Date: 08-23-2016

Case Style: United States of America v. Jared Galanis

Case Number: 1:15-cr-00643-PKC

Judge: P. Kevin Castel

Court: United States District Court for the Southern District of New York (New York County)

Plaintiff's Attorney: Brian Blais, Aimee Hector and Rebecca Mermelstein

Defendant's Attorney:

James Antone Lassart

Description: New York, NY - Jared Galanis Pleads Guilty In Manhattan Federal Court To Misprision Of A Felony

Jared Galanis pled guilty to concealing a conspiracy to manipulate the market for Gerova Financial Group, Ltd. (“Gerova”), a publicly traded company listed on the New York Stock Exchange, and to defraud the shareholders of that company. GALANIS pled guilty to misprision of a felony before U.S. District Judge P. Kevin Castel.

According to the allegations contained in the Indictment filed against JARED GALANIS and his co-conspirators, and statements made in related court filings and proceedings[1]:

The Gerova Scheme

From 2009 to 2011, Jason Galanis, John Galanis, Derek Galanis, Gary Hirst, Ymer Shahini, and Gavin Hamels engaged in a scheme to defraud the shareholders of a publicly traded company called Gerova Financial Group, Ltd. (“Gerova”), and the investing public, by effecting securities transactions in Gerova stock for the purpose of conferring millions of dollars of undisclosed remuneration on the co-conspirators, without adequate disclosure of Jason Galanis’s role in directing the transactions or the benefits received by Jason Galanis and his co-conspirators.

As a part of the scheme to defraud, Jason Galanis obtained sufficient 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. Jason Galanis obtained this control without causing himself to be identified as an officer or director of Gerova so as to purport to abide by an SEC-imposed bar that forbade him from holding such positions at publicly traded companies. Among other means and methods, Jason Galanis, with the assistance of Hirst, caused over five million shares of Gerova stock, which represented nearly half the company’s public float and which were intended for Jason Galanis’s ultimate benefit, to be issued to and held in the name of Ymer Shahini, who knowingly served as a foreign nominee for Jason Galanis. Jason Galanis, John Galanis, Derek Galanis, Hirst, and Shahini understood that the purpose of the stock grant to Shahini was to disguise Jason Galanis’s 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, various co-conspirators opened and managed brokerage accounts in the name of Shahini (the “Shahini Accounts”), effected the sale of Gerova stock from the Shahini Accounts through manipulative trading, and received and concealed the proceeds, knowing that this activity was designed to conceal from the investing public Jason Galanis’s ownership of and control over the Gerova stock. In total, the co-conspirators sold nearly $20 million worth of Gerova shares from the Shahini Accounts for their own benefit.

In contrast, unsuspecting Gerova shareholders were left with a worthless investment. More specifically, in March 2011, the New York Stock Exchange (“NYSE”) halted trading of Gerova and in April 2011, Gerova asked the NYSE to delist its securities. By November 2, 2011, Gerova’s stock price had bottomed out at $0.00 per share.

JARED GALANIS, an attorney, was aware of the criminal scheme involving Gerova and took steps to conceal it. In particular, JARED GALANIS permitted John Galanis to use a phone and a law firm email account registered to JARED GALANIS in furtherance of the scheme and transferred the proceeds of the fraudulent scheme through his attorney trust account.

* * *

JARED GALANIS, 37, pled guilty to one count of misprision of a felony, which carries a maximum sentence of three years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.

Derek Galanis, 44, pled guilty on August 15, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense.

Jason Galanis, 46, pled guilty on July 21, 2016, to two counts of conspiracy to commit securities fraud, each carrying a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense; and one count of investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $10,000 or twice the gross gain or loss from the offense.

John Galanis, 73, pled guilty on July 20, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense.

Gavin Hamels, 40, pled guilty on March 22, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense; and one count of investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $10,000 or twice the gross gain or loss from the offense.

The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentence for the defendant will be determined by the judge.

Trial against defendant Gary Hirst is scheduled for September 12, 2016, on charges of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and wire fraud. Defendant Ymer Shahini remains a fugitive. The allegations contained in the Indictment as to those defendants are merely accusations, and they are presumed innocent unless and until proven guilty.

Mr. Bharara praised the work of the U.S. Postal Inspection Service and the Federal Bureau of Investigation, and thanked the SEC.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.

Title 18 U.S.C. 371 provides:



If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.

If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.

Title 18 U.S.C. 78j Manipulative and deceptive devices provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—
(a)
(1) To effect a short sale, or to use or employ any stop-loss order in connection with the purchase or sale, of any security other than a government security, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
(2) Paragraph (1) of this subsection shall not apply to security futures products.
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement [1] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
(c)
(1) To effect, accept, or facilitate a transaction involving the loan or borrowing of securities in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
(2) Nothing in paragraph (1) may be construed to limit the authority of the appropriate Federal banking agency (as defined in section 1813(q) of title 12), the National Credit Union Administration, or any other Federal department or agency having a responsibility under Federal law to prescribe rules or regulations restricting transactions involving the loan or borrowing of securities in order to protect the safety and soundness of a financial institution or to protect the financial system from systemic risk.
Rules promulgated under subsection (b) that prohibit fraud, manipulation, or insider trading (but not rules imposing or specifying reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading), and judicial precedents decided under subsection (b) and rules promulgated thereunder that prohibit fraud, manipulation, or insider trading, shall apply to security-based swap agreements to the same extent as they apply to securities. Judicial precedents decided under section 77q(a) of this title and sections 78i, 78o, 78p, 78t, and 78u–1 of this title, and judicial precedents decided under applicable rules promulgated under such sections, shall apply to security-based swap agreements to the same extent as they apply to securities.

Title 18 U.S.C. 78f provides:

(a) Willful violations; false and misleading statements

Any person who willfully violates any provision of this chapter (other than section 78dd–1 of this title), or any rule or regulation thereunder the violation of which is made unlawful or the observance of which is required under the terms of this chapter, or any person who willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed under this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement as provided in subsection (d) of section 78o of this title, or by any self-regulatory organization in connection with an application for membership or participation therein or to become associated with a member thereof which statement was false or misleading with respect to any material fact, shall upon conviction be fined not more than $5,000,000, or imprisoned not more than 20 years, or both, except that when such person is a person other than a natural person, a fine not exceeding $25,000,000 may be imposed; but no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation.
(b) Failure to file information, documents, or reports

Any issuer which fails to file information, documents, or reports required to be filed under subsection (d) of section 78o of this title or any rule or regulation thereunder shall forfeit to the United States the sum of $100 for each and every day such failure to file shall continue. Such forfeiture, which shall be in lieu of any criminal penalty for such failure to file which might be deemed to arise under subsection (a) of this section, shall be payable into the Treasury of the United States and shall be recoverable in a civil suit in the name of the United States.
(c) Violations by issuers, officers, directors, stockholders, employees, or agents of issuers
(1)
(A) Any issuer that violates subsection (a) or (g) of section 78dd–1 of this title shall be fined not more than $2,000,000.
(B) Any issuer that violates subsection (a) or (g) of section 78dd–1 of this title shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the Commission.
(2)
(A) Any officer, director, employee, or agent of an issuer, or stockholder acting on behalf of such issuer, who willfully violates subsection (a) or (g) of section 78dd–1 of this title shall be fined not more than $100,000, or imprisoned not more than 5 years, or both.
(B) Any officer, director, employee, or agent of an issuer, or stockholder acting on behalf of such issuer, who violates subsection (a) or (g) of section 78dd–1 of this title shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the Commission.
(3) Whenever a fine is imposed under paragraph (2) upon any officer, director, employee, agent, or stockholder of an issuer, such fine may not be paid, directly or indirectly, by such issuer.

Outcome: Guilty

Plaintiff's Experts:

Defendant's Experts:

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