* James Tagliaferri, 73, faces criminal, SEC civil charges
* Defendant said to receive kickbacks, divert client money
By Jonathan Stempel
Feb 21 U.S. authorities on Thursday announced criminal and civil fraud charges against a septuagenarian investment adviser they said received kickbacks for funneling client money to a New York horse racing firm and small, thinly traded companies.
The 15-count criminal indictment accused James Tagliaferri, 73, of investing more than $120 million of funds he oversaw at TAG Virgin Islands LLC in St. Thomas in private or illiquid companies, in exchange for at least $3.35 million in fees.
Prosecutors said Tagliaferri, a resident of Connecticut and the Virgin Islands, also used client funds in part to repay earlier investors demanding their money, in a Ponzi-scheme fashion, and putting fictitious securities into client accounts.
The U.S. Securities and Exchange Commission brought related civil charges. It said Tagliaferri's investments on behalf of clients included at least $40 million of notes from International Equine Acquisitions Holdings Inc, a privately held owner of thoroughbred racehorses in Garden City, New York.
"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," U.S. Attorney Preet Bharara in Manhattan, who announced the criminal charges, said in a statement.
The defendant was arrested in St Thomas, and is expected to appear in a federal court there, Bharara said. A lawyer for Tagliaferri could not immediately be located.
STAVING OFF DISASTER
Authorities said Tagliaferri had long invested client money in blue-chip stocks and municipal bonds, but that this changed when the fraud began in 2007.
The SEC said that by March 2010, Tagliaferri was overseeing $261 million of client assets.
But trouble was brewing, the SEC said. It pointed to e-mails sent by Tagliaferri on April 4 and 5, 2010 that showed that his real motivation for investing in a microcap company, Fund.com Inc, was to repay investors in various notes.
"Where is the $125MM. As you are aware, this money was earmarked to clear all of the notes and other issues facing us both," he wrote an associate, who was not identified in court papers. "If I got $5MM-$10MM now and the balance in pieces over a 3 month time frame, I can probably stave off disaster."
Within a year, Tagliaferri's assets under management had fallen to $9 million, the SEC said.
Tagliaferri was criminally charged with seven counts of fraud, and eight counts of violating the Travel Act, which bans the use of foreign travel and mails to commit various crimes. He faces as long as 20 years in prison on each of six fraud counts.
A call to International Equine was not answered, and the company did not respond to an e-mail request for comment.
The case is U.S. v. Tagliaferri, U.S. District Court, Southern District of New York, No. 12-cr-00115. The SEC administrative proceeding is In re: Tagliaferri, No. 3-15215.