U.S. Attorney's Office
Southern District of New York
(212) 637-2600
September 24, 2015

Manhattan U.S. Attorney Announces Charges Against Seven Individuals for Multi-Million-Dollar Investment Scheme

Preet Bharara, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing of an indictment charging seven defendants with orchestrating multiple schemes to defraud investors of tens of millions of dollars.

Two of the defendants were arrested this morning in connection with today’s charges. JASON GALANIS was arrested in Manhattan and will be presented later today. JARED GALANIS was arrested in the District of Maryland and will be presented later today before a U.S. Magistrate Judge in Baltimore. DEREK GALANIS is expected to surrender today in the Northern District of California and will be presented before a U.S. Magistrate Judge in San Francisco. GAVIN HAMELS is expected to surrender on Monday in the Southern District of New York and will be presented at that time. JOHN GALANIS, a/k/a “Yanni,” GARY HIRST, and YMER SHAHINI remain at large.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Jason Galanis and his co-conspirators used their Wall Street credentials and the veneer of a legitimate-sounding financial firm to manipulate the market and fleece investors. Their alleged market manipulation brought them nearly $20 million in profits, but now also a federal indictment.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “Galanis and his co-conspirators exemplified arrogance and contempt for financial regulations when they allegedly devised a scheme to defraud investors to fund a lavish lifestyle. Law enforcement will never tolerate this alleged egregious behavior and will bring those to justice who lie and do not play by the rules.”

According to the Indictment unsealed in Manhattan federal court1, the defendants engaged in the following fraudulent schemes:

The Gerova Scheme

From 2009 to 2011, JASON GALANIS, JOHN GALANIS, JARED GALANIS, HIRST, DEREK GALANIS, SHAHINI, and HAMELS engaged in a scheme to defraud the shareholders of a publicly traded company called Gerova Financial Group, Ltd. (“Gerova”), and the investing public, by obtaining secret control over millions of shares of Gerova stock and then manipulating the market for the stock as the defendants caused their secretly held shares to be sold.As part of the scheme, the defendants fraudulently generated demand for Gerova stock by bribing investment advisers to purchase for client accounts the Gerova stock that was sold by the defendants, thereby enabling the defendants to cash out from the scheme and make millions in illegal profits.

As a part of the scheme to defraud, JASON GALANIS obtained such control over Gerova so as to be able to cause Gerova to enter into transactions of his design, and for his benefit, including the issuance of Gerova stock.JASON GALANIS obtained this control without identifying himself as an officer or director of Gerova to avoid the SEC-imposed bar that prohibited him from holding such positions at publicly traded companies.Among other means and methods, JASON GALANIS, with the assistance of GARY HIRST, caused more than five million shares of Gerova stock, which represented nearly half the company’s public float and which was intended for JASON GALANIS’s ultimate benefit, to be issued to and held in the name of YMER SHAHINI, who knowingly served as a foreign nominee for JASON GALANIS.JASON GALANIS, JOHN GALANIS, JARED GALANIS, DEREK GALANIS, HIRST, and SHAHINI understood that the purpose of the stock grant to SHAHINI was to disguise JASON GALANIS’s ownership interest in the stock, and to evade the SEC’s regulations for issuing unregistered shares of stock.

At the same time, and as a further part of the scheme to defraud, JOHN GALANIS, JARED GALANIS, and DEREK GALANIS, among others, with the knowledge and approval of JASON GALANIS, opened and managed brokerage accounts in the name of SHAHINI (the “SHAHINI Accounts”), effected the sale of Gerova stock from the SHAHINI Accounts, and received and concealed the proceeds, knowing that this activity was designed to conceal from the investing public JASON GALANIS’s ownership of and control over the Gerova stock.

JASON GALANIS and JARED GALANIS also fraudulently induced investment advisers, including GAVIN HAMELS and others, to purchase shares of Gerova stock in the investment advisers’ client accounts by offering compensation and/or other benefits to the respective investment adviser.By causing the purchase of Gerova stock at the time, quantity, and/or price of their choosing, JASON GALANIS and JARED GALANIS were able to, among other things, effectuate the sale of large quantities of Gerova stock from the SHAHINI Accounts that JASON GALANIS controlled while artificially maintaining the price of Gerova stock through coordinated match trading.Such coordinated trading served to manipulate the market for Gerova stock and deceive the investing public.As a result, JASON GALANIS and his co-conspirators reaped nearly $20 million in profits.

The Scheme to Defraud Clients of Investment Firm-2

From November 2007 to April 2010, JASON GALANIS and JARED GALANIS, along with an investment adviser identified in the Indictment as “CC-2,” participated in a scheme to defraud the clients of CC-2’s investment advisory firm, identified in the Indictment as “Investment Firm-2.”Oftentimes in exchange for compensation from JASON GALANIS and JARED GALANIS, CC-2 caused Investment Firm-2 clients to invest in notes issued by entities associated with JASON GALANIS and JARED GALANIS.

When obligations owed by entities associated with JASON GALANIS and JARED GALANIS became due, CC-2, with the knowledge of JASON GALANIS and JARED GALANIS, used client funds to purchase either notes issued by other entities associated with JASON GALANIS and JARED GALANIS, or publicly traded shares held by such entities.The funds generated were then used to pay the original obligations owed to other Investment Firm-2 clients.Through these securities trades, funds in client accounts of one set of Investment Firm-2 investors were used to pay obligations owed to a different set of Investment Firm-2 investors by entities associated with JASON GALANIS and JARED GALANIS.

Charts identifying each defendant, the charges, and the maximum penalties are attached to this release. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants would be determined by the judge. The case has been assigned to U.S. District Judge P. Kevin Castel.

Mr. Bharara praised the work of the United States Postal Inspection Service and the Federal Bureau of Investigation, and thanked the U.S. Securities and Exchange Commission for its assistance.He added that the investigation is continuing.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Andrew Bauer, Brian Blais, and Dina McLeod are in charge of the prosecution.

The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

COUNT

CHARGE

DEFENDANTS

MAXIMUM PENALTIES

1

Conspiracy to Commit Securities Fraud  (18 U.S.C. § 371)

 

JASON GALANIS

JOHN GALANIS, a/k/a “Yanni”

JARED GALANIS

GARY HIRST

DEREK GALANIS

YMER SHAHINI

GAVIN HAMELS

Five years in prison and a $250,000 fine or twice the gross gain or loss from the offense

2

Securities Fraud (15 U.S.C. §§ 78j(b) & 78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2)

JASON GALANIS

JOHN GALANIS, a/k/a “Yanni”

JARED GALANIS

GARY HIRST

DEREK GALANIS

YMER SHAHINI

GAVIN HAMELS

20 years in prison and a $5,000,000 fine or twice the gross gain or loss from the offense

3

Conspiracy to Commit Wire Fraud (18 U.S.C. § 1349)

JASON GALANIS

JOHN GALANIS, a/k/a “Yanni”

JARED GALANIS

GARY HIRST

DEREK GALANIS

YMER SHAHINI

20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense

4

Wire Fraud (18 U.S.C.      §§ 1343 and 2)

JASON GALANIS

JOHN GALANIS, a/k/a “Yanni”

JARED GALANIS

GARY HIRST

DEREK GALANIS

YMER SHAHINI

20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense

5

Investment Adviser Fraud (15 U.S.C. §§ 80b-6 & 80b-17; 18 U.S.C. § 2)

JASON GALANIS

JARED GALANIS

GAVIN HAMELS

Five years in prison and a fine of $10,000

6

Investment Adviser Fraud (15 U.S.C. §§ 80b-6 & 80b-17; 18 U.S.C. § 2)

JASON GALANIS

JARED GALANIS

Five years in prison and a fine of $10,000

7

Investment Adviser Fraud (15 U.S.C. §§ 80b-6 & 80b-17; 18 U.S.C. § 2)

JASON GALANIS

Five years in prison and a fine of $10,000

8

Conspiracy to Commit Securities Fraud  (18 U.S.C. § 371)

 

JASON GALANIS

JARED GALANIS

Five years in prison and a $250,000 fine or twice the gross gain or loss from the offense

9

Securities Fraud (15 U.S.C. §§ 78j(b) & 78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2)

JASON GALANIS

JARED GALANIS

20 years in prison and a $5,000,000 fine or twice the gross gain or loss from the offense

 

DEFENDANT

RESIDENCE

AGE

Jason Galanis

Los Angeles, CA

45

John Galanis, a/k/a “Yanni”

Oceanside, CA

72

Jared Galanis

Baltimore, MD

36

Gary Hirst

Lake Mary, FL

63

Derek Galanis

Oceanside, CA

43

Ymer Shahini

Kosovo

45

Gavin Hamels

Encinitas, CA

39

1 As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.

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