James Tagliaferri, 77, former the president of TAG Virgin Islands, was found guilty July 26 in Manhattan federal court of investment adviser fraud, securities fraud, wire fraud and multiple counts of violating the Travel Act, according to the U.S. Attorney’s Office for the Southern District of New York.
TAG Virgin Islands was a beneficiary of generous U.S. Virgin Islands tax breaks through the V.I. Economic Development Commission from 2007 through 2011 – the time frame during which prosecutors say Tagliaferri committed his financial crimes through his Virgin Islands company.
Prosecutors charged Tagliaferri bilked investors of "at least $50 million" through a complicated scheme using one client’s investment money to pay off another client, taking secret fees for steering investors to certain securities, and "causing fictitious securities instruments to be placed in client accounts," according to a statement from U.S. Attorney for the Southern District of New York Preet Bharara.
“James Tagliaferri not only shirked his duty to act in his clients’ best interests, as investment advisers are obligated to do, he orchestrated a scheme to defraud them – taking millions of dollars in undisclosed compensation in exchange for placing their money in certain investments," Bharara said in a statement.
According to the U.S. Attorney’s Office, 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 began taking payments he was legally required to disclose, but did not, in exchange for placing client funds in investments with certain companies, Justice claimed. He 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 allegedly received at least $1.75 million in undisclosed compensation in exchange for placing client funds in investments with several companies affiliated with one of his associates.
Prosecutors also say Tagliaferri 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 received these fees with no record of such fees appearing on the monthly statements custodial financial institutions sent to TAG clients.
Tagliaferri also 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.
The court convicted Tagliaferri on one count of securities fraud and four counts of wire fraud, for which he faces a potential a maximum sentence of 20 years in prison for each count. It also convicted him of one count of investment adviser fraud and six counts of violating the Travel Act, for which he could get as much as five years in prison on each charge. The jury was hung on two other charges, and a mistrial was declared on those two counts. Sentencing is scheduled for Nov. 7.