January 19, 2017 / 11:42 PM / 3 years ago

Former Los Angeles investment banker pleads guilty to fraud

NEW YORK (Reuters) - A former Los Angeles investment banker once dubbed “Porn’s New King” pleaded guilty on Thursday for the second time in a year to engaging in securities fraud, admitting to participating in a scheme that cheated investors and a Native American tribe.

Jason Galanis, 46, entered his plea in Manhattan federal court to charges that included securities fraud and conspiracy to commit investment adviser fraud in connection with what prosecutors called a multimillion-dollar scheme.

Under a plea deal, Galanis, who is scheduled to be sentenced on May 5, agreed to forfeit over $43 million and not appeal any prison term of about 19-1/2 years or less.

His sentence would be on top of whatever he receives as punishment in a separate case, in which Galanis admitted in July to manipulating the market for reinsurer Gerova Financial Group Ltd.

In that case, he agreed not to appeal a prison term of 12-1/2 years or less and is scheduled to be sentenced on Feb. 16.

Galanis was dubbed “Porn’s New King” by Forbes magazine in 2004 after buying the nation’s largest processor of credit card payments for internet pornography.

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

According to prosecutors, beginning in 2014, Galanis and his father, John, persuaded the Wakpamni Lake Community Corp, an affiliate of the Oglala Sioux Nation in South Dakota, to issue $60 million in municipal bonds.

Together with his father and five associates, Galanis and his co-defendants then misappropriated the bond proceeds, prosecutors said. They said he obtained $8.5 million for himself, which he spent on items such as his home, jewelry and travel.

To buy the illiquid bonds, Galanis arranged for two co-defendants to use about $40 million belonging to clients of investment advisers Hughes Capital Management Inc and Atlantic Asset Management LLC, prosecutors said.

Prosecutors said that as a result of the fraud, those investors were left with worthless securities, while the tribal corporation was left with no way to make interest payments due on the bonds.

The case is U.S. v. Galanis et al, U.S. District Court, Southern District of New York, No. 16-cr-00371.

Reporting by Nate Raymond in New York; Editing by Peter Cooney

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