SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16499 / April 3, 2000
SECURITIES AND EXCHANGE COMMISSION v. DANA C. GIACCHETTO and THE CASSANDRA GROUP, INC., U.S. District Court, S.D.N.Y., No. 00 CIV 2502 (LMM)
The Securities and Exchange Commission today charged a Manhattan investment adviser with a fraudulent scheme to divert $20 million (more than $4 million of which has been misappropriated) from the accounts of his clients, many of whom are prominent figures in the arts and entertainment industry. Simultaneously, the United States Attorney for the Southern District of New York unsealed a criminal complaint containing similar charges against Dana C. Giacchetto.
Named in the Commission's Complaint filed in the U.S. District Court for the Southern District of New York are:
- Dana C. Giacchetto, age 37, of Manhattan; and
- The Cassandra Group, Inc., a registered investment adviser located in Manhattan, which is solely owned by Giacchetto.
The Complaint alleges, and litigation papers filed by the Commission in support of its request for emergency relief set forth evidence, as follows:
Giacchetto targeted prospective clients from the arts and entertainment industries, and Cassandra's clients include many artists and film and music stars. In promoting his services, Giacchetto claimed that Cassandra followed a"conservative" investment strategy. Giacchetto also touted the purported safety of entrusting funds to him by claiming that Cassandra never took custody of client assets, but left them instead in the hands of an independent custodian.
From September 1997 to the present, Giacchetto unlawfully gained possession of at least $20 million in client funds. While Giacchetto used some of this money to make investments for clients, he diverted substantial funds - totaling more than $4 million - to pay Cassandra's operating expenses and Giacchetto's own living expenses, and to compensate other clients who had been defrauded earlier in the scheme. Giacchetto also used more than $12,000 in client funds to make the down payment on a Mercedes Benz automobile for a law enforcement officer.
Giacchetto stole money by diverting checks issued from his clients' individual accounts at a registered broker-dealer, Brown & Co., which served as the independent custodian for most of Cassandra's clients. On numerous occasions from at least June 1997 through the present, Giacchetto directed Brown to issue checks payable to particular Cassandra clients, drawing on funds held in those clients' Brown accounts. Rather than having those checks sent to the unsuspecting clients who were the named payees, Giacchetto caused Brown to deliver the checks to Cassandra. Giacchetto then endorsed the checks himself, in his own name, and deposited the funds in Cassandra's corporate bank accounts at U.S. Trust Co. In recent months, as some clients began to question activity in their accounts, Cassandra became little more than a giant "asset-kiting" scheme, as Giacchetto paid complaining clients with funds stolen from other clients. To conceal his diversion of funds, Giacchetto told a variety of lies to his clients, including:
- Misrepresenting to clients that Cassandra had invested their money in securities transactions that never took place, including non-existent bond purchases;
- Telling clients that their funds were invested in various "private placements," when in fact the money was deposited in Cassandra's own bank account;
- Providing false order tickets and portfolio statements to some clients who inquired about investments; and
- Falsely stating that client assets were held in "trust" or "escrow" accounts that did not, in fact, exist.
Giacchetto also induced or caused clients to invest substantial funds in high-risk securities issued by Paradise Music & Entertainment, Inc., a company with little operating history. Giacchetto made or solicited these investments despite a host of undisclosed conflicts of interest, including a personal stake in Paradise stock and warrants. In some instances, Giacchetto purchased Paradise securities at escalated market prices for clients who had earlier told him they did not want to buy Paradise securities at the substantially lower prices that had been available in a private placement.
Giacchetto also lied repeatedly to the staff of the Commission during a recent examination of Cassandra's operations, withheld from the staff books and records that he was legally obligated to produce, and provided falsified documents to the staff. Agents of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation executed a search warrant and discovered certain of the wrongfully withheld records in Giacchetto's residence.
The Complaint charges Giacchetto and Cassandra with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 207 of the Investment Advisers Act of 1940 ("Advisers Act"). The Complaint also charges that Cassandra, aided and abetted by Giacchetto, violated Sections 204, 206(1), 206(2), and 206(4) of the Advisers Act and Rules 204-2, 206(4)-2 and 206(4)-4 thereunder. The Commission seeks temporary, preliminary and permanent injunctions, an asset freeze, disgorgement of ill-gotten gains plus prejudgment interest, and civil monetary penalties against both defendants, as well as appointment of a receiver for Cassandra.
The Commission acknowledges the valuable assistance of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation in bringing this case.