The Commission and the DOJ have recently brought a number of securities fraud cases in which a key person in the misconduct concealed a prior criminal conviction for securities related offenses from investors. Another case in this series was announced by the U.S. Attorney for the Eastern District of New York at the end of last week. U.S. v. Schiro, Case No. 1:17-cr-00130 (E.D.N.Y.).
Patrick Schiro is the founder of Black Rock Morgan LLC, supposedly an investment management firm. The firm name appears to mimic, at least in part, that of hugely successful private equity giant BlackRock and well known Wall Street bank J.P. Morgan. Unfortunately for investors the firm was neither. Mr. Schiro is a securities law recidivist, having been previously convicted of securities fraud.
Over a period of about fifteen months, beginning in July 2014, Mr. Schiro raised at least $440,000 from five investors. The sales pitch used by Mr. Schiro is perhaps typified by his representations to one individual. There the potential investor was told that Black Rock had many clients, managed million of dollars and had a team of investment professionals with deep sector specific experience and numerous clients.
Investor funds were supposed to be invested. In fact only a small portion of the investor funds were actually invested. Most of the investor funds were diverted to paying the personal expenses of Mr. Schiro. Investor requests for a return of their capital were typically ignored, although in one email Mr. Schiro claimed that in view of the firm’s AML responsibilities and its obligations under the U.S. Patriot Act, withdrawals were not permitted. The sole exception was if the funds were wired directly to the bank account associated with their Black Rock account. There were no such policies.
Mr. Schiro pleaded guilty to one count of wire fraud on Friday. Sentencing is scheduled for August 2, 2017.