personal bank accounts and other funds to businesses they controlled and to family members.

“Turner and Strell misused and misappropriated investor funds to pay for their own personal expenses and unjustly enrich themselves,” the complaint states.

The complaint also alleges that Castleberry falsely stated on its website and in promotional materials that Turner has extensive finance industry experience, an MBA and a law degree, while concealing that Turner has been convicted of multiple fraud, theft, and forgery felonies and was imprisoned from 1998 to 2016.

The court granted the SEC’s request for a temporary restraining order and temporary asset freeze against the defendants, and issued an order directing the defendants to provide a sworn accounting.

SEC Settles Fraud Case Against Ex-Morgan Stanley Advisor

The SEC announced the entry of a final judgment against James Polese, a former investment advisor at Morgan Stanley who was charged with misappropriating client funds.

The SEC filed a complaint on Jan. 31, 2018, charging Polese and his former colleague, Cornelius Peterson, with securities fraud for engaging in various schemes to defraud their clients, including misappropriating $350,000 of one client’s money, using $100,000 of those funds to make investments in their own names, and directing the remaining $250,000 to Polese’s personal bank account.

The commission’s complaint also alleged that Polese and Peterson invested $100,000 of another client’s funds into an investment in which Peterson and Polese held a financial interest, without informing the client or disclosing their conflict of interest.

The court has now entered a final judgment against Polese based upon his consent to resolve all claims. Polese agreed to disgorge $307,300 in ill-gotten gains and pay prejudgment interest of $35,276.

The monetary judgment will be deemed satisfied by the $355,000 of restitution that Polese was ordered to pay in connection with a parallel criminal action brought by the U.S. Attorney’s Office for the District of Massachusetts, in which Polese pleaded guilty to conspiracy, securities fraud, aggravated identity theft and bank fraud, and was also sentenced to five years in prison.

The SEC has also entered an order barring Polese from associating with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.

According to BrokerCheck, Polese worked at Morgan Stanley from 2010 to 2017 when he was discharged for allegations of conduct involving misappropriating client assets. The same year, FINRA barred Polese from association with any FINRA member in any capacity because he failed to respond to a FINRA request for information.

Prior to Morgan Stanley, Polese held positions at UBS Financial Services, Wachovia Securities and Prudential Securities.

SEC Obtains Judgments Against Ex-Law Partner, Neighbor Charged With Insider Trading

A federal district court entered final consent judgments against a former law firm partner and his neighbor, who were charged with making more than $1 million in illicit profits by insider trading around corporate announcements.

The SEC’s complaint, filed on May 11, 2017, alleged that Walter Little accessed confidential documents on his law firm’s internal computer network related to at least 11 impending announcements involving law firm clients, none of which he personally advised or billed for services.

Little then allegedly traded in advance of each announcement and often tipped his neighbor, Andrew Berke, with material nonpublic information so he could similarly trade in company stocks before the announcements were made publicly.

According to the SEC’s complaint, the insider trading occurred from February 2015 to February 2016.

Previously, both Little and Berke pleaded guilty to parallel criminal charges. On Feb. 22, 2018, Little was sentenced to 27 months in prison, followed by three years of supervised release, and ordered to pay criminal forfeiture. On April 17, 2018, Berke was sentenced to time served and three years of supervised release, including four months of home detention, and ordered to pay criminal forfeiture.

The judgment against Little deems his disgorgement obligation of $452,998 satisfied by his criminal forfeiture. The judgment against Berke deems his disgorgement obligation of $555,269 satisfied by a combination of his criminal forfeiture and a payment made to the SEC.