US DA’s Office Indicts Galanis Family Members for Wall Street Scams

The U.S. Attorney’s Office for the Southern District of New York has announced the following:

Preet Bharara, the United States Attorney (So. District – NY) and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing of an indictment charging seven defendants with orchestrating multiple schemes to defraud investors of tens of millions of dollars.

Two of the defendants were arrested this morning in connection with today’s charges.  Jason Galanis was arrested in Manhattan.  Jared Galanis was arrested in the District of Maryland. Derek Galanis was expected to surrender…

U.S. Attorney Bharara said: “As alleged, Jason Galanis and his co-conspirators used their Wall Street credentials and the veneer of a legitimate-sounding financial firm to manipulate the market and fleece investors.  Their alleged market manipulation brought them nearly $20 million in profits, but now also a federal indictment.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “Galanis and his co-conspirators exemplified arrogance and contempt for financial regulations when they allegedly devised a scheme to defraud investors to fund a lavish lifestyle.  Law enforcement will never tolerate this alleged egregious behavior and will bring those to justice who lie and do not play by the rules.”

According to the Indictment unsealed in Manhattan federal court, the defendants engaged in the following fraudulent schemes:

THE GEROVA SCHEME

From 2009 to 2011, Jason Galanis and his co-conspirators engaged in a scheme to defraud the shareholders of a publicly traded company called Gerova Financial Group, and the investing public, by obtaining secret control over millions of shares of Gerova stock and then manipulating the market for the stock as the defendants caused their secretly held shares to be sold.

As part of the scheme, the defendants fraudulently generated demand for Gerova stock by bribing investment advisers to purchase for client accounts the Gerova stock that was sold by the defendants, thereby enabling the defendants to cash out from the scheme and make millions in illegal profits.

As a part of the scheme to defraud, Galanis obtained such control over Gerova so as to be able to cause Gerova to enter into transactions of his design, and for his benefit, including the issuance of Gerova stock. Galanis obtained this control without identifying himself as an officer or director of Gerova to avoid the SEC-imposed bar that prohibited him from holding such positions at publicly-traded companies.

Among other means and methods, Galanis and others caused more than five million shares of Gerova stock, which represented nearly half the company’s public float and which was intended for Galanis’ ultimate benefit, to be issued to and held in the name of Ymer Shahini, who knowingly served as a foreign nominee for Galanis. Jason Galanis, John Galanis, Jared Galanis, Derek Galanis, Gary Hirst, and Shahini understood that the purpose of the stock grant to Shahini was to disguise Galanis’ ownership interest in the stock, and to evade the SEC’s regulations for issuing unregistered shares of stock.

At the same time, and as a further part of the scheme to defraud, John Galanis, Jared GAlanis, and Derek Galanis, among others, with the knowledge and approval of Jason Galanis, opened and managed brokerage accounts in the name of Shanini (the “Shanini Accounts”), effected the sale of Gerova stock from the Shahini Accounts, and received and concealed the proceeds, knowing that this activity was designed to conceal from the investing public Galanis’ ownership of and control over the Gerova stock.

Jason and Jared Galanis also fraudulently induced investment advisers, including Gavin Hamels and others, to purchase shares of Gerova stock in the investment advisers’ client accounts by offering compensation and/or other benefits to the respective investment adviser.By causing the purchase of Gerova stock at the time, quantity, and/or price of their choosing, Jason and Jared Galanis were able to, among other things, effectuate the sale of large quantities of Gerova stock from the Shahini Accounts that Galanis controlled while artificially maintaining the price of Gerova stock through coordinated match trading.Such coordinated trading served to manipulate the market for Gerova stock and deceive the investing public.As a result, Galanis and his co-conspirators reaped nearly $20 million in profits.

 

USDA Preet Bharara
U.S. District Attorney Preet Bharara

INVESTMENT FIRM-2 SCHEME

From November 2007 to April 2010, Jason and Jared Galanis, along with an investment adviser identified in the Indictment as “CC-2,” participated in a scheme to defraud the clients of CC-2’s investment advisory firm, identified in the Indictment as “Investment Firm-2.”Oftentimes in exchange for compensation from Jason and Jared Galanis, CC-2 caused Investment Firm-2 clients to invest in notes issued by entities associated with Jason and Jared Galanis.

When obligations owed by entities associated with Jason and Jared Galanis became due, CC-2, with the knowledge of Jason and Jared Galanis, used client funds to purchase either notes issued by other entities associated with Jason and Jared Galanis, or publicly traded shares held by such entities.The funds generated were then used to pay the original obligations owed to other Investment Firm-2 clients.Through these securities trades, funds in client accounts of one set of Investment Firm-2 investors were used to pay obligations owed to a different set of Investment Firm-2 investors by entities associated with Jason and Jared Galanis.

Charts identifying each defendant, the charges, and the maximum penalties are attached to this release.  The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants would be determined by the judge.  The case has been assigned to U.S. District Judge P. Kevin Castel…

The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.