President Of Investment Advisory Firm Found Guilty In Manhattan Federal Court For Multi-Million Dollar Investment Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JAMES TAGLIAFERRI, formerly the president of TAG Virgin Islands (“TAG”), was found guilty yesterday in Manhattan federal court of investment adviser fraud, securities fraud, multiple counts of wire fraud, and multiple counts of violating the Travel Act, in connection with his multi-faceted fraudulent scheme. TAGLIAFERRI, through TAG, an SEC-registered investment adviser: (a) accepted undisclosed compensation in exchange for causing his clients to invest in certain securities, (b) used client funds for illegitimate purposes, including re-paying other clients, and (c) caused fictitious securities instruments to be placed in client accounts. In total, TAGLIAFERRI’s scheme caused clients to lose at least $50 million. TAGLIAFERRI was convicted after a four-and-a-half week trial presided over by U.S. District Judge Ronnie Abrams.
Manhattan U.S. Attorney Preet Bharara said: “James Tagliaferri not only shirked his duty to act in his clients’ best interests, as investment advisers are obligated to do, he orchestrated a scheme to defraud them – taking millions of dollars in undisclosed compensation in exchange for placing their money in certain investments. With yesterday’s guilty verdict, Tagliaferri will now be punished for his actions.”
According to the Superseding Indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:
In 2007, TAGLIAFERRI opened TAG in the U.S. Virgin Islands and began offering investment advisory services to clients through that company. Previously, TAGLIAFERRI had offered such services through another company, Taurus Advisory Group, which was based in Connecticut.
Beginning in 2007, TAGLIAFERRI executed a multi-faceted scheme to defraud TAG clients. First, TAGLIAFERRI began taking undisclosed fees in exchange for placing client funds in certain companies. He received at least $1.6 million in undisclosed fees in exchange for causing clients to invest in the securities of a horse-racing company located in Garden City, New York (“Company 1”). TAGLIAFERRI placed at least $40 million of client funds in investments relating to Company 1. He also received at least approximately $1.75 million in undisclosed compensation in exchange for placing client funds in several companies affiliated with an associate of his (“Associate 1”). Ultimately, TAGLIAFERRI placed at least $80 million in client funds in investments relating to these companies.
TAGLIAFERRI often used his clients’ money to finance these undisclosed payments to TAG. He did this by transferring client funds from custodial accounts to a trust account maintained by an attorney. He then diverted a portion of those funds – the undisclosed fee – from the trust account to a TAG account in the Virgin Islands that he controlled. By routing fees to TAG through this trust account and other third-party accounts, TAGLIAFERRI was able to receive these fees with no record of such fees appearing on the monthly statements that custodial financial institutions sent to TAG clients.
Second, TAGLIAFERRI used client funds for improper purposes, including making payments to other clients who were demanding their money, and to make payments on behalf of companies he was affiliated with, including Company 1. He orchestrated a complex series of transactions between and among TAG client accounts to access funds for these purposes. For example, when an immediate need for funds arose, he caused clients to purchase shares of a publicly-traded company affiliated with Associate 1 from a client account affiliated with Associate 1 that TAGLIAGERRI controlled. Once those sales took place and TAG client funds were transferred to that account, he used those funds for his own purposes, including for payments to other clients demanding their money.
Third, TAGLIAFERRI caused fictitious securities – which he identified as “sub-notes” – to be placed in client accounts. These sub-notes purportedly obligated a company located in Pennsylvania (the “Pennsylvania Company”) to make payments to TAG clients based upon supposed promissory note agreements between the Pennsylvania Company and TAG. In reality, and as TAGLIAFERRI well knew, the Pennsylvania Company never executed any agreement that obligated it to make payments to TAG or TAG clients.
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TAGLIAFERRI, 75, of St. Thomas, U.S. Virgin Islands, was convicted of one count of investment adviser fraud and six counts of violating the Travel Act, which each carry a maximum sentence of five years in prison. He was also convicted of one count of securities fraud and four counts of wire fraud, which each carry a maximum sentence of 20 years in prison. The jury was unable to reach a verdict regarding one wire fraud count and one Travel Act count, and a mistrial was declared as to those two counts. TAGLIAFERRI is scheduled to be sentenced by Judge Abrams on November 7, 2014. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the work of the U.S. Postal Inspection Service and the Criminal Investigators of the United States Attorney’s Office. He also thanked the United States Securities and Exchange Commission and the U.S. Attorney’s Office for the Eastern District of North Carolina for their assistance in this matter.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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’s 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 the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jason H. Cowley and Parvin D. Moyne, and Special Assistant United States Attorney Saima S. Ahmed of the United States Securities and Exchange Commission are in charge of the prosecution.