by T. GormanPosted on Posted in SECActions

An analysis of the SEC Enforcement Division’s workload over the last several years clearly reflects and increasing focus on investment advisers. The trend traces back beyond the current Commission and ties to the development of a close working relationship between Enforcement and OICI cultivated over years. For all the cases brought, however, seldom has there been one where the amount of the investor money misappropriated was “all of it.” Yet that is precisely the amount the spouse of one victim testified was stolen by an investment adviser to professional athletes. U.S. v. Fulford, No. 4:16-cr-00551 (S.D. Tx.).

Peggy Ann Fulford was an investment adviser to sports stars from the NBA and NFL. She became the adviser to NBA Players Travis Best and Dennis Rodman. Other clients included NFL players Ricky Williams and Lex Hilliard. Ms. Fulford garnered these clients by representing that she had graduated from Harvard Law School and Harvard Business School. Ms. Fulford also claimed to have made millions on Wall Street buying and selling hospitals and real estate. She did not charge clients a fee – she claimed not to need it. Rather, her concern was that client earnings were properly handled; their investments properly made.

To achieve her goal Mr. Fulford requested and apparently received access to client bank accounts. She offered to manage client expenses and invest their funds for retirement. While that may have been the stated plan, it never happened. Rather, the funds were misappropriated.

Ms. Fulford pleaded guilty to one count of interstate transportation of stolen property. At her sentencing Kristin Williams, the former wife of Heisman trophy winner Ricky Williams testified along with Rebekah Hilliard, wife of former NFL player Lex Hilliard. The testimony detailed how Ms. Fulford’s theft devastated the victims and their families financially. When the Court as Ms. Williams how much of Ricky Williams’ NFL money Ms. Fulford took, she replied “All of it.”

During the sentencing hearing a New Orleans man testified that he knew Ms. Fulford as Peggy Jones. Ms. Jones convinced him to invest $25,000 in a medical company in Arizona. The company was bogus. At the time Ms. Fulford/Jones was out of jail on bail.

The Court imposed the maximum sentence on Ms. Fulford: 120 months in prison followed by three years of supervised release. In addition, she was ordered to pay $5,794,870 in restitution to the victims.

Save the date: On December 5, 2018 the Dorsey Federal Enforcement Forum will present six presentations detailing critical trends regarding SEC enforcement followed by a Holiday Party at Dorsey & Whitney, LLC, 1401 New York Avenue, Washington, D.C. 20005. The program is live in Washington and, in addition, live streamed and webcast.

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by T. GormanPosted on Posted in SECActions

It has long been said that we cannot escape death and taxes. That old slogan seems clearly true. It may, however, be incomplete. It may be time to amend it to read that “we cannot escape death, taxes and the Department of Justice.”

The DOJ’s latest case more than proves the point. In that case the former CEO of a public company was convicted of securities fraud and other crimes. He was ordered to prison for years and to pay fines, restitution and penalties. The CEO died in prison before his appeals could be completed. Thus, the appeals court vacated the sentence and convictions. Yet the Department of Justice will extract $143 million which will be distributed to victims of the fraud. U.S. v. All Assets Listed on Schedule I Attached Hereto and Traceable Thereto, Civil Action No. 10-CV-4750 (E.D.N.Y.).

David H. Brooks was the founder and CEO of DHB Industries, Inc. The firm manufactured body armor for the U.S. military and law enforcement agencies. In 2010 Mr. Brooks was convicted of mail and wire fraud, securities fraud and obstruction of justice following an eight month jury trial. He later pleaded guilty to filing false tax returns.

In 2013 Mr. Brooks was sentenced to 17 years in prison. The court also ordered that Mr. Brooks forfeit about $65 million and pay an $8.7 million fine, $2.9 million in restitution to the IRS and about $91.5 million in restitution to investors and SS Body Armor I, Inc., the successor to DHB Industries which sought bankruptcy protection.

The convictions and sentence were based on claims that Mr. Brooks:

· Manipulated DHB’s books and records;

· Lied to the auditors to cover-up the manipulation schemes;

· Made about $185 million in trading profits from DHB’s inflated stock price; and

· Used corporate funds to support his lavish life style.

Following the stock sales by Mr. Brooks and the exposure of his fraud, the share price crashed, leaving investors with pennies on the dollar. Civil forfeiture orders were executed, seizing funds in accounts at a number of financial institutions, foreign currency, gold Krugerrands, luxury cars, jewelry and a commissioned replica of the famous Wall Street “Charging Bull” statute.

Following Mr. Brook’s death the government prosecuted a civil forfeiture action. The action was based largely on the claims used to prosecute the criminal case against the former executive. Those claims, along with related actions by investors and the Securities and Exchange Commission, were resolved with a $143 million forfeiture. That represents the largest civil forfeiture recovery by the U.S. Attorney’s Office for the Eastern District of New York. It is expected that the funds will be remitted to investors and SSBA, reimbursing the victims of about 90% of their DOJ-approved losses. The settlement also provided for full payment of the approximately $2.9 million tax restitution ordered to the IRS..

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