Second Circuit Restores Guilty Verdict for Co-Conspirator in Wakpamni Lake Community Corp. TED Bond Fraud

Here is the opinion in United States v. Archer.

Here are the briefs:

Federal Brief

Archer Brief

US Reply

From the opinion:

This case concerns a scheme engineered by Jason Galanis (“Galanis”) and others to defraud a tribal entity, the Wakpamni Lake Community Corporation of the Oglala Sioux Tribe (the “Wakpamni”), of the proceeds of a series of bond offerings worth approximately $60 million. In doing so, the conspirators harmed not only the Wakpamni but also several investors upon whom they foisted the Wakpamni bonds – which had no secondary market – in order to generate cash for their own personal use.
 
In early 2014, Jason Galanis, Archer, Bevan Cooney, and others were working together to acquire financial services companies that they could “roll up” into a large financial conglomerate with Archer at the helm. They began by investing in Burnham Financial Group (“Burnham”), a well-established financial services company with a prominent name that they sought to leverage in building their own conglomerate. But to purchase additional so-called “roll-up” companies, they needed capital.
 
So, in February 2014, Galanis informed Archer and Cooney that he had been “brought a deal” for tax-free bonds from the Ogala Sioux Tribe, to which the Wakpamni belonged. App’x 848. The next month, John Galanis, Jason Galanis’s father, met with a representative from the Sioux Tribe and convinced the Wakpamni to issue a series of bonds, promising that the proceeds from the sale of these bonds would be placed into an annuity. The Wakpamni understood that the annuity “would be like an insurance wrapper that would protect the principal investment and generate annual income to cover the interest on the bonds as well as generate income for” the Wakpamni’s economic development projects. Tr. 1836; see also Tr. 1850. The scheme had an air of legitimacy: John Galanis represented to the Wakpamni that Wealth Assurance-AG, a legitimate insurance company that Archer, Cooney, Jason Galanis, and others had acquired, would be the annuity provider. The transaction documents, however, listed Wealth Assurance Private Client Corp. (“WAPC”), a shell entity that John Galanis falsely represented to be a subsidiary of Wealth Assurance-AG, as the annuity provider. In June 2014, one of Archer’s co-defendants opened a bank account in the name of WAPC (the “WAPC account”) and designated Hugh Dunkerley, another of Archer’s eventual co-defendants, as a signatory of that account. Finally, John Galanis represented to the Wakpamni that Burnham Securities Inc., a legitimate registered broker-dealer, would serve as the “placement agent” responsible for “undertak[ing] due diligence on the bonds, do[ing] a lot of legal [work] putting together … the contracts[,] and then finally find[ing] investors for the bonds.” Tr. 1005.
 
Once John Galanis set up the Wakpamni scheme, Jason Galanis, Archer, and others went about finding buyers for the bonds. A company with which Archer was affiliated financed the purchase of an investment adviser, Hughes Asset Management (“Hughes”), and Galanis installed another one of the co-defendants, Michelle Morton, as Hughes’s CEO. In August 2014, based on John Galanis’s promise that the proceeds would be invested in an annuity, the Wakpamni issued their first set of bonds. Morton purchased the entire issue, worth $28 million, on behalf of Hughes’s unsuspecting clients – without disclosing that the same individuals who induced the Wakpamni to issue the bonds also controlled Hughes and the purported placement agent. Placing the bonds in this manner, without investor knowledge or permission, also violated several of Hughes’s clients’ investor agreements. Most importantly, the bond proceeds were then placed into the WAPC account – not an annuity.
Unaware that the proceeds from the first bond offering had been diverted to the WAPC account and not invested in an annuity, the Wakpamni launched a second issuance the following month. 

 

This time around, Archer and Cooney collectively purchased $20 million worth of bonds from the Wakpamni – with Archer doing so through his real estate company, Rosemont Seneca Bohai LLC (“RSB”) – using proceeds from the first offering that had been diverted to the WAPC account. After buying the bonds, Archer and Cooney used them to satisfy the net capital requirements of two other Archer-controlled companies, without disclosing that the bonds were purchased with the proceeds of an earlier bond issuance. The Financial Industry Regulatory Authority (“FINRA”) would later condemn Archer’s use of the bonds in this way because the Wakpamni bonds had “no active market.” Tr. 2097.

 
In April 2015, the Wakpamni issued their third and final set of bonds for $16 million. As with the first bond offering, Burnham Securities was selected as the supposed placement agent for the bonds. At around that same time, Archer and Cooney acquired a second investment adviser company, Atlantic Asset Management (“Atlantic”), which (like Hughes) was led by Morton. Ultimately, Morton and Atlantic arranged for the purchase of the entire $16 million in bonds by a single client of Atlantic, the Omaha School Employees Retirement System (“OSERS”). As with the first bond offering, Morton did not seek or receive approval from OSERS for the transaction, which did not align with its investment goals, nor did she inform OSERS of the inherent conflicts of interest that permeated the transaction.
 
Once again, instead of being used to purchase an annuity for the Wakpamni, as John Galanis had promised, the proceeds from the third bond issuance were diverted to the WAPC account, where they were used by various conspirators for their own personal benefit and interests. Some, like Jason Galanis and his father, used the bond proceeds to purchase “jewelry and luxury cars,” Tr. 58, and a new condo in New York City; others, like Archer and Cooney, used the bonds and the proceeds “to further their [own] schemes,” Tr. 59, which included building “a big financial services company” that Archer was to control, Tr. 59–60.
 
In the fall of 2015, the Wakpamni scheme began to unravel when the first set of interest payments on the Wakpamni bonds became due. In September 2015, Archer transferred $250,000 from one of his companies to the WAPC account, which was then used to help pay the interest on the bonds from the first offering. Soon thereafter, Galanis was arrested on unrelated charges. In October 2015, some of the conspirators created a new entity named Calvert Capital (“Calvert”) to cover up the scheme. As part of this effort, they fabricated backdated documents suggesting that WAPC invested in Calvert and that Calvert lent Cooney and Archer the $20 million to purchase the bonds from the second offering.
 
In the end, the Wakpamni were left with $60 million in debt, and the fund investors lost over $40 million.
 
 

Our most recent post on the Wakpamni Lake Community Corp. fraud is here.