DALLAS—Ray M. White, 52, of Mansfield, Texas, who pleaded guilty in June 2010 to one count of commodities fraud, was sentenced today by U.S. District Judge Ed Kinkeade to 10 years in federal prison, announced U.S. Attorney James T. Jacks of the Northern District of Texas. Judge Kinkeade also ordered that White pay $9.4 million in restitution to the victims of his crime and surrender to the Bureau of Prisons by July 28, 2011.
According to documents filed in the case, White admitted that, in July 2008, he contracted with an investor to sell $50,000 in commodities through CRW Management LP, which White operated in Mansfield, Texas. White was CRW’s president, general partner, and agent. He admitted that, from July 2008 until January 2009, he knowingly and willfully cheated and defrauded, made false statements to, and deceived the investor by making several misrepresentations in connection with the contract to sell commodities.
White represented to the investor that his funds would be used to trade off-exchange foreign currency contracts (forex) and that CRW averaged a 7 percent per week returns through forex trading. He provided written account statements showing purported returns, and represented to this investor that CRW would maintain separate bank accounts for each investor. These account statements were false, and White did not maintain separate bank accounts for the investors.
The vast majority of the funds were never used to trade forex; White admitted to either misappropriating investor funds or paying them to other investors in the form of Ponzi payments. White admitted losing more than $86,500 on forex trading, in sharp contrast to the 7 percent per week profits he claimed.
Although the papers filed in the criminal case focused on a single investment of $50,000 by one investor, White’s scheme affected many investors and resulted in millions of dollars in losses. As noted above, the court ordered White to pay roughly $9.4 million in restitution to investors who lost money in the scheme. A number of victims, other than the investor referenced in the court papers, appeared at the sentencing hearing and addressed the court. They told the judge about their investment with White and their financial losses. The court-appointed receiver over CRW Management, who is working to recover assets for the benefit of White’s victims, spoke at the sentencing hearing as well. He advised the court that White raised over $13 million through CRW Management, and approximately 300 individuals or entities have lost money as a result of the scheme. The total losses are less than the amount White raised, because White made payments to investors, supposedly out of the profits of his forex trading. In fact, the funds paid to investors were simply the money others had invested.
In March 2009, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) filed emergency civil enforcement actions (complaints) against White and CRW Management in the Northern District of Texas. According to the complaints, from late 2006 until March 2009, White solicited at least $10.9 million from more than 250 investors to trade in the foreign currency market. The SEC and CFTC complaints further allege that CRW never traded forex, and that White lost money in the limited forex trading in which he engaged. Of the $10.9 million White raised, he used at most $93,900 to trade in the foreign currency market. The remaining $10.8 million was either misappropriated or returned to CRW customers as part of the Ponzi scheme. The complaint filed by the SEC states that White used the funds to finance his son’s car-racing career, to purchase a company called Hurricane Motorsports, LLC, in Arlington, Texas, and to purchase a home and other real property.
Tuesday, May 31, 2011
Ray M. White Sentenced to 10 Years in Federal Prison for Commodities Fraud
Monday, May 30, 2011
Robert Miracle Sentenced to 13 Years in Prison for Mail Fraud and Tax Evasion
ROBERT MIRACLE, 50, of Bellevue, Washington, was sentenced today in U.S. District Court in Seattle to 13 years in prison and three years of supervised release for mail fraud and tax evasion. The amount of restitution MIRACLE owes will be determined at a hearing July 25, 2011. MIRACLE and two Malaysian nationals, Mukhtar Kechik and Fahimi Fisal, were charged in February 2009, in a 23-count indictment charging conspiracy, mail fraud, wire fraud, money laundering, and tax evasion on a $65 million Ponzi scheme. At the sentencing hearing U.S. District Judge James L. Robart said the investments “were triggered by outright misrepresentations.... and ruined people’s lives.”
MIRACLE operated a variety of companies allegedly involved in oil development in Indonesia. MIRACLE sold shares in the companies with these names: Laramie Petroleum, Inc. ("Laramie"); MCube Petroleum, Inc. ("MCube"); Diski Limited Liability Company ("Diski LLC"); Basilam Limited Liability Company ("Basilam LLC"); and Halmahera-Rembang Limited Liability Company ("Hal-Rem LLC"). MIRACLE and his co-defendants represented to investors that various companies were making money from oil field development and services on oil and gas fields in Indonesia. In fact, the proceeds of later investors were used to pay off the investments of earlier investors in the form of a “ponzi” scheme. Between September 2004 and October 2007, MIRACLE took in more than $65.3 million and paid out $36.7 million as dividends to investors. The bulk of the remaining funds were used to develop oil and gas fields in Indonesia, as well as to pay for a lavish lifestyle for MIRACLE. In pleading guilty MIRACLE admits that he used the mail to send investors fraudulent statements, certificates and to send and receive funds involved in the scheme.
In his plea agreement, MIRACLE admitted he owes the U.S. Treasury $326,650 in back taxes from 2003-2005. MIRACLE admitted that in 2005, he transferred more than $500,000 from the company accounts to his personal bank accounts for his own use. MIRACLE claimed these transfers were “loans,” and claimed his actual income for the year was only $32,000. MIRACLE under reported his income by some $530,000, avoiding taxes of nearly $150,000.
In his plea agreement, MIRACLE agreed to pay restitution to the investors as well as to the United States for back taxes. MIRACLE agreed to forfeit a two-carat diamond ring MIRACLE purchased for more than $38,000 and a painting purchased in Italy for $27,000.
MIRACLE was initially released pending trial, but was taken into custody in late May 2009, when he failed to comply with the conditions of his release. MIRACLE remains in custody at the Federal Detention Center at SeaTac, Washington. Mukhtar Kechik and Fahimi Fisal remain fugitives who have yet to appear for arraignment on the indictment.
Sunday, May 29, 2011
Manhattan U.S. Attorney Announces Guilty Pleas of Former Hedge Fund Portfolio Manager and NVIDIA Finance Employee to Insider Trading Charges
PREET BHARARA, the United States Attorney for the Southern District of New York, announced that SAMIR BARAI, a/k/a “Sam Barai,” a portfolio manager at two different New York based hedge funds, and SON NGOC NGUYEN, a/k/a “Sonny,” an employee in the finance department of NVIDIA Corporation (“NVIDIA”), pled guilty today in Manhattan federal court to charges arising out of their involvement in separate insider trading schemes. BARAI, who had previously been arrested on February 8, 2011, and charged in a criminal complaint, also pled guilty to additional charges, including obstruction of justice, in connection with the insider trading scheme.
According to the informations to which BARAI and NGUYEN pled guilty, statements made during the plea proceedings, and other court documents:
Between 2006 and 2010, BARAI worked as a portfolio manager at two hedge funds located in New York, New York. During that time period he and his co-conspirators, including DONALD LONGUEUIL, NOAH FREEMAN, JASON PFLAUM, and WINIFRED JIAU, participated in a conspiracy to obtain material, non public information (“Inside Information”). The Inside Information included detailed financial earnings about numerous public companies, including NVIDIA and Marvell Technology Group, Ltd. (“Marvell”). Often, BARAI and his co-conspirators used an “expert networking” firm, (the “Firm”), to communicate with and pay their sources of Inside Information, many of whom were employees of public companies. In addition to their use of the Firm, they also obtained Inside Information from independent research consultants who communicated with employees at public companies.
For example, in May 2008, BARAI allegedly obtained from JIAU Inside Information regarding Marvell’s financial results for the quarter ending on May 3, 2008. Based on that Inside Information, he caused his hedge fund to execute trades in Marvell, realizing trading gains of more than $800,000.
After BARAI and his co-conspirators received Inside Information from their sources, BARAI had regular conference calls with LONGUEUIL and FREEMAN, who worked at other hedge funds, during which they shared the information they learned with each other.
During the course of the insider trading scheme, BARAI destroyed and attempted to destroy documents and electronic records in connection with the scheme. As he admitted at the plea proceeding, after learning about a federal investigation into insider trading, BARAI directed his research analyst to destroy electronic and hard copy documents relevant to the investigation.
In a separate but overlapping insider trading scheme, from 2007 through early 2009, while employed in the finance department of NVIDIA, NGUYEN, along with a co-conspirator (“CC- 1”) employed in the finance department of Marvell, allegedly shared Inside Information with WINIFRED JIAU. In this scheme, they agreed to provide JIAU with Inside Information about NVIDIA and Marvell, which she then allegedly used to trade for her own profit, and also sold to others, including BARAI and FREEMAN. In exchange for the information NGUYEN provided to her, JIAU allegedly agreed to provide NGUYEN and CC-1 with stock tips that she learned from other contacts she had at various companies.
BARAI, 39, of New York, New York, pled guilty before U.S. Magistrate Judge KEVIN NATHANIEL FOX to one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud based on his trading in Marvell, one count of wire fraud, and one count of obstruction of justice. The conspiracy count carries a maximum sentence of five years in prison, the securities fraud count carries a maximum sentence of 20 years in prison, the wire fraud count carries a maximum sentence of 20 years in prison, and the obstruction count carries a maximum sentence of 20 years in prison. He also faces a maximum fine of $250,000, or twice the gross gain or loss from the offense on the conspiracy count, a maximum fine of $5 million on the securities fraud count, a maximum fine of $250,000, or twice the gross gain or loss from the offense on the wire fraud count, and a maximum fine of $250,000, or twice the gross gain or loss from the offense on the obstruction count. In addition, BARAI agreed as part of his plea agreement to forfeit the amount of proceeds obtained as a result of the offenses. BARAI is scheduled to be sentenced by U.S. District Judge DEBORAH A. BATTS on August 29, 2011.
NGUYEN, 39, of San Jose, California, pled guilty before U.S. District Judge JED S. RAKOFF to one count of conspiracy to commit securities fraud and wire fraud. This count carries a maximum sentence of five years in prison. NGUYEN also faces a maximum fine of $250,000, or twice the gross gain or loss from the offense on the conspiracy count. NGUYEN is scheduled to be sentenced by Judge RAKOFF on November 29, 2011, at 4:00 p.m.
LONGUEUIL, FREEMAN, and PFLAUM previously pled guilty to conspiracy and securities fraud charges. Charges against JIAU remain pending and are merely accusations. She is presumed innocent unless and until proven guilty.
Friday, May 27, 2011
Donald Johnson Pleads Guilty to Insider Trading
WASHINGTON – A former managing director of the NASDAQ Stock Market pleaded guilty today for his participation in an insider trading scheme in which he purchased and sold stock in NASDAQ-listed companies based on material, non-public information he obtained in his capacity as a NASDAQ executive, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Neil H. MacBride of the Eastern District of Virginia and Postal Inspector in Charge of Criminal Investigations Gerald O’Farrell of the U.S. Postal Inspection Service (USPIS).
Donald Johnson, 56, a resident of Ashburn, Va., pleaded guilty before U.S. District Judge Anthony J. Trenga in the Eastern District of Virginia to one count of securities fraud. In pleading guilty, he admitted that he purchased and sold stock in NASDAQ-listed companies based on material, non-public information, or inside information, on several different occasions from 2006 to 2009.
“Mr. Johnson was a fox in a hen-house,” said Assistant Attorney General Breuer. “NASDAQ-listed companies entrusted him with their sensitive, non-public information so that he could provide them with analyses about their stock. He then used that very information to cheat the system and make an illegal profit. Insider trading by a gatekeeper on a securities exchange is a shocking abuse of trust, and must be punished. The integrity of our securities markets is vital to the U.S. economy, and the Justice Department is determined to take on insider trading at every level.”
“Don Johnson used sensitive, confidential information as an executive at NASDAQ to pad his retirement by more than $600,000,” said U.S. Attorney MacBride. “He thought he could get away with it by using his wife’s account and inside information to make relatively small trades just a few times a year. But he learned what every other trader on Wall Street must now realize: We’re watching.”
“The U.S. Postal Inspection Service continues to identify and aggressively investigate those who commit securities fraud,” said Postal Inspector in Charge of Criminal Investigations O’Farrell. “The agency has placed a team of highly trained Postal Inspectors at the Department of Justice in Washington, D.C., working in partnership with Department of Justice attorneys, to assure that criminals who defraud innocent citizens are prosecuted to the fullest extent of the law.”
According to court documents, from 2006 to September 2009, Johnson was a managing director on NASDAQ’s market intelligence desk in New York. The market intelligence desk provides trading analysis and market information to the companies that list on NASDAQ. According to court documents, Johnson monitored the stock of companies traded on NASDAQ and offered NASDAQ-listed companies information and analyses concerning trading in their own stock. To enable him to perform these services, NASDAQ-listed companies routinely entrusted Johnson with material, non-public information about their stock, including advance notice of announcements concerning earnings, regulatory approvals and personnel changes. Johnson admitted that he repeatedly used this information to purchase or sell short stock in various NASDAQ-listed companies shortly before the information was made public. He would then generate substantial gains by reversing those positions soon after the announcement. According to court documents, to conceal his illegal trading, Johnson executed these trades in a brokerage account in his wife’s name. Johnson failed to disclose this account to NASDAQ in violation of NASDAQ rules.
Johnson admitted that he made illegal purchases and sales of stock in NASDAQ-listed companies on at least eight different occasions, generating gains totaling more than $640,000. The companies whose securities he traded were Central Garden and Pet Co.; Digene Corporation; Idexx Laboratories Inc.; Pharmaceutical Product Development Inc.; and United Therapeutics Corporation. According to court documents, in November 2007, Johnson used inside information related to successful trial results for United Therapeutics’ drug Viveta (now called Tyvaso) to purchase shares of United Therapeutics before the trial results were announced. Soon after the announcement, Johnson sold the shares and gained more than $175,000 in profits. According to court documents, in July 2009, Johnson used inside information about the approval of its drug Tyvaso to purchase shares of United Therapeutics before the approval was announced. He sold the shares after the announcement and gained more than $110,000 in profits.
Johnson is scheduled to be sentenced on Aug. 12, 2011. The maximum penalty for securities fraud is 20 years in prison and a fine of $5 million.
Thursday, May 26, 2011
Alexei P. Koval Sentenced in Manhattan Federal Court to 26 Months in Prison for Insider Trading Scheme
PREET BHARARA, the United States Attorney for the Southern District of New York, announced that ALEXEI P. KOVAL, a/k/a “Aleksey Koval,” was sentenced today in Manhattan federal court to 26 months in prison for his participation in an insider trading scheme. KOVAL, a registered investment adviser, traded on inside information he received from his co-conspirator, IGOR POTEROBA, a former investment banker in the Healthcare Group of UBS Securities LLC (“UBS”). The trading, which was based on information related to six mergers and acquisitions that certain UBS clients were contemplating, generated hundreds of thousands of dollars in illicit profits. KOVAL, 37, previously pled guilty to three counts of securities fraud and one count of conspiracy to commit securities fraud on January 7, 2011. U.S. District Judge PAUL A. CROTTY imposed today’s sentence.
Manhattan U.S. Attorney PREET BHARARA said: “Alexei Koval flagrantly and repeatedly traded on inside information and was only too happy to share his illicit profits with his partner in crime and tipster. Their scheme has now come to a just conclusion.”
According to documents previously filed in Manhattan federal court:
From May 2006 through at least 2009, KOVAL was a registered investment adviser. During approximately the same time period, POTEROBA served as an executive director at UBS. In that capacity, he obtained material, non-public information (the “UBS Inside Information”) regarding certain mergers and acquisitions involving the following six publicly traded health care companies: Guilford Pharmaceuticals, Inc., Molecular Devices Corporations, PharmaNet Development Group, Inc., Via Cell, Inc., Millennium Pharmaceuticals, Inc., and Indevus Pharmaceuticals, Inc. (collectively, the “Health Care Companies”). In violation of his duties of trust and confidence, POTEROBA then disclosed the UBS Inside Information to KOVAL, who traded on the information, and disclosed it to another co-conspirator (“CC-1”).
As part of the scheme, KOVAL typically received tips from POTEROBA by telephone in advance of a public announcement about certain mergers and acquisitions. Shortly after receiving a tip from POTEROBA, he and CC-1 purchased securities in one of the Health Care Companies. Following the public announcement of the acquisition, KOVAL and CC-1 quickly sold the securities they had purchased. They executed dozens of securities transactions based on UBS Inside Information provided by POTEROBA. KOVAL then paid a portion of the profits to POTEROBA.
In addition to his prison term, Judge CROTTY sentenced KOVAL, of Chicago, Illinois, and Pasadena, California, to two years of supervised release and ordered him to forfeit $1,414,290, representing the amount of proceeds obtained as a result of the securities fraud offenses charged in the Indictment.
KOVAL’s co-conspirator IGOR POTEROBA, 37, of Darien, Connecticut, pled guilty to similar charges before Judge CROTTY on December 21, 2010, and was sentenced to 22 months’ imprisonment on March 21, 2011.
Mr. BHARARA praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission for its assistance in the investigation.
Wednesday, May 25, 2011
Juan Carlos Horna Napolitano Admits Conspiring to Obstruct SEC Investigation of Connecticut Hedge Fund Adviser
David B. Fein, United States Attorney for the District of Connecticut, announced that JUAN CARLOS HORNA NAPOLITANO, 40, a citizen of Venezuela residing in Pembroke Pines, Florida, pleaded guilty today before United States District Judge Stefan R. Underhill in Bridgeport to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission.
“The U.S. Attorney’s Office, FBI, and our Connecticut Securities, Commodities, and Investor Fraud Task Force partners are committed to investigating and prosecuting those who attempt to deceive and mislead the SEC and defeat its critical mission of protecting investors and the integrity of American capital markets,” stated U.S. Attorney Fein.
According to court documents and statements made in court, Francisco Illarramendi, of New Canaan, acted as an investment adviser to certain hedge funds. In approximately 2006, one hedge fund he advised lost millions of dollars of the money he was charged with investing. Rather than disclose to his investors the truth about the losses incurred, Illarramendi intentionally chose to conceal this information by engaging in a long-running scheme to defraud and mislead his investors, creditors, and the SEC to prevent the truth about the losses from being discovered. As part of the scheme, Illarramendi and others created fraudulent documents, including a fictitious asset verification letter falsely representing that one of the hedge funds, the Short Term Liquidity Fund (“STLF”), had at least $275 million in credits as a result of outstanding loans, when Illarramendi and others knew it did not have any such credits. In exchange for expected payment of at least $3 million, HORNA and Juan Carlos Guillen Zerpa assisted Illarramendi in creating the fictitious asset verification letter and misleading and deceiving investors and the SEC into believing that there was adequate capital and credit to protect the investors of the STLF.
Guillen is a resident and citizen of Venezuela who was the managing partner of a Venezuelan accounting firm associated with a major international accounting firm. In late 2010, Guillen agreed to prepare the asset verification letter that would falsely indicate that the STLF had made outstanding loans to Venezuelan companies. Guillen expected to receive approximately $1 million for his willingness to sign the false asset verification letter.
In January 2011, Guillen executed the false asset verification letter and sent it by e-mail to Illarramendi. Thereafter, Guillen and HORNA learned that the false asset verification letter had been supplied to the U.S. Securities and Exchange Commission (“SEC”), and that the SEC had initiated a civil action against Illarramendi and others (SEC v. Illarramendi, et al., 3:11-CV-00078). In an effort to deceive and mislead the SEC and to prevent the SEC from learning during the civil action that the asset verification letter was false, Illarramendi, Guillen and HORNA sought to create fraudulent documentation to falsely support the information contained in the letter. Guillen also participated in a telephone call with representatives of the SEC in which he intentionally misrepresented that the assertions in the asset verification letter about the existence of the hedge funds’ assets were true, when he knew they were false.
HORNA maintained control of a Florida bank account in the name of Jeislo Real Estate Investments, LLC. In furtherance of the conspiracy, Illarramendi caused two transfers of funds in the total amount of $1.25 million to be made into this bank account. As partial payment to Guillen for his role in the scheme, HORNA transferred at least $250,000 of this money to a third party for the benefit of Guillen.
Judge Underhill has scheduled sentencing for August 5, 2011, at which time HORNA faces a maximum term of imprisonment of 20 years and a fine of up to approximately $2.5 million. HORNA also has agreed to forfeit $1.25 million to the government.
HORNA has been detained since his arrest by FBI special agents on March 3, 2011, in Florida. Following his guilty plea today, HORNA was released into home confinement under electronic monitoring after he posted a bond in the amount of $650,000, which is secured by $181,000 in cash and real property.
On March 7, 2011, Illarramendi pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding, and to defraud the SEC. On May 4, 2011, Guillen pleaded guilty to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission. Both await sentencing.
Monday, May 23, 2011
Daren Palmer Charged in $20 Million Investment Fraud Scheme
The U.S. Attorney's Office filed an information in U.S. District Court in Pocatello on Wednesday charging Daren Palmer, 42, of Idaho Falls, with one count of wire fraud and one count of money laundering, U.S. Attorney Wendy Olson announced. Palmer is scheduled to appear in federal court in Pocatello on May 26 in connection with the information.
The two count information alleges that from 2002 through December 2008, Palmer owned and operated Trigon Group LLC in Idaho Falls, and that he solicited clients to invest money in the Trigon Group. The information further alleges that Palmer made various misrepresentations to clients, including misrepresentations that the investments had a 20 percent to 25 percent rate of return, that the investments had little or no risk, and that Palmer had a 10-year track record of success. The information also alleges that Palmer willfully failed to disclose to investors that prior investments had not paid a return, that current returns would be paid from funds raised from other investors, and that investor funds would be used to pay Palmer's personal expenses. The information alleges that Palmer used investor funds for his own use and caused investors to lose in excess of $20 million.
Palmer is also alleged to have committed money laundering by using investor money to make a personal purchase of $110,550 from a jewelry store.
Wire fraud is punishable by up to 20 years’ imprisonment followed by up to three years of supervised release and a maximum fine of $250,000. Money laundering is punishable by up to 10 years’ imprisonment, up to three years of supervised release, and a maximum fine of $250,000.
Saturday, May 21, 2011
Michael J. McNerney a Former Founding Partner of Ft. Lauderdale Law Firm Pleads Guilty to $837 Million Investment Fraud Scheme
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, and John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (“FBI”), Miami Field Office, announce that defendant Michael J. McNerney, a founding partner of the Ft. Lauderdale law firm formerly known as Brinkley, McNerney, Morgan, Solomon & Tatum, LLP, pled guilty on May 18, 2011, to a one-count criminal information charging him with conspiracy to commit mail fraud and wire fraud in connection with a scheme to defraud investors in the Mutual Benefits Corporation (“MBC”). As part of his plea agreement, McNerney agreed to be responsible for $837 million in restitution to the investors who were victims of this fraud.
Sentencing has been scheduled for August 26, 2011 before U.S. District Judge Adalberto Jordan. At sentencing, McNerney faces a maximum statutory sentence of five years in prison.
For almost 10 years, from about October 1994 through at least May 2004, McNerney was the lead outside lawyer for MBC, and participated in a scheme through which MBC sold investment interests in viatical and life settlement insurance policies to the general public, raising more than $1.25 billion from approximately 30,000 investors worldwide. A viatical settlement is a transaction in which a terminally ill person sells the death benefit of his or her life insurance policy to a third party in return for a lump-sum cash payment, which is a discounted percentage of the policy’s face value. A life settlement is similar to a viatical settlement, except the seller is not terminally ill, but is a senior citizen. In the sale of viatical or life settlements, an investor would realize a profit if, when the insured dies and the policy matures, the policy benefit is more than the price paid for policy. Any profit realized would be decreased by additional out-of-pocket costs, such as premium payments.
As charged in the information, McNerney, as outside counsel for MBC, made and caused others to make, knowingly misleading representations concerning such matters as the management of MBC and its related entities and the sufficiency of the funds set aside to make premium payments on the investors’ policies. For example, among the misrepresentations made to investors, MBC’s sales agents falsely promised a “fixed return” on investments and falsely represented that MBC had a strong track record of accurately predicting life expectancies. In addition, McNerney and his conspirators concealed from investors and regulators the fact that Joel Steinger, a convicted felon, was the key decision maker at MBC. Through these and other misrepresentations, MBC engaged in an unsustainable Ponzi scheme, in which it used new investors’ monies to pay previous investors.
Friday, May 20, 2011
Ezri Namvar Convicted on Federal Fraud Charges for Stealing $21 Million Entrusted to His Firm
LOS ANGELES—Ezri Namvar, a prominent Los Angeles businessman and real estate developer, was found guilty today of four wire fraud charges for stealing approximately $21 million from four clients who allowed his "qualified intermediary" company to hold their money in safekeeping before it was reinvested in real estate.
Namvar, 59, of Brentwood, was convicted of the felony counts by a federal jury that deliberated for about three hours after hearing eight days of testimony.
The jury convicted a second defendant on the four wire fraud charges. Hamid Tabatabai, 63 of Agoura Hills, was Namvar's right-hand man at the qualified intermediary company.
As a result of today's convictions, Namvar and Tabatabai face statutory maximum sentences of 80 years in federal prison.
Following today's verdicts, United States District Judge Percy Anderson ordered that Namvar, who is free on bond, be subject to home incarceration with electronic monitoring. Judge Anderson has scheduled a June 1 hearing, at which time prosecutors will argue that Namvar should be remanded into custody.
The evidence presented at trial showed that four victims entered into agreements to have approximately $25 million deposited with Namvar's company, Namco Financial Exchange Corp. (NFE), which held itself out as a qualified intermediary for real estate transactions commonly called "like-kind exchanges," "tax-free exchanges" or "1031 exchanges." Under exchange agreements with NFE, the money belonging to the victims was to be held in safekeeping so the money would be available upon demand to effectuate 1031 exchanges.
However, instead of holding the money as promised, Namvar, with the assistance of Tabatabai, used the victims' money for a variety of unauthorized and undisclosed purposes, including paying off creditors and investors of Namvar's investment company, Namco Capital Group, Inc. (NCG).
Namvar controlled both Namco companies. Tabatabai was the controller and a vice president of NFE, and he held similar positions of authority at NCG.
The four victims entered into exchange agreements with NFE in 2008, and their money, per the agreements, was wired to NFE over a six-month period. NFE was forced into bankruptcy proceedings in April 2009.
During the course of the fraudulent scheme, Namvar and Tabatabai fraudulently transferred victims' money from NFE to, among other places, an NCG bank account, where the money was used to pay the expenses and liabilities of NCG.
During the course of the fraudulent scheme, the four victims provided NFE with approximately $25 million in 1031 exchange proceeds, of which only approximately $4 million was returned to or used on behalf of the victims.
Namvar and Tabatabai are scheduled to be sentenced by United States District Judge Percy Anderson on August 22.
Thursday, May 19, 2011
Michael S. Goldberg Sentenced to 10 Years in Federal Prison for Operating $100 Million Ponzi Scheme
David B. Fein, United States Attorney for the District of Connecticut, announced that MICHAEL S. GOLDBERG, 40, was sentenced today by United States District Judge Robert N. Chatigny in Hartford to 120 months of imprisonment, followed by three years of supervised release, for operating a $100 million “Ponzi” scheme that defrauded investors of more than $30 million over an approximately 12-year period.
“As a result of this defendant’s decade-long fraud scheme, many victims lost their homes, retirement security, or college savings for their children,” stated U.S. Attorney Fein. “Despite the best efforts of the FBI and the receiver who has been appointed by the court to recover funds, it is unlikely that most of these victims will ever be made whole. The lengthy prison term imposed today is an appropriate one for an individual who caused financial misery for so many, and should deter others from seeking to prey upon innocent investors.”
According to court documents and statements made in court, from approximately 1997 to November 2009, Goldberg, formerly of Wethersfield, devised and executed a scheme to defraud numerous investors by soliciting millions of dollars of funds under false pretenses, failing to invest the investors’ funds as promised, paying existing investors with new investors’ money, and misappropriating and converting investors’ funds to Goldberg’s own benefit and the benefit of others without the knowledge or authorization of the investors. Initially, Goldberg transacted with investors in his own name. Beginning in September 2005, Goldberg received investments through Michael S. Goldberg, LLC, which at times did business as Acquisitions Unlimited Group.
Goldberg’s scheme to defraud investors involved principally two different types of misrepresentations. First, Goldberg solicited individuals to invest money in “diamond contracts.” In order to induce individuals to invest money, Goldberg represented that he would use investors’ money to purchase diamonds at extremely low prices from vendors in New York City, and that he would then resell those diamonds immediately at a substantial profit. Goldberg represented that the profits from the resale of the diamonds would enable him to pay investors a 20 to 25 percent return on investment every 60 to 90 days.
However, the vast majority of Goldberg’s fraud involved his solicitation of individuals and organizations to invest money in the purchase of distressed assets from JP Morgan Chase Bank (“Chase”). Goldberg falsely represented to potential investors in these “Chase asset deals” that Chase had granted him a contractual right to purchase foreclosed and seized business assets from a Chase Foreclosure Manifest, which he would then resell in prearranged transactions to large, well-known corporations. Goldberg represented that his purchase and resale of these foreclosed assets would enable him to pay investors a return on capital of up to 20 percent in a short period of time, typically 90 days. In addition, Goldberg represented that Chase would refund the purchase price of any asset that could not be resold, and that therefore there was no risk to the investor that any principal investment would be lost.
In order to induce individuals to invest in both diamond contracts and Chase asset deals, Goldberg typically drafted and entered into a “Business Investment Agreement Form” with each investor. In these forms, Goldberg set out the terms of the investment, including the amount of the return on capital and the date the return was to be paid. In many of the agreements, Goldberg indicated that he would be responsible for the payment of all taxes, and also included language explaining the risk-free nature of the investment.
As part of his scheme to defraud the investors, Goldberg also compensated other individuals (“feeders”) for locating new investors, primarily in Chase asset deals, through the payment of a “finder’s fee.”
On September 13, 2010, Goldberg pleaded guilty to three counts of wire fraud stemming from the scheme. In pleading guilty, Goldberg admitted that each and every one of his representations were false. Aside from a brief period in 1997, he did not purchase diamonds in New York City or any other location; he did not have any relationship with Chase; he did not purchase any foreclosed and seized assets from Chase; nor did he resell any foreclosed and seized assets. Goldberg paid the promised returns to existing investors with funds he received from new investors or reinvested funds. When an investor questioned Goldberg about his business relationships, either with Chase or with any other company, he often created false documents and other items to induce investors to believe that his business relationships were legitimate, including inventories and/or manifests, contracts, business checks, bank statements, business cards, and company identification cards. Goldberg also created domain names in the names of actual companies, including Chase, that would be listed on false documents in case an investor attempted to verify the authenticity of the documents. In addition, Goldberg opened actual bank accounts in the names of the companies to whom he purported to be selling foreclosed business assets, without the permission of those companies, that could also be used to create the false impression that he had a business relationship with the companies.
Through this scheme, Goldberg induced more than 350 individuals to invest more than $100 million in diamond contracts and Chase asset deals. Investors have lost a total of more than $30 million as a result of the scheme.
Goldberg is involved in two Chapter 7 bankruptcy proceedings that are currently pending in the U.S. Bankruptcy Court in Hartford. James Berman of the law firm of Zeisler and Zeisler, P.C. has been appointed as bankruptcy trustee for the purpose of paying the creditors of the bankruptcy estate pursuant to orders of the U.S. Bankruptcy Court.
Today, Judge Chatigny ordered Goldberg to pay restitution in the amount of $31,023,035.40. In order to assist the government and the court in administering this restitution order, Judge Chatigny appointed James Berman to serve as temporary receiver. The receiver will identify the victims of Goldberg’s criminal conduct and their respective losses from the scheme, pursue and recover all restitution funds from sources he identifies, and propose to the court a plan for distribution of the restitution.
Goldberg has been released on a $1 million bond since his arrest on November 23, 2009. He was ordered to report to a facility to be designated by the federal Bureau of Prisons on July 18, 2011.
Wednesday, May 18, 2011
Rodney Whitney Arrested for Defrauding Commodities Trading Investors of More Than $3.2 Million
WASHINGTON – The principal and co-owner of Integra Capital Management LLC, a North Carolina company, was arrested in Denton, N.C., today for defrauding commodities trading investors of more than $3.2 million, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Anne M. Tompkins of the Western District of North Carolina.
Nicholas Cox, 34, a North Carolina resident, is charged in an indictment returned on May 17, 2011, by a federal grand jury in the Western District of North Carolina, with one count of conspiracy to commit mail fraud, seven counts of mail fraud and one count of conspiracy to commit money laundering. Following his arrest, Cox made his initial appearance today before U.S. Magistrate Judge David Cayer in Charlotte, N.C.
The indictment alleges that between September 2006 and January 2009, Cox and his co-conspirator, Rodney Whitney, who was also a principal and co-owner of Integra, engaged in a scheme to defraud investors in commodity trading pools operated by Cox and Whitney through Integra. According to the indictment, Integra was established for the purpose of pooling investors’ funds in commodity pools, and investing in commodity futures and foreign currency exchange (forex) trading. Cox and Whitney allegedly provided false and fraudulent information, including prospectuses, contracts, tax forms, account statements and other documents, to current and prospective investors to obtain and misappropriate more than $3.29 million in investor funds.
According to the indictment, Cox and Whitney falsely represented, among other things, that Integra’s managers had more than 30 years of combined market experience; that Integra paid dividends of 2 to 5 percent of the investor’s initial investment, which was derived from Integra’s trading profits; and investors could remove their principal investments within five days upon giving notice to Integra. The indictment alleges that Cox and Whitney used the monies invested by later investors to pay promised monthly investment returns to earlier investors, to purchase real estate, to fund other business ventures, and to purchase automobiles and other personal goods and services.
Whitney was charged on March 2, 2011, in a criminal information for his role in the scheme. On March 21, 2011, Whitney pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering.
The maximum sentence for each count of mail fraud and conspiracy to commit mail fraud is 20 years in prison. The maximum sentence for each count of conspiracy to commit money laundering is 10 years in prison.
Tuesday, May 17, 2011
Tenaris S.A. to Pay $5.4 Million in SEC's First-Ever Deferred Prosecution Agreement
Washington, D.C., May 17, 2011 – The Securities and Exchange Commission today entered into a Deferred Prosecution Agreement (DPA) with Tenaris S.A. in its first-ever use of the approach to facilitate and reward cooperation in SEC investigations.
The agreement with Tenaris involves allegations that the global manufacturer of steel pipe products violated the Foreign Corrupt Practices Act (FCPA) by bribing Uzbekistan government officials during a bidding process to supply pipelines for transporting oil and natural gas. The SEC alleges that Tenaris made almost $5 million in profits when it was subsequently awarded several contracts by the Uzbekistan government. Under the terms of the DPA, Tenaris must pay $5.4 million in disgorgement and prejudgment interest.
Tenaris is the first company to enter into a DPA with the SEC, an approach announced last year to encourage individuals and companies to provide information about misconduct and assist with an SEC investigation. When Tenaris conducted a thorough, worldwide internal review of its operations and controls, it discovered FCPA violations by personnel in Uzbekistan and informed the SEC. In response to its findings, Tenaris reviewed its controls and compliance measures and significantly enhanced its anti-corruption policies and practices. Tenaris has agreed to cooperate further with the SEC, Justice Department, and any other law enforcement agency in connection with this case. Tenaris also agreed to pay a $3.5 million criminal penalty in a Non-Prosecution Agreement announced today by the Justice Department.
“The Tenaris foreign bribery scheme was unacceptable and unlawful, but the company’s response demonstrated high levels of corporate accountability and cooperation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The company’s immediate self-reporting, thorough internal investigation, full cooperation with SEC staff, enhanced anti-corruption procedures, and enhanced training made it an appropriate candidate for the Enforcement Division’s first Deferred Prosecution Agreement. Effective enforcement of the securities laws includes acknowledging and providing credit to those who fully and completely support our investigations and who display an exemplary commitment to compliance, cooperation, and remediation.”
Cheryl Scarboro, Chief of the SEC Enforcement Division’s FCPA Unit, added, “Tenaris’s conduct was clearly in violation of the FCPA. The company’s employees bribed government officials in Uzbekistan to obtain government contracts. But when Tenaris discovered the illegal conduct, it took noteworthy steps to address the violations and significantly enhance its anti-corruption policies and practices to remediate weaknesses in its internal controls.”
Tenaris is incorporated in Luxembourg and its American Depositary Receipts (TS) are listed on the New York Stock Exchange. According to the DPA, the SEC alleges that Tenaris bid on a series of contracts in 2006 and 2007 and bribed Uzbekistan officials to gain access to confidential bids by competitors. Tenaris used the information to revise its own bids, and as a result was awarded several contracts by the Uzbekistan government.
Under the terms of the DPA, the SEC will refrain from prosecuting the company in a civil action for its violations if Tenaris complies with certain undertakings. Among other things, Tenaris has agreed to enhance its policies, procedures, and controls to strengthen compliance with the FCPA and anti-corruption practices. Tenaris will implement due diligence requirements related to the retention and payment of agents, provide detailed training on the FCPA and other anti-corruption laws, require certification of compliance with anti-corruption policies, and notify the SEC of any complaints, charges, or convictions against Tenaris or its employees related to violations of any anti-bribery or securities laws. Tenaris has agreed to continue to fully cooperate with the SEC in its investigation.
Monday, May 16, 2011
SEC Charges Lloyd V. Barriger With Defrauding Investors in Two Upstate New York Real Estate Funds
Washington, D.C., May 13, 2011 – The Securities and Exchange Commission today charged a Monticello, N.Y.-based investment adviser with fraudulently offering and selling securities in two upstate New York real estate funds he managed.
The SEC alleges that Lloyd V. Barriger told investors in the Gaffken & Barriger Fund (G&B Fund) that it was a relatively safe and liquid investment that generated a minimum return of 8 percent per year. However, the fund’s actual performance did not justify these performance claims. The SEC further alleges that Barriger defrauded investors in Campus Capital Corp. by raising money from them to prop up the ailing G&B Fund without disclosing that was how their money was actually being used. Barriger also caused Campus to engage in other transactions that personally benefitted him, unbeknownst to Campus investors.
“In the midst of the credit crisis, Barriger chose to lie about the solvency and liquidity of his fund rather than admit the somber truth of a collapsing business,” said George Canellos, Director of the SEC's New York Regional Office. “He continued to solicit new investor funds based on the same misrepresentations up until the day before the fund collapsed.”
According to the SEC’s complaint filed in federal court in Manhattan, the G&B Fund raised approximately $20 million from January 1998 to March 2008, and Campus raised approximately $12 million from October 2001 to July 2008. Barriger froze the G&B Fund in March 2008 and disclosed its true financial condition to investors.
The SEC’s complaint alleges that Barriger misused G&B Fund assets by causing the fund to pay cash distributions of “Preferred Returns” to those investors who requested them. Barriger also caused the fund to redeem investors at values reflecting the purported accrued 8 percent per year return when the fund lacked the income to support those allocations and payments.
According to the SEC’s complaint, Barriger caused Campus to inject a total of nearly $2.5 million into the G&B Fund between August 2007 and April 2008 when the G&B Fund was in distress. Barriger did not disclose this information to investors.
Sunday, May 15, 2011
Hedge Fund Billionaire Raj Rajaratnam Found Guilty in Manhattan Federal Court of Insider Trading Charges
Source- http://www.fbi.gov/newyork/press-releases/2011/hedge-fund-billionaire-raj-rajaratnam-found-guilty-in-manhattan-federal-court-of-insider-trading-charges
PREET BHARARA, the United States Attorney for the Southern District of New York, announced that RAJ RAJARATNAM was found guilty today by a jury in Manhattan federal court of conspiracy and securities fraud crimes stemming from his involvement in the largest hedge fund insider trading scheme in history. RAJARATNAM was the Managing Member of Galleon Management, LLC (“Galleon”), the General Partner of Galleon Management, L.P., and a portfolio manager for Galleon Technology Offshore, Ltd., and certain accounts of Galleon Diversified Fund, Ltd. He was convicted after an eight-week trial before U.S. District Judge RICHARD J. HOLWELL.
Manhattan U.S. Attorney PREET BHARARA stated: “Raj Rajaratnam, once a high-flying billionaire and hedge fund manager, is now a convicted felon, 14 times over. Rajaratnam was among the best and the brightest—one of the most educated, successful, and privileged professionals in the country. Yet, like so many others recently, he let greed and corruption cause his undoing. The message today is clear—there are rules and there are laws, and they apply to everyone, no matter who you are or how much money you have. Unlawful insider trading should be offensive to everyone who believes in, and relies on, the market. It cheats the ordinary investor, victimizes the companies whose information is stolen, and is an affront not only to the fairness of the market, but the rule of law. In just over 18 months, this office has charged 47 individuals with insider trading crimes; Rajaratnam is the 35th person to be convicted. We will continue to pursue and prosecute those who believe they are both above the law and too smart to get caught.”
According to the superseding indictment filed in Manhattan federal court, other court documents, and statements made during related court proceedings:
From 2003 to March 2009, RAJARATNAM repeatedly traded on material, non-public information pertaining to upcoming earnings forecasts, mergers, acquisitions, and other business combinations (“Inside Information”). The Inside Information was given as tips by insiders and others at hedge funds, public companies, and investor relations firms—including Goldman Sachs, Intel, International Business Machines Corporation (“IBM”), McKinsey & Company (“McKinsey”), Moody’s Investor Services, Inc., Market Street Partners, Akamai Technologies, Inc. (“Akamai”), and Polycom, Inc. (”Polycom”). Based on the Inside Information, RAJARATNAM executed trades in the stock of public companies, including Goldman Sachs, Clearwire, Akamai, AMD, Intel, Polycom, and PeopleSupport, earning tens of millions of dollars.
The evidence at trial included, among other things, recordings of wiretapped phone calls between RAJARATNAM and his various co-conspirators, including: ANIL KUMAR, a senior partner and director at McKinsey; RAJIV GOEL, an employee of Intel; ADAM SMITH, a portfolio manager and analyst at Galleon; and DANIELLE CHIESI, an employee of the hedge fund New Castle Partners. RAJARATNAM engaged in overlapping conspiracies to commit securities fraud with these individuals, as well as with ROOMY KHAN, who traded securities on her own behalf.
KUMAR; GOEL; SMITH; CHIESI; MARK KURLAND, an employee at New Castle Partners; and ROBERT MOFFAT, a senior vice president at IBM, were charged with RAJARATNAM and have all previously pled guilty to insider trading charges. ROOMY KHAN was arrested on October 19, 2009 and has also pled guilty.
