Strippers, Guns N' Money:
The SEC filed a civil action recently against five unregistered Florida brokers who were operating a pump-and-dump scheme out of the offices of SCL Ventures. The complaint alleges that from January 2004 to May 2004, the five defendants sold $3 million worth of SCL Ventures shares to some 78 investors, earning 10 to 20-percent commissions on each sale. None of the men were registered with the SEC or any broker/dealer at the time. Additionally, two of the men are charged with manipulating and controlling the market price for the common stock of SCL Ventures successor company, Weida Communications, in the summer of 2004. Approximately 165 investors paid at least $9.2 million for the near worthless Weida securities during the period. According to the SEC complaint, one of the defendants “supported a lavish lifestyle with these investor funds, which included, among other purchases: approximately $45,000 on a Mercedes Benz, $1,300 at strip clubs, $7,000 on automatic weapons, and another $11,000 on other guns and gun-related items.”
Record Hedge Fund Fraud
Five individuals were recently indicted on charges of conspiracy and fraud for allegedly running a $200-million scam between 1999 and 2003 at their hedge fund firm, the Lancer Group.
The five men, Michael Lauer, Martin Garvey, Eric Hauser, Laurence Isaacson and Milton Barbarosh, face maximum sentences of 25 years in prison, plus $500,000 in fines for their part in what is believed to be the third largest hedge fund fraud ever.
According to the indictment, Lauer, Garvey and Hauser co-owned companies that managed the Lancer Group hedge funds. The three men are alleged to have inflated the value of the Lancer funds in the period under question by manipulating thinly traded securities through Isaacson and Barbarosh, who served as brokers. According to a U.S. Department of Justice statement, three of the men bought large positions of restricted stock from shell companies in private transactions, then bought multiple smaller batches in the open market at higher prices. Lauer then valued all the securities held by the Lancer Group at that much higher closing price, thus creating the illusion that the fund had made a large gain — boosting performance fees to Lauer and the others, who collected 20 percent of gains.
The statement goes on to say that Lauer covered up and perpetuated the scheme by creating fake portfolios of securities supposedly held by the Lancer Group, and even obtained falsely inflated appraisals of the shell companies through Barbarosh and Isaacson.
In the history of hedge fund fraud, the alleged $200 million Lancer fraud ranks behind only Princeton Economics International, which was accused of fraud and bilking investors out of $504 million in 1999, and ManhattanFund, which lost more than $300 million in client money in 1999 after making fictitious statements to investors.