A father and son, with five associates, allegedly conned Native Americans in one of the poorest regions of the U.S. by stealing bond sale proceeds to fund their “extravagant” expenses and criminal defense costs, authorities said.

Jason Galanis of Los Angeles, once dubbed the "Porn's New King"; his father, John Galanis of Oceanside, Calif.; Hugh Dunkerley of Paris and Huntington Beach, Calif.; Gary Hirst of Lake Mary, Fla.; Bevan Cooney of Incline Village, Nev.; Devon Archer of Brooklyn, N.Y.; and Michelle Morton of Colonia, N.J., were criminally charged in seven U.S. District Courts on Wednesday in connection with the scheme.

They are accused of lying to a tribal entity in South Dakota, convinced it to issue $60 million in municipal bonds and then walked off with millions in proceeds.

In a parallel action, the U.S. Securities and Exchange Commission filed a civil action against all seven defendants, noting that Jason Galanis was charged with accounting fraud for misreporting revenue at the publisher of Penthouse Magazine in 2005 and last year was charged with stock fraud by the agency.

Galanis and his father allegedly induced an Oglala Sioux tribal entity near South Dakota—the Wakpamni Lake Community Corporation, or WLCC—to issue $60 million in municipal bonds. Galanis lied to the tribe, saying the bond proceeds would be placed into an annuity to benefit the WLCC and generate enough income to pay interest and to repay the proceeds to bondholders, according to the SEC complaint.

The younger Galanis then bought two investment advisory firms in Alexandria, Va.—Hughes Capital Management, which managed about $900 million for institutional investors, and Atlantic Asset Management, another institutional advisor with “still larger” pension assets—and placed Morton in charge of both firms, according to the SEC.

The advisor firm purchases were financed through other entities controlled by Jason Galanis in partnership with the other defendants, allegedly with Morton’s understanding that the Oglala Sioux bonds would be purchased with client funds, according to the SEC.

In August 2014, allegedly at the direction of Jason Galanis, Morton hired Hirst as CIO and authorized him to purchase $27 million of the tribal bonds on behalf of nine Hughes clients. In April 2015, again allegedly at the direction of Galanis, a $16.2 million purchase of tribal bonds was conducted using an Atlantic Asset Management client’s funds, according to the SEC.

The bond purchases were made while material facts about the tribal bonds were withheld from advisory clients and substantial conflicts of interest were not disclosed, according to the criminal complaint,.

More than $1 million of the bond funds were used to provide financial support to Morton and the two firms,  $4.4 million was sent to Cooney, $1.3 million was sent to to Hirst, $2.3 million was sent by Dunkerley to an entity controlled by John Galanis, $700,000 was sent to Archer, $500,000 was sent to Jason Galanis’s criminal defense attorneys, $200,000 to Jason Galanis’s family members and Galanis allegedly spent unspecified amounts at restaurants and “luxury” retailers, including Valentino, Yves Saint Laurent, Barneys, Prada and Gucci, according to the SEC.

An additional $4.3 million in bond proceeds were used to support an IPO underwritten by another Jason Galanis-controlled entity, Burnham Securities.

The SEC also alleges that Jason Galanis, Archer and Cooney “recycled” $15 million of the original bond proceeds into another issuance of tribal bonds, then $5 million of that second issuance into a third round of bonds. 
 
The“recycling” caused WLCC to issue additional debt obligations without receiving additional proceeds. All told, the WLCC issued $47 million in tribal bonds in exchange for $27 million in proceeds.

The scheme began to unravel in September 2015 when the SEC charged Hirst, John Galanis, Jason Galanis and two of Jason Galanis’s brothers with allegedly defrauding investors in a $72 million pump-and-dump scheme involving Bermuda-based Gerova Financial Group.

In the aftermath, Jason Galanis, released on bail, allegedly scrambled to cover the obligations of the tribal bonds scheme, orchestrating interest payments on the issuances through a new e-mail account but failing to make income payments in September and October 2015. In response, at Jason Galanis’s direction, Dunkerley fabricated annual account statements submitted to WLCC.

In December 2015, the SEC charged Atlantic Asset Management with investment advisor fraud in connection with its investment in tribal bonds without disclosing the conflicts of interest. At that time, a judge appointed a monitor to “protect (the advisor’s) clients from further inappropriate investments.” This year, the court expanded the monitor’s powers to that of a receiver after additional concerns were revealed, and the advisory firm is now in the process of unwinding.

The investors now hold worthless bonds that have no secondary market, and the WLCC is left with no means of paying the interest payments due on the bonds, according to the criminal complaint. 

All seven of the defendents were charged with securities fraud and conspiracy to commit securities fraud. Jason Galanis, Hirst and Morton were also charged with investment advisor fraud and conspiracy to commit investment advisor fraud.

The securities fraud charges carry a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense.

The SEC charged all seven with violations of the anti-fraud provisions of federal securities laws and related rules, alleging that Jason Galanis conducted the scheme.

The SEC seeks permanent injunctions against the accused, in addition to payment of disgorgement, interest and civil penalities. The agency also seeks officer-and-director bars against Jason Galanis, Archer, Dunkerley and Morton.

In 2004, Forbes magazine crowned Jason Galanis, now a resident of Los Angeles, as "Porn's New King" after he bought the largest online credit card processor for Internet pornography in the U.S.