President Of Investment Advisory Firm Sentenced In Manhattan Federal Court To Six Years In Prison For Multimillion-Dollar Investment Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JAMES TAGLIAFERRI, formerly the president of TAG Virgin Islands (“TAG”), was sentenced in Manhattan federal court to six years in prison in connection with a multi-year multimillion-dollar fraudulent scheme to defraud his own investment advisory clients. Through TAG, TAGLIAFERRI, a SEC-registered investment adviser: (a) accepted undisclosed compensation in exchange for causing his clients to invest in certain securities; (b) used client funds for illegitimate purposes, including paying other clients; and (c) caused false and fictitious securities instruments to be placed in client accounts. In total, TAGLIAFERRI’s scheme caused clients to lose at least $16 million. In July 2014, TAGLIAFERRI was convicted, following a nearly five-week jury trial, of investment adviser fraud, securities fraud, multiple counts of wire fraud, and multiple counts of violating the Travel Act. He was sentenced today by U.S. District Judge Ronnie Abrams.
Manhattan U.S. Attorney Preet Bharara said: “Today’s sentence ensures that James Tagliaferri will be punished for taking millions in undisclosed fees in exchange for steering his clients’ money to certain companies, and defrauding investors to the tune of millions of dollars. Those who would commit similar crimes should understand that this Office has zero tolerance for individuals who jettison their investors’ interests in favor of their own through fraud and deceit.”
According to the Superseding Indictment filed in Manhattan federal court, other court documents in the public record, and the evidence presented at trial:
In 2007, TAGLIAFERRI opened TAG in the Virgin Islands and began offering investment advisory services to clients through that company. Previously, TAGLIAFERRI had offered such services through another company, Taurus Advisory Group.
Beginning in 2007, TAGLIAFERRI began executing a scheme to defraud TAG clients in various ways. First, TAGLIAFERRI began taking undisclosed fees in exchange for investing client funds in certain companies. He received at least $1.6 million in undisclosed fees in exchange for causing clients to invest in the securities of a horse-racing company located in Garden City, New York (“Company 1”). TAGLIAFERRI placed at least $40 million of client funds in investments relating to Company 1. He also received at least approximately $1.75 million in undisclosed compensation in exchange for placing client funds in several companies affiliated with an associate of his (“Associate 1”). Ultimately, TAGLIAFERRI placed at least $80 million in client funds in investments relating to these companies.
TAGLIAFERRI often used his clients’ money to finance these undisclosed payments to TAG. He did this by transferring client funds from custodial accounts to a trust account maintained by an attorney. He then diverted a portion of those funds – the undisclosed payment – from the trust account to a TAG account in the Virgin Islands that he controlled. By routing fees to TAG through this trust account and other third-party accounts, TAGLIAFERRI was able to receive these fees with no record of such fees appearing on the monthly statements custodial financial institutions sent to TAG clients.
Second, TAGLIAFERRI used client funds for improper purposes, including making payments to other clients who were demanding their money, and to make payments on behalf of companies he was affiliated with, including Company 1. He orchestrated a complex series of transactions between and among TAG client accounts to access funds for these purposes. For example, when an immediate need for funds arose, he caused clients to purchase shares of a publicly traded company affiliated with Associate 1 from a client account affiliated with Associate 1 that TAGLIAGERRI controlled. Once those sales took place and TAG client funds were transferred to that account, he used those funds for his own purposes, including for payments to other clients demanding their money.
Third, TAGLIAFERRI caused false and fictitious securities to be placed in client accounts. He signed a series of investment instruments relating to a company located in Pennsylvania (the “Pennsylvania Company”). According to these instruments, the Pennsylvania Company was obligated to make payments to certain TAG clients based on a note agreement between the Pennsylvania Company and TAG. In reality, however, the Pennsylvania Company never executed any agreement with TAG that obligated it to make payments to TAG or TAG clients. As TAGLIAFERRI well knew, these investment instruments, and the obligation they referenced, were false and fictitious.
In addition to the prison term, Judge Abrams sentenced TAGLIAFERRI, 75, who currently resides in Stamford, Connecticut, and formerly resided in the United States Virgin Islands, to three years of supervised release. TAGLIAFERRI was also ordered to forfeit $2.5 million, including any ownership interest in a residential property in the U.S. Virgin Islands. The Court deferred imposing an order of restitution until a later date.
Mr. Bharara praised the work of United States Postal Inspection Service. He also thanked the United States Securities and Exchange Commission and the United States Attorney’s Office for the Eastern District of North Carolina for their assistance in this matter.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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 the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jason H. Cowley and Parvin Moyne, and Special Assistant United States Attorney Saima S. Ahmed of the United States Securities and Exchange Commission are in charge of the prosecution.