Atlanta Securities Attorney Convicted of Fraud Scheme and Sale of Unregistered Securities
|U.S. Attorney’s Office November 22, 2010|
RALEIGH, NC—United States Attorney George E.B. Holding announced that in federal court on November 18, 2010, Gregory Bartko, an Atlanta, Georgia securities attorney, was convicted of one count of conspiracy to commit mail fraud, the sale of unregistered securities and money laundering, four counts of mail fraud, and one count of the sale of unregistered securities. The defendant faces a maximum of 90 years' imprisonment on these charges.
Greg Bartko is a practicing securities attorney in Atlanta, Georgia. He has a broker-dealer named “Capstone Partners." The trial of Bartko lasted 12 days and involved over 35 witnesses. These witnesses included victims, custodians of bank records, co-defendant Rebecca Plummer, inmate Scott Hollenbeck, and others.
The government's evidence showed that Bartko had participated in a scheme to defraud with Scott Hollenbeck and others. Scott Hollenbeck, who previously had offices in Kernersville, NC, is currently serving a 14-year sentence for his role in the sale of another investment, Mobile Billboards of America.
At trial, the government's evidence showed that in January, 2004, Greg Bartko had a newly formed fund called the Caledonian Private Equity Bridge and Mezzanine Fund (the Caledonian Fund). John Colvin—who was convicted in a trial in June for related mail fraud and conspiracy charges—started talking with Bartko and Laws about providing funding for the Caledonian Fund. Colvin also sent sample brochures to Bartko and Laws about how the money was being raised. These brochures contained numerous false statements promising that the investment was insured and that the principal and 12 percent interest on the investment were secure and guaranteed. Colvin also send materials to Bartko identifying Scott Hollenbeck as the founder and creator of the entities raising the money. On January 15 and 16, 2004, Bartko performed a NASD record check of Colvin. On February 17, 2004, Bartko performed a NASD record check of Hollenbeck. These checks revealed that both Colvin and Hollenbeck had past allegations of forgery, that they had both been fired from securities related jobs for cause in the past, and that Hollenbeck's securities license had been suspended for violations of securities rules.
Nonetheless, Bartko entered into a contract for Colvin to provide money to the Caledonian Fund. Hollenbeck, acting at Colvin's direction, sent the Caledonian fund $701,000 between February 27 and May 6, 2004. This money had been raised using many of the very same fraudulent documents that Bartko had received in January, 2004.
On April 26, 2004, the North Carolina Secretary of State's office entered a cease and desist order against Bartko for his sale of Mobile Billboards of America. On May 6, 2004, Bartko began to represent Scott Hollenbeck as his attorney. In the course of this representation, Hollenbeck provided the defendant with information about how he was selling his investments—including the money that had gone to the Caledonian Fund. Hollenbeck told Bartko that he had promised investors that their money was guaranteed and insured. On June 8, 2004, he faxed Bartko with a copy of the promotional materials he was using and the application for the insurance policy that he claimed to be relying upon in his promises that the investment was insured. On June 11, 2004, in a letter copied to Bartko, Bartko's co-counsel, Wes Covington, told Hollenbeck that the insurance policy he was relying on did not cover the investment and to stop using promises of insurance to sell the investment.
Nonetheless, on October 20, 2004, Bartko expressed that he wanted Hollenbeck to raise $4.3 million for a fund in the last two months of the year. Hollenbeck testified that Bartko was well aware that he was using promises of insurance (which he referred to as a surety bond) to sell the investment. In November, 2004, the Caledonian Fund fell apart—never repaying the $701,000 obtained from victims through Scott Hollenbeck and John Colvin. Bartko and Laws parted ways. That same month, Bartko started a new fund, the Capstone Private Equity Bridge and Mezzanine Fund (the Capstone Fund). Hollenbeck was his main fundraiser for this new fund. In an e-mail sent on December 2, 2004, Hollenbeck told an investor to feel free to talk with Bartko about the "insurance bonds" because Bartko was aware of them. Bartko admitted at trial that on December 7, 2004 he had a conversation with this investor about "insurance bonds" but claimed he could not understand what the investor meant about insurance bonds.
Hollenbeck was selling his false promises of insurance by using documents that he had altered from a real errors and omissions policy with AIG obtained through Arthur Gallagher. On December 7, 2004, the same day that Bartko had talked to an investor about insurance bonds, he also called a representative of Arthur Gallagher and asked about extending the AIG policy to cover his newest investment fund, the Capstone Fund. He had this conversation despite his knowledge that Hollenbeck had used this very policy to falsely promise insurance to investors in the past. The next day, December 8, 2004, Hollenbeck was deposed by the Securities and Exchange Commission as part of its investigation of Mobile Billboards of America. In that deposition, Hollenbeck, who was represented by Bartko, admitted that he had been using the surety bond—his promises of insurance—to claim to investors that their investment was insured. He also admitted that he now knew these claims were false. Despite being asked what investments Hollenbeck was currently selling, Hollenbeck did not mention the Capstone Fund. Bartko did not correct this omission of his client. The SEC continued to investigate Hollenbeck.
In January, 2005, Bartko came to Winston-Salem, NC on a business trip. On January 11, 2005, he met with potential investors in the offices of Legacy Resource Management, a business run by Rebecca Plummer and Levonda Leamon. After his meeting with investors, he told Plummer and Leamon that he could no longer do business with Hollenbeck. He asked them to help him by allowing him to filter money Hollenbeck raised through their bank accounts. Not only did Bartko have every reason to believe that this money had been fraudulently raised, he also knew that the investors were not accredited or sophisticated investors and therefore could not invest in the Capstone Fund—an unregistered security. On January, 19, 2005, at Bartko's request, Leamon and Plummer open a bank account for the purpose of receiving this money. Bartko had already received over $1 million dollars of investors' money raised by Hollenbeck. Nearly all of this money was from unaccredited and unsophisticated investors. On January 19, 2005, Bartko sent this money back to these investors. But he told Hollenbeck, Leamon, and Plummer that the plan was for Hollenbeck to get these checks endorsed over to Legacy Resource Management who would then send the money back to him. This plan allowed him to create the impression that he did not know the money had been raised by Hollenbeck and also that Legacy Resource Management—whom he claimed was an accredited investor—had actually invested the money, not the many individual unaccredited investors.
On January 12, 2005—the same trip as his meeting with Plummer and Leamon—Bartko also met with Hollenbeck and the family of one of Hollenbeck’s past investors through John Colvin. Hollenbeck and Bartko told that family that their money was safe and insured by AIG. They did so despite full knowledge that the AIG insurance policy was just an errors and omissions policy that did not protect the family’s investment.
Nearly all of the money raised by the Capstone Fund—about $2 million—was raised by Scott Hollenbeck using fraudulent means. Numerous investors testified at trial that they had been promised that their investments would be guaranteed and insured and that they had been provided a “surety bond” and other AIG insurance paperwork. Despite the fact that securities laws forbade Hollenbeck from talking or explaining this investment to the investors, Hollenbeck sold the investment to each of them. Bartko did not talk to almost any of the investors about the investment, and he certainly did not tell them all of the things he knew about Hollenbeck and his background.
Hollenbeck, however, did not follow the defendant’s plan to launder the money through Legacy Resource Management perfectly. When a number of the checks were sent to Hollenbeck to be endorsed by investors over to Legacy Resource Management, Hollenbeck stole six of them, forging the signatures of the investors. Bartko realized that not all of the funds had come back to him and confronted Hollenbeck, who admitted stealing some of the funds. In addition, Leamon and Plummer did not completely understand the defendant’s plan or his reasons for it. As a result, they sent out welcome letters and account statements to investors thanking them for their investment in the Capstone Fund. These letters revealed the investments for what they were—direct investments by unaccredited investors into the Capstone Fund, not one large investment by Legacy into the Capstone Fund.
In addition, at trial, the government proved that even the few so-called direct investors the defendant had taken money from were not accredited or sophisticated investors as required by securities laws. For instance, Legacy Resource Management and one of the church investors were not accredited investors because they did not have more than $5 million in assets. The defendant had a form indicating that each entity had over $1 million but said nothing about the $5 million required by the law. Only one of the many individual investors had the more than $1 million in net worth required to be an accredited investor. In addition, the defendant had made no phone calls and asked no questions about assets before accepting the money of these unaccredited and unsophisticated investors.
In February, 2005, the North Carolina Secretary of State’s office realized that Hollenbeck was continuing to sell investments using the surety bond and that he was actually selling them for a fund belonging to his attorney—the Capstone Fund. The North Carolina Secretary of State’s Office forwarded information to the Securities and Exchange Commission. A lawyer for the SEC confronted Bartko on March 14, 2005. Following this meeting, Bartko filed an interpleader action in federal court in the Middle District of North Carolina. He returned 94 percent of the money to the court—all of the money except for the commission paid to Hollenbeck and Legacy Resource Management. In that action, Bartko made several false and misleading statements—telling the court that no investor had been promised that their money was guaranteed and claiming that Legacy Resource Management had been a direct investor. Bartko also told at least one investor that she did not need to contact the FBI or law enforcement because this was a personal matter and that she did not need to hire an attorney because an attorney would only charge her money.
Bartko testified at trial in his own defense. He was on the stand for over seven hours. Bartko claimed that Hollenbeck’s role was strictly limited to being a “finder,” that Bartko had specifically instructed Hollenbeck not to explain or sell the investment at all, and that he had absolutely no knowledge that Hollenbeck was making false promises in the sale of the investment. On cross examination, Bartko had difficulty explaining how he thought Hollenbeck could raise millions without selling or explaining the investment at all. He also could not explain why he thought that Legacy Resource Management and two other direct investors were accredited or sophisticated investors when their forms did not show that they were and when he had not talked with them before they made their investment. The government confronted Bartko about all of the fraudulent materials he had received in 2004, starting in January. Bartko claimed that he had not really read the materials in January. He claimed that after receiving materials in June, he told Hollenbeck to stop promising investors that their money was insured, and he thought that Hollenbeck had stopped doing so.
The jury began deliberating at 9:00 a.m. on Thursday, November 18 and rendered a verdict of guilty on all counts at 1:30 p.m. Following that verdict, the government requested that the defendant be held in custody pending his sentencing based on a risk of flight and danger to the community. The judge granted the United States' request and ordered the defendant to be placed in custody. In the course of doing so, Judge Dever found that the defendant had committed perjury in his testimony at trial.
Mr. Holding stated: “We should not let criminals get away simply because they have carefully covered their tracks. Complicated and difficult crimes by sophisticated and careful criminals may not be easy to investigate or prosecute, but they are some of the most important cases our office handles. In this case, an experienced Atlanta securities attorney had used other criminal players to insulate himself from prosecution. He had evaded SEC audits, avoided examination by the bar association, and managed to fool nearly everyone, keeping both his license to practice law and his securities licenses. The defendant was involved in a scheme to defraud victims of millions of dollars but yet was still representing clients before the SEC. Such a defendant deserves to be prosecuted to the full degree under the law.”
The Federal Bureau of Investigation, the United States Postal Inspector’s Office, the Internal Revenue Service, and the North Carolina Secretary of State’s Office all assisted in this investigation. Clay Wheeler and David Bragdon of the Economic Crimes Division were trial attorneys on behalf of the government in this case.