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Justice News

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

FOR IMMEDIATE RELEASE
Thursday, July 21, 2016

Jason Galanis Pleads Guilty In Manhattan Federal Court To Market Manipulation

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JASON GALANIS pled guilty today to manipulating the market for Gerova Financial Group, Ltd. (“Gerova”), a publicly traded company listed on the New York Stock Exchange, and to defrauding the shareholders of that company.  GALANIS pled guilty to conspiracy to commit securities fraud, securities fraud, and investment adviser fraud before U.S. Magistrate Judge Sarah Netburn. 

U.S. Attorney Preet Bharara said:  “As the ringleader of this multimillion-dollar fraud scheme, Jason Galanis put together a team of co-conspirators that carried out a strategy to secretly acquire shares of a publicly traded company and then cash out through a scheme of market manipulation.  If that wasn’t enough, Jason Galanis also ran a separate scheme to defraud investors whose money was used by Galanis to pay obligations he owed to another set of investors.”

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

The Gerova Scheme

From 2009 to 2011, JASON GALANIS, along with his co-conspirators John Galanis, Jared Galanis, Gary Hirst, Derek Galanis, 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 to JASON GALANIS and his 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 5 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, Jared 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, JASON GALANIS’s co-conspirators, with his knowledge and approval, 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.  By causing the purchase of Gerova stock at the time, quantity, and/or price of their choosing, JASON GALANIS and others were able to, among other things, effectuate the sale of large quantities of Gerova stock from the Shahini Accounts that JASON GALANIS controlled while artificially maintaining the price of Gerova stock through coordinated match trading.  Such coordinated trading served to manipulate the market for Gerova stock and deceive the investing public.  As a result, JASON GALANIS and his co-conspirators reaped nearly $20 million in profits.

The Scheme to Defraud Clients of Investment Firm-2

From 2007 to 2010, JASON GALANIS along with an investment adviser identified in the Indictment as “CC-2,” participated in a scheme to defraud the clients of CC-2’s investment advisery firm, identified in the Indictment as “Investment Firm-2.”  Oftentimes in exchange for compensation from JASON GALANIS, CC-2 caused Investment Firm-2 clients to invest in notes issued by entities associated with JASON GALANIS. 

When obligations owed by entities associated with JASON GALANIS became due, CC-2 used client funds to either purchase notes issued by other entities associated with JASON GALANIS, or publicly-traded shares held by such entities.  The funds generated were then used to pay the original obligations owed to other Investment Firm-2 clients.  Through these securities trades, funds in client accounts of one set of Investment Firm-2 investors were used to pay obligations owed to a different set of Investment Firm-2 investors by entities associated with JASON GALANIS. 

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 JASON GALANIS, 46, pled guilty 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 $250,000 or twice the gross gain or loss from the offense. 

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

Trial against defendants Gary Hirst, Derek Galanis, and Jared Galanis is scheduled for September 12, 2016, on charges of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and wire fraud, and with regard to Jared Galanis, on charges of investment adviser 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, Derek Galanis, Jared Galanis, and Ymer Shahini), the description of the charges set forth herein constitute only allegations.

Topic(s): 
Financial Fraud
Press Release Number: 
16-199
Updated July 21, 2016