FOIAengine Tracks the High Cost of Getting Even, and the Rewards
Until six weeks ago, Jason Galanis was Inmate 80739-198 at the federal prison in Montgomery, Alabama, sentenced to almost 16 years confinement after admitting to a wild scheme in which he swindled tens of millions of dollars from the Oglala Sioux tribe and its pension fund.
Galanis, 54 years old, is a member of a notorious crime family, a recidivist white-collar criminal who’d served eight years and eight months of his sentence, and was staring at more hard time to come.
But Galanis had an ace up his sleeve. He claimed to have been involved in an alleged financial fraud involving the Bidens. (Hunter Biden denies this, and there was no prosecution.) Republicans in high office were anxious to hear more. When Galanis testified from the jailhouse about the Biden family during the 2024 House impeachment hearings, Democrats were incredulous. “I want to remind people he is sitting in prison, that’s why he can’t be here today,” one Democratic committee member said. “He’s sitting in prison for scamming workers’ pensions. I mean, how low can you get?”
Galanis’ reward was a get-of-jail-free card. He walked out of prison on March 28, the same day Trump signed Galanis’ commutation – making the president a pivotal new character in this ongoing story of crime, retribution, and the high cost of getting even.
It’s also a case study in criminal good fortune.
Galanis doesn’t have to pay back the $162 million in federal fines and restitution he previously agreed to. By the terms of the commutation, he’s done. “No further fines, restitution, probation, or other conditions.”
More Backstory: Galanis had a partner in the Oglala Sioux fraud, also named Jason. Last name Sugarman. Compatriots called them “the two Jasons.” Prosecutors said that over a three-year period, Jason Galanis and Jason Sugarman, working with others, stole over $100 million from unwitting Native American tribal pension funds to finance the acquisition of a global financial conglomerate of European and Bermuda insurers, then siphoned off the cash for personal use and covered their tracks through a series of fraudulent transactions.
When the fraud finally came apart, Galanis pleaded guilty and began his long stretch in prison. But Jason Sugarman fought the charges, avoiding prison and finally settling with the Securities and Exchange Commission in February 2023. Jason Sugarman didn’t admit wrongdoing. He was barred from the securities industry and agreed to pay a disgorgement penalty of $10.3 million. The SEC put him on a payment schedule and called Jason Sugarman “the biggest winner from the fraud.”
The relationship between the two Jasons was so close that Galanis frequently referred to Sugarman in meetings and emails as “Sug” or “Sugie Bear.” Prosecutors described Galanis as the “brains” of the outfit, and Sugarman as the “brawn” in their scheme. Sugarman’s brawn came from his family’s vast business connections to wealthy, successful investors.
That is where Steven Sugarman, the tycoon, comes in.
As we noted in our 2023 story, “The Crook, the Tycoon, and the Short Seller,” Sugarman, 50 years old, is a Yale Law graduate and a pillar of the Los Angeles business community, a local guy who made good. The hometown newspaper loved him. “Started three companies and worked for two more before becoming the CEO of fast-growing lender Banc of California — all before he turned 40,” the Los Angeles Times wrote glowingly in 2016. “Impeccable academic credentials,” the story went on. “A mile-long resume that preceded his assumption of the bank’s top post.”
Steven Sugarman was, and still is, an enormously successful banker and lawyer with prodigious capital-raising and networking skills. He has not been accused of wrongdoing in connection with the alleged fraud committed by the two Jasons, or anything else. But he ended up enmeshed in their drama because of what he believed to be a conspiracy against him – a conspiracy allegedly involving the crook Jason Galanis and the activist short seller Carson Block.
We’ve written about Block before. Through his firm, Muddy Waters Research, Block targets companies whose stock he believes to be drastically overvalued, then leads a short-selling frenzy that punishes the stock and, if it goes as planned, enriches Block and his many followers — including 245,000 on X, the social-media site. Block launches his short-selling attacks by posting detailed reports on the website of his company.
Block and his lawyers have used the Freedom of Information Act to dig up potential dirt on targets and litigation foes. We also came across a few other previously unreported FOIA requests during the course of reporting this article. More on that further down.
Seemingly at the height of his powers in January 2017, Sugarman abruptly resigned from Banc of California in a messy shake-up. His departure came the same day an SEC investigation into the bank was revealed – and three months after an anonymous posting on a website for short sellers claimed that crime-family-member Jason Galanis secretly controlled the bank. The posts’ author was someone writing under the pseudonym “Aurelius.” The SEC got interested and issued subpoenas. The bank’s stock was hammered.
The anonymous “Aurelius” posts only added to other problems that Banc of California already was dealing with: an activist shareholder’s class action in federal court; concerns about corporate governance expressed by some of its biggest shareholders, including the California State Teachers Retirement System; and conflict-of-interest allegations about the bank’s involvement with Sugarman’s brother, Jason. The bank had paid a reported $100 million in a stadium-naming-rights deal for the Los Angeles Football Club, of which Jason was part owner. Banc of California called in a law firm to conduct an independent investigation; it turned out that the law firm had an undisclosed conflict, too. More problems; more bad press.
Steven Sugarman wasn’t charged in that SEC case, and, in the years prior or since, he hasn’t been accused of wrongdoing. After getting kicked out of Banc of California, he soon started another lending enterprise, the Change Company, focused on low-income borrowers who couldn’t get approved elsewhere. Change aspired to be the gold standard for community development banks. It quickly became a powerhouse financial institution – as well as a magnet for more controversy. Reports of questionable lending practices – big loans to actor Johnny Depp and other sports and media stars, hardly low income – were followed in 2023 by the Treasury Department decertifying an affiliate, Change Lending, from its special status as a community-development lender. Treasury’s decertification was later rescinded after Change filed suit. The SEC reportedly had a fraud investigation underway as of last September, taking sworn testimony from three former Change employees. (The SEC declined comment.)
Despite moving on, Steven Sugarman wasn’t through with Galanis. He filed a $65 million racketeering, fraud, and defamation suit against Galanis and the group he styled as the Aurelius Enterprise — comprised of the alleged short sellers Carson Block, Muddy Waters, and a raft of others. By then, Jason Galanis was cooling his heels in a California federal penitentiary. (The Bureau of Prisons later moved him to Alabama.) According to Sugarman’s lawsuit, Galanis was the person behind the scurrilous Aurelius rumors, and it was Block and a cohort of short sellers who then benefitted. (Block denies this.) Galanis’ alleged motive: to get back at Steven Sugarman for providing information that helped send Galanis to prison.
This week, we’re checking in on the crook, the tycoon, and the short seller. A lot has happened since we last wrote about the major players. Galanis, Sugarman, and Block remain caught up in multiple lawsuits and controversies centered around the bizarre alleged Aurelius short-selling conspiracy.
Here’s the latest:
The Crook: Galanis was sprung from federal prison six weeks ago by President Trump, after serving about half of his 16-year sentence for swindling tens of millions of dollars from the Oglala Sioux tribe and its pension fund. The presidential commutation absolves Galanis from repaying $162 million in fines and restitution in that case.
In Sugarman’s telling, Galanis was the prime mover in the Aurelius conspiracy. But in a different shady deal, Galanis claimed he had gotten involved with Hunter Biden in an effort to “make billions.” Galanis asserted that Joe Biden was more involved in Hunter’s deals than the then-president let on. When the Biden Administration rebuffed Galanis’ entreaties for a pardon, Galanis turned to the Republicans. They wanted to know more. And Galanis, aided by a high-powered Washington lawyer with close ties to Trump, obliged.
Galanis testified from jail during the House Oversight Committee’s 2024 impeachment investigation of Joe Biden. “The entire value-add of Hunter Biden to our business was his family name and his access to his father, Vice President Joe Biden,” Galanis said.
Galanis’ lawyer was Mark Paoletta, a protégé of Supreme Court Justice Clarence Thomas and Thomas’ wife, Ginny, with close ties to the Trump political machine. Paoletta was general counsel of the White House Office of Management and Budget during Trump’s first term, and Trump brought him back to the same job for his second term, and cheered him on: “A conservative warrior who knows the ins and outs of government – he will help us Make America Great Again!”
Two months later, Galanis’ commutation came through. A Trump official described Galanis as the “fall guy” for Hunter Biden’s business dealings. “Time for him to regain his liberty and go on into his private life.”
A few days before Galanis got out of jail, Trump pardoned Devon Archer, who was sentenced to a one-year prison term as part of the same Native American fraud scheme involving Galanis. Archer also testified in the 2024 impeachment inquiry.
The Tycoon: Sugarman also just made a big move, jumping two weeks ago from the Change Company, the low-income lender he founded in Los Angeles, to become the CEO of Connecticut’s troubled Patriot Bank. Sugarman is still listed as founder on Change’s website. Sugarman, Change, and Patriot didn’t reply to questions about how Sugarman will be splitting his time.
Patriot, ravaged by short selling until a few weeks ago, was teetering on the brink when Sugarman arrived. Regulators cited an assortment of “unsafe and unsound practices” at the bank, including violations of anti-money-laundering rules.
Sugarman has a reputation for big turnarounds that come with lots of controversy and lawsuits. The share price of the once heavily shorted stock (NASD: PNBK) is up more than six-fold – to over $6 – since Sugarman came in. The shorts have been squeezed out. “In search of great people to join our next opportunity in banking,” Sugarman posted last week on LinkedIn with the hashtag #PatriotBank. “Let me know if you have an interest. Will be fun.”
The Short Seller: Carson Block won a major legal victory against Sugarman last September in one of the many long-running cases involving the two. A federal judge in California found Sugarman’s white-shoe law firm, Latham & Watkins, in civil contempt for “flagrant violations” of a protective order that enabled Sugarman to leak Block’s trading records in an effort to incite negative press coverage of Block. The fight now is about how much Latham & Watkins and Sugarman, who are jointly and severally liable, will have to pay Block. Block, who runs Muddy Waters Research, is asking for $1.2 million for reimbursement of legal fees. Latham says it’s willing to pay $276,000. The judge has the matter under advisement. The battle continues.
The Lawsuits: Sugarman’s efforts to hold the Aurelius conspirators accountable led him to file and refile lawsuits in multiple state and federal jurisdictions against Galanis, Block, and others (including John Does 1 through 30). As the cases slowly made their way through the courts, hundreds of docket entries piled up. The federal judge in San Francisco who originally had the case sent it to a federal judge in Los Angeles; Galanis’ prison address determined that venue change. The Los Angeles federal judge dismissed the racketeering counts and told Sugarman’s lawyers to refile the remaining claims in state court.
Sugarman’s lawyers immediately did so. They filed in Minnesota, where one of the defendants then was situated. The trial judge in Minnesota also dismissed the case, only to have the state appeals court send it back. But in an order dated last November 5, the Minnesota Court of Appeals threw out, with seeming finality, Sugarman’s case against the alleged Aurelius conspirators.
It’s unclear whether there will be further appeals, or whether Sugarman will file lawsuits elsewhere regarding Aurelius. Sugarman’s spokesperson told us in 2023 that Sugarman would “continue his efforts, regardless of time and resources, until Carson Block and his associates are held accountable.” Multiple questions sent this week to email addresses that Sugarman uses went unanswered.
Meanwhile, two other cases involving the Change Company and alleged fraud are slated to come to trial soon in California state courts.
Change’s former chief of staff, Adam Levine, has a whistleblower lawsuit against the company in California Superior Court that has a trial date set for later this month. Among the allegations: that Sugarman’s “conduct in the civil litigation with noted short-seller Carson Block was unethical, defamatory, and possibly illegal, as Mr. Sugarman instructed Plaintiff to leak confidential documents to a journalist doing a profile on Mr. Block.” The suit also accuses Change of securities fraud and lying to the government and bondholders. Sugarman isn’t personally named as a defendant.
After Levine brought his action, Change filed a contract fraud lawsuit against him. That case has a July 22 trial date.
FOIA Litigation: As is often the case during the course of our reporting, there are multiple new Freedom of Information Act developments, including some that haven’t been previously reported.
Block’s FOIA lawsuit appears to be nearing some sort of conclusion. We first reported on this suit almost two years ago. The litigation in federal district court in Austin has its origins in a long-running feud between Block and various consultants who advised the SEC and the Justice Department in its investigation of activist short sellers. Block’s prime target is Columbia University professor Joshua Mitts, whose research has been influential in shaping federal investigations into short selling practices. The conflict centers on Mitts’s academic work, particularly his “Short and Distort” research, and Mitt’s consulting activities, which Block alleges are flawed and conflict-laden.
Block published a 22-page white paper, “Distorting the Shorts,” in which he claims Mitts’s research is “greatly flawed, possibly to the point of being fraudulent,” and that it misrepresents data and lacks academic integrity.
Block is seeking to uncover the SEC’s contacts with Mitts and the other consultants. After initially rebuffing Block’s FOIA request, submitted by a lawyer proxy on his behalf, the SEC apparently has spent the past several years dribbling out documents to Block and promising that more will be forthcoming. The latest status report, agreed to by both sides, says “the SEC has yet to produce the remaining responsive documents.” After receiving that, the judge in the case set a May 30 deadline for Block and the SEC to wrap things up.
FOIA Requests: According to previously unreported summaries in FOIAengine, John Courtade, one of Carson Block’s Texas lawyers, filed FOIA requests with the SEC in June 2023 and January 2024 to find out what the SEC might disclose about Block’s litigation foe, Steven Sugarman, and others. Courtade’s request named “Steven Sugarman; Jason Sugarman; Cor Capital; Banc of California; and Camden Capital Partners.”
Courtade’s reason for the FOIA requests appears to be an end around discovery. Sugarman has prior or ongoing affiliations with all three of the named companies; one of the allegations in the securities-fraud class action against Banc of California, in which Sugarman is also a defendant, is that Jason Galanis does, too. So it makes sense that Block would use a lawyer proxy to try to find out what the SEC might also be investigating.
Sometimes, an agency’s denial of records provides a clue about what it’s up to. According to its FOIA logs, the SEC denied Courtade’s request using an exemption protecting records compiled for law enforcement purposes that, if released, would reasonably be expected to impede ongoing or future investigations or prosecutions.
We sent detailed emails seeking comment on the facts in this story to the SEC, Steven Sugarman, Carson Block, Change Corporation, Patriot Bank, and their representatives. Block and the SEC declined all comment. We did not hear back from the others.
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Next: The FOIA targets that big hedge funds are going after.
John A. Jenkins, co-creator of FOIAengine, is a Washington journalist and publisher whose work has appeared in The New York Times Magazine, GQ, and elsewhere. He is a four-time recipient of the American Bar Association’s Gavel Award Certificate of Merit for his legal reporting and analysis. His most recent book is The Partisan: The Life of William Rehnquist. Jenkins founded Law Street Media in 2013. Prior to that, he was President of CQ Press, the textbook and reference publishing enterprise of Congressional Quarterly. FOIAengine is a product of PoliScio Analytics (PoliScio.com), a new venture specializing in U.S. political and governmental research, co-founded by Jenkins and Washington lawyer Randy Miller. Learn more about FOIAengine here. To review FOIA requests mentioned in this article, subscribe to FOIAengine.
Write to John A. Jenkins at [email protected].
