It is to say to other people who are brought in to court by the SEC, 'This is what could happen to you if you violate the interim orders that judges frequently impose in cases brought by the SEC or similar agencies. It is not going to be folded up into a ball of wax and everything is going to be treated as congealed. It is a separate and distinct crime, and you will pay for it, and you will pay for it by additional time in prison.'
U.S. District Judge Douglas P. Woodlock
In a rare occurrence, a Boston man currently serving a prison sentence for perpetrating a $10 million Ponzi scheme received an additional two-year sentence for violating an asset freeze imposed during a civil enforcement action brought by the Securities and Exchange Commission. Steven Palladino, 58, received the sentence from U.S. District Judge Douglas P. Woodlock, who sought to send a message as to the seriousness of the court-imposed asset freeze often imposed at the request of regulatory agencies bringing emergency enforcement actions to stop financial frauds such as Ponzi schemes. Palladino previously pleaded guilty in May 2015 to twenty-five counts of criminal contempt.
Palladino and his wife, Lori, and son, Gregory, were the sole principals of Viking Financial Group ("Viking"), which advertised itself to investors as a high-yield, low-risk investment strategy carrying above-average returns by making secured loans to borrowers at high interest rates. While Viking took in more than $10 million from investors based on these representations, in reality Viking made very few loans and many of those loans were made in violation of a state statute prohibiting loan interest rates exceeding 20%. The majority of investor funds served only to support a lavish lifestyle for the Palladinos that included Bahamas trips, rent for Steven Palladino's mistress, and hundreds of thousands of dollars in gambling losses. The Palladinos were indicted in September 2013 and sentenced to prison in January 2014.
The Asset Freeze
On April 30, 2013, the Commission filed an emergency enforcement action accusing the Palladinos of perpetrating the Ponzi scheme through Viking. The Commission requested, and the court granted, an injunction that contained an asset freeze prohibiting the Palladinos and any of their associates from dissipating or transferring any funds in their control or possession. Such orders are standard in cases involving financial fraud, where investor funds are often at risk of being dissipated beyond the reach of regulators or a court-appointed receiver or trustee. The District Court later modified that asset freeze to require that all funds received by Viking were to be deposited into a court escrow account.
However, on at least four different occasions, Palladino was accused of violating the asset freeze. This included when Palladino (1) opened multiple credit card accounts after the asset freeze was entered; (2) sold a Ford F350 Truck for $9,500 and failed to deposit the proceeds in the court escrow account; (3) transferred three luxury vehicles to car dealerships, which subsequently transferred the vehicles to Palladino's wife who then obtained loans using each of the vehicles as collateral; and (4) represented that the loans obtained on the vehicles were paid off when, in reality, the checks used to pay off the loans bounced and the loans remained.
Palladino was charged with twenty-five counts of criminal contempt in a criminal information that was filed in May 2014. The charges should be a deterrent in the future to similar defendants facing the temptation of defying a court-ordered asset freeze and dissipating investor funds for their own benefit.
A copy of the charging document is below: