US charges 'Porn's New King' with tribal bond fraud

FBI Sting Tries to Reign in Penny Stock Fraud
FBI Sting Tries to Reign in Penny Stock Fraud

A man once dubbed "Porn's New King" before he was accused of stock fraud was hit on Wednesday with new criminal charges over an alleged scheme to cheat investors and a Native American tribe out of tens of millions of dollars.

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U.S. authorities said Jason Galanis enlisted his father, John, and five others to defraud clients who invested more than $43 million in illiquid, sham bonds issued in 2014 and 2015 by the Wakpamni Lake Community Corp, an affiliate of the Oglala Sioux Nation in South Dakota.

Rather than invest proceeds to provide capital for the tribe and make payments to bondholders, Jason Galanis, of Los Angeles, and his accomplices spent the money on other investments, support for a technology company's initial public offering, and luxury goods at retailers such as Gucci and Prada, authorities said.

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Jason Galanis, 45, and John Galanis, 73, were also accused of diverting money to defend against criminal charges announced last September over an alleged pump-and-dump swindle that cost investors in the reinsurer Gerova Financial Group Ltd nearly $20 million.

"The defendants' alleged fraud has left devastation in its wake: a tribe with tens of millions in bond obligations it cannot pay, and investors out tens of millions, left holding bonds they did not want," U.S. Attorney Preet Bharara in Manhattan said in a statement.

All seven defendants were arrested on Wednesday, and charged with securities fraud and conspiracy. Three, including Jason Galanis, were also charged with investment adviser fraud. The Securities and Exchange Commission filed related civil charges.

Gary Hirst, who was Gerova's chairman and chief investment officer of Hughes Capital Management LLC, a firm controlled by Jason Galanis, is a defendant in both criminal cases.

Aaron McClellan, a lawyer for Jason Galanis, did not immediately respond to requests for comment. David Touger, who represents John Galanis, and Cameron Stout, who represents Hirst, declined to comment.

The Oglala Sioux Nation did not immediately respond to requests for comment.

Six of the seven defendants in the Gerova case face a Sept. 12 trial in that case. The seventh, investment adviser Gavin Hamels, pleaded guilty in March, court records show.

In 2004, Jason Galanis was dubbed Porn's New King by Forbes magazine after buying the nation's largest processor of credit card payments for Internet pornography.

Three years later, the SEC fined him $60,000 after claiming he prepared false accounting information for Penthouse International Inc, in which he held a large stake.

The criminal case is U.S. v. Galanis et al, U.S. District Court, Southern District of New York, No. 16-mag-02978.

Originally published