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Virgin Islands-Based Investment Advisor Charged By SEC

Eliane Chavagnon

22 February 2013

The Securities and Exchange Commission has charged an investment advisor in the Virgin Islands with defrauding clients by receiving “kickbacks” for investing their money in “thinly-traded” companies, raising some $80 million to cover the interest or principal due to other clients.

When James Tagliaferri faced pressure to pay clients their returns on those investments, he allegedly used money from other clients in a “ponzi-like fashion,” the authority said.

Tagliaferri routinely exercised his discretionary authority over the accounts of his clients to buy promissory notes issued by particular private companies through his firm TAG Virgin Islands, the SEC’s division of enforcement said.

In exchange for financing those companies, TAG harvested millions of dollars in cash and other compensation, presenting an undisclosed conflict of interest, the authority added.

In a parallel action, the US Attorney’s Office for the Southern District of New York has announced criminal charges against Tagliaferri.

According to the SEC’s order, Tagliaferri invested TAG clients primarily in conservative and liquid investments like municipal bonds and blue-chip stocks until around 2007, when he began investing clients in “highly illiquid” securities.

“These investments included promissory notes issued by various closely-held private companies that were nothing more than holding companies through which an individual and his family effected personal and business transactions,” the SEC said.

The investigation continues.