Head Of Merchant Bank Sentenced To 24 Months In Prison In Connection With Multimillion-Dollar Securities Fraud Scheme
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that CRAIG ZABALA, the chairman, chief executive officer, and president of Concorde Group Holdings Inc. (“Holdings”), was sentenced today to 24 months in prison for participating in a scheme to defraud investors in Holdings, a purported merchant banking firm. Among other illicit activity, ZABALA fraudulently induced at least 17 investors to invest approximately $4.38 million based on false and misleading statements, by failing to use investors’ funds as promised, and by converting investors’ money to his own use. ZABALA pled guilty to conspiracy to commit securities fraud and wire fraud on October 22, 2020, before U.S. District Judge J. Paul Oetken, who also imposed today’s sentence.
U.S. Attorney Audrey Strauss said: “Craig Zabala defrauded investors out of more than $4 million through a purported financial services firm he controlled. He lied to investors about how much money had been raised, who had invested, how close the firm was to an IPO, and how he would use investors’ money. Zabala appropriated most of the money for his own use or to pay off investors in a Ponzi-like fashion. Now he has been sentenced to prison for his crimes.”
According to the allegations in the Complaint, the Information, and other proceedings in this case:
CRAIG ZABALA was the chairman, CEO, and president of various affiliated and intertwined purported financial services companies: Holdings, Concorde Group, Inc. (“Group”), Blackhawk Capital Group BDC, Inc. (“Blackhawk”), DBL Holdings, LLC, d/b/a “Drexel Burnham Lambert” (“DBL”), Concorde Investment Managers, LLC (“CIM”), and Concorde Europe, Ltd. (“Concorde Europe”). In or about August 2019, FINRA barred ZABALA from the broker-dealer industry, including because of his failure to cooperate with a FINRA investigation.
Holdings was a Delaware corporation formed in or about 2015, with an office in Jersey City, New Jersey, and a mailing address in New York, New York. Holdings purported to provide financial services, including merchant banking, investment banking, asset management, and securities brokerage services, to entrepreneurs, investors, and businesses in the middle market, meaning small to mid-sized companies with revenue and market capitalizations of less than $1 billion, in North America, Europe, and Asia. Holdings’ purported affiliates included Group, DBL, Blackhawk, CIM, and Concorde Europe. ZABALA was a majority owner of Holdings.
Group was a Delaware corporation formed in or about 1995, based in New York, New York, that purported to provide the same types of financial services as Holdings. Group’s purported affiliates included DBL, Blackhawk, CIM, and Concorde Europe. ZABALA was a majority owner of Group. Between in or about 2001 and in or about 2014, Group purportedly raised approximately $18 million from investors.
From at least in or about 2015 through in or about 2020, ZABALA and others perpetrated a scheme to defraud at least approximately 17 investors out of approximately $4.38 million in Holdings notes, warrants, and equity. Almost all of these investors invested in a private offering by Holdings of $25 million in senior secured notes with attached warrants paying 13 percent interest (the “Holdings Offering”).
ZABALA falsely represented that the proceeds from the offerings would be used to grow Holdings’ purported merchant banking business by investing in and buying other financial services companies. In truth and in fact, and as ZABALA well knew, Holdings did not make any investments in or buy other companies; it was a shell company.
ZABALA falsely represented that Holdings was successfully raising money from investors, claiming that Holdings had raised nearly all of the $25 million targeted in the Holdings Offering and that the family office of a wealthy German family had invested millions of dollars in Holdings. In truth and in fact, and as ZABALA well knew, Holdings only raised a few million dollars (the majority from one investor), and the family office never invested in, and never committed to invest in, Holdings.
ZABALA falsely represented to Holdings Investors that Holdings would soon have an initial public offering (“IPO”), which would result in large profits to Holdings investors. In truth and in fact, and as ZABALA well knew, Holdings was not close to an IPO.
ZABALA converted at least approximately 70 percent of the approximately $4.38 million in Holdings investor funds in the form of cash withdrawals and other transfers to himself, payments to his girlfriend, payments of his personal credit card bills, and repayment of Group investors in a Ponzi-like fashion.
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ZABALA, 69, of New York, New York, was also sentenced to three years of supervised release, ordered to forfeit $4,380,000, and to pay restitution of $4,380,000.
Ms. Strauss praised the outstanding work of the United States Postal Inspection Service’s New York Division, and also thanked the Securities and Exchange Commission and Financial Industry Regulatory Authority for their assistance and cooperation in this investigation.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney Joshua A. Naftalis is in charge of the prosecution.
James Margolin, Nicholas Biase