Investment banker Galanis pleads guilty in Gerova stock scam

By Nate Raymond and Jonathan Stempel

NEW YORK (Reuters) – An investment banker once dubbed “Porn’s New King” and accused of engineering a scheme with his father and two brothers to reap illegal profits by manipulating a reinsurer’s stock price pleaded guilty to fraud charges on Thursday.

Jason Galanis, 46, of Los Angeles, admitted to securities fraud, investment adviser fraud, and two conspiracy charges at a hearing before U.S. Magistrate Judge Sarah Netburn in Manhattan.

Under a plea deal, Galanis agreed not to appeal any prison term of 12-1/2 years or fewer, and agreed to forfeit nearly $37.6 million plus two properties. His sentencing is scheduled for Dec. 9.

Galanis’ plea came one day after his father John pleaded guilty to related securities fraud and conspiracy charges concerning the reinsurer, Gerova Financial Group Ltd.

Two brothers, Jared and Derek Galanis, and former Gerova Chairman Gary Hirst were also criminally charged, and according to prosecutors, face a Sept. 12 trial.

The case is one of two pending against Jason Galanis, who was nicknamed “Porn’s New King” by Forbes magazine in 2004 after buying the nation’s largest processor of credit card payments for internet pornography.

In May, prosecutors unveiled separate charges accusing Galanis of engineering a roughly $60 million bond scam targeting South Dakota’s Oglala Sioux Nation, and using proceeds to make investments and buy luxury goods.

In the Gerova case, prosecutors said Jason Galanis, with the assistance of Hirst, amassed more than 5 million shares, nearly half of the reinsurer’s public float, and had them issued to a so-called straw holder to disguise his ownership.

Galanis then allegedly bribed investment advisers to buy Gerova shares for their own clients, and through coordinated trading sold Gerova shares from the straw holder’s account.

Prosecutors said Galanis’ wrongdoing occurred between 2007 and 2011. The Gerova stock manipulation scheme resulted in nearly $20 million in profits, they said.

“I knew the conduct was not correct,” Jason Galanis said at Thursday’s hearing. “I wasn’t aware of statutes at the time, but I knew the conduct was not correct, possibly illegal.”

Two other defendants were also charged in the Gerova case. The broker Gavin Hamels has pleaded guilty, while the alleged straw holder, Ymer Shahini, is a fugitive.

Jason Galanis has been in custody since his May arrest over the tribal bond scheme. On Wednesday, a federal appeals court refused to restore his bail.

The case is U.S. v. Galanis et al, U.S. District Court, Southern District of New York, No. 15-cr-00643.

(Reporting by Nate Raymond and Jonathan Stempel in New York; Editing by Bernadette Baum)