Bevan Cooney Sentenced To 30 Months In Prison For The Fraudulent Issuance And Sale Of More Than $60

[nitpicker]

https://www.justice.gov/usao-sdny/pr/bevan-cooney-sentenced-30-months-prison-fraudulent-issuance-and-sale-more-60-million

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Wednesday, July 31, 2019

Bevan Cooney Sentenced To 30 Months In Prison For The Fraudulent Issuance And Sale Of More Than $60 Million Of Tribal Bonds

Audrey Strauss, Attorney for the United States, Acting Under Authority Conferred by 28 U.S.C. § 515, announced that BEVAN COONEY was sentenced today by the U.S. District Judge Ronnie Abrams to 30 months in prison for defrauding a Native American tribal entity and various investment advisory clients of tens of millions of dollars in connection with the issuance of bonds by the tribal entity and the subsequent sale of those bonds through fraudulent and deceptive means.
(snip)

From March 2014 through April 2016, COONEY, John Galanis, Jason Galanis, Gary Hirst, Michelle Morton, Hugh Dunkerley, and others engaged in a fraudulent scheme that involved (a) causing the Wakpamni Lake Community Corporation (“WLCC”), a Native American tribal entity, to issue a series of bonds (the “Tribal Bonds”) through lies and misrepresentations; (b) deceptively causing clients of asset management firms controlled by Hirst, Morton, and others to purchase the Tribal Bonds, which the clients were then unable to redeem or sell because the bonds were illiquid and lacked a ready secondary market; and (c) misappropriating the proceeds resulting from those bond sales.

The WLCC was convinced to issue the Tribal Bonds through false and fraudulent representations by John Galanis. Simultaneously, Jason Galanis, with the backing of COONEY and others, worked to acquire Hughes Capital Management (“Hughes”), a registered investment adviser. Morton and Hirst were installed as Hughes’s chief executive officer and chief investment officer, respectively. Within weeks of taking control of Hughes, Morton and Hirst placed the entire $28 million first series of Tribal Bonds with Hughes clients but failed to disclose material facts about the Tribal Bonds, including the fact that the Tribal Bonds fell outside the investment parameters set forth in the investment advisory contracts of certain Hughes clients. In addition, Hughes’s clients were not told about substantial conflicts of interest with respect to the issuance and placement of the Tribal Bonds before the Tribal Bonds were purchased on these clients’ behalf.

The defendants and their co-conspirators then misappropriated the proceeds of first Tribal Bond issuance. Specifically, although the Tribal Bonds were supposed to be invested in an annuity, Dunkerley, at the direction of Jason Galanis, transferred significant amounts of the bond proceeds to support the defendants’ business and personal interests. John Galanis, for example, secretly received $2.35 million in proceeds of the first bond issuance, which he spent on a variety of personal expenses and luxury items, including cars, jewelry, and hotel expenses. Similarly, Jason Galanis used a portion of the proceeds of the first Tribal Bond issuance to finance the purchase of a $10 million luxury apartment in Tribeca.

In addition, after John Galanis induced the WLCC to issue a second round of Tribal Bonds, COONEY and others used $20 million of bond proceeds from the first issuance to buy the entirety of the second issuance. As a result of the use of recycled proceeds to purchase additional issuances of Tribal Bonds, the face amount of Tribal Bonds outstanding increased and the amount of interest payable by the WLCC increased, but the actual bond proceeds available for investment on behalf of the WLCC did not increase. The bonds purchased by COONEY and others were then used to meet net capital requirements at two broker dealers in which COONEY and others had interests. COONEY also obtained a $1.2 million loan based on his purported ownership of the bonds, which he subsequently failed to repay. In addition, millions of dollars in bond proceeds from the first and second issuances were used finance the acquisition of companies that the defendants and their co-conspirators acquired as part of a strategy to build a financial services conglomerate.

In the spring of 2015, John Galanis induced the WLCC to issue an additional $16 million worth of Tribal Bonds. Simultaneously, Jason Galanis and others purchased a second investment adviser, Atlantic Asset Management (“Atlantic”), and installed Morton as the chief executive officer. Within days of obtaining control of Atlantic, Morton placed the entirety of the $16 million Tribal Bond issuance with an Atlantic client, without the client’s consent and without disclosing the fact that the Tribal Bonds were outside the client’s investment parameters and that numerous conflicts of interest existed. The proceeds of the $16 million issuance were again not invested in an annuity as promised, but instead were diverted to, among other things, finance the defendants’ acquisition of another company in furtherance of their plan to build a financial services conglomerate, to pay $75,000 to COONEY, and make payments to one of the broker dealers in which COONEY and others had interests.

In addition to the prison term, COONEY, 46, was sentenced to three years of supervised release. COONEY was also ordered to forfeit $9,527,000 and to make restitution in the amount of $43,785,176.
(snip)