Tagliaferri convicted in multimillion-dollar fraud
Published: August 6, 2014
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A New York jury has convicted a St. Thomas man of multiple fraud charges in connection with a multi-million dollar investment scheme in which he used a Virgin Islands company as a clearinghouse for fraudulent transactions.
James Tagliaferri, 75, formerly the president of TAG Virgin Islands, was convicted in Manhattan federal court on July 24 of investment adviser fraud; securities fraud; multiple counts of wire fraud; and multiple counts of violating the Travel Act, according to a statement from Preet Bharara, the U.S. Attorney for the Southern District of New York.
TAG Virgin Islands, which Tagliaferri opened in the territory in 2007, received V.I. Economic Development Commission benefits for a period of time, although it no longer is on the EDC beneficiary list.
V.I. Economic Development Authority officials did not return Daily News calls seeking information on TAG Virgin Islands' history with the EDC.
Tagliaferri's attorney, Scott Tulman, did not return a Daily News call on Tuesday seeking comment on the conviction.
"James Tagliaferri not only shirked his duty to act in his clients' best interests, as investment advisers are obligated to do, he orchestrated a scheme to defraud them - taking millions of dollars in undisclosed compensation in exchange for placing their money in certain investments," Bharara said.
Tagliaferri was arrested in February 2013 on St. Thomas.
In total, Tagliaferri's scheme caused his clients to lose at least $50 million, according to the U.S. Attorney's Office. Tagliaferri is also facing administrative proceedings through the U.S. Securities and Exchange Commission.
When Tagliaferri opened TAG in the territory in 2007 and began offering investment adviser services through the company, he also "executed a multi-faceted scheme to defraud TAG clients," according to the U.S. Attorney's Office.
Through TAG Virgin Islands, Tagliaferri began accepting undisclosed fees for placing client funds in certain companies; used client funds for improper purposes, including repaying other clients; and caused fictitious securities instruments to be placed in client accounts.
According to Bharara's statement, the evidence presented at trial and court documents show that Tagliaferri:
- Received at least $1.6 million in fees he did not disclose in exchange for causing his clients to invest in the securities of a horse-racing company in Garden City, N.Y. He placed at least $40 million of his clients' funds in investments relating to that company.
- Received approximately $1.75 million in undisclosed compensation for placing at least $80 million of his clients' money in several companies affiliated with an associate of his.
- Used clients' money to make the undisclosed payments to TAG by transferring clients' funds from their accounts to a trust account maintained by an attorney, then diverting a portion of those funds - the undisclosed fee - from the trust account to a TAG account in the territory that he controlled. By routing the fees to TAG through the trust account and other third-party accounts, Tagliaferri received the fees with no record of them appearing on the monthly statements that custodial financial institutions sent to TAG clients.
- Used client funds to make payments to other clients who were demanding their money, and to make payments on behalf of companies he was affiliated with, including the Garden City horse-racing company. To do this, he "orchestrated a complex series of transactions between and among TAG client accounts to access funds for these purposes."
- Caused fictitious securities - which he called sub-notes - to be placed in client accounts. These notes purportedly obligated a Pennsylvania company to make payments to TAG clients based on supposed promissory note agreements between the company and TAG, but no agreements existed.
After a four-and-a-half-week trial in New York, Tagliaferri was convicted on July 24 of one count of investment adviser fraud and six counts of violating the Travel Act, which each carry a maximum sentence of five years in prison. He also was convicted of one count of securities fraud and four counts of wire fraud, which each carry a maximum sentence of 20 years in prison.
The jury could not reach a verdict on two of the charges, one a wire fraud charge and the other a Travel Act charge, so the judge declared a mistrial on those counts.
U.S. District Judge Ronnie Abrams presided over the trial and scheduled sentencing for Nov. 7.
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