Jason Galanis describes his job as doing "M&A work" for a subsidiary of Gerova Financial Group Ltd., where he is chief executive. The insurer has a stock-market value of about $600 million and trades on the New York Stock Exchange.
The 40-year-old Mr. Galanis, who also is a manager of the unit called Gerova Advisors LLC, agreed in 2007 with another person accused of accounting fraud related to a false quarterly report to a five-year ban by the Securities and Exchange Commission from "serving as officers or directors of public companies."
The ban has resurfaced in a war of words between the insurer and some investors who are betting against the company's share price. But it isn't clear if Mr. Galanis's current job duties violate the settlement. SEC spokesman John Nester declined to comment, and the language in Mr. Galanis's settlement and a related court filing are murky, with no reference to subsidiaries of public companies.
Earlier this month, research and investment firm Dalrymple Finance asserted in a report about the insurer that it was "likely fraudulent," contending its assets were overvalued. Mr. Galanis's past also was cited as a red flag because of the SEC enforcement action.
Dalrymple has an incentive to criticize Mr. Galanis, saying in the report that it is shorting Gerova shares, meaning it would make money if they fell.
Mr. Galanis said the SEC charges against him were "clearly regrettable" and "a black eye. It's embarrassing." He also paid a $60,000 fine to end the agency's civil lawsuit alleging he "prepared and filed" a false quarterly report for magazine publisher Penthouse International Inc. Penthouse, which didn't admit or deny wrongdoing, settled the case by promising not to violate securities laws.
In an interview, Mr. Galanis said his current job is clearly allowed under the settlement because Gerova Advisors isn't a public company. Gerova Financial Group said in a statement that he is a "valuable employee," adding that his "responsibilities to the company are clearly defined" and his duties "limited." Mr. Galanis isn't a member of the parent company's board.
The court filing signed by Mr. Galanis includes his promise to avoid "acting as an officer or director of any issuer that has a class of securities registered" with the SEC or "that is required to file" financial reports with the agency. The five-year ban is to end in May 2012. Some securities lawyers say his job raises questions about the effectiveness of bans, an important tool used by regulators to protect investors.
In the past five years, the SEC has sought to bar more than 500 people from being officers or directors of a public company. Most of those efforts succeeded, often as a result of settlements with defendants in civil lawsuits filed by the SEC, though the agency couldn't provide exact figures.
Jacob Frenkel, a former SEC enforcement lawyer who now is a partner at law firm Shulman Rogers Gandal Pordy & Ecker in Potomac, Md., said comebacks following such bans occur "with great frequency," adding that being a director or officer of a unit of a public company is a grey legal area.
The question of whether a comeback by someone booted out of the securities industry or barred from being an officer or director of a public company crosses the line has long been controversial.
In 1998, Michael Milken, the former junk-bond king who spent nearly two years in prison for securities-law violations, agreed to pay $47 million to settle SEC charges that he violated a lifetime ban from the securities business. Mr. Milken didn't admit or deny wrongdoing. The SEC claimed Mr. Milken violated the ban by acting as a consultant in two transactions.
In an interview, Mr. Galanis said his current job is clearly allowed under the settlement because Gerova Advisors isn't a public company. Gerova Financial Group said in a statement that he is a "valuable employee," adding that his "responsibilities to the company are clearly defined" and his duties "limited." Mr. Galanis isn't a member of the parent company's board.
The court filing signed by Mr. Galanis includes his promise to avoid "acting as an officer or director of any issuer that has a class of securities registered" with the SEC or "that is required to file" financial reports with the agency. The five-year ban is to end in May 2012. Some securities lawyers say his job raises questions about the effectiveness of bans, an important tool used by regulators to protect investors.
In the past five years, the SEC has sought to bar more than 500 people from being officers or directors of a public company. Most of those efforts succeeded, often as a result of settlements with defendants in civil lawsuits filed by the SEC, though the agency couldn't provide exact figures.
Jacob Frenkel, a former SEC enforcement lawyer who now is a partner at law firm Shulman Rogers Gandal Pordy & Ecker in Potomac, Md., said comebacks following such bans occur "with great frequency," adding that being a director or officer of a unit of a public company is a grey legal area.
The question of whether a comeback by someone booted out of the securities industry or barred from being an officer or director of a public company crosses the line has long been controversial.
In 1998, Michael Milken, the former junk-bond king who spent nearly two years in prison for securities-law violations, agreed to pay $47 million to settle SEC charges that he violated a lifetime ban from the securities business. Mr. Milken didn't admit or deny wrongdoing. The SEC claimed Mr. Milken violated the ban by acting as a consultant in two transactions.
In November, financier Steven Rattner agreed as part of a settlement with the SEC over alleged influence-peddling at New York's flagship pension fund to not associate with any investment adviser or broker dealer for two years. Mr. Rattner didn't admit or deny wrongdoing. A December agreement with then-New York Attorney General Andrew Cuomo bans Mr. Rattner from appearing "in any capacity" before New York pension funds for five years.
Barry Goldsmith, a partner at law firm Gibson, Dunn & Crutcher LLP who was the SEC's chief litigation counsel from 1993 to 1996, said it is "unusual" for someone barred from running a public company to work as a director of a wholly owned subsidiary of a public company, as Mr. Galanis said he is doing.
Mr. Galanis got a Ferrari when he was 16 years old. Two years later, his father, John Peter Galanis, went to federal prison after being convicted of racketeering, tax-fraud, bank-fraud and securities-fraud charges. The five-year ban agreed to by the younger Mr. Galanis came when he owned about an 8% stake in Penthouse. The SEC said the alleged fraud boosted revenue and made a quarterly loss look like a profit. He didn't admit or deny wrongdoing.
Deal-making is a major part of the parent company's growth strategy. Launched in 2007 as a "blank check" operation to make acquisitions, Gerova has gobbled up loans and insurance assets. Last month, the company announced plans to buy Seymour Pierce Holdings Ltd., a London brokerage firm with roots dating back to 1803, and New York brokerage firm Ticonderoga Securities LLC.
Gerova said it will change its name to Seymour Pierce when the London deal is completed. The takeovers must be approved by U.S. and U.K. regulators.
The Dalrymple report claimed the company is vastly overvaluing its real-estate assets, which investors can't fully assess because Gerova hasn't filed financial statements since it became a public company last year.
A May 2010 company spreadsheet reviewed by The Wall Street Journal calculates that Gerova's real-estate holdings are worth 41% less than their stated book value of $274 million. The analysis of more than 30 investments includes a high-rise condominium in West Palm Beach, Fla., and 253 single-family homes in Ohio.
Jack Doueck, a Gerova director, said the document was an informal estimate that was "rife with errors." The book values are out of date, and "there is no $112 million discrepancy," he said. And as a "foreign private issuer," Gerova is required to disclose results only annually, Mr. Doueck added. The annual report for 2010 is due by June.
Gerova said earlier this month that it hired investigative firm Kroll, a unit of Altegrity Inc., to probe "possible market manipulation and collusion aimed at driving down the price" of Gerova shares. The company accused Dalrymple, the research firm that questioned Mr. Galanis's role at the insurer, of using "materially false information" to support a "series of speculative and unsupported conclusions."
Keith Dalrymple, managing director of Dalrymple, declined to comment.
Barry Goldsmith, a partner at law firm Gibson, Dunn & Crutcher LLP who was the SEC's chief litigation counsel from 1993 to 1996, said it is "unusual" for someone barred from running a public company to work as a director of a wholly owned subsidiary of a public company, as Mr. Galanis said he is doing.
Mr. Galanis got a Ferrari when he was 16 years old. Two years later, his father, John Peter Galanis, went to federal prison after being convicted of racketeering, tax-fraud, bank-fraud and securities-fraud charges. The five-year ban agreed to by the younger Mr. Galanis came when he owned about an 8% stake in Penthouse. The SEC said the alleged fraud boosted revenue and made a quarterly loss look like a profit. He didn't admit or deny wrongdoing.
Deal-making is a major part of the parent company's growth strategy. Launched in 2007 as a "blank check" operation to make acquisitions, Gerova has gobbled up loans and insurance assets. Last month, the company announced plans to buy Seymour Pierce Holdings Ltd., a London brokerage firm with roots dating back to 1803, and New York brokerage firm Ticonderoga Securities LLC.
Gerova said it will change its name to Seymour Pierce when the London deal is completed. The takeovers must be approved by U.S. and U.K. regulators.
The Dalrymple report claimed the company is vastly overvaluing its real-estate assets, which investors can't fully assess because Gerova hasn't filed financial statements since it became a public company last year.
A May 2010 company spreadsheet reviewed by The Wall Street Journal calculates that Gerova's real-estate holdings are worth 41% less than their stated book value of $274 million. The analysis of more than 30 investments includes a high-rise condominium in West Palm Beach, Fla., and 253 single-family homes in Ohio.
Jack Doueck, a Gerova director, said the document was an informal estimate that was "rife with errors." The book values are out of date, and "there is no $112 million discrepancy," he said. And as a "foreign private issuer," Gerova is required to disclose results only annually, Mr. Doueck added. The annual report for 2010 is due by June.
Gerova said earlier this month that it hired investigative firm Kroll, a unit of Altegrity Inc., to probe "possible market manipulation and collusion aimed at driving down the price" of Gerova shares. The company accused Dalrymple, the research firm that questioned Mr. Galanis's role at the insurer, of using "materially false information" to support a "series of speculative and unsupported conclusions."
Keith Dalrymple, managing director of Dalrymple, declined to comment.
Jack's comment: When there is a regulation, there are lots of loopholes.
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