Damn, here we go again. On June 27, 2012, a federal grand jury in Newark, NJ indicted George Sepero, 39, Glen Rock, NJ on one count of wire fraud conspiracy and 16 counts of wire fraud involving for a purported hedge fund scam of investors. Wow . . . that's a crime we just never hear about anymore . . . yeah, right. Now that you and I are done rolling our eyes at the familiarity - and the banality - of this most recent securities fraud, howsabout we take a gander at the alleged flim flamer and his flim flaming?
NOTE: An Indictment contains only allegations and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
The Indictment alleges that beginning in 2009, Sepero and his co-conspirators claimed to run:
- Pelt Capital,
- Caxton Capital Management,
- SP Investors Inc., and
- CCP Pro Consulting Inc.,
all of which were presented to potential investors as hedge funds offering extraordinary profits in foreign currency ("FOREX") trading. Moreover, the conspirators are charged with representing that they owned and controlled a proprietary computer algorithm for FOREX trading that had achieved 170% returns in two prior years and, get this, all investors' funds would be highly liquid and available for withdrawal on a mere one day's notice.
Okay, so, sure, lemme see if I got this. Hedge Fund. Algo. FOREX. 170% return. Highly liquid. Sounds all too familiar in this year of 2012. Does the expression "too good to be true" pop up into your head?
Inexplicably, Sepero and his buddies are charged with somehow extracting over $4 million from investors. Oh for godsakes, really?
Anyway, according to the Indictment, virtually none of the investors's millions wound up in the promised FOREX algo fund. Now, let's see. How about we have ourselves a little contest. Where or where could a chunk of that change have gone? Hmmmm. Remember Henry Winkler's character on the TV show "Happy Days"? Does that give you enough of a hint?
For those of you who just don't get my sophisticated hints (the answer was "Fonzi"), alas, the Indictmentcharges that Sepero and his co-conspirators were running another Ponzi scheme. Of course, as so often occurs with this scam, what didn't go from newer pigeons to pay off some older ones, managed to get diverted into the pockets of the conspirators towards what the feds describeds as "extravagant personal expenditures."
Livin' The High Life On OPM
Now this is usually the part of this stories that many of us enjoy reading. Among the alleged extravagances paid for with investors money were:
- credit card bills averaging approximately $25,000 per month;
- bar tabs of approximately $18,241-including a $4,000 tip-at Drai's Hollywood nightclub in Los Angeles;
- luxury hotel rooms for tens of thousands of dollars, including suites costing more than $4,000 at W Hotels in New York;
- first-class and business-class flights to Paris, Los Angeles, Chicago, and elsewhere;
- a customized Ford F-350 Harley-Davidson Edition pickup truck costing more than $80,000;
- a Mini Cooper automobile costing over $37,000;
- a leased BMW;
- mortgage payments;
- home improvements;
- meals at high-end restaurants;
- jewelry; and
The alleged hedge fund gang emailed fabricated statements that showed their victims the glorious results of bogus FOREX trades. A nice touch was the transmission of "screen shots" purporting to show the honest-to-goodness computer-based FOREX trading program. The feds allege that many of those emailings came from Mel Tannenbaum.
Who's Mel Tannebaum? You know, if you have to ask such a stupid question then you really aren't the player that you thought you were and the high-finance world of Wall Street is too big a play pen for a child like you. Who's Mel Tannenbaum - are you serious? Everyone knows the "Christmas Tree Guy," as he's known on the Street. He's the man, he's MT, he's Big Mel.
Okay, if you choose to be a cynic, go ahead and believe what the Indictmentcharges: Mel Tannenbaum is a fictional character. Doesn't exist. Never has. The screen shots were made of similar fluff and puff.
How Low Can You Go?
You'd think the whole FOREX algo hedge fund Ponzi thing would have been enough to satisfy most folks during these tough economic times but, no, Sepero allegedly had a fire in his belly, an entrepreneurial spirit that burned long and hard into the darkest of nights.
The Indictment alleges that Sepero became acquainted with an elderly woman from New Jersey who suffered from dementia and multiple sclerosis, and was a paraplegic. Apparently being the charitable guy, Sepero allegedly took charge of the sick, elderly woman's annuity account and convinced her to write checks to entities that he controlled.
Once he allegedly had his hooks into the old lady, the Indictment charges that without authorization, Sepero opened accounts in the names of her family members and, thereafter, made numerous phone calls to the financial institution administering the annuity account, impersonating either the victim's son or the victim's late husband. Apparently trying to keep a step ahead of any suspicion, Sepero allegedly delivered to the victim's family a wholly fraudulent statement for the annuity account, which reflected a value of over $750,000 at a time when it had been gutted down to $16.57.
Where did all the elderly woman's savings go? C'mon, you know the routine by now. The Indictment says the dollars were
converted for Sepero's personal use.
Sepero faces a maximum potential penalty of 20 years in
prison and a fine of $250,000, or twice the gain or loss from the offense on
each of the 17 counts.This type of alleged crime barely gets us interested
anymore. The facts are oh so familiar. The defendants' conduct has become
generic. The victims seem a tad less sympathetic after so many prior warnings. And, therein, is the great danger - the
banality and malaise that accompanies these criminal cases as they find their
way into the headlines with far too much frequency.
Sure, Wall Street's cops can blare their successes to us,
and they do. We are bombarded with press releases about Madoff, Martha Stewart,
Rajaratnam, Stamford - go ahead and fill in that list with your own rogues'
gallery. Unfortunately, a byproduct of
such press is that we transform some of the bad guys into icons and imbue them
with some bizarre celebrity status. And
then, when the case of the day is over and the verdict in, the prosecutors and
regulators tell us that a message has been sent, loud and clear. In response, I
chime in that the sent message will soon be returned to sender, address
If any of the government's case against Sepero and his
co-conspirators is ultimately proven true, I sincerely doubt that it will deter
future scamster or warn off future victims. Consequently, we need to re-think
our approach to these frauds because closing the cell doors and collecting the
fines isn't accomplishing anything. We also need to be careful about flooding
our daily news with lurid allegations of misconduct or fraud against the
high-profile, high-flyers because that often sucks the air out of other
investigations involving the small fry.
Sure, it's fun to watch a Jon Corzine under fire, or to watch the likes
of Goldman Sachs, JP Morgan, Morgan Stanley, Citigroup, Wells Fargo, or other
major organization wriggle uncomfortably before Congress or under a reporter's
barrage of questions. But while we're
out hunting for Moby Dick, there are many sharks having lunch at the local
There must be a better way to protect an ill elderly woman
from the deprivations of securities fraud.
It's these little people that just don't seem to earn enough of Wall
Street's cops' attention. They're not
sexy enough. They don't generate the big headlines. It doesn't propel one's
career after government service.
What angers me about this case is that it lays bare the
impotency of Wall Street's heralded compliance system - how is it that no one
quickly caught on to the dramatic drop in this woman's account? What gets my blood boiling here is that Wall
Street's regulatory system is once again reading toe tags at the morgue and
seems incapable of earlier detection and action - where is the pre-emptive
I dug behind this story to see what, if anything, I could
find for a "George Sepero" and was shocked at how easy the troubling
disclosures surfaced. If you were to log
on to the Financial Industry Regulatory Authority's ("FINRA") BrokerCheck, you
would find a jaw dropping list of prior regulatory incidents.
In 2003, a customer of Sepero's at a brokerage firm where he
was registered alleged that he "misrepresented the return on mutual fund
investments." In 2004 another customer at the same firm alleged that Sepero
"made misrepresentations regarding the purchase of mutual funds at net asset
value." In 2005, at another brokerage firm, a customer of Sepero complained
about poor investment recommendations, and in 2006, at this same firm, another
customer complained about non-disclosure of commissions, and a second customer
complained about unauthorized trades. Finally in 2007, at the second brokerage
firm, another customer complained that Sepero misrepresented the risk of
investments. To be fair to Sepero, all of
the above cases are reported under a BrokerCheck section titled: "Customer
Dispute- Closed-No Action/Withdrawn/Dismissed/Denied" and the accompanying
summaries indicate that the allegations were denied or found by the employing
firm to be baseless.
Of course, then there's the section in which settled cases
are reported. We learn that in 2003, one of Sepero's customer complaints
involving misrepresentation of risks and fees was settled for just under $800
versus a $7,379 claim. In 2004 a different employer firm settled a customer
complaint alleging Sepero's failure to accurately disclose the tax consequences
of a variable annuity surrender for $19,059, the full amount sought.
Then there is the section about regulatory action taken
against Sepero. On February 13, 2008, without admitting or denying the
findings, but consenting to the sanctions and the entry of findings, Sepero was
barred by FINRA for effecting "unauthorized securities transactions in
customers' account and he gave false testimony during an on-the-record
interview with FINRA." FINRA Dept. of Enforcement V. George Sepero, Respondent (AWC 2006005804301 , February 13, 2008 ).
What does all of the above teach us? The frightening fact is that Sepero appears
to have been barred in 2008 by FINRA but by 2009 was involved in what the feds
characterize as a multi-million dollar securities fraud! And it took until nearly July 2012 to indict
someone with that background?
Also see these "Street Sweeper" FOREX Ponzi cases: