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South Florida Farnell Brothers Sentenced for Tax Evasion

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Michael Farnell and James Farnell, residents of Boca Raton, Fla., were sentenced to prison terms last week for income tax evasion following an April indictment, according to the Justice Department and Internal Revenue Service (IRS). Judge William P. Dimitrouleas sentenced Michael Farnell to a term of 18 months in prison. His brother James Farnell was sentenced to a term of 42 months.

Michael and James Farnell sold stock in a privately held Florida-based technology company between 2004 and 2006 and failed to report the capital gains or pay taxes on the capital gains from those stock sales. In 2004, the U.S. Securities and Exchange Commission (SEC) filed suit against the Farnell brothers for securities violations at another company that they operated the year 2000. A majority of the stock sales at issue in this case violated the injunction from the SEC’s lawsuit.

According to public documents and statements made in court, the Farnell brothers held their stock in this Florida-based technology company in the name of nominee trusts. The proceeds of the stock sales were deposited into bank accounts titled in the name of these nominee trusts. Neither brother filed tax returns in 2004 and 2005. James Farnell also failed to file a 2006 tax return. As part of the sentencing, Michael Farnell and James Farnell both agreed that they failed to report additional income paid to them by this Florida-based technology in 2001 through 2003.

Michael Farnell was ordered to pay restitution of $448,128 and James Farnell was ordered to pay restitution of $434,115, both to the IRS.

Farnell Brothers Subject of 2006 SEC Litigation

Details of earlier SEC actions are outlined in SEC Litigation Release No. 19604, dated March 9, 2006, involving Securities and Exchange Commission v. Vector Medical Technologies, Inc., Michael H. Salit, James P. Farnell, Michael J. Farnell, David A. Zimmerman, and Stanley Wasser, Case No. 03-80858-CIV-HURLEY/LYNCH (S.D. Fla.).

The Securities and Exchange Commission announced that on February 1, 2006, the Honorable Daniel T.K. Hurley, United States District Court for the Southern District of Florida, adopted the Magistrate’s Report and Recommendation in full and entered Final Judgment of disgorgement and civil penalties against Vector Medical Technologies, Inc., Michael Salit, James Farnell and Michael Farnell.

On December 20, 2005, Magistrate Judge Frank J. Lynch, Jr., conducted an evidentiary hearing, and thereafter filed his Report and Recommendation. By adopting the Magistrate’s Report and Recommendation in full, the District Court entered a Final Judgment that ordered Vector Medical to pay $14,208,718 in disgorgement and prejudgment interest; Salit to pay a $486,000 civil penalty; James Farnell to pay $1,127,796 in disgorgement and prejudgment interest and a $100,000 civil penalty; and Michael Farnell to pay $715,320 in disgorgement and prejudgment interest, and a $100,000 civil penalty.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

SEC Charges First Resource Group with Stock Fraud

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The Securities and Exchange Commission (SEC) recently charged Fort Lauderdale-based First Resource Group LLC and its principal David H. Stern with conducting a fraudulent boiler room scheme. The company allegedly hyped stock in TrinityCare Senior Living Inc. and Cytta Corporation, both thinly-traded penny stock companies, while simultaneously selling the same stock themselves for illegal profits.

According to an SEC news release:
“The SEC alleges that First Resource Group LLC and its principal David H. Stern employed telemarketers who fraudulently solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. While recommending the securities in these two microcap companies, Stern sold First Resource’s shares of TrinityCare and Cytta stock unbeknownst to investors who were purchasing them – a practice known as scalping. As Stern was selling the stocks, he also purchased small amounts in order to create the false appearance of legitimate trading activity and induce investors to purchase shares in both companies.”

Read the full SEC charges against First Resource Group LLC and its principal David H. Stern. Read the court complaint from the U.S. District Court in the Southern District of Florida.

If you bought stock from First Resource Group LLC of Fort Lauderdale, FL or David H. Stern, contact Fort Lauderdale securities attorney Howard Kahn to discuss your legal options.

Investor Options in Resolving Securities-Related Disputes

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Investors have several dispute resolution options when facing security-related disputes. The Financial Industry Regulatory Authority (FINRA) recommends that investors consider the dispute resolution techniques outlined below.

First, the investor should contact their brokerage firm and report the discrepancy or dispute, in writing, to the appropriate department or manager.  Often, the brokerage firm will have authority or insight on how to rectify the problem quickly and easily.

Next, the investor may want to initiate arbitration against the broker or the brokerage firm.  Arbitration is an efficient and inexpensive method of resolving disputes between parties by neutral, qualified individuals who serve as decision makers after hearing all facts from all parties involved.  Arbitration awards are final, binding and subject to court review only in limited situations.  Thus, pursuing claims through arbitration usually precludes investors from pursuing the same claims through the courts.

An investor may file a Request for Mediation to FINRA, at any time.  Once FINRA receives the request, they will contact all parties to explain the mediation process and seek their agreement.  Mediation must be agreed upon by all parties.

Other resolution alternatives include filing a complaint with the SEC, the FINRA Investor Complaint Center, or with state securities regulators.  If there is evidence of illegal or unethical activity by a broker or brokerage firm, investors may file a tip with FINRA’s or SEC’s Office of the Whistleblower.

Finally, if an investor is seeking arbitration it is advised to choose an attorney.  If an investor cannot afford an attorney, some law schools provide legal representation through securities arbitration clinics.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Mary Jo White Nominated for SEC Chair

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President Obama nominated Mary Jo White, a former U.S. Attorney for the Southern District of New York, to serve as Chair of the U.S. Securities and Exchange Commission. White would replace Mary Schapiro, who left the agency in December.

Ms. White is currently Chair of the Litigation practice group at the New York law firm of Debevoise & Plimpton, where she concentrates her practice in white collar criminal defense and securities law. Her biography, as outlined below from the law firm’s website, summarizes her career highlights.

Ms. White served as the United States Attorney for the Southern District of New York from 1993 to 2002. She is the only woman to hold the top position in the more than 200-year history of that office, which has the responsibility of enforcing the federal criminal and civil laws of the nation.

Ms. White also served as the first Chairperson of Attorney General Janet Reno’s Advisory Committee of United States Attorneys from all over the country. Prior to becoming the United States Attorney in the Southern District of New York, Ms. White served as the First Assistant United States Attorney and Acting United States Attorney in the Eastern District of New York from 1990 to 1993.

In addition, Ms. White has served as a Director of The NASDAQ Stock Exchange, and on its Executive, Audit and Policy Committee. She is also a member of the Council on Foreign Relations.

Ms. White’s practice concentrates on internal investigations and defense of companies and individuals accused by the government of involvement in white collar corporate crime or Securities and Exchange Commission (SEC) and civil securities law violations, and on other major business litigation disputes and crises. For her criminal work, she leads a Debevoise team that includes eleven former Assistant U.S. Attorneys with extensive experience in major commercial investigations and prosecutions.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

How to Recognize an Investment Scam

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Con artists peddling investment scams in Miami, Fort Lauderdale, Boca Raton or other South Florida locations work hard to build a personal relationship with their victims.

Watch this FINRA video to learn some of the techniques that con artists use to build trust with potential investors in order to get you to write a check.

There are many investment schemes that a criminal may employ to get you to part with your hard-earned money. Here are a few of the more common scams identified by FINRA, the Financial Industry Regulatory Authority.

  • The “Phantom Riches” Tactic—dangling the prospect of wealth, enticing you with something you want but can’t have. “These gas wells are guaranteed to produce $6,800 a month in income.”
  • The “Source Credibility” Tactic—trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”
  • The “Social Consensus” Tactic—leading you to believe that other savvy investors have already invested. “This is how ___ got his start. I know it’s a lot of money, but I’m investing, so is my mom and half her church—and it’s worth every dime.”
  • The “Reciprocity” Tactic—offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now—half off.”
  • The “Scarcity” Tactic—creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Westor Capital Group of NY Charged with Customer Fund Abuse

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Westor Capital Group, Inc. of Herkimer, NY and President Richard Hans Bach are to immediately stop the further misappropriation and misuse of customer funds and securities under the terms of a Temporary Cease-and-Desist Order (TCDO) filed by the Financial Industry Regulatory Authority (FINRA).

FINRA is seeking the TCDO to prevent further customer harm that would likely continue before a formal disciplinary proceeding against Westor and Bach could be completed.

In addition, FINRA issued a complaint against Westor and Bach, charging them with failing to allow customers to withdraw account balances and deliver securities, misusing customer securities, failing to maintain physical possession or control of securities, and for operating an unapproved self-clearing business.

In one instance, when a customer sought to withdraw $97,000 from his account, Westor refused. FINRA further charges that Westor, acting through Bach, misused 65,000 shares of customers’ fully paid common stock to effect and cover short sales by another customer, without the authority to do so. As a result, Westor and Bach failed to maintain physical possession or control of securities as required by the federal securities laws and rules.

Westor’s primary business is trading in microcap securities through its own accounts held at several different brokerage firms and has ineffective measures to track and reconcile its customers’ stock positions. This makes it possible for Westor and Bach to conceal the improper use of securities, the complaint alleges.

Under FINRA rules, the individuals and firms named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible sanctions include a fine, an order to pay restitution, censure, suspension or bar from the securities industry.

The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA, in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Florida Entrepreneurs Await Crowdfunding

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A new source of Internet-based funding may soon be available to Florida’s more than 2 million small businesses. Crowdfunding (also known as crowd financing, equity crowdfunding, or hyper funding) is defined as “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”

Entrepreneurs from Miami’s Latin American gateway, to Boca Raton’s growing list of corporate headquarters, as well as the I-4 corridor connecting Tampa and Orlando, should be aware of a voluntary Interim Form for Funding Portals designed for prospective crowdfunding portals under the JOBS Act.

Venture capitalists and entrepreneurs who want to launch a funding portal may now voluntarily submit information to the Financial Industry Regulatory Authority (FINRA) regarding their business on the interim form. The information received will help FINRA develop rules specific to crowdfunding portals.

FINRA and the SEC are engaging in an open dialogue about the rules that should apply to funding portals. Once the SEC and FINRA have adopted funding portal rules, FINRA will issue a final funding portal application for FINRA regulation. In applying for membership, crowdfunding portals will not be bound by the responses provided on the Interim Form.

“FINRA is committed to ensuring that the capital-raising objectives of the JOBS Act are advanced in a manner consistent with Congressional intent and investor protection. Crowdfunding portals that file this form will provide FINRA with important information regarding portal business models, which will inform our rulemaking,” said Thomas Selman, Executive Vice President, Regulatory Policy.

The Interim Form asks prospective funding portals to provide information including:

  • ownership;
  • funding;
  • management; and
  • business model and relationships.

FINRA is also asking prospective funding portals to supplement the information in the interim form with any additional information or documents that they believe would be helpful. FINRA will treat information that prospective portals file on the interim form as confidential.

Last year, FINRA solicited comments on the specific rules it should adopt for registered funding portals that become FINRA members. FINRA has also asked for comment on the application of existing rules to broker-dealers engaging in crowdfunding activities.

Florida ranked #2 in the country for its favorable business climate, behind only Texas, in Chief Executive’s 2012 eighth annual survey of CEOs. Crowdsourcing is likely to get a lot of attention in Florida, given the state’s commitment to expanding business opportunities.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Morgan Stanley to Lay-Off 1,600 Bankers and Support Staff

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Pink slips will go out to 1,600 Morgan Stanley employees soon. The firm has Florida offices in Boca Raton and Miami, but details by office location were not disclosed. Half of the lay-offs are expected in the U.S., with the balance of staff reductions overseas. Highly paid investment bankers are targeted, as well support team members.

Click on the link to watch a video news report of the Morgan Stanley staff cuts from Bloomberg News.

According to an early 2012 New York Times article, “the average base pay for managing directors at Morgan Stanley has risen to $400,000 and to $600,000 at Goldman Sachs.” Most Wall Street employees, particularly bankers and senior executive, earn a large annual bonus which may be paid in cash or stock. Morgan Stanley capped 2011 cash bonuses at $125,000, according to the Times.

Overall, compensation and benefits expenses in the third quarter of 2012 were $1,638 million, up almost 8 percent from the comparable prior year quarter. As of September 30, 2012, the Company had 57,726 employees worldwide.

Morgan Stanley, a leading competitor to Goldman Sachs, conducts its business from its headquarters in and around New York City, its regional offices and branches throughout the U.S. and its principal offices in London, Tokyo, Hong Kong and other world financial centers.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Mary Curran of Palm Beach to Pay $21 Million Tax Penalty

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Mary Estelle Curran of Palm Beach, Fla., pleaded guilty today in the U.S. District Court for the Southern District of Florida to filing false tax returns for tax years 2006 and 2007, the Justice Department and Internal Revenue Service, Criminal Investigation (IRS-CI) announced.

According to court documents, Curran, a U.S. citizen, maintained undeclared bank accounts at UBS AG in Switzerland and a bank in Liechtenstein, which she inherited from her husband in 2000. The accounts at UBS AG were held in the names of nominee foreign entities, including the Flognet Foundation and Norega Investment. The account earned income each year, which Curran failed to report on her 2001 through 2007 individual income tax returns.

According to the plea agreement, Curran’s conduct caused a tax loss to the government of approximately $667,716.   The value of all undeclared foreign financial accounts owned or controlled by Curran exceeded $42 million in 2007. In order to resolve her civil liability for failure to report her foreign bank accounts, Curran has agreed to pay a civil penalty in the amount of 50 percent of the high balance of the accounts, which is $21,666,929.

“The Justice Department continues to pursue those who hide income and assets from the IRS through the use of nominee businesses and offshore bank accounts,” said Assistant Attorney General Keneally. “U.S. taxpayers who fail to come forward in the voluntary disclosure program risk prosecution and substantial fines, as this case demonstrates.”

“U.S. citizens who seek to avoid their tax obligations by hiding income in undeclared bank accounts abroad should by now be fully on notice that they will be held accountable for their actions, both civilly and criminally,” said U.S. Attorney for the Southern District of Florida Wifredo A. Ferrer. “The U.S. Attorney’s Office is committed to helping the IRS enforce our nation’s tax laws.”

“Offshore accounts can no longer be used to hide from the IRS and avoid paying the fair amount of tax,” said Richard Weber, Chief, IRS Criminal Investigation.  “IRS Criminal Investigation is aggressively pursuing tax cheats – both domestically and internationally.  We owe it to every American taxpayer to use all lawful means to identify and prosecute both those who evade their taxes and those who assist them in evading their tax obligations.”

Curran faces a potential maximum prison term of six years. A sentencing date has not been set.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

CEO Yan Skwara of US Farms to Pay $59K SEC Fine

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US Farms, Inc. and Yan K. Skwara, its CEO, President, CFO, and Chairman, engaged in a fraudulent scheme involving the company’s stock, illicit kickbacks, and phony agreements to mask those kickbacks, according to SEC allegations.

The Commission announced that on January 2, 2013, the U.S. District Court for the Southern District of Florida entered a Final Judgment of Permanent Injunction by consent, against Defendant Yan K. Skwara enjoining him from violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (“Exchange Act”) and Section 17(a) of the Securities Act of 1933 (“Securities Act”).

U.S. District Judge Robin S. Rosenbaum ordered Yan K. Skwara, CEO, President, CFO, and Chairman of US Farms, Inc., to pay Disgorgement, Prejudgment Interest and a Civil Penalty pursuant to Section 21(d)(3) of the Exchange Act and Section 20(d) of the Securities Act.  The Final Judgment orders Defendant Skwara to pay disgorgement in the amount of $28,000, prejudgment interest of $3,372.57 and imposes a civil penalty of $28,000 for a total of $59,372.57.

U.S. District Judge Robin S. Rosenbaum entered a permanent injunction by default against US Farms, Inc. enjoining them from violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (“Exchange Act”) and Section 17(a) of the Securities Act of 1933 (“Securities Act”).  Judge Rosenbaum ordered US Farms, Inc. to pay disgorgement in the amount of $28,000 and prejudgment interest of $3,372.57 for a total of $31,372.57.

The Commission commenced this action by filing its Complaint on June 4, 2012, against Yan K. Skwara and US Farms, Inc.  [SEC v. Yan K. Skwara et. al., Civil Action No. 12-61078-CIV- Rosenbaum/Seltzer, (S.D. Fla.)] (LR-22584).

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.