Father And Son Sentenced In Manhattan Federal Court For Market Manipulation Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOHN GALANIS and his son DEREK GALANIS were each sentenced today to six years in prison for manipulating the market for Gerova Financial Group, Ltd. (“Gerova”), a publicly traded company listed on the New York Stock Exchange, and defrauding the shareholders of that company. JOHN GALANIS and DEREK GALANIS each pled guilty to one count of conspiracy to commit securities fraud and one count of securities fraud, on July 20, 2016, and August 15, 2016, respectively. Both were sentenced today by United States District Judge P. Kevin Castel.
U.S. Attorney Preet Bharara said: “John and Derek Galanis conspired to have more than $70 million worth of stock issued, hiding Jason Galanis’s control of those shares, so that they could cash out at the expense of unwitting victim investors. Today, they have been sentenced to prison for their securities fraud.”
According to the allegations contained in the Indictment filed against JOHN GALANIS, DEREK GALANIS, and their co-conspirators, and statements made in related court filings and proceedings:
The Gerova Scheme
From 2009 to 2011, JOHN GALANIS, DEREK GALANIS, and co-conspirators Jason Galanis, Gary Hirst, Ymer Shahini, and Gavin Hamels, engaged in a scheme to defraud the shareholders of Gerova, and the investing public, by effecting securities transactions in Gerova stock for the purpose of conferring millions of dollars of undisclosed remuneration on the co-conspirators, without adequate disclosure of Jason Galanis’s role in directing the transactions or the benefits received by Jason Galanis and his co-conspirators.
As a part of the scheme to defraud, Jason Galanis obtained sufficient control over Gerova to be able to cause Gerova to enter into transactions of his design, and for his benefit, including the issuance of Gerova stock. Jason Galanis obtained this control without causing himself to be identified as an officer or director of Gerova in order to appear to abide by an SEC-imposed bar that forbade him from holding such positions at publicly traded companies. Among other means and methods, Jason Galanis, with the assistance of Hirst, caused over five million shares of Gerova stock, which represented nearly half the company’s public float and which were intended for Jason Galanis’s ultimate benefit, to be issued to and held in the name of Ymer Shahini, who knowingly served as a foreign nominee for Jason Galanis. DEREK GALANIS recruited his longstanding friend Shahini to the scheme, telling Shahini in an email, “All we need is a foreign national we trust which is where you come in my friend.” DEREK GALANIS, JOHN GALANIS, Jason Galanis, Hirst, and Shahini understood that the purpose of the stock grant to Shahini was to disguise Jason Galanis’s ownership interest in the stock, and to evade the SEC’s regulations for issuing unregistered shares of stock.
At the same time, and as a further part of the scheme to defraud, JOHN GALANIS, with the assistance of DEREK GALANIS and the knowledge and approval of Jason Galanis, opened and managed brokerage accounts in the name of Shahini (the “Shahini Accounts”), effected the sale of Gerova stock from the Shahini Accounts, and received and concealed the proceeds, knowing that this activity was designed to conceal from the investing public Jason Galanis’s ownership of and control over the Gerova stock.
Jason Galanis, among others, also fraudulently induced investment advisers, including Gavin Hamels, to purchase shares of Gerova stock in the investment advisers’ client accounts by offering compensation and/or other benefits to the respective investment adviser. JOHN GALANIS and Jason Galanis thereafter coordinated the purchase of Gerova stock at the time, quantity, and/or price of their choosing, thus effectuating the sale of large quantities of Gerova stock from the Shahini Accounts while artificially maintaining the price of Gerova stock through match trading. Such coordinated trading served to manipulate the market for Gerova stock and deceive the investing public. In total, JOHN GALANIS, DEREK GALANIS, Jason Galanis, and their co-conspirators sold nearly $20 million worth of Gerova shares from the Shahini accounts for their own benefit.
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In addition to the prison terms, JOHN GALANIS, 73, and DEREK GALANIS, 44, were each sentenced to three years of supervised release, and each ordered to forfeit $19,038,650.53. Judge Castel will set a restitution amount for each at a future proceeding.
Jason Galanis, who pled guilty to two counts of conspiracy to commit securities fraud, one count of securities fraud, and one count of investment adviser fraud, was sentenced to a term of 135 months in prison on February 15, 2017. Jared Galanis, who pled guilty to misprision of a felony, was sentenced to a term of 150 days in prison on January 11, 2017. Gary Hirst, who was found guilty after trial of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and wire fraud, is scheduled to be sentenced on March 17, 2017. Defendant Ymer Shahini remains a fugitive. The allegations contained in the Indictment as to Shahini are merely accusations, and he is presumed innocent unless and until proven guilty.
Mr. Bharara praised the work of the U.S. Postal Inspection Service and the Federal Bureau of Investigation, and thanked the SEC.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established 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 is 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 fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Brian Blais, Aimee Hector, and Rebecca Mermelstein are in charge of the prosecution.