U.S. charges 'Porn's New King' with tribal bond fraud
11/05/2016 19:16
By Nate Raymond and Jonathan Stempel
NEW YORK, May 11 (Reuters) - A man once dubbed "Porn's New
King" before he was accused of stock fraud was hit on Wednesday
with new criminal charges over an alleged scheme to cheat
investors and a Native American tribe out of tens of millions of
dollars.
U.S. authorities said Jason Galanis enlisted his father,
John, and five others to defraud clients who invested more than
$43 million in illiquid, sham bonds issued in 2014 and 2015 by
the Wakpamni Lake Community Corp, an affiliate of the Oglala
Sioux Nation in South Dakota.
Rather than invest proceeds to provide capital for the tribe
and make payments to bondholders, Jason Galanis, of Los Angeles,
and his accomplices spent the money on other investments,
support for a technology company's initial public offering, and
luxury goods at retailers such as Gucci and Prada, authorities
said.
Jason Galanis, 45, and John Galanis, 73, were also accused
of diverting money to defend against criminal charges announced
last September over an alleged pump-and-dump swindle that cost
investors in the reinsurer Gerova Financial Group Ltd GVFG.PK
nearly $20 million. urn:newsml:reuters.com:*:nL1N11U201
"The defendants' alleged fraud has left devastation in its
wake: a tribe with tens of millions in bond obligations it
cannot pay, and investors out tens of millions, left holding
bonds they did not want," U.S. Attorney Preet Bharara in
Manhattan said in a statement.
All seven defendants were arrested on Wednesday, and charged
with securities fraud and conspiracy. Three, including Jason
Galanis, were also charged with investment adviser fraud. The
Securities and Exchange Commission filed related civil charges.
Gary Hirst, who was Gerova's chairman and chief investment
officer of Hughes Capital Management LLC, a firm controlled by
Jason Galanis, is a defendant in both criminal cases.
Aaron McClellan, a lawyer for Jason Galanis, did not
immediately respond to requests for comment. David Touger, who
represents John Galanis, and Cameron Stout, who represents
Hirst, declined to comment.
The Oglala Sioux Nation did not immediately respond to
requests for comment.
Six of the seven defendants in the Gerova case face a Sept.
12 trial in that case. The seventh, investment adviser Gavin
Hamels, pleaded guilty in March, court records show.
In 2004, Jason Galanis was dubbed Porn's New King by Forbes
magazine after buying the nation's largest processor of credit
card payments for Internet pornography.
Three years later, the SEC fined him $60,000 after claiming
he prepared false accounting information for Penthouse
International Inc, in which he held a large stake.
The criminal case is U.S. v. Galanis et al, U.S. District
Court, Southern District of New York, No. 16-mag-02978.
(Editing by Matthew Lewis)
((jon.stempel@thomsonreuters.com)(+1 646 223 6317)(Reuters
Messaging: jon.stempel.thomsonreuters.com@reuters.net))
Keywords: USA CRIME/TRIBALBONDS GALANIS