Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOHN GALANIS, a/k/a “Yanni," 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 and securities fraud before U.S. Magistrate Judge Sarah Netburn.
U.S. Attorney Preet Bharara said: “John Galanis helped develop and execute an elaborate plan to secretly obtain undisclosed control of millions of shares of Gerova Financial Group stock, falsely pump up the demand, and then cash out, making millions in ill-gotten profits. For John Galanis, this is just the latest chapter in a lifetime of fraud that has included three prior convictions, including one that resulted in a prison sentence of 27 years."
According to the allegations contained in the Indictment filed against JOHN GALANIS and his co-conspirators and statements made in related court filings and proceedings[1]:
From 2009 to 2011, JOHN GALANIS, along with his co-conspirators Jason 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 obtaining secret control over millions of shares of Gerova stock and then manipulating the market for the stock as the defendants caused their secretly held shares to be sold. As part of the scheme, the defendants fraudulently generated demand for Gerova stock by bribing investment advisers to purchase for client accounts the Gerova stock that was sold by the defendants, thereby enabling the defendants to cash out from the scheme and make millions in illegal profits.
As a part of the scheme to defraud, Jason Galanis obtained 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 identifying himself as an officer or director of Gerova to avoid the SEC-imposed bar that prohibited him from holding such positions at publicly traded companies. Among other means and methods, Jason Galanis, with the assistance of Hirst, caused more than 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 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, JOHN GALANIS, among others, with the knowledge and approval of Jason Galanis, 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 and others, 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 present case represents JOHN GALANIS’s fourth conviction. In 1973, JOHN GALANIS was convicted in this District on charges of securities fraud and bribery and was sentenced to six months in prison. In 1988, JOHN GALANIS was convicted in this District of multiple counts of racketeering, tax fraud, securities fraud, bank fraud, and bribery and was sentenced to 27 years in prison. That same year, JOHN GALANIS was convicted in New York County Supreme Court of Grand Larceny and was sentenced to seven to 17 years in prison.
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JOHN GALANIS, 73, pled guilty 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. 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.
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 Jason Galanis, Gary Hirst, Derek Galanis, and Jared Galanis is scheduled to commence on Sept. 12, 2016 on charges of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and wire fraud, and with regard to Jason Galanis and Jared Galanis, on charges of investment advisor 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 (Jason Galanis, Gary Hirst, Derek Galanis, and Jared Galanis) the description of the charges set forth herein constitute only allegations.
Source: U.S. Department of Justice, Federal Bureau of Investigation (FBI)
