SEC, FINRA Enforcement: 2 Busted for Selling Fake Charitable Gift Annuities

By Marlene Y. Satter August 7, 2015

This article appears at the following website: thinkadvisor.com

Texas man charged with $114M Ponzi scheme related to driver safety

Among recent enforcement actions by the Securities and Exchange Commission were charges against perpetrators of fraud involving “charitable gift annuities,” against a Canadian citizen in a microcap fraud case; against a Houston-area businessman working a Ponzi scheme worth more than a million dollars; and against an energy company, its current chief operating officer and its former chief financial officer for accounting fraud.

In addition, the Financial Regulatory Authority (FINRA) barred a former Caldwell broker for churning customers’ accounts.

2 Execs Charged in Fake Annuity Scam

The SEC has announced that it has charged James P. Griffin, the founder and CEO of 54Freedom Inc.; James Wolle, 54Freedom’s chief financial officer and treasurer; and seven other firms with defrauding investors who purchased the companies’ securities and so-called “charitable gift annuities.” Many of the investors were residents of upstate New York.

The U.S. Attorney’s Office for the Northern District of New York announced that Griffin had been arrested on charges of fraud and money laundering related to the annuities.

According to the agency, the scheme brought in at least $8 million from 125 or more investors in shares and promissory notes issued by the companies over more than seven years, starting in 2007.

Griffin and Wolle, both of Cazenovia, New York, repeatedly misled prospective investors regarding the companies’ prospects, making numerous claims with no basis in fact. An exclusive relationship with Lloyd’s of London was one claim; another was that they would publish a soccer book affiliated with the “Chicken Soup for the Soul” series.

Griffin is also alleged to have sold phony “charitable gift annuities” that he falsely claimed were backed by reputable insurance companies, and to have diverted at least $1.2 million of investor funds to pay for corporate and personal expenses, including a boat and trips he and his wife took to Hawaii and New Zealand.

Griffin, Wolle and the companies are charged with violations of the antifraud and registration provisions of the securities laws. In addition, Griffin’s wife, Chary Griffin, is named as a relief defendant for the purpose of recovering allegedly misappropriated investor funds.

Six of the firms charged are based in Cazenovia: 54Freedom Securities Inc., MoneyIns Inc., 54Freedom Foundation Inc., 5 Ledyard Ave. LLC, 5 Ledyard Corp. and IICNet LLC. One firm, 54FreedomTele Inc., is based in Miami.

SEC: Canadian's Public Tech Company Wasn't So Public After All

Phillip Thomas Kueber, a Canadian citizen, has been charged by the SEC with conducting a scheme to hide his control and ownership of a microcap company whose price quickly spiked last year. The SEC thwarted his scheme by suspending trading in the stock, Cynk Technology Corp., before Kueber could profit on the gains from the stock’s rise to more than $21 from less than 10 cents per share.

According to the agency, Kueber masterminded a phony and deceptive registration statement filed by Cynk. He enlisted a small group of straw shareholders and fake CEOs to hide his control of supposedly nonrestricted shares in Cynk stock. The straw shareholders — mainly Kuber’s family members and associates in British Columbia and California — never received the shares they “purchased.”

Instead, Kueber managed to transfer the shares to brokerage accounts and offshore shell companies he secretly controlled, while misleading broker-dealers about his ownership of the shares to create the false appearance of a company with publicly held shares.

The scheme didn’t pay off, though. Kueber was unable to cash in on selling his Cynk shares; the SEC suspended trading in Cynk on July 11, 2014 amid suspicious activity surrounding the company’s stock. Once trading resumed, the share price fell, closing at 60 cents per share on July 28, 2014.

The SEC seeks to impose a civil monetary penalty, to bar Kueber from serving as a public company officer or director or participating in a penny-stock offer, and to be subject to a court-ordered injunction against future antifraud violations. Its investigation is continuing.

Driver Safety-Related Ponzi Scheme Busted

Frederick Alan Voight of Richmond, Texas was charged by the SEC with operating a $114 million Ponzi scheme that defrauded more than 300 investors, some of whom were told that their money would fund technology to prevent accidents caused by drowsy driving.

Voight lured investors into multiple offerings of promissory notes issued by two partnerships he owns, F.A. Voight & Associates LP and DayStar Funding LP. Although his latest offering promised investors returns as high as 42% annually from loans to small public companies, most of the money went instead to pay earlier investors. However, approximately $22 million of the money he got from investors is still unaccounted for.

According to the agency, Voight recently raised $13.8 million that he said would be loaned to a startup named InterCore Inc. to fund its deployment of a “Driver Alertness Detection System,” or DADS. Starting in October 2014, Voight wrote to prospective investors about a “tremendous” opportunity to help InterCore install the DADS technology into “several million trucks and buses,” which he said was enough for the company to pay the 30% to 42% annual interest rates on the promissory notes “many, many times over.”

But of course Voight knew that was a lie. He served on InterCore’s board and knew perfectly well that the public company, based in Delray Beach, Florida, was underwater and couldn’t pay back the loans.

Voight used the DADS investors’ money to make Ponzi payments to earlier investors, or channeled the funds to InterCore through two of his other partnerships, Rhine Partners LP and Topside Partners LP. InterCore then sent the funds to its Montreal-based subsidiary, InterCore Research Canada Inc., where they vanished.

Routing the money through Rhine and Topside gave Voight the chance to collect a number of financial benefits, including fees and InterCore stock warrants, that he never disclosed to the DADS investors.

Voight and Daystar agreed to settle without admitting or denying the charges, and consented to various measures along with asset freezes and other emergency relief. They also agreed to pay civil penalties and return ill-gotten gains, with interest, in amounts to be determined later by the court. Voight also agreed to being barred from serving as a public company officer or director and to be barred permanently from participating in the offer, purchase, or sale of any security except for his own personal account.

The SEC named F.A. Voight & Associates, Rhine, Topside, InterCore, and InterCore Research Canada as relief defendants for the purpose of recovering any ill-gotten gains. F.A. Voight & Associates, Rhine, and Topside have agreed to asset freezes and other emergency relief, and to return ill-gotten gains in amounts to be set by the court. The SEC will go to court against relief defendants InterCore and InterCore Research.

FINRA Bars Former Caldwell Broker for Churning

Richard Adams, a former registered representative of Caldwell International Securities Corp., has been permanently barred by FINRA from the securities industry for churning customers' accounts and other securities rule violations. Adams also failed to report a dozen unsatisfied judgments and liens on his U4 Registration Form as required by FINRA rules.

According to the agency, from July 2013 to June 2014, Adams excessively traded and churned the accounts of two customers, generating more than $57,000 in commissions. At the same time, the excessive trading activity in these accounts resulted in over $37,000 in customer losses.

Adams neither admitted nor denied the charges but agreed to the sanctions.

Miller Energy Resources, COO, Former CFO Charged With Accounting Fraud

The SEC has charged Tennessee-based Miller Energy Resources Inc., its current COO and its former CFO with inflating values of oil and gas properties, resulting in fraudulent financial reports for the company. The audit team leader at the company’s former independent auditor also was charged.

According to the agency, after acquiring oil and gas properties in Alaska in late 2009, Miller Energy overstated their value by more than $400 million, boosting the company’s net income and total assets. That high valuation had a significant impact, turning a penny-stock company into one that eventually was listed on the New York Stock Exchange, where its stock reached a 2013 high of nearly $9 per share.

Miller Energy paid $2.25 million and assumed certain liabilities to buy the Alaska properties, but later reported them at a value of $480 million. While accounting standards required the company to record the properties at “fair value,” then-CFO Paul Boyd relied on a reserve report that did not reflect fair value for the assets, and also double-counted $110 million of fixed assets already included in the reserve report.

The report by a petroleum engineering firm also contained expense numbers that were knowingly understated by David Hall, the CEO of Miller Energy’s Alaska subsidiary and Miller Energy’s chief operating officer since July 2013. Hall, of Anchorage, Alaska, also altered a second report to make it look as if it reflected an outside party’s estimate of value.

In addition, the fiscal 2010 audit of Miller Energy’s financial statements was deficient due to the failure of Carlton W. Vogt III, the partner in charge of the audit. Vogt, of Warwick, New York, was then at Sherb & Co LLP, a now-defunct firm that was suspended by the SEC in 2013 for conduct unrelated to its work for Miller Energy. Vogt issued an unqualified opinion of Miller Energy’s 2010 annual report, falsely stating that the audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board and that Miller Energy’s financial statements were presented fairly and conformed with U.S. generally accepted accounting principles.

The SEC is seeking cease-and-desist orders, civil monetary penalties and return of allegedly ill-gotten gains from the company, Boyd and Hall. It also seeks to bar Boyd and Hall from serving as public company officers or directors and to bar Boyd and Vogt from public company accounting. There will be a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.