U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22973 / April 16, 2014
Securities and Exchange Commission v. Palladino, et al., Civil Action No. 13-11024-DPW (United States District Court for the District of Massachusetts)
United States v. Palladino, Criminal Action No. 14-10100-DPW (United States District Court for the District of Massachusetts)
Commonwealth of Massachusetts v. Palladino, Crim. Action Nos. 13-10207, 13-10891; Commonwealth of Massachusetts v. Viking Financial Group, Inc., Crim. Action Nos. 13-10209, 13-10894 (Suffolk Superior Court)
Federal Prosecutors Charge Massachusetts Resident with Criminal Contempt Based On Violations of Court Orders Obtained by the SEC
The Securities and Exchange Commission announced today that, on April 10, 2014, the United States Attorney's Office for the District of Massachusetts charged Steven Palladino with 25 counts of criminal contempt based on his repeated violations of Court orders obtained by the Commission in its civil action against Palladino and his Massachusetts-based company, Viking Financial Group, Inc. (collectively, "Defendants"). The Commission's action charged that Defendants were operating a fraudulent Ponzi scheme. The charging document filed by the United States Attorney's Office alleges that Palladino "knowingly and wilfully disobey[ed]" Court orders in the Commission's action that froze all of Defendants' assets, required that Defendants deposit all funds in their possession into a court-ordered escrow account, and required Palladino to purge himself of a prior order of civil contempt. If convicted, Palladino, who is currently serving a prison sentence based on convictions in state court for the same Ponzi scheme activity, could face additional incarceration.
On April 30, 2013, the Commission filed an emergency action against Defendants in federal district court in Massachusetts. In its complaint, the Commission alleged that, since April 2011, Defendants misrepresented to at least 33 investors that their funds would be used to conduct the business of Viking - which was purportedly to make short-term, high interest loans to those unable to obtain traditional financing. The Commission also alleged that Palladino misrepresented to investors that the loans made by Viking would be secured by first interest liens on non-primary residence properties and that investors would be repaid their principal, plus monthly interest at rates generally ranging from 7-15%, from payments that borrowers made on the loans. The complaint alleged that Defendants actually made very few real loans to borrowers, and instead used investors' funds largely to pay earlier investors and to fund the Palladino family's lavish lifestyle.
When the Commission first filed its action, it moved the Court for a temporary restraining order, asset freeze, and other emergency relief. On April 30, 2013, the Court issued a temporary restraining order, which included the asset freeze, and set the matter for further hearing on May 3, 2013. On May 3, 2013, the Court issued a revised restraining order, which included the same asset freeze. On May 15, 2013, the Court issued the order that Defendants deposit all funds in their possession into an escrow account. The asset freeze and escrow order have remained in effect at all times since April 30, 2013 and May 15, 2013, respectively.
Since September 2013, the Commission has filed four motions for civil contempt against Palladino. The Commission's first motion for contempt, filed on September 4, 2013, alleged that Palladino violated the asset freeze by transferring three vehicles that he owned (solely or jointly with his wife) into his wife's name and using the vehicles as collateral for new loans - effectively cashing out the equity in these vehicles. The motion also alleged that Palladino violated the escrow order by failing to deposit the funds he received from this cashing-out process into the escrow account. On November 15, 2013, the Court held Palladino in contempt and ordered that he restore ownership of the vehicles that he had transferred into his wife's name. Subsequently, Palladino reported to the Court that he had repaid all the new loans and restored ownership of two of the vehicles (but had failed to restore ownership of one vehicle). The Commission alleges that, in truth, the checks used to repay the new loans on the vehicles were all returned for insufficient funds. According to the Commission's allegations, to date, Palladino has not purged the civil contempt order against him. The Commission also filed three other contempt motions against Palladino charging that (i) he obtained a loan for $6,750 from a Viking investor and failed to deposit this amount into the escrow account; (ii) he sold a truck owned by him for $9,500 and failed to deposit this amount into the escrow account; and (iii) he opened new credit cards and ran up charges for cash advances, gold coins, luxury merchandise and fine dining and failed to deposit the cash and other assets obtained into the escrow account - all in violation of the asset freeze and escrow order. These three motions remain outstanding. The United States Attorney's Office's criminal charges arise from these same violations, as well as Palladino's alleged refusal to comply with the civil contempt order.
On July 15, 2013, the Court held that Defendants' conduct violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act. On November 18, 2013, the Court entered orders that enjoined Defendants from further violations of the antifraud provisions of the securities laws and ordered them to pay disgorgement of $9,701,738, plus prejudgment interest of $122,370. On January 14, 2014, Palladino pled guilty in Suffolk Superior Court to various state criminal charges based on the same conduct alleged by the Commission in its case. Palladino is currently serving a 10-12 year prison sentence for his state court convictions.
The Commission acknowledges the continued assistance of Suffolk County (Massachusetts) District Attorney Daniel F. Conley's Office, whose office referred Palladino's and Viking's conduct to the Commission.