According to the Federal Bureau of Investigation, three financial advisers who allegedly participated in the VGTEL pump-and-dump scheme orchestrated by Edward Durante a/k/a Ted Wise have been arrested and are facing federal criminal charges. They are Abida Khan, Larry Werbel, and Christopher Cervino.
According to the Securities and Exchange Commission and FBI, Ed Durante used shares of VGTEL to commit securities fraud, planning his scheme from his prison cell, where he was serving a sentence for prior securities fraud.
To read a more detailed review of his alleged scheme, click .
In a press release and a federal complaint unsealed this month, the FBI and SEC revealed that they have arrested three individuals who they claim helped Ed Durante commit investment fraud.
This scheme was nationwide; these financial advisors are from New Jersey, Ohio, and California. Here is what we have learned so far:
While working for Ameritas, Ms. Khan had approximately 30 elderly clients, conservative investors to whom she had sold variable annuities and other products. (Incidentally, for our take on why variable annuities are almost always a bad idea, click .)
According to the Financial Industry Regulatory Authority (FINRA)—which has also taken action against Ms. Khan, she sold a list of her Ameritas clients to Ed Durante for $377,500. She apparently did not disclose this sale to Ameritas or to her clients.
After receiving this secret payment, Ms. Khan actively helped Ed Durante move her clients from Ameritas to a new brokerage firm, possibly Primary Capital, LLC, allegedly even impersonating her clients in order to move their accounts. Through all of this, Ms. Khan either did not know or did not care that she was working with a convicted felon.
Some of her clients even had to pay early surrender charges to get out of their variable annuities.
Ms. Khan promised her clients that their money would be even more secure with Ed Durante, while their money would double or even triple in value with an investment in VGTEL.
In addition to the $375,000 she received from the sale of her client list, Ms., Khan received an additional $110,000 in payments from Ed Durante for helping him to convince her clients to invest in VGTEL.
Ms. Khan has settled with FINRA, accepting a suspension from the securities industry. More importantly, she faces a civil suit by the SEC and a criminal case where she is charged with securities fraud, wire fraud, investment adviser fraud, and other federal crimes.
While the situation is no doubt distressing to Ms. Khan, approximately twenty of her conservative, elderly clients are currently facing a combined potential loss of over $2 million.
Similar to Ms. Khan, Larry Werbel also had an existing client base which he allegedly sold out to Mr. Durante in exchange for undisclosed kickbacks. According to the SEC and FBI, Mr. Werbel signed a “consulting agreement” with Mr. Durante and was paid $200,000 to steer clients toward VGTEL. For successfully moving $2 million of his clients’ money into VGTEL, Mr. Werbel received an additional $30,000.
Before Mr. Werbel recommended VGTEL to his clients, he should have done due diligence on the company, but failed to do so.
Now, like Ms. Kahn, Mr. Werbel faces federal criminal charges for securities fraud, wire fraud, and investment adviser fraud, among other charges.
Unlike Ms. Khan and Mr. Werbel, Christopher Cervino allegedly helped Mr. Durante with the mechanics of his pump-and-dump scheme. Apparently, Ms. Kahn and Mr. Werbel moved their client’s assets to a broker where Mr. Cervino worked, either Primary Capital or COR Clearing, where Mr. Cervino was terminated in October 2014 for unauthorized trading in clients’ accounts.
Mr. Cervino worked with Mr. Durante to engage in “matched trading” to manipulate the share volume and price of VGTEL shares. Here is how matched trading works:
a) One person enters a sell order for a certain number of shares at a certain price.
b) Another person enters a buy order for the same number of shares at the same price.
c) The transaction goes through. It is recorded in systems that measure the volume and price of securities.
d) The transaction influences the publicly quoted share price for a stock, because it looks like a public transaction.
e) In fact, the transaction is prearranged between private parties who either know each other or are controlled by the same person.
Trading in investors’ accounts, Mr. Cervino helped Mr. Durante create the impression that more VGTEL shares were trading than was really the case. He also helped artificially inflate the value of VGTEL shares.
Now, Christopher Cervino a/k/a “Smitty a/k/a Christopher Michael Smith faces federal criminal charges for securities fraud, wire fraud, and perjury.
According to the FBI, “Durante and his network of scammers spun a web of lies, inducing victims into investing in phony private placement opportunities, manipulating the price and trading volume of a publicly traded stock, and conspiring to defraud more than one hundred investors out of over $15 million.”
If you have questions about investment losses, the securities litigation attorneys at Investor Defense Law LLP may be able to help, and offer free initial consultations.
Investor Defense Law LLP is a law firm dedicated to helping investors in California, Georgia, and Washington State recover investment losses.
We understand investment fraud and financial advisor malpractice. Our lawyers know how to sue investment advisors, brokerage firms, and financial advisors. To receive a free case evaluation, contact an investment fraud attorney at 800.487.4660.
*The allegations in this blog post are pulled from documents provided by FINRA and the federal government, but they are allegations, some of which have not been proven in a court of law.