- Prosecutors say investors scammed in pump-and-dump swindle
- Group used shares of Bermuda company in crime, U.S. alleges
A California man previously fined over financial statements for Penthouse magazine’s former publisher was among seven people arrested on federal charges that they ran a stock swindle that cost Gerova Financial Group Ltd. investors almost $20 million.
Jason Galanis, 45, is accused of gaining control of the Bermuda-based financial-services company with the help of its then-chairman, Gary Hirst, and driving up the stock price before secretly selling shares they held. Hirst is also charged in the pump-and-dump case, which prosecutors said ran from 2009 to 2011.
“Galanis and his co-conspirators used their Wall Street credentials and veneer of a legitimate-sounding financial firm to manipulate the market,” U.S. Attorney Preet Bharara in Manhattan said in a statement Thursday.
Galanis previously bought the largest processor of credit card payments for pornography websites. In 2007, he was fined $60,000 by the Securities and Exchange Commission after the agency accused him of preparing false financial statements for Penthouse International Inc., the former publisher of the men’s magazine.
Galanis’s father, John, and two of his brothers were also charged in the Gerova case. The elder Galanis was convicted in 1988 of masterminding a multimillion-dollar, purported tax-shelter scheme that bilked actors including Eddie Murphy and Sammy Davis Jr.
Jason Galanis was released on a $10 million bond by a federal magistrate in New York. Prosecutors lost a request for Galanis to be barred from working in the financial industry while the case is pending. They argued he poses a danger to the financial community.
"What Mr. Galanis does as his employment is committing fraud," Assistant U.S. Attorney Brian Blais said. In addition to the case pending against Galanis in New York, Blais said his crimes are “ongoing” and that he’s also being investigated in a separate probe in California.
Paul Grand, a lawyer who represented Galanis at the bail hearing, said his client has known about the New York investigation for four years and voluntarily surrendered to federal authorities Thursday to face the charges. Another lawyer for Galanis, Thomas Mazzucco, didn’t respond to e-mail and voice-mail messages seeking comment.
John Galanis also appeared in federal court in Manhattan Thursday and was released on $3 million bond. Grand said John Galanis “intends to fight the charges and be eventually vindicated.”
Hirst remains at large. U.S. District Judge P. Kevin Castel, who’s presiding over the case, scheduled an arraignment for Oct. 7.
According to prosecutors, Jason Galanis, who was temporarily barred from the securities industry in 2007 because of the SEC action, plotted with Hirst in about 2009 to secretly issue $72 million of Gerova shares that were held in the name of Ymer Shahini, a family friend in Kosovo.
Jason Galanis, his father and brothers stirred demand for Gerova stock by bribing investment advisers to buy shares for their clients, prosecutors said. They then sold stock from Shahini’s accounts and had the proceeds wired to them, prosecutors said.
Jason Galanis and brother Jared Galanis, 36, are also accused of engaging in a separate fraud with an unidentified accomplice from 2007 to 2010. They and a firm that wasn’t identified induced clients to invest in notes issued by entities associated with them, prosecutors said.
Shahini remains at large. Jared Galanis was arrested in Maryland and is scheduled to appear in court in Baltimore. His lawyer, Barry Bohrer, didn’t immediately respond to a phone message seeking comment on the case.
All seven defendants are charged with conspiracy and securities fraud, which carries a maximum prison term of 20 years in prison.
The SEC filed a related lawsuit Thursday in Manhattan federal court seeking penalties and a court order barring Jason Galanis and Hirst from serving as a director or officer of a public company.
The cases are U.S. v. Galanis, 15-cr-00643, and SEC v. Galanis, 15-cv-07547, U.S. District Court, Southern District of New York (Manhattan).