Singapore Resident Pleads Guilty In Manhattan Federal Court To Soliciting Millions Of Dollars In Pre-IPO Stock Scheme
Robert Khuzami, Attorney for the United States, Acting Under Authority Conferred by 28 U.S.C. § 515, announced that JOHN GALANIS was sentenced today by the U.S. District Judge Ronnie Abrams to 10 years in prison for defrauding a Native American tribal entity and various investment advisory clients of tens of millions of dollars in connection with the issuance of bonds by the tribal entity and the subsequent sale of those bonds through fraudulent and deceptive means.
Mr. Khuzami said: “This complex and brazen securities fraud scheme lined the pockets of John Galanis and his co-defendants but left the Native American tribal entity, the Wakpamni Lake Community Corporation, $60 million in debt, and numerous pension funds with bonds they never wanted and could not sell. A jury saw the defendant’s lies for what they were, and John Galanis, a career fraudster, now faces a significant prison term as a result of his crimes.”
According to the allegations contained in the Indictment filed against JOHN GALANIS and statements made in related court filings and proceedings, including the trial of JOHN GALANIS and two co-defendants in May and June of 2018:
From March 2014 through April 2016, JOHN GALANIS, Jason Galanis, Gary Hirst, Bevan Cooney, Michelle Morton, Hugh Dunkerley, and others engaged in a fraudulent scheme to misappropriate the proceeds of bonds issued by the Wakpamni Lake Community Corporation (“WLCC”), a Native American tribal entity (the “Tribal Bonds”), and to use funds in the accounts of clients of asset management firms controlled by Hirst, Morton, and others to purchase the Tribal Bonds, which the clients were then unable to redeem or sell because the bonds were illiquid and lacked a ready secondary market.
The WLCC was convinced to issue the Tribal Bonds through false and fraudulent representations by JOHN GALANIS. Simultaneously, Jason Galanis, JOHN GALANIS’s son, with the backing of other co-conspirators, worked to acquire Hughes Capital Management (“Hughes”), a registered investment adviser. Hirst and Morton were installed as Hughes’s chief investment officer and chief executive officer, respectively. Within weeks of taking control of Hughes, Hirst and Morton placed the entire $28 million first series of Tribal Bonds with Hughes clients but failed to disclose material facts about the Tribal Bonds, including that the Tribal Bonds fell outside the investment parameters set forth in the investment advisory contracts of certain Hughes clients. In addition, Hughes’ clients were not told about substantial conflicts of interest with respect to the issuance and placement of the Tribal Bonds before the Tribal Bonds were purchased on these clients’ behalf.
JOHN GALANIS and his co-conspirators then misappropriated the proceeds of the first Tribal Bond issuance. Specifically, although the Tribal Bonds were supposed to be invested in an annuity, the proceeds were deposited into an account opened by Hirst and over which both Hirst and Dunkerley had signatory authority. Hirst and Dunkerley, at the direction of Jason Galanis, then transferred significant amounts of the bond proceeds from that account to support the defendants’ business and personal interests. Jason Galanis, for example, used a portion of the proceeds of the first Tribal Bond issuance to finance the purchase of a $10 million luxury apartment in Tribeca. JOHN GALANIS, similarly, secretly received $2.35 million in proceeds of the first bond issuance, which he spent on a variety of personal expenses and luxury items, including cars, jewelry, and hotel expenses.
In addition, JOHN GALANIS induced the WLCC to issue a second round of Tribal Bonds, which were purchased using $20 million of bond proceeds from the first issuance. As a result of the use of recycled proceeds to purchase additional issuances of Tribal Bonds, the face amount of Tribal Bonds outstanding increased and the amount of interest payable by the WLCC increased, but the actual bond proceeds available for investment on behalf of the WLCC did not increase. In addition, millions of dollars in bond proceeds from the bond issuances were used to finance the acquisition of companies that the defendants and their co-conspirators acquired as part of their aspiration to build a financial conglomerate.
In the spring of 2015, JOHN GALANIS induced the WLCC to issue an additional $16 million worth of Tribal Bonds. Simultaneously, Jason Galanis and others purchased a second investment adviser, Atlantic Asset Management (“Atlantic”), and installed Morton as the chief executive officer. Within days of obtaining control of Atlantic, Morton placed the entirety of the $16 million Tribal Bond with an Atlantic client, without the client’s consent and without disclosing the fact that the Tribal Bonds were outside the client’s investment parameters and that numerous conflicts of interest existed. The proceeds of the $16 million issuance were again not invested in an annuity as promised, but instead were diverted to, among other things, finance the defendants’ acquisition of another company in furtherance of their hope to build a financial conglomerate and to make payments to one of the broker dealers in which certain co-conspirators had interests.
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In addition to the prison term, JOHN GALANIS, 75, was sentenced to three years of supervised release. JOHN GALANIS was also ordered to forfeit $2,585,000 and to make restitution in the amount of $43,785,176.
Jason Galanis, who pled guilty to conspiracy to commit securities fraud, securities fraud, and investment adviser fraud, was sentenced to a term of 173 months in prison on August 11, 2017. Gary Hirst, who pled guilty to securities fraud, conspiracy to commit securities fraud, investment adviser fraud, and conspiracy to commit investment adviser fraud, was sentenced to 96 months in prison on September 7, 2018. Michelle Morton, who pled guilty to conspiracy to commit securities fraud and investment adviser fraud, is awaiting sentencing. Bevan Cooney, who was convicted with JOHN GALANIS at trial of conspiracy to commit securities fraud and securities fraud, is scheduled to be sentenced on April 4, 2019. Hugh Dunkerley, who pled guilty to conspiracy to commit securities fraud, two counts of securities fraud, bankruptcy fraud and falsification of records with the intent to obstruct a government investigation, is scheduled to be sentenced on July 19, 2019.
This conviction represents JOHN GALANIS’s fourth conviction in this District for fraud-related offenses. JOHN GALANIS is currently serving a 72-month sentence imposed by the Honorable P. Kevin Castel in February 2017, resulting from GALANIS’s involvement in a scheme to manipulate the stock price of Gerova Financial Group, a publicly traded company listed on the New York Stock Exchange, and to defraud the shareholders of that company. At today’s sentencing, Judge Abrams directed that 48 months of the sentence she imposed today be served consecutive to the sentence in the Gerova matter. Previously, in July 1988, JOHN GALANIS was convicted after trial of offenses related to his involvement in another fraudulent scheme and sentenced to 324 months’ in prison. In February 1973, JOHN GALANIS was convicted of conspiring to make false statements to the Securities and Exchange Commission and committing mail fraud.
Mr. Khuzami praised the work of the U.S. Postal Inspection Service and the Federal Bureau of Investigation, and thanked the Securities and Exchange Commission.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Rebecca Mermelstein, Brendan F. Quigley, and Negar Tekeei are in charge of the prosecution.