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Univ. of Toledo College of Law

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Tuesday, January 12, 2010

SEC Obtains Emergency Relief Against Fraud Targeted at Iranian-American Community in LA

On January 8, 2010, the SEC filed a complaint in the United States District Court for the Central District of California against Beverly Hills, Calif.-based NewPoint Financial Services, Inc. ("NewPoint"), John Farahi and Gissou Rastegar Farahi (the "Farahis"), and Elaheh Amouei (collectively, "the defendants") to halt the fraudulent, unregistered offering and sale of securities by defendants and to prevent the dissipation of investor funds. The court entered an order halting the alleged fraud and freezing the defendants' assets and those of relief defendant, Triple "J" Plus, LLC ("Triple 'J'"), an entity controlled by the Farahis.

The SEC's complaint alleges that the defendants engaged in an unregistered offering fraud targeting the Los Angeles Iranian-American community. According to the complaint, most investors learned of NewPoint, a corporation controlled by the Farahis, through a daily finance radio program that John Farahi hosts on a Farsi language radio station in the Los Angeles area. The SEC alleges that investors were typically solicited to invest in the debentures by the Farahis and/or Elaheh Amouei, NewPoint's controller, after making an appointment to discuss investment opportunities offered by NewPoint. The SEC's complaint alleges that since at least 2003, NewPoint has offered and sold more than $20 million worth of debentures to more than one hundred investors.

The complaint alleges that the defendants misled investors by falsely telling investors that the NewPoint debentures were low-risk. According to the complaint, many investors were also falsely told that they were investing in FDIC insured certificates of deposit, government bonds, and/or corporate bonds issued by companies backed by funds from the Troubled Asset Relief Program, also known as "TARP." The SEC alleges that in reality the vast majority of the money raised was actually transferred to accounts controlled by the Farahis, including an account at relief defendant Triple "J" to, among other things, fund the construction of the Farahis' multi-million dollar personal residence in Beverly Hills, California and to engage in risky options futures trading in the stock market in which the Farahis lost more than $18 million in 2008 and the beginning of 2009.

Finally, the SEC alleges that since approximately June 2009, John Farahi and Amouei have made further misrepresentations to investors in an effort to lull them into keeping their money with NewPoint. Investors have allegedly been told that their money is safe and that they are guaranteed to get the entirety of their investment back — despite the fact that NewPoint lacks sufficient funds to make all investors whole. The SEC alleges that John Farahi has also paid back some investors on a selective basis while failing to return money to other investors who have asked for a return of their investment. The SEC also alleges that Amouei has falsely told some of the investors who have not received a return of their investment that NewPoint was unable to return their money because the Commission has frozen NewPoint's financial accounts.

In its lawsuit, the SEC obtained an order (1) freezing the assets of NewPoint, the Farahis, and Triple "J"; (2) appointing a temporary receiver over NewPoint and Triple "J"; (3) preventing the destruction of documents; (4) requiring accountings from NewPoint, the Farahis, and Triple "J"; and (5) temporarily enjoining NewPoint, the Farahis, and Amouei from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC also seeks preliminary and permanent injunctions and civil penalties against the defendants and disgorgement with prejudgment interest against NewPoint, the Farahis, and Triple "J." A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for January 15, 2010 at 10:00 a.m.

http://lawprofessors.typepad.com/securities/2010/01/sec-obtains-emergency-relief-against-fraud-targeted-at-iranianamerican-community-in-la.html

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