United States Attorney
Southern District of New York
Thursday, February 21, 2013
Virgin Islands-based Investment Adviser Arrested for Multimillion Dollar Investment Fraud Scheme in Virgin Islands
James Tagliaferri, who managed and controlled TAG Virgin Islands Inc. (TAG), an SEC-registered investment adviser, was arrested today for executing a scheme to defraud TAG clients, announced U.S. Attorney for the Southern District of New York Preet Bharara and the Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (USPIS) Keith Milke. Through TAG, Tagliaferri received undisclosed payments in exchange for causing his clients to invest in certain securities; used client funds for improper purposes, including making payments to other clients who were demanding their funds; and caused false and fictitious securities instruments to be placed in client accounts. In total, Tagliaferri received more than $3 million in undisclosed payments in connection with the fraud. He was arrested in St. Thomas, U.S. Virgin Islands and appeared today in federal court in St. Thomas.
U.S. Attorney Preet Bharara said: “As alleged, James Tagliaferri concocted an elaborate scheme to defraud his clients, including taking millions of dollars in undisclosed compensation in exchange for placing their hard-earned money in certain investments. Financial advisers have a professional and legal responsibility to act in their clients’ best interests which is exactly the opposite of the conduct in which Tagliaferri allegedly engaged.”
Inspector-in-Charge Keith Milke said: “Today's arrest of James Tagliaferri for allegedly investing client funds in risky ventures, then using part of their investments as a ‘fee’ violated the trust his clients placed with him, leaving many financially scarred. His arrest should serve as a reminder that whenever someone uses the U.S. Mail for illegal activities postal inspectors will bring them to justice.”
According to an indictment unsealed today in New York federal court:
Beginning in or about 2007, Tagliaferri opened TAG in the Virgin Islands and began offering investment advisory services to clients through that company. He exercised substantial discretion over client investment accounts which, at times, totaled more than $250 million in assets under his management.
Beginning in or about 2007, Tagliaferri executed a multifaceted scheme to defraud TAG clients. First, he began taking payments he was legally required to disclose but did not, in exchange for placing client funds in investments with certain companies. He received at least $1.6 million in secret fees for causing clients to invest in securities relating to a company located in Garden City, N.Y. (Company 1). He also received at least $1.75 million in undisclosed compensation in exchange for placing client funds in investments with several companies affiliated with an associate of his (Associate 1).
Tagliaferri often used his clients’ money to finance these undisclosed payments to TAG. He did this by transferring client funds from custodial accounts to a trust account maintained by an attorney. He then diverted a portion of those funds – the undisclosed fee – from the trust account to a TAG account in the Virgin Islands that he controlled. By routing fees to TAG through this trust account and other third-party accounts, Tagliaferri was able to receive these fees with no record of such fees appearing on the monthly statements custodial financial institutions sent to TAG clients.
Second, Tagliaferri used client funds for improper purposes, including making payments to other clients who were demanding their money and to make payments on behalf of companies he was affiliated with, including Company 1. He orchestrated a complex series of transactions between and among TAG client accounts to access funds for these purposes. For example, when an immediate need for funds arose, he caused clients to purchase shares of a publicly-traded company affiliated with Associate 1 from a client account affiliated with Associate 1 that Tagliaferri controlled. Once those sales took place and TAG client funds were transferred to that account, he used those funds for his own purposes, including for payments to other clients demanding their money.
Third, Tagliaferri caused false and fictitious securities to be placed in client accounts. He signed a series of investment instruments relating to a company located in Pennsylvania (the Pennsylvania Company). According to these instruments, the Pennsylvania Company was obligated to make payments to certain TAG clients based on a note agreement between the Pennsylvania Company and TAG. In reality, however, the Pennsylvania Company never executed any agreement with TAG that obligated it to make payments to TAG or TAG clients. As Tagliaferri well knew, these investment instruments and the obligation they referenced, were false and fictitious.
* * *
Tagliaferri, 73, of St. Thomas, has been charged with one count of investment adviser fraud, one count of securities fraud, five counts of wire fraud and eight counts of violating the Travel Act. The penalties for each of the charged offenses are listed in the attached chart.
U.S. Attorney Bharara praised the work of USPIS and the criminal investigators of the U.S. Attorney’s Office, which jointly investigated this case. He also thanked the U.S. Securities and Exchange Commission.
This case was done in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jason H. Cowley and Richard C. Tarlowe are in charge of the prosecution.
The charges contained in the indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.