Blotter: May 2012

Ponzi-preneur

Ephren W. Taylor II just wanted to write books and hear his wife sing, in a manner of speaking. Problem is he needed other people's money to make that happen, nearly $11 million of other people's money. Recent SEC charges suggest he thought he could get away with just swiping it. Between 2008 and 2010 he raised money from hundreds of investors nationwide to fund what amounted to a Ponzi scheme, the SEC charged.

According to the complaint, he preyed on the sympathies of socially-conscious investors in church congregations. The regulator alleges that Taylor lured investors into two investment programs offered through City Capital Corporation, where he was CEO, promising to funnel it into charitable causes and economically disadvantaged businesses that would yield high rates of return. Instead he diverted the money to publishing and promoting his books, hiring consultants to refine his public image and funding his wife's singing career.

The SEC's complaint says Taylor went to great lengths to cultivate the image of a highly successful and socially conscious entrepreneur. He marketed himself as “The Social Capitalist,” authored three books, appeared on national television, gave live presentations and promoted his investments in Internet and radio ads. And he told whoever would listen that traditional investments were foolish, money-losing ventures.

Hack Attack

Could it happen to your clients? A Russian guy living in New York City hacked his way into retail brokerage accounts at online trading firms like Scottrade, E*Trade, Fidelity, Schwab and other brokerage firms, executing fake and nonsensical trades and lifting $1 million. Petr Murmylyuk, also known as “Dmitry Tokar,”of Brooklyn, was charged with securities fraud, one count of conspiracy to commit wire fraud, and unauthorized access to computers. But he didn't act alone. He and his “hacker ring” took control of the online client accounts, changing the victims' phone numbers and e-mail addresses to prevent them from receiving notice of the unauthorized trades. They then used the stolen identities to open other accounts at different brokerage firms, making trades between the different accounts that benefitted them.

For example, they sold options contracts in the original accounts to the new accounts, and then repurchased them for as much as nine times the price.

“This investigation highlights the level of sophistication reached by individuals involved in computer intrusions and hacking activities in furtherance of complex economic and financial crimes,” said FBI Assistant Special Agent in Charge David Velazquez.