James Tagliaferri, who managed and controlled TAG Virgin Islands, an investment advice firm registered with the U.S. Securities and Exchange Commission, was arrested in St. Thomas Friday for allegedly defrauding his clients, according to the U.S. Department of Justice.
TAG was a beneficiary of the V.I. Economic Development Commission tax breaks, from 2007 through 2011.
Tagliaferri allegedly received undisclosed payments in exchange for directing his clients to invest in certain securities; used client funds for improper purposes, including making payments to other clients who were demanding their funds; and caused false and fictitious securities instruments to be placed in client accounts. In total, Tagliaferri allegedly received more than $3 million in undisclosed payments in connection with the fraud, according to a statement from U.S. Attorney for the Southern District of New York Preet Bharara.
The criminal charges outline very similar allegations of misuse of client funds claimed by former clients in a civil suit against Tagliaferri.
“As alleged, James Tagliaferri concocted an elaborate scheme to defraud his clients, including taking millions of dollars in undisclosed compensation in exchange for placing their hard-earned money in certain investments. Financial advisers have a professional and legal responsibility to act in their clients’ best interests which is exactly the opposite of the conduct in which Tagliaferri allegedly
engaged," Bharara said in the statement.
According to an indictment unsealed Friday in New York federal court, starting around 2007, Tagliaferri opened TAG in the Virgin Islands and began offering investment advice. He largely oversaw client investment accounts which, at times, totaled more than $250 million in assets, according to the Department of Justice.
First, Tagliaferri allegedly began taking payments he was legally required to disclose but did not, in exchange for placing client funds in investments with certain companies. He allegedly received at least $1.6 million in secret fees for causing clients to invest in securities relating to a company located in Garden City, N.Y. Tagliaferri also supposedly received at least $1.75 million in undisclosed compensation in exchange for placing client funds in investments with several companies affiliated with an associate of his.
Prosecutors also say Tagliaferri often used his clients’ money to finance these undisclosed payments to TAG, by transferring client funds from custodial accounts to a trust account maintained by an attorney. He then diverted a portion of those funds – the undisclosed fee – from the trust account to a TAG account in the Virgin Islands that he controlled.
By routing fees to TAG through this trust account and other third-party accounts, Tagliaferri was allegedly able to receive these fees with no record of such fees appearing on the monthly statements custodial financial institutions sent to TAG clients.
The government also claims Tagliaferri misused client funds to payments to other clients who were demanding their money and to make payments on behalf of companies he was affiliated with.
Tagliaferri, 73, has been charged with one count of investment adviser fraud, one count of securities fraud, five counts of wire fraud and eight counts of violating the Travel Act.
