Head Of Financial Services Firm Charged In Manhattan Federal Court In Connection With Multimillion-Dollar Securities Fraud Scheme | USAO-SDNY

(USDOJ.Today) Audrey Strauss, the Acting United States Attorney for the Southern District of New York (“SDNY”), and Philip R. Bartlett, Inspector-in-Charge of the United States Postal Inspection Service’s New York Division (“USPIS”), announced that CRAIG ZABALA, the chairman, chief executive officer, and president of Concorde Group Holdings Inc. (“Holdings”), was arrested this morning in New York on securities fraud and wire fraud charges stemming from a scheme to defraud investors in Holdings, a purported financial services firm.  Among other illicit activity, ZABALA fraudulently induced at least 18 investors to invest at least approximately $4.4 million based on false and misleading statements, by failing to use investors’ funds as promised, including to build Holdings’ purported business by investing in and buying other financial services companies, and by converting investors’ money to his own use, including to repay other investors in a Ponzi-like fashion.  ZABALA is expected to be presented this morning in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn.

Acting U.S. Attorney Audrey Strauss said:  “As alleged, Craig Zabala held a controlling interest in a purported financial services firm through which he defrauded investors of more than $4 million.  Zabala allegedly lied to investors about how much money had been raised, how investors’ money would be used, who had invested, and how close the firm was to an initial public offering.  As further alleged, Zabala appropriated most of the fraudulently obtained funds for his own use, or to pay off investors in Ponzi-like fashion.”

USPIS Inspector-in-Charge Philip R. Bartlett said:  “It can always be said, greed has a way of overcoming honest business practices; and in this case Mr. Zabala allegedly exhibited an indifference to investing regulations and the truth when he lied to his investors to enhance his lifestyle and enrich himself. As alleged, this case has all the elements of a classic Ponzi scheme. Investors should remember where there is high reward, there is high risk. Always verify ‘once in a lifetime’ investment claims to ensure you won’t be taken for a ride.”

According to the allegations in the Complaint unsealed today in Manhattan federal court:[1]

CRAIG ZABALA was the chairman, CEO, and president of various affiliated and intertwined purported financial services companies:  Holdings, Concorde Group, Inc. (“Group”), Blackhawk Capital Group BDC, Inc. (“Blackhawk”), DBL Holdings, LLC, d/b/a “Drexel Burnham Lambert” (“DBL”), Concorde Investment Managers, LLC (“CIM”), and Concorde Europe, Ltd. (“Concorde Europe”).  In or about August 2019, FINRA barred ZABALA from the broker-dealer industry, including because of his failure to cooperate with a FINRA investigation.

Holdings was a Delaware corporation formed in or about 2015, with an office in Jersey City, New Jersey, and a mailing address in New York, New York.  Holdings purported to provide financial services, including merchant banking, investment banking, asset management, and securities brokerage services, to entrepreneurs, investors, and businesses in the middle market, meaning small to mid-sized companies with revenue and market capitalizations of less than $1 billion, in North America, Europe, and Asia.  Holdings’ purported affiliates included Group, DBL, Blackhawk, CIM, and Concorde Europe.  ZABALA was a majority owner of Holdings.

Group was a Delaware corporation formed in or about 1995, based in New York, New York, that purported to provide the same types of financial services as Holdings.  Group’s purported affiliates included DBL, Blackhawk, CIM, and Concorde Europe.  ZABALA was a majority owner of Group.  Between in or about 2001 and in or about 2014, Group purportedly raised approximately $18 million from investors.

From at least in or about 2015 through in or about 2020, ZABALA and others perpetrated a scheme to defraud at least approximately 18 investors out of at least approximately $4.4 million in Holdings notes, warrants, and equity, almost all of whom invested in a private offering by Holdings of $25 million in senior secured notes with attached warrants paying 13 percent interest (the “Holdings Offering”).

ZABALA and others falsely represented that the proceeds from the offerings would be used to grow Holdings’ purported business by investing in and buying other financial services companies.  In truth and in fact, and as ZABALA well knew, Holdings did not make any investments in or buy other companies.

ZABALA and others falsely represented to Holdings investors that Holdings had raised nearly $25 million in the Holdings Offering.  In truth and in fact, and as ZABALA well knew, Holdings only raised a few million dollars.

ZABALA and others falsely represented to Holdings investors that the family office of a wealthy German family had invested millions of dollars in Holdings.  In truth and in fact, and as ZABALA well knew, this family office never invested in, and never committed to invest in, Holdings.

ZABALA and others falsely represented to Holdings investors that Holdings would soon have an initial public offering (“IPO”), which would result in large profits to Holdings investors.  In truth and in fact, and as ZABALA well knew, Holdings was not close to an IPO.

ZABALA converted at least approximately 70 percent of the approximately $4.4 million in Holdings investor funds in the form of cash withdrawals and other transfers to himself, payments to his girlfriend, payments of his personal credit card bills, and repayment of Group investors in a Ponzi-like fashion.

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ZABALA, 68, was arrested this morning at his home in New York, New York.  ZABALA was charged with one count of securities fraud and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison.  He was also charged with one count of conspiracy to commit securities fraud and wire fraud, which carries a maximum sentence of five years in prison.  The charges carry a maximum fine of $5 million, or twice the gross gain or loss from the offenses.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the outstanding work of the USPIS, and also thanked the SEC for its assistance and cooperation in this investigation.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant United States Attorney Joshua A. Naftalis is in charge of the prosecution.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

[1] As the introductory phrase signifies, the entirety of the texts of the Complaint and the descriptions of the Complaint set forth below constitute only allegations, and every fact described should be treated as an allegation.

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