Thursday, March 21, 2019

No. 305: William Neil Gallagher Faces State Criminal and Federal Civil Charges of Securities Fraud

William Neil "Doc" Gallagher, a radio personality in Dallas, is in bankruptcy proceedings. He also faces state criminal and federal civil charges of securities fraud. Here I discuss the charges against him.

The Texas Criminal Charges
On March 4, 2019, a grand jury in Dallas County issued a pair of indictments against Gallagher. One indictment identifies 20 victims of Gallagher's scheme. The other indictment contains this sentence:
That William Neil Gallagher, hereinafter called Defendant, on or about and between the 1st day of March, 2014 and the 31st day of January, 2019, in the County of Dallas, State of Texas, did then and there, pursuant to one scheme and continuing course of conduct, knowingly acquire or maintain an interest in, possess, transfer, and transport the proceeds of criminal activity, to wit: Securities Fraud, and the aggregate value of said funds was $300,000 or more.
The two indictments are in the complimentary package offered at the end of this post. (See State of Texas v. Gallagher, Indictment Nos. F1900119 and F1900138.)

The SEC Civil Complaint
On March 7, the Securities and Exchange Commission (SEC) filed, under seal, a civil complaint against Gallagher, Gallagher Financial Group, Inc. (GFG), and W. Neil Gallagher, Ph.D. Agency, Inc. (Gallagher Agency) charging them with violations of federal securities laws. (The complaint says Gallagher holds a Ph.D. degree from Brown University.) The same day, the court assigned the case to Senior Judge A. Joe Fish, who recused himself without giving a reason; the court then reassigned the case to Senior Judge Sam R. Cummings, and the SEC filed a motion for a preliminary injunction, a temporary restraining order, an asset freeze, and the appointment of a receiver.

The next day, the court appointed Cort Thomas, a Dallas attorney, as the receiver. The court also imposed a freeze on the receivership assets. On March 12, the court unsealed the complaint. (See SEC v. Gallagher, U.S. District Court, Northern District of Texas, Case No 3:19-cv-575.)

The first section of the SEC civil complaint is a six-paragraph summary of the case. Here is the first paragraph:
Since at least December 2014, Gallagher, a long-time radio personality in the Dallas/Fort Worth metroplex, who marketed himself as "The Money Doctor," has perpetrated an affinity-fraud investment scheme on investors through two North Texas-based companies he owns and controls, GFG and Gallagher Agency. Despite having no valid securities-industry credentials, Gallagher has offered and sold securities, raising at least $19.6 million from at least approximately 60 investors—ranging in age from 62 to 91—while claiming to be a fully licensed advisor offering investment advice and investment services. He has raised these funds by selling an investment product called a Diversified Growth and Income Strategy Account.
The full SEC complaint is in the complimentary package offered at the end of this post. It is a chilling document.

The SEC Litigation Release
On March 12, the SEC issued a litigation release entitled "SEC Charges Texas Radio Host 'The Money Doctor,' Halts Ponzi Scheme Targeting Elderly Investors." Here is the first sentence:
The Securities and Exchange Commission announced that it has charged Texas resident William Neil "Doc" Gallagher—the self-styled "Money Doctor" featured on three Dallas-area radio stations—in an emergency action to shut down a $19.6 million Ponzi scheme targeting elderly investors' retirement funds.
The TSSB Press Release
On March 13, the Texas State Securities Board (TSSB) issued a press release entitled "Dallas Investment Promoter 'Doc' Gallagher Indicted in $19 Million Fraud." Here is the first sentence:
William Neil "Doc" Gallagher, who promotes his investment business on Christian radio and in books like "Jesus Christ, Money Master," has been arrested to face first-degree state felony charges of securities fraud and money laundering in Dallas County.
The 1999 Disciplinary Order
The current criminal and civil charges against Gallagher are not his first confrontations with securities regulators. For example, on December 23, 1999, the Texas Securities Commissioner directed at Gallagher ("Respondent") a "Disciplinary Order Reprimanding an Agent." Here are three of the ten "Findings of Fact" in the order, which designated them as "fraudulent business practices" in violation of the Texas Securities Act:
3. During the course of an inspection of Respondent's offices by the State Securities Board, the Staff requested that Respondent produce receipt books for all checks received from investors for a defined period.
4. Respondent produced check receipt books to the Staff. Respondent did not disclose to the Staff that certain receipt books produced were, in fact, created at Respondent's direction after the Staff's request was received, and were not copies of receipts given to investors at the time of the receipt of their checks.
5. While registered as an agent of National Securities Corporation, Respondent represented to the public via advertising that he was a registered investment adviser, though he was not registered as an investment adviser.
The order reprimanded Gallagher and assessed an administrative fine of $25,000. He consented to the order "without admitting or denying" nine of the ten "Findings of Fact" in the order. The one "admitted" finding (the first of the ten) is shown in the order, which is in the complimentary package offered at the end of this post. (See "In the Matter of the Agent Registration of William Neil Gallagher," Order No. CAF-1380.)

General Observations
When I hear of an affinity-fraud case such as this one, my first reaction is sadness for the victims of the fraud. They have no knowledge of investments, and the criminals take advantage of the religious faith of the victims. My second reaction is that there are probably not enough people in the law enforcement community to uncover and prosecute all the phony financial schemes perpetrated by large numbers of fraudsters.

Available Material
I am offering a complimentary 26-page PDF consisting of the two indictments (3 pages), the SEC complaint (16 pages), the SEC litigation release (1 page), the TSSB press release (1 page), and the 1999 disciplinary order (5 pages). Email and ask for the March 2019 package relating to the Gallagher case.