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.