Prime Bank Schemers Must Pay, Judge Rules
(CN) - A federal judge ordered the participants and beneficiaries of a prime bank scheme that defrauded 13 investors of more than $2.6 million to return the money to victims.
U.S. District Judge Rosemary Collyer in Washington, D.C., granted summary judgment Monday to the Securities and Exchange Commission in its lawsuit against The Milan Group, the law firm Baylor & Jackson and the individuals who orchestrated the scheme.
In its 2011lawsuit, the SEC claimed that Pennsylvania resident - and later mob informant - Frank Pavlico III, now deceased, teamed up with lawyer Brynee Baylor and her Washington, D.C. firm, Baylor & Jackson. They allegedly promised investors risk-free returns of up to 20 times the original investment within 45 days through the purported "lease" and "trading" of foreign bank investments.
But the bank instruments and trading programs were "entirely fictitious," the SEC said.
Investors were given phony contracts, legal documents and other supposed proof of the bogus transactions, the agency claimed.
The SEC said Baylor used her experience as an attorney to give the scheme an "aura of legitimacy."
After persuading the court to temporarily freeze the defendants' assets, the SEC asked for an order forcing Milan, Pavlico's estate, Baylor and her firm to disgorge any ill-gotten gains. It also sought disgorgement from a handful of companies and people who received some of the money, including Pavlico's former girlfriend, Mia Baldassari.
Collyer mostly granted the agency's request, saying the evidence overwhelmingly pointed to a securities scam.
"Without contest, the court finds that The Milan Group and Frank Pavlico engaged in the fraudulent securities scheme as alleged by the SEC and that Frank Pavlico aided and abetted The Milan Group in its fraudulent activities," Collyer wrote.
She noted that the phrase "prime bank" refers to the top banks of the world in the finance industry. "[T]he involvement of a prime bank in a financing scheme indicates its trustworthiness to victims," she explained.
Collyer said Baylor also was liable, despite her claim that she acted only as an attorney advising her client. As an experienced lawyer who graduated law school cum laude, Baylor couldn't possibly have been ignorant of the scheme, Collyer said.
"It ill behooves her now to declare that she represented the Milan Group for more than a year, from mid-2010 to November 2011, but that she had no relevant experience, knew nothing about securities laws, and did only what Frank Pavlico/Lorenzo directed her to do, without ever exercising a modicum of lawyerly interest in the legal implications of their activities," Collyer wrote.
"The record shows clearly that she used her authority as an attorney to attest to personal involvement and offer repeated validations of transactions about which she now proclaims ignorance."
Those who profited from the fraud must also give up the money, even if they weren't behind the scheme, Collyer ruled.
These include Patrick Lewis, whose company GPH Holdings received $375,000 from Milan, and Global Funding Systems, which received $225,000. However, Collyer exempted one of GFS' employees, Brett Cooper, from the disgorgement order.
"Default judgment has already been entered against GFS, and SEC offers no evidence or argument that would allow it to pierce the corporate veil and treat Mr. Cooper as the corporate entity," she wrote.
Collyer ordered Baldassari to disgorge about $13,000 of the more than $64,000 she allegedly received in gifts and loans from Pavlico.
"SEC's motion will be denied without prejudice to the remaining $51,000 that SEC asks the court to order Ms. Baldassari to disgorge," she wrote.
She otherwise ordered the defendants to disgorge all profits from the fraud, with interest, and barred them from further violations.
Pavlico conceived the scheme in 2010 after he served 10 months in prison for money laundering and helping the FBI bring down reputed Pennsylvania mob boss William D'Elia. The informant killed himself on Dec. 12, 2012, the night before he was supposed to appear in court for a bond-revocation hearing.