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Tag: Texas State Securities Board

  • Greater Dallas Firm Allegedly Sold Unregistered Securities, Pooh-Poohed Qualification Criteria — And Accepted Bitcoin Without Disclosing Risks

    “Far from verifying that purchasers of the company’s investments are accredited, [Balanced Energy President Kirk] Johnson, according to the order, said ‘we don’t do any verification’ and ‘we’re not the paperwork police,’” — Texas State Securities Board, March 11, 2014

    recommendedreading1Balanced Energy LLC, an oil-and-gas firm based in the Dallas-Fort Worth suburb of Southlake, is not an HYIP in the classic sense of the term. But the company’s experience could presage danger to HYIP scammers who seek to hitch their wagons to Bitcoin and cherry-pick Bitcoin users.

    In an emergency cease-and-desist order dated March 10, the Texas State Securities Board has accused Balanced Energy of accepting payment through Bitcoin without disclosing the risk of using the digital currency.

    “Balanced Energy will convert some or all of the payments it receives through Bitcoin to traditional currency and use the money to pay for its business operations,” the board said, referring to its order.

    “Balanced Energy has failed to disclose to investors the risks in using Bitcoin to purchase working interests in wells, according to the order,” the board continued. “The price of digital currency is subject to extreme swings, which could affect the amount of money available for business operations.”

    Regulators conceivably could attack HYIPs accepting Bitcoin under the same theory, adding another layer of risk to the already insidious “opportunities.”

    Balanced Energy also sold unregistered securities and solicited unaccredited investors, the board alleged.

    Again the experience of Balanced Energy could signal bad news for HYIP scammers.

    “Far from verifying that purchasers of the company’s investments are accredited, [Balanced Energy President Kirk] Johnson, according to the order, said ‘we don’t do any verification’ and ‘we’re not the paperwork police,’” the board alleged.

    From a statement by the board (italics added):

    The working interests are not registered with the State Securities Board and no permit has been granted for their sale in Texas. Rule 506 of Regulation D under the federal Securities Act of 1933 does allow an issuer to solicit and sell certain securities without first complying with state registration requires, but only to accredited investors. The Securities and Exchange Commission defines individual accredited investors as persons whose net worth is at least $1 million – excluding their primary residence – or who make at least $200,000 a year.

    The issuer of a such an offering must also take reasonable steps to verify an investor’s accredited status.

    HYIP schemes — always a den of criminality — increasingly may be trying to tie themselves to Bitcoin and appear even to be launching Bitcoin-themed reload scams targeting Bitcoin users who lost money at Mt. Gox. Soliciting investors regardless of their financial standing is one of the oldest tricks in the HYIP scammer’s playbook.

    Consumers could be left holding the bag if a scheme goes south.

    “Although digital currencies such as Bitcoin are often touted as a sophisticated, online alternative to traditional currencies, investors should realize these currencies are not tangible, they are not issued by a government, and are not currently subject to traditional regulation or monetary policy,” Texas Securities Commissioner John Morgan said last month.

    Here are just two of the points made in an Investor Warning by the Texas board last month (italics added)

    Digital currencies may provide promoters with a significant degree of anonymity.  Unscrupulous promoters may be able to exploit the anonymous nature of certain digital currencies to conceal their true identity and assist in the concealment and laundering of the proceeds of a fraudulent investment offering.

    Securities offerings that incorporate digital currencies may be highly dependent upon their growth and acceptance in retail and commercial marketplaces.  Also, any change in consumer confidence, user demographic or governmental regulation, or the introduction of new and competing forms of digital currencies, may negatively affect the liquidity or value of such securities offerings.

    Applied to the HYIP sphere, the message may be that you can get in with Bitcoin — but you might not be able to get out.

    And a scammer, of course, could simply relieve you of your Bitcoins by plying you with offers of dazzling returns — and then simply hightail it to the next scam to do it all over again.

  • Now, A ‘Fraudulent $53 Million Worldwide Off-Exchange Forex Scheme,’ CFTC Alleges; Agency Charges Australian Resident Senen Pousa, U.S. Residents Joel Friant And Michael Dillard, Along With ‘Investment Intelligence Corp.’ And ‘Elevation Group Inc.’

    EDITOR’S NOTE: In a statement on the allegations against Senen Pousa, Joel Friant, Michael Dillard and their companies, the CFTC pointedly stressed that international agencies cooperated in a probe and that the alleged scammers created victims in multiple nations . . .

    The CFTC has gone to federal court in the Western District of Texas, alleging that Senen Pousa of Australia and Joel Friant of Bellingham, Wash., were running a “fraudulent $53 million worldwide off-exchange Forex scheme” through an Australian enterprise known as Investment Intelligence Corp. (IIC).

    Also charged in the alleged caper were Michael Dillard and Elevation Group Inc. of Austin, Texas.

    “The scheme allegedly accepted at least $53 million from at least 960 clients worldwide, including at least 697 clients in the United States, and clients in Australia, the United Kingdom, Canada, Germany, the Netherlands, and Singapore, among other countries. None of the defendants has ever been registered with the CFTC,” the CFTC charged.

    U.S. District Judge Lee Yeakel of the Western District of Texas issued an emergency freeze of the assets of Pousa, Friant and IIC and prohibited the destruction of books and records, the CFTC said.

    Cooperating in the probe were the Australian Securities & Investments Commission, the U.K. Financial Services Authority, the Hungarian Financial Supervisory Authority, the Netherlands Authority for the Financial Markets, the Financial Markets Authority of New Zealand and the New Zealand Serious Fraud Office, the CFTC said.

    From a CFTC statement (italics added):

    The CFTC complaint alleges that from at least January 1, 2012 through the present IIC, through Pousa, Friant and its other agents, and defendants Dillard and Elevation Group, utilized “wealth creation” webcasts, webinars, podcasts, emails, and other online seminars via the Internet to directly and indirectly solicit actual and prospective clients worldwide to open forex trading accounts at IIC. The complaint further alleges that clients were promised by IIC, through Pousa, Friant, and other agents 1) a monthly return of 9 percent, 2) that IIC’s managed forex trading would risk less than 3 percent of a client’s capital per transaction, 3) that IIC was able to limit the risk inherent to forex trading by limiting its managed forex trading to 2 to 5 trades per month, and 4) that IIC has six “proprietary traders” working 24 hours a day trading clients’ funds. The CFTC complaint alleges that all of these representations to clients were false.

    On or about May 16-17, 2012, the complaint alleges that clients suffered a loss of over 60 percent of their investment, when IIC, by and through its agents, entered over 200 forex trades in each client’s account in violation of the representations made by IIC, by and through its agents.

    Also assisting the CFTC were the Texas State Securities Board, the Washington State Department of Financial Institutions, the U.S. Attorney for the Western District of Texas, the FBI and the SEC, the CFTC said.

    Read the CFTC complaint.

  • Texas Fraudster, 77, Sentenced To Prison For Scamming Seniors In Securities Swindle; John Langford’s Agency Claimed, ‘We Don’t Promise To Make You Rich, But We Guarantee Not To Make You Poor’

    “Irony, thy name is John F. Langford.” — Texas State Securities Board, July 28, 2011

    An Amarillo man whose firm fleeced senior citizens by telling them it couldn’t promise to make them rich — but guaranteed it wouldn’t make them poor — has received what might amount to a life sentence behind bars for bringing destruction to their doors.

    John F. Langford, 77, pleaded guilty in July to securities fraud, selling unregistered securities and dealing in securities without proper registration with the state. The case was prosecuted by the office of Potter County District Attorney Randall Sims, and Langford effectively was sentenced yesterday to remain behind bars until he turns 92 — and then some.

    At least one of his victims was  “incapacitated,” according to the 15-count indictment handed up against Langford in 2009.

    Yesterday Langford received seven concurrent sentences of 15 years for fraud, four concurrent sentences of 10 years for selling unregistered securities and four more concurrent sentences of 10 years for not being a registered securities dealer.

    It was a promissory notes and annuities caper in which seniors and others did not get their money, according to the state.

    “Irony, thy name is John F. Langford,” the Texas State Securities Board said in July, after Langford’s guilty plea. “In radio advertising spots a few years ago, Langford’s insurance agency in Amarillo said, ‘At Langford & Associates, we don’t promise to make you rich, but we guarantee not to make you poor.’”

    The board said the fraud cost investors more than $5 million. Separately, the Amarillo Globe-News (Amarillo.com) reported that courtroom spectators jeered Langford yesterday by saying “Shame on you” and “I hope you rot in hell.”

    Langford turned 77 last month.

  • MORE BAD NEWS FOR PONZI PURVEYORS: Upstart Ponzi Operator Sued By SEC After Assists From FINRA, Texas State Securities Board, Agency Says; Gregory Todd Froning Confronts Civil, Administrative Actions

    EDITOR’S NOTE: Online HYIP and autosurf purveyors and their fellow “mini-Madoffs” may find the brick-and-mortar case of Gregory Todd Froning at once unsettling and instructive. In yet-another development apt to create unease in the HYIP and autosurf Ponzi worlds, a new court action by the SEC demonstrates that even “small” operators in the universe of Ponzi fraud may find their names on a court docket or named respondents in an administrative action — or both.

    Here, now, the story about the allegations against Gregory Todd Froning.

    A Greater Dallas financial adviser has been accused by the SEC of misappropriating more than $800,000 from investors in an upstart Ponzi scheme.

    Gregory Todd Froning, 48, of Coppell, Texas, was accused yesterday of placing investors funds in a “personal bank account” and using them to make Ponzi payments, withdraw cash, make online purchases and buy groceries, meals and unspecified “adult entertainment.”

    The SEC filed a lawsuit against Froning that seeks the return of ill-gotten gains from the alleged scheme, which involved the sale of “promissory notes” for Wealth Planning Partners LLC. The agency said it was assisted in the probe by the Financial Industry Regulatory Authority (FINRA) and the the Texas State Securities Board.

    Froning also faces an administrative action by the SEC.

    Investigators said Wealth Planning Partners was a “now-defunct financial planning company” operated by Froning.

    “Froning never disclosed that he was using funds in this fashion and has never repaid a single promissory note,” the SEC said. “Further, Froning never disclosed to investors that Wealth Planning Partners had no significant business and was essentially worthless.”

    Investors were denied information critical to making an informed investment decision, the SEC alleged.

    Indeed, the agency alleged, Froning did not disclose that “his own financial condition was extremely precarious due, in part, to pending IRS liens.”

    Froning, who neither admitted nor denied the lawsuit allegations, has consented to a permanent injunction. He already has “agreed to an administrative order barring him from future association with any broker, dealer, or investment adviser,” the SEC said.

    Lack of disclosure is a common element in both brick-and-mortar and online fraud schemes that promise investors returns or interest payments. Froning’s case demonstrates that such schemes may attract the attention of multiple regulatory agencies and that operators may confront securities litigation on multiple fronts.

    Despite claims on Ponzi HYIP and autosurf forums that promoters have conducted “due diligence” on operators and that “payments” received from the operators are “proof” that no Ponzi scheme exists, it often is the case that the claims of “due diligence” are false and that “payments” participants received came from other investors and were designed to lull participants into a false sense of comfort to mask the nature of the scheme.

    It also often is the case that claims of “due diligence” can’t pass the giggle test because promoters have no access to legitimate financial statements, repeat lies told by other promoters or rely exclusively on false representations by Ponzi purveyors.

    Froning “diverted investors’ proceeds to a personal bank account and used them both to pay personal expenses and to make Ponzi payments to some investors,” the SEC alleged.

    Like Froning’s purported investment-advisory business, virtually all HYIP and autosurf companies can be viewed as “essentially worthless.” Not only are they insolvent out of the gate, their unfunded liabilities expand rapidly, and operators rely on a shell game to create the illusion of sustainability and legitimate commerce.

    HYIPs and autosurfs are infamous for changing rules on the fly, providing “training” that encourages participants not to withdraw money or withdraw it in small increments as a purported means of maximizing “earnings,” treating liabilities as assets and disappearing with vast sums of money.

    About 15 investors were affected by the alleged Froning brick-and-mortar Ponzi, according to the SEC. Some online Ponzis have mushroomed to gather tens of millions of dollars and have affected tens of thousands of investors, according to court filings.

    The Froning case also turns yet-another online myth on its head: that regulators never bother to investigate “small” Ponzi operators and that small operators don’t have to comply with regulations.

  • Former Attorney Sentenced To 99 Years In Prison For Ponzi Scheme; Edward S. Digges Jr. Was Recidivist Offender

    The Texas State Securities Board and the district attorney's office of Collin County, Texas, prosecuted Edward Digges Jr. A jury imposed a 99-year-prison sentence.

    A Texas jury has thrown the book at Edward S. Digges Jr., sentencing the Collin County man to 99 years in prison for fleecing 130 investors in a securities-fraud and Ponzi scheme.

    Digges, 63, formerly was an attorney in Annapolis, Md. He was disbarred in an overbilling scheme, convicted of mail fraud in 1990 and spent two years in federal prison. After his release from prison, he continued to clash with law-enforcement agencies, including the SEC, regulators in Maryland, Ohio and Pennsylvania, and the Texas State Securities Board (TSSB).

    Most of Digges’ victims were “elderly,” prosecutors said.

    The 99-year sentenced imposed in Texas evolved from Digges’ operation of an entity known as the Millennium Terminal Investment Program, which sold securities that purportedly generated profits from point-of-sale terminals used by merchants to process credit and debit transactions.

    In truth, investigators said, Millennium operated in the red out of the gate, was in deep “financial turmoil” not disclosed to investors, was making payments to old investors with money from new investors and lied about having a “reserve fund” to shore up the program.

    Digges collected at least $10 million in the scheme by promising investors annual returns of 12 percent, prosecutors said.

    “Edward Digges has a long history of defrauding some of our most vulnerable citizens, and this sentence ensures he will never again do so,” said Texas Securities Commissioner Denise Voigt Crawford.

    She noted that victims will not be made whole.

    “The conviction will not return money to investors,”  she said. “This case highlights the importance of checking the background of any financial professional you choose to do business with, and the importance of obtaining full disclosure before investing.”

    Digges deliberately targeted senior citizens in newspaper ads, prosecutors said. At the same time, he did not disclose his criminal conviction and did not tell clients about a $3.6 million civil judgment against him in the overbilling case.

    TSSB and the district attorney’s office of Collin County prosecuted Digges on the criminal charges. Collin County is a suburban county in the Dallas/Fort Worth metropolitan area.

    SEC civil charges against Digges were brought in Florida.

  • SEC Moves Against Triton Financial After Woman With Gun Showed Up At Firm’s Texas Office To Demand Refund; Alleged Fraud Scheme Embarrasses NFL, Heisman Trophy Winners, PGA Champions Tour

    A case in Texas may provide the clearest sign yet that securities fraud in the United States is separating people from their senses — not that law enforcement missed the important clues provided by an earlier case in California in which investors who were purportedly fleeced allegedly posed as federal agents and attempted an armed coup at the company that allegedly ripped them off.

    Now comes word that fleeced Texas investor Christine Cayton became so angry at being hoodwinked out of her retirement savings that she got drunk on wine earlier this month, took an unloaded gun to the headquarters of Triton Financial LLC and demanded a refund from Triton principal Kurt B. Barton.

    Visit KXAN to watch Christine Cayton video

    Cayton did not shoot anyone, but was said to be fumbling for bullets in her purse. She was arrested on a felony weapons charge, and since has posted bond. She explained her state of mind to NBC affiliate KXAN. (See KXAN video. )

    Triton, according to Sports Illustrated, initially responded to Cayton’s arrest by issuing a brief statement questioning her mental health,  but now the SEC and the Texas State Securities Board (TSSB) — both of which had been investigating Triton and Barton — have filed actions that raise troubling concerns about Triton’s corporate mental health and whether professional athletes will push any product for a fee.

    First, the answer to the question PP readers may have about why Triton became fodder for a Sports Illustrated story is that Triton used former National Football League players and former Heisman Trophy winners in sales and marketing promotions, and also sponsored a golf event on the PGA Champions Tour.

    None of the athletes has been accused of wrongdoing.

    Triton appears to have defaulted on its PGA contract during the very first year — at the same time the golf world finds itself suddenly confronting a PR disaster caused by the Tiger Woods scandal and residual fallout from a PR disaster caused by alleged Ponzi schemer Allen Stanford, whose company sponsored a signature PGA Tour event.

    Questions about Triton’s corporate mental health came to the fore when investigators discovered the company was promoting investment returns as high as 32 percent and a complex scheme that involved an insurance company, a diverted offering, promissory notes and the unauthorized pooling of funds.

    “Since at least 2004, Triton has sponsored more than 40 limited partnerships and limited liability companies, raising over $50 million for these ventures,” the SEC said.

    An entity known as Triton Insurance issued a Confidential Investment Memorandum (CIM) that outlined a $12 million offering of 240 investor units at $50,000 per unit. The offering pertained to yet another Triton company — Triton Holdings — whose purpose “was to acquire and turn around underperforming insurance companies,” the SEC said.

    Triton identified National States Insurance Co. (NSIC) as a company it intended to acquire through the offering, the SEC said.

    But unbeknown to Triton Insurance investors, “Barton had put the NSIC acquisition on indefinite hold around October 2008” and Triton “did not return the funds raised to investors or hold them for future acquisitions.

    “Instead, Barton and Triton Insurance misapplied the funds to pay the expenses and obligations of Triton and its affiliates,” the SEC said.

    Proceeds gathered from investors for the NSIC acquisition were combined with proceeds from other Triton entities and promissory notes to acquire a Nebraska company known as Axis Capital, an equipment-leasing firm, contrary to the purpose of the Triton Insurance offering, the SEC said.

    “After the Axis acquisition, Defendants continued to sell Triton Insurance investor units, raising over $2 million, using the Original CIM,” the SEC said. “The CIM nowhere disclosed the Axis purchase, but instead described only the NSIC acquisition. Investors also were not told that Triton continued to divert offering proceeds.”

    One former NFL player purportedly sent an email “to numerous NFL alumni ‘updating’ them on Triton’s activities and touting Triton’s returns on its investments,” the SEC said in fraud allegations filed against Triton and Barton yesterday.

    The word “Ponzi” has not been used yet, but some of the behavior attributed to Triton by the SEC and the TSSB is creating plenty of bad press for the NFL and the PGA Tour.

    Professional sports has been no stranger to headlines about financial fraud in recent months. In November, former Denver Broncos quarterback John Elway, a member of the Pro Football Hall of Fame, got some embarrassing ink for speaking at events hosted by Speed of Wealth LLC, which was implicated  in an alleged $30 million Ponzi scheme.

    In February, PGA Tour Commissioner Tim Finchem found himself in the position of having to tackle his first sudden PR nightmare of the year: the Ponzi allegations against Allen Stanford, sponsor of the Stanford St. Jude Championship, which raises millions of dollars for the St Jude Children’s Research Hospital in Memphis.

    Stanford is jailed in Texas, awaiting trial. So ruinous was Stanford’s name — and so important was the tournament to the hospital, the Memphis region in general and the PGA’s rich history — that the PGA Tour proceeded with the event despite having no title sponsor.

    After Triton got up a head of PR steam by recruiting famous football players such as Tony Dorsett, Jeff Blake, Ty Detmer and Chris Weinke as pitchmen, providers of testimonials or employees, it then expanded into sponsoring a PGA Champions Tour event in Texas, sucking the golf world into its alleged scheme.

    Sports Illustrated broke the Triton story in March, but it gained little media attention elsewhere. Yesterday, however, both the SEC and the TSSB announced dramatic legal actions — and those actions put both the NFL and the Champions Tour in the difficult position of seeing their famous brands associated with a large-scale fraud scheme.

    Read the SEC complaint.

    Read a TSSB filing that alleges Triton tried to thwart a state investigation into its business practices by providing bogus and altered documents.