California Man Pleads Guilty To Defrauding A Native American Tribe, Investors- Over $60 Million

[nitpicker]

https://www.justice.gov/usao-sdny/pr/california-man-pleads-guilty-manhattan-federal-court-defrauding-native-american-tribe

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Thursday, January 19, 2017

California Man Pleads Guilty In Manhattan Federal Court To Defrauding A Native American Tribe And Investors Of Over $60 Million

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JASON GALANIS pled guilty today to defrauding a Native American tribal entity and the investing public of tens of millions of dollars in connection with the issuance of bonds by the tribal entity. GALANIS pled guilty to conspiracy to commit securities fraud, securities fraud, and conspiracy to commit investment adviser fraud before U.S. District Judge Ronnie Abrams.
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From March 2014 through April 2016, JASON GALANIS, along with his co-conspirators Gary Hirst, John Galanis, a/k/a “Yanni,” Hugh Dunkerley, Michelle Morton, Devon Archer, and Bevan Cooney, engaged in a fraudulent scheme to misappropriate the proceeds of bonds issued by the Wakpamni Lake Community Corporation (“WLCC”), a Native American tribal entity (the “Tribal Bonds”), and to use funds in the accounts of clients of asset management firms controlled by JASON GALANIS and his co-defendants to purchase the Tribal Bonds, which the clients were then unable to redeem or sell because the bonds were illiquid and lacked a ready secondary market.

Documents governing the Tribal Bonds specified that an investment manager would invest the proceeds of the Tribal Bonds in investments that would generate annuity payments sufficient to pay interest on the Tribal Bonds and provide funds to the WLCC to be used for tribal economic development purposes. In fact, none of the proceeds of the Tribal Bonds were turned over to the investment manager specified in the closing documents. Instead, significant portions of the proceeds were misappropriated by JASON GALANIS and his co-defendants for their own personal use.

Specifically, the proceeds of the Tribal Bonds were deposited into a bank account in the name of Wealth Assurance Private Client Corporation (“WAPCC”), an entity controlled by Dunkerley and Hirst. Dunkerley transferred more than $38 million from the WAPCC account to an account controlled by JASON GALANIS, who then misappropriated more than $8.5 million of the proceeds for his personal use, including for expenses associated with his home, jewelry and clothing purchases, travel and entertainment, and restaurant meals.

There was no ready secondary market for the Tribal Bonds. Nonetheless, without prior notice to their clients, Morton and Hirst, acting at the direction of JASON GALANIS, used funds belonging to clients of two related investment advisers, Hughes Capital Management, Inc. (“Hughes”) and Atlantic Asset Management, LLC (“Atlantic”) to purchase the Tribal Bonds, even though JASON GALANIS, Hirst, and Morton were well aware that material facts about the Tribal Bonds had been withheld from clients in whose accounts they were placed, including the fact that the Tribal Bond purchases fell outside the investment parameters set forth in the investment advisory contracts of certain Hughes clients and of the Atlantic pooled investment vehicle in which the Tribal Bonds were purchased. When Hughes and Atlantic clients learned about the purchase of the Tribal Bonds in their accounts, several of them demanded that the Tribal Bonds be sold. However, because there was no ready secondary market for the Tribal Bonds, no Tribal Bonds have been sold from any Hughes or Atlantic client accounts. In addition, JASON GALANIS and his co-defendants failed to apprise clients of Hughes and Atlantic regarding substantial conflicts of interest with respect to the issuance and placement of the Tribal Bonds before the Tribal Bonds were purchased on these clients’ behalf.

In addition, a portion of the misappropriated proceeds was recycled and provided by JASON GALANIS to entities affiliated with Archer and Cooney in order to enable Archer and Cooney to purchase subsequent Tribal Bonds issued by the WLCC. As a result of the use of recycled proceeds to purchase additional issuances of Tribal Bonds, the face amount of Tribal Bonds outstanding increased and the amount of interest payable by the WLCC increased, but the actual bond proceeds available for investment on behalf of the WLCC did not increase.
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