EMAIL DETAILS

FYI. It's still a little dense but distilled to allegations re Devon. George


Here’s a chronological summary of the SEC and DOJ’s allegations involving Devon.

In August 2014, Gary Hirst caused nine Hughes Capital clients to invest $27 million in the First Tribal Bond Issuance by Wakpamni Lake Community Corporation (“WLCC”) , with Burnham Securities as the placement agent. According to the government, this was part of a preexisting scheme involving Jason Galanis and Michelle Morton to buy Hughes using “COR” funds and cause Hughes’s clients to buy tribal bonds.

At this time, Devon told the Board of Trustees of the Burnham Investors Trust that Galanis would not be involved with any of the Burnham entities, whereas in fact, Galanis had extensive involvement in the tribal bond issuances, including by, among other things, being the party designated to receive notices on behalf of Burnham Securities (the placement agent) and by receiving substantial portions of the bond proceeds in an account in the name of Thorsdale, which Galanis controlled. The SEC claims that Archer and Cooney held an ownership interest in Burnham Securities.

According to offering documents, the proceeds of the bonds were supposed to be used to buy an annuity on WLCC’s behalf, pursuant to which the bond proceeds would be managed by an investment manager Wealth-Assurance AG, a subsidiary of Valor. However, none of the proceeds of were turned over to this entity. In fact, the WLCC entered into an annuity contract with Wealth Assurance Private Client Corporation (“WAPCC”), an entity controlled by Dunkerley and/or Galanis that is unaffiliated with Valor. WAPCC’s account, controlled by Galanis, received the proceeds of the first tribal bond issuance.

Significant portions of the proceeds were misappropriated by the defendants for their personal use. For example, Jason and John Galanis misappropriated more than $11 million. The SEC alleges that Jason Galanis, through Thorsdale, paid $700K to Devon between November 2014 and April 2015.

In addition, $15 million of the allegedly misappropriated proceeds were “recycled” and provided by Galanis to RSB to purchase subsequent Tribal Bonds issued by the WLCC. . These funds were documented as a loan to RSB by Calvert Capital Partners G.P. ("Calvert"), an entity for which Thorsdale (Galanis’s entity) purportedly serves as managing partner. On October 1, 2014, Devon used the $15 million to buy the entirety of the second tribal bond issuance. On that same date, these funds were transferred from the RSB account to the Trustee, and $14,780,000, representing the face amount of the bonds less fees, and contractual payments to the WLCC, was transferred from the Trustee to the WAPCC Account. On or about October 20, 2014, Devon provided paperwork to his bank (presumably Morgan Stanley) falsely representing that “the funds used to purchase the [Tribal] bonds were from real estate sales through my business Rosemont Seneca Bohai LLC." According to the SEC, “the point of this recycling scheme was to allow Jason Galanis to use the bonds as currency in various transactions, including to bolster Burnham Securities’ net capital.”

In addition, the SEC alleges that in April 2015, Devon used RSB’s tribal bonds to purchase shares of Valor Group. On or about April 9, 2015, RSB transferred its $15,000,000 of Tribal Bonds to a Valor Group subsidiary. On or about May 29, 2015, the subsidiary transferred $2.6 million of Tribal Bonds to Burnham Securities to boost its net capital to meet regulatory requirements.

The government also alleges that bond proceeds were used to support an IPO underwritten by Burnham. A portion of the proceeds of the Fourth Tribal Bond Issuance, rather than being provided to the Investment Manager and invested on the WLCC's behalf, as required by the Indentures, was transferred to two brokerage accounts set up at Burnham at the direction of Hirst so that these accounts could purchase the shares of a Burnham-sponsored initial public stock offering (presumably Code Rebel Corp.). Proceeds generated from a later sale of these shares by the Burnham clients were used, in part, to fund the interest payment on the First Tribal Issuance when it became due. Hirst and Devon were among the purchasers of the remaining 13% of the shares offered in the IPO. On September 1, 2015, Devon transferred $250,000 to the WAPCC Account. An interest payment of $1,546,417.13 with respect to the First Tribal Bond Issuance was due to the Trustee on or before September 1, 2015, and was funded largely through the sale of [Code Rebel] shares that had been purchased in the Burnham Accounts in connection with the IPO and by Devon.

On September 30, 2015, Burnham Financial Group paid $903,000 to the trustee on behalf of WLCC. Archer caused a subsidiary of Valor Group to fund BFG’s payment. The next tday, RSB sent BFG an additional $1.1 million, which was used to fund an additional $294,9000 interest payment to the trustee. The SEC describes this as part of the defendants’ efforts “scramble to fund WAPCC’s interest payment obligations under the annuity contracts.”


Michael R. MacPhail
Partner
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