SEC Charges Brokers Jerry Cicolani and Jeffrey Gainer in KGTA Petroleum Securities Scam

shutterstock_143448874The law offices of Gana LLP are investigating client claims regarding the Securities and Exchange Commission (SEC) complaint against Thomas Abdallah (a/k/a Tom Abraham), Kenneth Grant and their company KGTA Petroleum, Ltd. (“KGTA”) concerning a fraudulent investment scheme. Also named in the complaint are two registered representatives, Jerry Cicolani and Jeffrey Gainer who were associated with Primesolutions Securities, Inc., (Primesolutions) a brokerage firm.

According to the SEC, Grant and Abdallah marketed KGTA to investors as a petroleum company that earns profits by buying and reselling crude oil and other fuel products. Investors were purportedly told that they had relationships with bona fide third party purchasers and that they would use investor funds to buy fuel at a discount that would then be sold at a substantial profit. The KGTA investment was pitched to investors as an opportunity that offered astronomical returns – typically between 2% to 4% per month or 24-48% annualized – with no market risk.

According to the SEC, Grant and Abdallah convinced investors to buy KGTA promissory notes (KGTA Notes) by promising that the investment funds and the returns would flow through an escrow account monitored by attorney Mark George who would act as the escrow agent. Grant, Abdallah, and George promised that investor funds would be held in George’s IOLTA account until KGTA received a firm purchase order from a bona fide third party purchaser.

The SEC found that between October 8, 2012, and February 2014, KGTA raised at least $20.73 million from investors and that the KGTA oil business was a sham and the escrow fund didn’t exist. In reality, the SEC alleged that Grant and Abdallah operated KGTA as a Ponzi scheme and George never followed the promised escrow procedures. In addition, the purchase orders did not exist, KGTA did not sell fuel or oil and KGTA did not generate revenues through the purchase and resale of oil products. Instead, the SEC found that George distributed investor cash directly to KGTA and the company used some of the funds raised from new investors to pay fake “returns” to old investors. The rest of the money, according to the SEC, went to Grant and Abdallah for their own personal use including car payments, country club dues, and over $200,000 in cash withdrawals.

The SEC alleged that Grant, Abdallah and KGTA committed fraud, failed to register KGTA Notes. The SEC alleged that in most sales, Grant and Abdallah offered and sold the fraudulent KGTA Notes to investors through Jeffrey Gainer and Jerry Cicolani. The SEC alleged that Gainer and Cicolani found investors for KGTA, relayed information about KGTA to investors, and obtained investor signatures on the investment agreements. The SEC alleged that Gainer and Cicolani did not sell the KGTA Notes through their broker-dealer firm and instead engaged in “selling away” activity.

According to the SEC, Gainer and Cicolani hid from investors the fact that they were being paid enormous fees by KGTA to sign up investors, including a pay out of a 5% gross monthly return that would otherwise have been paid to investors. Cicolani and Gainer also hid the fact that if they negotiated a higher commission for bringing in a particular investor then that investor’s returns was reduced by that amount. According to the SEC, since October 2012, Gainer has been paid approximately $2 million in fees and Cicolani has taken in over $4 million in fees. In sum, the SEC has alleged that approximately 29% of all investor funds raised for KGTA went to the brokers.

The SEC also alleged that these massive fees were funneled through entities owned by Gainer’s wife, named as a relief defendant, Nancy Gainer, and Cicolani’s girlfriend, Kelly Hood.

The attorneys at Gana LLP are experienced in representing investors in cases of unsuitable private placement securities and brokerage firm’s failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.