CEO of Financial Firm Pleads Guilty to Running Multi-Million Dollar Securities and Tax Fraud Scheme, and Operating an Unlicensed Money Services Business
A California-based man pleaded guilty today to conspiring with others to defraud shareholders of publicly traded companies, transmitting millions of dollars through the operation of an unlicensed money-services business in California, and falsifying multiple years of federal tax returns.
Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division, U.S. Attorney Robert S. Brewer for the Southern District of California, Special Agent in Charge Ryan L. Korner of IRS Criminal Investigation’s (IRS-CI) Los Angeles Field Office and Special Agent in Charge Cardell Morant of U.S. Immigration and Customs Enforcement’s Homeland Security Investigation (HSI) made the announcement.
David Nava, 62, of La Jolla, California, pleaded guilty to one count of conspiracy to commit securities fraud, one count of operating an unlicensed money transmitting business (MTB), and one count of tax fraud before U.S. Magistrate Judge Karen S. Crawford of the Southern District of California. Sentencing is set for Jan. 8, 2021.
According to the plea agreement filed in court, Nava was at all relevant times the CEO of the Surf Financial Group LLC (Surf Financial), a financial-services firm based in La Jolla, California. In 1994, federal securities regulators permanently banned and censured Nava from participating in the securities industry. Despite the two-decades’ old ban, Nava admitted in the plea agreement that he and other co-conspirators, including a licensed attorney, converted the debt of various publicly traded companies under materially false and fraudulent pretenses into unrestricted stock and then sold the stock for profit. Nava further admitted that he and his co-conspirators carried out their fraudulent scheme by entering into agreements in which Nava sold shares of various entities’ stock in public-market exchanges, only after fraudulently claiming an exemption from the U.S. Securities and Exchange Commission’s (SEC) registration requirements for selling securities in the public marketplace.
In the plea agreement, Nava admitted that he directed at least one attorney, as well other co-conspirators, to prepare fraudulent attorney opinion letters that were used to remove restrictions on various publicly traded companies’ stocks so that they could be freely traded on the open market. These fraudulent attorney opinion letters permitted Nava and his co-conspirators to sell their shares of stock at times of their choosing and unlawfully to circumvent the SEC’s regulations governing the offer and sale of securities.
To conceal his involvement in the scheme, Nava admitted he used various nominees to ensure that, as Nava described it, he was a “ghost” in the transactions. Brokerage firms relied on the purported truth and accuracy of the attorney opinion letters in evaluating whether to clear the sale of shares of the restricted stocks on public markets. After the stocks were cleared for sale as a result of the false attorney opinion letters, Nava and his co-conspirators sold millions of shares of these stocks to the investing public. Nava further admitted that, after selling these shares and securities, he transferred the proceeds derived from the securities-fraud scheme into bank accounts under his direct control.
Nava also admitted that, from approximately 2017 to 2018, he owned and operated an unlicensed MTB as a means to transmit financial proceeds from foreign locations, including Hong Kong and the Bahamas, all of which disguised the source, origin and control of such financial proceeds. As Nava further admitted, in 2017, Nava entered into a business partnership with at least one co-conspirator who resided in Mexico and delivered dairy products for a living. To conceal Nava’s control over the MTB, Nava directed the Mexican resident to fraudulently open a deposit account in his name at a financial institution in San Diego, and to transmit funds as a nominee and as directed by Nava. According to the plea agreement, Nava’s unlicensed MTB transacted millions of dollars in international wire transfers with entities purportedly involved in investment-banking services and which sold futures and securities. Nava failed to register his MTB with the U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, as required under federal law.
As stated in the plea agreement, Nava also falsified his tax returns for years 2014, 2015 and 2016. He admitted that he falsely and fraudulently underreported Surf Financial’s profits, and he did so for the purpose of underreporting Nava’s true income and tax liability.
This case was investigated by IRS- CI and HSI. Trial Attorney Kevin Lowell of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Daniel Silva of the U.S. Attorney’s Office for the Southern District of California are prosecuting the case.
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