$8M fraud paid for massages, cigars, plane tickets: Feds
Airline tickets, massages and cigars. That’s what was purchased with clients’ money after an advisor perpetrated an $8-million fraud that lasted almost two decades, according to federal prosecutors.
Steven Pagartanis, 58, was charged with nine counts of securities fraud, mail and wire fraud conspiracies, as well as money laundering for orchestrating a Ponzi-like scheme that duped more than a dozen elderly investors, according to an indictment unsealed in New York.
At least 17 individuals — many of whom were elderly women and longtime clients — collectively invested more than $13 million with Pagartanis, supposedly for real estate investments, the indictment says. In the end, these individuals sustained losses of more than $8 million.
The money was supposed to be invested in Genesis Land Development, a publicly-traded company based in Calgary, Canada, according to a parallel civil complaint filed by the SEC. After telling clients to make checks payable to “Genesis,” Pagartanis instead deposited the money into a shell company, Genesis I Holdings, which he secretly controlled, the regulator says.
He enticed his victims with guaranteed fixed interest rates of up to 8% annually, according to the complaint.
“As alleged, Pagartanis preyed on the elderly with his own interests in mind,” says FBI Assistant Director-in-Charge William Sweeney. “While causing significant financial loss to his victims, Pagartanis experienced significant financial gain — allegedly paying personal expenses and making extravagant purchases.”
To conceal the scheme, Pagartanis created false account statements showing that clients held ownership interests in the investments, prosecutors say. Many lost “substantial portions” of their life savings as a result, prosecutors say.
“Regardless of how long investors have worked with their brokers, they should always confirm that recommended investments are approved for sale by their brokerage firm before transferring funds,” Marc Berger, director of the SEC’s New York Regional Office, said in a statement in June.
Pagartanis transferred the money to his personal bank account and used around $1.8 million to make monthly interest payments back to investors, according to the SEC complaint. As of February, the account balance was around $8,000, court records show. Pagartanis used the funds to pay for personal and family expenses, and to purchase luxury items such as clothing, jewelry, airline tickets, massages and cigars, according to the indictment.
An attorney for Pagartanis, Kevin Keating, declined to comment on the proceedings.
Pagartanis was last registered with the Baltimore-based Lombard Securities as of September, and worked at the firm’s Setauket, New York branch office. FINRA barred Pagartanis in April, per BrokerCheck.
There are 15 disclosures on his FINRA record, including one pending customer dispute requesting $3.1 million for an unregistered investment in Genesis Land Development, per BrokerCheck.
The SEC recently proposed a bill that would establish a Senior Investor Taskforce designed to make recommendations to protect senior investors over age 65. The Congressional Budget Office estimated the project would have a gross cost of $7 million from 2019 to 2023.
“The elderly are among the most vulnerable members of society, as they are common targets of fraudulent schemes,” Sweeney says.
Pagartanis was arrested July 25, according to prosecutors. If convicted, he faces a maximum sentence of 20 years in prison.