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Justice News

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Monday, August 22, 2016

Jared Galanis Pleads Guilty In Manhattan Federal Court To Misprision Of A Felony

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JARED GALANIS pled guilty today to concealing a conspiracy to manipulate the market for Gerova Financial Group, Ltd. (“Gerova”), a publicly traded company listed on the New York Stock Exchange, and to defraud the shareholders of that company.  GALANIS pled guilty to misprision of a felony before U.S. District Judge P. Kevin Castel. 

According to the allegations contained in the Indictment filed against JARED GALANIS and his co-conspirators, and statements made in related court filings and proceedings[1]:

The Gerova Scheme

From 2009 to 2011, Jason Galanis, John Galanis, Derek Galanis, Gary Hirst, Ymer Shahini, and Gavin Hamels engaged in a scheme to defraud the shareholders of a publicly traded company called Gerova Financial Group, Ltd. (“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 so as 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 so as to purport 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.  Jason Galanis, John Galanis, Derek 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, various co-conspirators opened and managed brokerage accounts in the name of Shahini (the “Shahini Accounts”), effected the sale of Gerova stock from the Shahini Accounts through manipulative trading, 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.  In total, the co-conspirators sold nearly $20 million worth of Gerova shares from the Shahini Accounts for their own benefit.

In contrast, unsuspecting Gerova shareholders were left with a worthless investment.  More specifically, in March 2011, the New York Stock Exchange (“NYSE”) halted trading of Gerova and in April 2011, Gerova asked the NYSE to delist its securities.  By November 2, 2011, Gerova’s stock price had bottomed out at $0.00 per share. 

JARED GALANIS, an attorney, was aware of the criminal scheme involving Gerova and took steps to conceal it.  In particular, JARED GALANIS permitted John Galanis to use a phone and a law firm email account registered to JARED GALANIS in furtherance of the scheme and transferred the proceeds of the fraudulent scheme through his attorney trust account.

*                *                *

JARED GALANIS, 37, pled guilty to one count of misprision of a felony, which carries a maximum sentence of three years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.

Derek Galanis, 44, pled guilty on August 15, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense. 

Jason Galanis, 46, pled guilty on July 21, 2016, to two counts of conspiracy to commit securities fraud, each carrying a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense; and one count of investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $10,000 or twice the gross gain or loss from the offense. 

John Galanis, 73, pled guilty on July 20, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense. 

Gavin Hamels, 40, pled guilty on March 22, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense; and one count of investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $10,000 or twice the gross gain or loss from the offense. 

The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentence for the defendant will be determined by the judge.           

Trial against defendant Gary Hirst is scheduled for September 12, 2016, on charges of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and wire fraud.  Defendant Ymer Shahini remains a fugitive.  The allegations contained in the Indictment as to those defendants are merely accusations, and they are 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.  

 

[1]  As for the defendants who have not pled guilty (Gary Hirst and Ymer Shahini), the charges described herein constitute only allegations.

16-228
Topic: 
Securities, Commodities, & Investment Fraud
Updated August 22, 2016