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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23664 / September 30, 2016

Securities and Exchange Commission v. Jason W. Galanis, et al., Civil Action No. 1:15-cv-07547

Former Gerova CEO and President Convicted of Securities Fraud and Other Charges

On September 28, 2016, a federal court jury in New York, New York convicted Gary Hirst, the former CEO and President of Gerova Financial Group Ltd., of securities fraud, wire fraud and conspiracy charges. The criminal action was prosecuted by the U.S. Attorney's Office for the Southern District of New York, and the trial was presided over by U.S. District Judge P. Kevin Castel.

The conviction follows guilty pleas on securities fraud and related charges by four other defendants in the matter: Jason Galanis, John Galanis, Derek Galanis and Gavin Hamels. Jared Galanis pled guilty to misprision of felony. A seventh defendant, Ymer Shahini, remains at large.

On September 24, 2015, the SEC filed a civil action in federal court in Manhattan, charging John Galanis, his sons Jason Galanis, Derek Galanis, and Jared Galanis, along with Hirst and investment adviser Hamels based on the same conduct alleged in the criminal case. According to the SEC's complaint, in early 2010, Jason Galanis and Hirst orchestrated a scheme to secretly issue $72 million of unrestricted Gerova shares to a Galanis family friend in Kosovo. Jason Galanis, his father, and his brothers allegedly directed sales of the shares from the Kosovo friend's brokerage accounts and had the proceeds wired to them and their associates who collectively realized approximately $20 million in illicit profits.

Jason Galanis is alleged to have bribed Hamels to purchase Gerova stock to help stabilize the stock's price as the shares were liquidated. The complaint alleges that many of the purchases were coordinated in matched trades with the Kosovo friend's sales. Hamels is alleged to have purchased Gerova stock for advisory clients based on arrangements with Jared Galanis regarding the times, prices, and amounts of stock to purchase, and is alleged to have failed to inform his clients of the bribe from Jason Galanis.

The SEC's complaint charges Jason Galanis, Jared Galanis, Derek Galanis and Hirst with violations of Sections 5(a) and (c) of the Securities Act of 1933; Jason Galanis, Jared Galanis and Derek Galanis with violations of Section 17(a)(1) of the Securities Act; Jason Galanis, Jared Galanis, Derek Galanis and Hamels with violations of Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5(a) and (c) thereunder; John Galanis and Hirst with violations of Section 20(e) of the Exchange Act for aiding and abetting violations of Section 10(b) of the Exchange Act, and Rules 10b-5(a) and (c) thereunder; Jared Galanis with violations of Section 20(e) of the Exchange Act for aiding and abetting violations of Section 9(a)(1) of the Exchange Act; and Hamels with violations of Section 9(a)(1) of the Exchange Act, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. In addition, the SEC alleges, in the alternative, that Derek Galanis violated Section 15(b) of the Securities Act by aiding and abetting violations of Section 17(a)(1); Jared Galanis and Derek Galanis violated Section 20(e) of the Exchange Act by aiding and abetting violations of Section 10(b) of the Exchange Act, and Rules 10b-5(a) and (c) thereunder; and Hamels violated Section 209(f) of the Advisers Act by aiding and abetting violations of Sections 206(1) and (2) of the Advisers Act.

The complaint seeks a final judgment permanently enjoining the defendants from committing future violations of these provisions, ordering them to disgorge their ill-gotten gains plus prejudgment interest, imposing financial penalties and barring Jason Galanis and Hirst from acting as officers or directors of a public company.

Hamels previously settled the SEC's charges, consenting to a partial judgment with the SEC that imposed permanent injunctions of Sections 9(a)(1) and 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act, and leaving the amount of disgorgement, prejudgment interest and civil penalty to be imposed to be decided at a later time. The SEC also previously instituted settled administrative proceedings against Hamels that imposed an industry and penny stock bar. The remainder of the action is stayed pending resolution of the criminal action.

For further information, see Litigation Release No. 23360 (Sep. 24, 2016), Exchange Act Release No. 78322 (July 14, 2016), and Advisers Act Release No. 4451 (July 14, 2016).

 

http://www.sec.gov/litigation/litreleases/2016/lr23664.htm


Modified: 09/30/2016