U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21494 / April 20, 2010
Securities and Exchange Commission v. Gryphon Holdings, Inc. et al., United States District Court for the Eastern District of New York, Civ. Action No. 1:10-cv-01742-JBW -JO (filed April 20, 2010)
SEC HALTS INTERNET-BASED SCAM BY STATEN ISLAND FIRM LURING INVESTORS WITH PHONY STOCK TIPS AND FICTIONAL TRADING EXPERTS
The Securities and Exchange Commission today charged a Staten Island, N.Y.-based investment advisory firm, its owner, and four associates with operating an Internet-based scam that misleads investors into paying fees for phony stock tips and investment advice from fictional trading experts. The SEC obtained an emergency court order to freeze the assets of the firm and individuals involved.
The SEC alleges that Gryphon Holdings Inc., owner Kenneth E. Marsh, and the Gryphon associates induced investors to pay fees of up to $250,000 for securities recommendations that they falsely claim are based on sound research and successful strategies of trading experts with superior knowledge. In an effort to lend legitimacy to the firm's advisory business, Gryphon touts trading experts with fake names who boast millions of dollars in trading riches as well as top-notch educational backgrounds and prominent experience at major Wall Street firms. Gryphon representatives even fabricated glowing testimonials from George Soros and purported clients who profited by trading securities the firm recommended.
According to the SEC's complaint, filed in U.S. District Court for the Eastern District of New York, investors who followed the guidance of Gryphon's purported experts have suffered significant losses by trading on those tips or, in at least one instance, by allowing Gryphon to trade on their behalf.
In addition to Gryphon and Marsh, the SEC's complaint charges Baldwin Anderson and Robert Anthony Budion, both of Staten Island, N.Y., Jeanne Lada of Freehold, N.J., and James Levier of Beachwood, N.J.
According to the SEC's complaint, Gryphon obtained more than $17.5 million from its operations over the past three years. Gryphon and its associates made numerous material misrepresentations and omissions since at least 2007 to entice unsuspecting clients to purchase its services. Gryphon's representatives used high-pressure tactics to obtain additional fees from clients to purportedly give those clients access to "better" yielding investment tips, even if Gryphon had not provided all the advisory services for which the client had already paid.
The SEC specifically alleges that Gryphon falsely touted that it:
- Has significant trading operations
- Manages or advises hedge funds with holdings in excess of $1.4 billion
- Has a principal who "pull[ed] in revenues that exceed $50 billion"
- Has a "self made billionaire" who is a "great stock picker"
- Has key personnel who were educated at prestigious institutions or who were affiliated with major investment banks
- Received an endorsement from George Soros
The SEC's complaint alleges that Gryphon made these and many other material misrepresentations in the course of inducing clients to purchase investment services or providing personalized securities recommendations to clients.
Gryphon markets itself as a publisher of financial information. Gryphon frequently posts investment tips on the Internet using at least 40 different monikers such as "Wolves of Wall Street," "Wall Street's Most Wanted," "Pure Profit," and "Mafia Trader." In reality, as alleged in the SEC's complaint, Gryphon's financial publications only serve as a vehicle to attract unsuspecting clients to pay fees for personalized investment recommendations, portfolio analysis, and money management services that Gryphon purportedly provided.
The Honorable Jack B. Weinstein of the U.S. District Court for the Eastern District of New York granted the SEC's request for a temporary restraining order and asset freeze against the Defendants and six others named as Relief Defendants: Richard Borrello, Nicole Marsh, Ginna Mungiovi, Michael Scarpaci, Dominic Spinelli, and Paul Stokes. Specifically, the Commission seeks an Order: (i) temporarily and preliminarily enjoining the Defendants from violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; (ii) temporarily and preliminarily enjoining Defendants Lada, Anderson, Budion and Levier from aiding and abetting any person's violations of Sections 206(1) and 206(2) of the Advisers Act; (iii) temporarily and preliminarily enjoining Defendant Kenneth Marsh from controlling a person who violates Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (iv) prohibiting the Defendants and Relief Defendants from filing a bankruptcy proceeding on behalf of any Defendant or Relief Defendant without at least three days notice to the Commission and approval of the Court; (v) requiring each Defendant and Relief Defendant to provide a verified accounting; (vi) prohibiting the destruction, alteration, or concealment of documents; and (vi) directing expedited discovery.
The SEC's investigation is continuing. The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Eastern District of New York and the United States Postal Inspection Service, which today arrested Defendants Kenneth Marsh, Anderson, Budion, Lada, and Levier on charges of conspiracy to commit securities fraud and wire fraud.
See Also: SEC Complaint