James Tagliaferri, the former President of TAG Virgin Islands, a registered investment adviser, was found guilty by a jury of one count of investment adviser fraud, six counts of violating the Travel Act, one count of securities fraud and four counts of wire fraud. The jury was unable to reach a verdict on another two counts, one under the Travel Act and the other based on wire fraud. Sentencing is scheduled for November 7, 2014. U.S. v. Tagliaferri, No. 1:13-cr-0115 (S.D.N.Y. Verdict July 24, 2014).

TAG began business in the U.S. Virgin Islands in 2007. It offered investment advisory services. Mr. Tagliaferri had previously offered similar services through Taurus Advisory Group in Connecticut.

The charges centered on three schemes. First, beginning in the year the advisory opened, Mr. Tagliaferri began placing client funds in a company located in Garden City, New York that was engaged in horse-racing. At least $40 million in client funds were invested. Unknown to those clients, Mr. Tagliaferri was paid at least $1.6 million in undisclosed kickbacks to place the client funds with the company. To ensure that the fees were not listed on monthly custodial account statements furnished to clients, Mr. Tagliaferri routed the transactions through an attorney and then diverted the undisclosed fees from a trust account to a TAG account in the Virgin Islands that he controlled.

Second, client funds were used for improper purposes. Those included making payments to other clients who were demanding their funds and paying entities with which he was affiliated. Again the transactions were disguised by routing them through a circuitous path.

Third, Mr. Taglaiferri also caused clients to invest in what he called “sub-notes.” These were purportedly obligations of a company located in Pennsylvania. The notes were supposed to make payments to TAG clients based on promissory note agreements between the Pennsylvania Company and TAG. In fact the notes were fictitious.

The SEC filed a parallel action at about the time the criminal charges were brought. In the Matter of James S. Tagliaferri, Adm. Proc. File No. 3-15215 (February 21, 2013).