SEC Fines Family In Offering Fraud

MASSACHUSETTS – A judge in Massachusetts has awarded the Securities and Exchange Commission (SEC) $15.6 million over the agency's claims that two companies operated by the same family conducted an offering fraud and misappropriated approximately $14 million of investor proceeds.

The SEC had filed a complaint in the United States District Court for the District of Massachusetts against Gene Gilman, Steven Gilman and companies they operated for the alleged fraud, said to have been committed between December 1998 and October 2003.

The complaint alleges that Gene Gilman and his son Steven Gilman solicited approximately $20 million from 40 people who invested funds with Arbor Securities, an unregistered broker dealer and investment adviser located in Needham, Massachusetts.

According to the complaint, the Gilmans funnelled investor proceeds to their personal use through Financial Links, a registered broker-dealer controlled by Gene Gilman but headquartered in Raleigh, North Carolina.

Instead of establishing the individual accounts and investing customer funds into Arbor Securities, the Gilmans transferred the funds into several foreign and domestic bank and brokerage accounts in the names of Arbor Securities, including accounts at Financial Links.

"From those accounts, Steven Gilman transferred customer funds to himself, to Gene Gilman, and to private companies controlled by Gene Gilman, including TradeTek, Ltd and Commonwealth Financial Holdings, Inc," the complaint said.

On June 19, 2006, Hon. William Young, US District Judge for the District of Massachusetts, ordered the defendants to pay joint and several disgorgement and prejudgment interest in the respective amounts of $14,000,000 and $1,681,718.26.