Father, son in Gerova stock scam get six years prison

Reuters News
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Posted: Feb 16, 2017 6:04 PM

By Jonathan Stempel

(Reuters) - Two members of a family conspiracy to manipulate the stock of reinsurer Gerova Financial Group Ltd were sentenced to six years in prison on Thursday, a day after the scheme's main architect received a more than 11-year term, prosecutors said.

John Galanis, 73, and his son Derek, 44, were also ordered by U.S. District Judge Kevin Castel in Manhattan to forfeit $19.04 million, after pleading guilty last summer to securities fraud and conspiracy charges. The Galanises were also sentenced to three years of supervised release.

Both sentencings came after Jason Galanis, a former Los Angeles investment banker once dubbed "Porn's New King," was sentenced to 135 months in prison by Castel on Wednesday. Jason is also John's son and one of Derek's brothers.

David Touger, a lawyer for John Galanis, said: "The court came to a very just and well thought out sentence." A lawyer for Derek Galanis could not immediately be reached for comment.

Prosecutors accused the defendants of involvement in a scheme from 2009 to 2011 to quietly take control of nearly half of Gerova's public float, and cash out at a profit after bribing investment advisers to buy shares for their own clients, driving up the stock price.

The scheme was aided by Gerova's then-chairman Gary Hirst, and led to nearly $20 million of illegal profits, according to prosecutors, who made the charges public in September 2015.

"John and Derek Galanis conspired to have more than $70 million worth of stock issued, hiding Jason Galanis' control of those shares, so that they could cash out at the expense of unwitting victim investors," U.S. Attorney Preet Bharara said in a statement.

Hirst was convicted at trial on fraud and conspiracy charges, and faces a March 17 sentencing.

Jared Galanis, a brother of Jason and Derek, was sentenced last month to 150 days in prison for his role, prosecutors said. Another defendant, Ymer Shahini, is at large.

Jason Galanis was nicknamed "Porn's New King" by Forbes magazine in 2004 after he bought the largest U.S. processor of credit card payments for internet pornography.

He has pleaded guilty in a separate case involving what prosecutors called a roughly $60 million scam to steal proceeds of a bond issue by an affiliate of South Dakota's Oklala Sioux Nation. Jason Galanis has yet to be sentenced in that case.

The case is U.S. v. Galanis et al, U.S. District Court, Southern District of New York, No. 15-cr-00643.

(Reporting by Jonathan Stempel in New York; Editing by Tom Brown)