Justia White Collar Crime Opinion Summaries

Rodd, an investment advisor who produced and was regularly featured on a Minnesota local radio show, “Safe Money Radio,” was convicted of wire fraud, 18 U.S.C. 1343 and mail fraud, 18 U.S.C. 1341, for swindling 23 investors out of $1.8 million. Rodd used the radio show to market low-risk investment products to gain customers’ trust and maintain a client base for soliciting participants in a fraudulent investment scheme. Rodd solicited money by promising liquidity, safety, and a 60% six-month return. Rodd instead used the money for personal and business expenses, hiding behind false assurances of security and payouts to his early investors. Finding an advisory guidelines range of 70 to 87 months, the district court sentenced Rodd to 87 months in prison, applying a two-level enhancement for abusing a position of trust, U.S.S.G. 3B1.3, The Eighth Circuit affirmed, upholding the finding that Rodd occupied a position of trust. As a self-employed investment advisor, Rodd was subject to no oversight except by his investors. The discretion and control he possessed over client funds adequately supported the finding. The court did not err in failing to apply a two-level acceptance-of-responsibility reduction. Rodd took his case to trial and denied his guilt to the end. View "United States v. Rodd" on Justia Law

The Commodity Futures Trading Commission and the Securities and Exchange Commission concluded that Battoo committed fraud. Battoo and his companies, all located outside the United States, defaulted in the suits. The district judge froze all assets pending a final decision about ownership. The court appointed a Receiver to marshal the remaining assets and try to determine ownership. The Receiver has been recognized as the assets’ legitimate controller in several other nations, including China (Hong Kong), Guernsey, and the Bahamas. Battoo defied the injunction and transferred control of some investment vehicles, located in the British Virgin Islands, to court-appointed Liquidators, who asked the judge to modify the injunction and allow them to distribute assets located in the U.S. or England immediately. The Liquidators maintain that, because Battoo no longer has control, the justification for freezing the assets has lapsed. The court assumed that the Liquidators are now under judicial control, but declined to modify the injunction, ruling that the funds should remain available so that an eventual master plan of distribution can treat all investors equitably. The Seventh Circuit affirmed. It is not clear whether some investment interests can be disentangled reliably from those affected by Battoo’s frauds against U.S. investors; the Liquidators have not argued that any investor is suffering loss as a result of the Receiver’s investment decisions. View "Commodity Futures Trading Comm'n v. Battoo" on Justia Law

After a jury trial, Defendant was convicted of securities fraud, mail fraud, conspiracy to conceal assets and make fraudulent transfers, concealment of assets, fraudulent transfer, uttering coins, and money laundering. The offenses arose from Defendant’s fraudulent schemes used to cheat numerous victims out of more than a million dollars and to manipulate the U.S. Bankruptcy Code to shield his ill-gotten gains from creditors. The First Circuit affirmed Defendant’s conviction and sentence, holding (1) there was sufficient evidence to support the jury’s guilty verdict; and (2) the district court properly calculated the applicable Sentencing Guidelines range and imposed a procedurally and substantively reasonable sentence. View "United States v. Pacheco-Martinez" on Justia Law

Zada sold fake investments in Saudi Arabian oil, raising about $60 million from investors in Michigan and Florida. Zada gave investors promissory notes that, on their face, say nothing about oil-investment. They say that Zada will pay a principal amount plus interest (at rates far lower than Zada had promised). Zada stated that the notes were necessary only to ensure that investors would be repaid by Zada’s family if something happened to him. Little of what Zada said was true. Zada paid actors to pose as a Saudi royalty. Zada never bought any oil; he used investors’ money to pay his personal expenses. When Zada paid investors anything, he used money raised from other victims. The SEC discovered Zada’s scheme and filed a civil enforcement action, alleging violation of the Securities Act of 1933 and the Securities Exchange Act of 1934, 15 U.S.C. 77. The district court granted the SEC summary judgment, ordering Zada to pay $56 million in damages and a civil penalty of $56 million more. The Sixth Circuit affirmed, rejecting arguments that the investments were not securities and that the civil penalty improperly punishes him for invoking his Fifth Amendment privilege against self-incrimination. View "Secs. & Exch. Comm'n v. Zada" on Justia Law

Overstock.Com alleged that defendants intentionally depressed the price of Overstock stock by effecting “naked” short sales: sales of shares the brokerage houses and their clients never actually owned or borrowed to artificially increase the supply and short sales of the stock. The trial court dismissed claims under New Jersey Racketeer Influence and Corrupt Organizations (RICO) Act without leave to amend and rejected California market manipulation claims on summary judgment. The appeals court affirmed dismissal of the belatedly raised New Jersey RICO claim and summary judgment on the California claim as to three defendants, but reversed as to Merrill Lynch. The evidence, although slight, raised a triable issue this firm effected a series of transactions in California and did so for the purpose of inducing others to trade in the manipulated stock. The court concluded that Corporations Code section 25400, subdivision (b), reaches not only beneficial sellers and buyers of stock, but also can reach firms that execute, clear and settle trades; such firms face liability in a private action for damages only if they engage in conduct beyond aiding and abetting securities fraud, such that they are a primary actor in the manipulative trading. View "Overstock.com, Inc. v. Goldman Sachs Grp., Inc." on Justia Law

Sentinel specialized in short-term cash management, promising to invest customers’ cash in safe securities for good returns with high liquidity. Customers did not acquire rights to specific securities, but received a pro rata share of the value of securities in an investment pool (Segment) based on the type of customer and regulations that applied to that customer. Segment 1 was protected by the Commodity Exchange Act; Segment 3 customers by the Investment Advisors Act and SEC regulations. Despite those laws, Sentinel lumped cash together, used it to purchase risky securities, and issued misleading statements. Some securities were collateral for a loan (BONY). In 2007 customers began demanding cash and BONY pressured Sentinel for payment. Sentinel moved $166 million in corporate securities out of a Segment 1 trust to a lienable account as collateral for BONY and sold Segment 1 and 3 securities to pay BONY. Sentinel filed for bankruptcy after returning $264 million to Segment 1 from a lienable account and moving $290 million from the Segment 3 trust to the lienable account. After informing customers that it would not honor redemption requests, Sentinel distributed the full cash value of their accounts to some Segment 1 groups. After filing for bankruptcy Sentinel obtained bankruptcy court permission to have BONY distribute $300 million from Sentinel accounts to favored customers. The trustee obtained district court approval to avoid the transfers, 11 U.S.C. 547; 11 U.S.C. 549. The Seventh Circuit, noting the unique conflict between the rights of two groups of wronged customers, reversed. Sentinel’s pre-petition transfer fell within the securities exception in 11 U.S.C. 546(e); the post-petition transfer was authorized by the bankruptcy court, 11 U.S.C. 549. Neither can be avoided.View "Grede v. FCStone LLC" on Justia Law

Doolittle was a registered securities broker/dealer, and a registered investment advisor. He or his corporations held licenses, permits, or certificates to engage in real estate and insurance brokerage and tax preparation. Around 1990 his primary business became “trust deeds investments,” in which he “would arrange groups of investors together to buy those loans or to fund those transactions for different types of individuals and institutional borrowers.” After investors lost money, Doolittle was convicted and sentenced to 13 years in prison for three counts of theft by false pretenses; six counts of theft from an elder or dependent adult; nine counts of false statements or omissions in the sale of securities; selling unregistered securities; and sale of a security by willful and fraudulent use of a device, scheme, or artifice to defraud The appeals court reversed in part, holding that Doolittle’s challenge that the trial court’s implied finding of timely prosecution was not supported by substantial evidence required remand with respect to two of the charges. A further hearing may be necessary with respect to applicability of a sentence enhancement for aggregate losses over $500,000. Doolittle’s conviction for sale of unregistered securities and sale of securities by means of a fraudulent device did not rest on the same conduct as his convictions for fraud against specific victims; his sentence on the former counts therefore does not offend the proscription against duplicative punishment. View "People v. Doolittle" on Justia Law

A financial advisor with more than 20 years of experience, McGee met Maguire between 1999 and 2001 while attending Alcoholics Anonymous meetings. McGee assured Maguire that their conversations were going to remain private. Maguire never repeated information that McGee entrusted to him. In 2008, Maguire was closely involved in negotiations to sell PHLY, a publicly-traded company. During this time, Maguire experienced sporadic alcohol relapses. McGee saw Maguire after a meeting and inquired about his frequent absences. In response, Maguire “blurted out” inside information about PHLY’s imminent sale. He later testified that he expected McGee to keep this information confidential. Before the information became public, McGee borrowed $226,000 to finance the purchase of 10,750 PHLY shares. Shortly after the public announcement of PHLY’s sale, McGee sold his shares, resulting in a $292,128 profit. After an SEC investigation, McGee was convicted of securities fraud under the misappropriation theory of insider trading (15 U.S.C. 78j(b) and 78ff), and SEC Rules 10b-5 and 10b5-2(b)(2), and of perjury (18 U.S.C. 1621). The Third Circuit affirmed, rejecting arguments that Rule 10b5-2(b)(2) is invalid because it allows for misappropriation liability absent a fiduciary relationship between a misappropriator of inside information and its source; that there was insufficient evidence to sustain his convictions; and that the court erred in denying his motion for a new trial based on newly discovered evidence. View "United States v. McGee" on Justia Law

Defendant executed several illegal insider trades involving the stock of the supermarket chain Albertson's using material nonpublic information received from an employee of UBS. On appeal, defendant challenged the district court's judgment ordering him to disgorge profits from illegal insider trading, enjoining him from further violating the securities laws, and ordering him to pay prejudgment interest on the entire disgorgement amount. The court concluded that the district court did not abuse its discretion in ordering disgorgement because the court's cases have established that tippers can be required to disgorge profits realized by their tippees' illegal insider trading. This case was distinguishable only insofar as defendant himself executed the fraudulent trades rather than leave that task to a tippee. The court found no abuse of discretion in the district court's imposition of an injunction on defendant or in its order that he pay prejudgment interest. Accordingly, the court affirmed the judgment of the district court.View "SEC v. Contorinis" on Justia Law

During his time as an investor and owner of the MAAA Trust, which he established in 1992, Teo filed three false Schedule 13D disclosures and failed to file several required 13Ds. After they made a $154,932,011 gross profit on a stock sale, the SEC filed a civil enforcement action asserting violations of the Securities Exchange Act, 15 U.S.C. 78m (d) and 78j(b) and SEC rules and regulations. The district court granted summary judgment on several rule-violation claims that Teo did not challenge. A jury concluded that Teo violated Section 10(b) and Rule 10b-5, and that Teo and the Trust violated Section 13(d), Rule 12b-20, Rule 13d-1, and Rule 13d-2. The court held that the Trust violated Section 16(a) and Rule 16a-3. 7. The court ordered disgorgement of more than $17 million, plus prejudgment interest of more than $14 million. The Third Circuit affirmed, rejecting claims: of errors relating to admission of Teo’s guilty plea allocution and an exhibit; that there was insufficient evidence to prove a “plans and proposals” theory of liability; that the general verdict slip created ambiguity on the theory of liability grounding the jury’s verdict; and to the disgorgement order.View "Sec. & Exch. Comm'n v. Teo" on Justia Law