Real Investor Litigation Lessons from the Real Housewives
Source:
by Jennifer Rossan
The recent fraud charges against “Real Housewife” Jen Shah offers several lessons as to how victims of fraud can take action to recover their losses, including through: (1) bringing litigation; or (2) contacting the government; (3) whistleblower claims, or (4) books and records demands. On March 30, 2021, Jen Shah, a star of Real Housewives of Salt Lake City, was arrested and indicted for several conspiracy, fraud and money-laundering charges arising from a telemarketing scheme. Shah, along with her assistant Stuart Smith (who also appeared frequently on the show) and others, carried out a wide-ranging telemarketing scheme that targeted elderly and computer-illiterate people throughout the United States.
Shah is alleged to have operated multi-state telemarketing and in-person sales teams that fraudulently claimed to make the victims’ businesses more profitable. For example, Shah charged high prices to victims for website design services, even though many victims were elderly and did not even own a computer. When victims realized the fraud, Shah would fight efforts to obtain refunds. Shah also worked hard to conceal her role in the fraudulent scheme by using third parties’ names, using encrypted messaging Apps to communicate with other fraudsters, and offshore bank accounts.
Sound familiar? That’s because whether it is fraud committed by a Real Housewife or fraud committed by an investment advisor, the motivation is always the same: greed. And the elements of fraud are always the same. Shah—like most fraudsters—took the victims’ money, falsely promised to provide services, and falsely promised a return on investment which never materialized.
Now that Shah has been criminally indicted, the victims of Shah’s fraud have options with respect to how they can recoup the money they lost:
Private Civil litigation;
Contacting Government Authorities;
Filing a Whistleblower Claim with the S.E.C., IRS or other agency;
For investors in corporations or other entities, exercise your right to access key books and records, including financial statements, tax returns, and board meeting minutes.
First, Shah’s victims can file civil suit in either state or federal court seeking to recover money damages that resulted from the fraud. Recently, Sadis successfully brought just such a civil case on behalf of a multi-billion dollar fund of hedge funds in New York State Supreme Court. The fund had invested in Premium Point Investments, whose principals were prosecuted and found guilty of multiple counts of securities fraud in the United States District Court for the Southern District of New York. Sadis has already recovered $24.9 million in the civil case for this fund of hedge funds.
The criminal case against Shah is in its early stages, and it remains to be seen how the government found out about the wire fraud and money laundering scheme. Were prosecutors from the Southern District of New York watching Real Housewives of Salt Lake City and wondering exactly how Jen Shah—who in one episode vaguely claimed to run a “telemarketing” business—could afford a huge ski chalet, three assistants and a “glam squad”?
Second, it could have been a Whistleblower who came forward and contacted the government about the fraudulent scheme, perhaps to seek a Whistleblower Award? Many government agencies have robust Whistleblower programs—especially the Securities and Exchange Commission (the “SEC”). Sadis has brought several successful Whistleblower cases to the SEC in recent years, which have resulted in substantial awards. For example, Sadis represented a whistleblower who helped the SEC bring a successful enforcement action against one of the largest investment advisers in the world, Massachusetts Financial Services Company, for misleading marketing about an investment that used a blend of Quantitative and Fundamental Research-based investment strategies.[1] Sadis has also represented a Whistleblower who played a key role in the investigation and criminal trials of “Pharma Bro” Martin Shkreli and his attorney.
Third, maybe a shareholder books and records demand to Jen Shah’s “telemarketing” company revealed that something was amiss, or that the company was stonewalling to hide records (authorized by statute or an LLC or LP Agreement), such as financial statements, tax returns, or stockholder lists. Recently Sadis used a books and records action to jump-start a successful action on behalf of a minority shareholder in a Florida-based cannabis company, which led to a $14.5 million recovery. The shareholder suspected self-dealing and misconduct by the company’s officers and directors, because although the company was successful and growing, the shareholder was receiving no return on his investment. Though the company initially resisted the demand for books and records, eventually it was forced to produce the documents. The books and records request provided Sadis with the ammunition to file both an arbitration and a double-derivative action against the relevant entities and individuals, which resulted in a significant settlement for the minority shareholder.
So, regardless of whether an investor is defrauded by a Real Housewife or by an investment advisor, there are many litigation options available which allow an investor to both recoup losses and hold a fraudster legally accountable. Mazel!
Our goal is to provide readers and potential clients with focused updates about key legal developments and insights in this increasingly active area of the law. The Sadis Summons is intended as a general discussion, and is not intended as legal advice. For legal advice tailored to your specific legal situation, please reach out to your Sadis & Goldberg Litigation contact at https://www.sadis.com/capabilities/litigation. We welcome the opportunity to speak to you.
