NEWARK, NJ—Kenneth Robinson admitted today that he engaged in a long-term insider trading scheme with Garrett Bauer and Matthew Kluger that netted at least $32 million in illicit profits, New Jersey U.S. Attorney Paul J. Fishman announced.
Kenneth T. Robinson, 45, of Long Beach, N.Y., was previously identified as a coconspirator referred to in court documents as “CC-1.” Robinson pleaded guilty before U.S. District Judge Katharine S. Hayden to an information charging him with one count of conspiracy to commit securities fraud and two counts of securities fraud.
According to documents filed in this and the related case and statements made in Newark federal court:
Robinson, a mortgage broker, engaged in an insider trading scheme with Bauer and Kluger that began in 1994. During the last five years, the conspirators invested more than $109 million and made more than approximately $32 million in illicit profits.
Over time, Kluger worked at four of the nation’s premier mergers and acquisitions law firms. From 1994 to 1997, he worked first as a summer associate and later as a corporate associate at Cravath Swaine & Moore in New York. From 1998 to 2001, he worked at Skadden, Arps, Slate, Meagher & Flom as an associate in their corporate department. From 2001 to 2002, he worked at Fried, Frank, Harris, Shriver & Jacobson LLP in New York. From December 5, 2005 to March 11, 2011, Kluger worked at Wilson Sonsini Goodrich & Rosati (“Wilson Sonsini”), as a senior associate in the Mergers & Acquisitions department of the firm’s Washington office.
While at the law firms, Kluger regularly stole material, nonpublic information regarding anticipated corporate mergers and acquisitions on which his firms were working, and disclosed that information to Robinson. Robinson admitted that once Kluger provided him the inside information, he usually passed it to Bauer, a professional trader. Bauer then purchased shares for himself, Kluger, and Robinson in Bauer’s trading accounts. Bauer quickly sold the shares once the relevant deal was publicly announced and the stock price rose. Bauer gave Robinson and Kluger their shares of the illicit profits in cash—often tens or hundreds of thousands of dollars—that Bauer withdrew in multiple transactions from ATMs. Robinson admitted that between 1994 and 2011, the conspirators traded ahead of at least 15 different corporate transactions.
Robinson admitted that he personally made the trades on at least two transactions: the acquisition of 3Com Corp. by Hewlett-Packard, announced November 11, 2009; and the acquisition of McAfee Inc. by Intel Corp., announced August 19, 2010.
Robinson also admitted that after Kluger joined Wilson Sonsini, the three conspirators generally only spoke to each other about proposed transactions on payphones or prepaid cellular phones that they referred to as “throwaway phones” and purchased with cash. They often got a new phone for each of their insider trading deals.
The conspiracy to commit securities fraud charge to which Robinson pleaded guilty carries a maximum potential penalty of five years in prison and a $250,000 fine, or twice the aggregate loss to victims or gain to the defendants. The two securities fraud charges to which Robinson pleaded guilty each carry a maximum penalty of 20 years in prison and a $5 million fine. Sentencing is scheduled for July 26, 2011.
Tuesday, April 12, 2011
Kenneth T. Robinson Pleads Guilty to Role in $32 Million Insider Trading Scheme
Monday, April 11, 2011
Johnson & Johnson Agrees to Pay $21.4 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act and Oil for Food Investigations
WASHINGTON – Johnson & Johnson (J&J) has agreed to pay a $21.4 million criminal penalty as part of a deferred prosecution agreement with the Department of Justice to resolve improper payments by J&J subsidiaries to government officials in Greece, Poland and Romania in violation of the Foreign Corrupt Practices Act (FCPA), the Justice Department’s Criminal Division announced today. The agreement also resolves kickbacks paid to the former government of Iraq under the United Nations Oil for Food Program.
J&J is headquartered in New Brunswick, N.J., and is listed on the New York Stock Exchange. The company manufactures and sells medical devices, pharmaceuticals and consumer health care products.
“Today, Johnson & Johnson has admitted that its subsidiaries, employees and agents paid bribes to publicly-employed health care providers in Greece, Poland and Romania, and that kickbacks were paid on behalf of Johnson & Johnson subsidiary companies to the former government of Iraq under the United Nations Oil for Food program,” said Principal Deputy Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division.” “Johnson & Johnson, however, has also cooperated extensively with the government and, as a result, has played an important role in identifying improper practices in the life sciences industry. As today’s agreement reflects, we are committed to holding corporations accountable for bribing foreign officials while, at the same time, giving meaningful credit to companies that self-report and cooperate with our investigations.”
According to the agreement, J&J has acknowledged responsibility for the actions of its subsidiaries, employees and agents who made various improper payments to publicly-employed health care providers in Greece, Poland and Romania in order to induce the purchase of medical devices and pharmaceuticals manufactured by J&J subsidiaries. J&J also acknowledged that kickbacks were paid on behalf of J&J subsidiary companies to the former government of Iraq under the United Nations Oil for Food Program in order to secure contracts to provide humanitarian supplies. A criminal information, filed in U.S. District Court in the District of Columbia in connection with the deferred prosecution agreement, charges J&J subsidiary DePuy Inc. with conspiracy and violations of the FCPA in connection with the payments to public physicians in Greece.
The agreement recognizes J&J’s timely voluntary disclosure, and thorough and wide-reaching self-investigation of the underlying conduct; the extraordinary cooperation provided by the company to the department, the SEC and multiple foreign enforcement authorities, including significant assistance in the industry-wide investigation; and the extensive remedial efforts and compliance improvements undertaken by the company. In addition, J&J received a reduction in its criminal fine as a result of its cooperation in the ongoing investigation of other companies and individuals, as outlined in the U.S. Sentencing Guidelines. J&J’s fine was also reduced in light of its anticipated resolution in the United Kingdom. Due to J&J’s pre-existing compliance and ethics programs, extensive remediation, and improvement of its compliance systems and internal controls, as well as the enhanced compliance undertakings included in the agreement, J&J was not required to retain a corporate monitor, but it must report to the department on implementation of its remediation and enhanced compliance efforts every six months for the duration of the agreement.
In a related matter, J&J reached a settlement today with the SEC under which it agreed to pay more than $48.6 million in disgorgement of profits, including pre-judgment interest.
Sunday, April 10, 2011
Douglas Green Admits to $9 Million Manipulative Trading Scheme Involving Collateralized Mortgage Obligation Bonds
TRENTON, NJ—A former collateralized mortgage obligation (CMO) bond trader admitted today to engaging in a fraudulent trading scheme in which he manipulated the prices of CMOs by millions of dollars over a four-year period, U.S. Attorney Paul J. Fishman announced. Douglas Green, 47, of Parkland, Fla., pleaded guilty to one count of securities fraud before U.S. District Judge Freda L. Wolfson in Trenton federal court.
According to the information to which Green pleaded guilty and statements made in court:
From May 2004 through July 2008, Green was a registered representative associated with Crocker Securities, a broker dealer that used the clearing services of Pershing LLC. Pershing, which is based in Jersey City, N.J., is one of the largest clearing firms in the United States. As Crocker’s clearing firm, Pershing received payments and securities from Crocker, and handled record keeping for the securities Crocker controlled.
During the period of the fraud, Green traded a Crocker account on behalf of the firm. In approximately June 2004, the account Green managed suffered significant trading losses which continued to grow during the length of the fraudulent scheme. In order to conceal the losses, Green entered into fraudulent transactions to increase the price of the CMOs to correspond to the increasing losses in the Crocker trading account.
Green admitted that to manipulate the price of the CMO, he entered a fraudulent sale into Pershing’s trading system. As the settlement date of the trade approached, Green cancelled the fraudulent sale so it would not actually settle and thereby alert Pershing and the purported purchasers, who were unaware they were identified in the fake transaction.
Green also manipulated the price of the CMOs using a network of bond traders. The traders purchased the CMOs at Green’s direction and immediately sold them back to him at slightly elevated prices. As a result of Green’s fraudulent trading activity, the total price of the CMOs was artificially inflated by millions of dollars. When the scheme collapsed, Pershing lost more than $9 million when it was forced to liquidate the CMO positions in the Crocker account.
The securities fraud charge to which Green pleaded guilty carries a maximum potential penalty of 20 years in prison and a $5 million fine. Green’s sentencing is currently scheduled for July 22, 2011.
Saturday, April 9, 2011
Zachary Bryant Sentenced to 16 Months in Federal Prison for Role in $1.7 Million Insider Trading Scheme
LOS ANGELES—A former vice president in the Los Angeles office of the Lippert Heilshorn & Associates investor relations firm has been sentenced to 16 months in federal prison for providing confidential information that was used in an insider trading scheme that generated $1.7 million in illegal profits for his associates.
Zachary Bryant, 40, of Long Island City, New York, was sentenced Monday by United States District Judge John F. Walter. Bryant pleaded guilty last year to one count of conspiring to commit insider trading.
While employed at Lippert Heilshorn, Bryant took $30,000 in bribes in exchange for providing confidential information on publicly traded companies. Bryant had access to the non-public information that was being used at Lippert Heilshorn to prepare press releases for corporate clients.
Bryant received the bribes from Ahmad Haris Tajyar, a securities trader who also was the owner and president of the Sherman Oaks-based investor relations firm Investor Relations International. Tajyar, 35, of Encino, used the inside information he received from Bryant to make securities trades in advance of the planned press releases, generating more than $1 million in profits from these illegal trades.
Tajyar also passed the information to others, including his cousin, Omar Tajyar, 31, of Porter Ranch; Ahmad Noory, 36, of Ladera Ranch; and Vispi Shroff, 58, of Canyon Country, each of whom traded in advance of the press releases. After the press releases were issued and the market reacted to the news, the conspirators quickly closed out trading positions, reaping huge profits in a short period of time.
Shroff pleaded guilty last year to two counts of insider trading, admitting that he received more than $165,000 in illegal profits. Shroff was sentenced by Judge Walter on March 21 to nine months in prison.
Bryant left Lippert Heilshorn in July 2007 to work at Ahmad Tajyar’s investor relations firm. Bryant admitted that when he left Lippert, he provided Ahmad Tajyar and Omar Tajyar with the password that Lippert’s employees used to remotely access their e-mail accounts at the firm. At this week’s sentencing hearing, prosecutors noted that Omar Tajyar used this password to continue to obtain inside information about Lippert clients long after Bryant left the firm. Prosecutors told Judge Walter that Omar Tajyar and Noory generated more than $1 million in illegal profits from additional trades based information stolen after Bryant left Lippert Heilshorn.
Friday, April 8, 2011
Richard A. Bailey and Florian R. Ternes, Sentenced to 30 Months in Federal Prison for Illegal Stock Sales
LOS ANGELES—Two former executives of a publicly traded corporation have each been sentenced to 30 months in federal prison for illegally selling unregistered stock in their company.
Richard A. Bailey, 55, and Florian R. Ternes, 62, both of Las Vegas, Nevada, who respectively were the chief executive officer and the chief operating officer of Gateway Distributors, Inc., were sentenced Monday by United States District Judge Otis D. Wright II.
Bailey and Ternes were convicted in October of two counts of issuing and selling unregistered stock. During a week-long trial in United States District Court, prosecutors presented evidence that Bailey and Ternes issued more than $600,000 worth of Gateway stock in an effort to circumvent federal securities registration laws. At the time of the issuance in 2004, Bailey and Ternes claimed that the stock issuance represented payment of fees to a purported Gateway consultant, and they filed false stock registration statements with the Securities and Exchange Commission.
In reality, the stock was issued to a friend of Bailey and Ternes who provided no legitimate services for Gateway. In return, the friend sold the illegally issued shares, and the proceeds of the transaction were then covertly returned to Gateway. Bailey and Ternes used the proceeds of the stock sales to finance acquisition of a fishing lodge in Utah and a commercial office building/warehouse in Las Vegas.
Bailey and Ternes have been in jail since Judge Wright remanded them into custody following their trial in October.
Gateway was a Nevada-based company involved in the sale of nutritional supplements. Gateway's stock was publicly traded on the Over-the-Counter Bulletin Board.
Thursday, April 7, 2011
Garrett D. Bauer and Matthew H. Kluger Charged with Trading on Inside Information Stolen from Three Preeminent Law Firms
NEWARK, NJ—A professional stock trader and an attorney who formerly worked as a corporate associate at three prominent, international law firms were arrested today on charges arising from their alleged participation in a long-term insider trading scheme that netted at least $32 million in illicit profits, New Jersey U.S. Attorney Paul J. Fishman announced.
Garrett D. Bauer, 43, of New York, and Matthew H. Kluger, 50, of Oakton, Va., are both charged in a criminal complaint with one count of conspiracy to commit securities fraud, one count of conspiracy to commit money laundering, and two counts each of obstruction of justice. Bauer and Kluger are also each charged with nine counts and 11 counts of securities fraud, respectively. Both defendants were arrested this morning at their residences by FBI and IRS agents. Bauer is expected to appear this afternoon before U.S. Magistrate Judge Mark Falk in Newark federal court. Kluger is expected to appear this afternoon before U.S. Magistrate Judge Theresa Carroll Buchanan in Alexandria, Va., federal court.
The complaint also seeks the forfeiture of over $32 million, Bauer’s real property in New York and Boca Raton, and the contents of a number of bank and trading accounts allegedly used to facilitate the scheme.
U.S. Attorney Fishman said, “According to the complaint, the defendants exploited Kluger’s access to sensitive, confidential information to make trading profits a sure thing. This kind of cheating corrodes confidence in our markets and swindles those who play by the rules. A hub of corporate headquarters, technological expertise and infrastructure, New Jersey houses the wiring of Wall Street and some of the biggest names in industry. Despite Bauer and Kluger’s attempts to thwart law enforcement, our coordinated work has ensured they will not get away with committing fraud in our backyard.”
FBI Special Agent in Charge Michael B. Ward stated: “The impact of crimes commonly referred to as ‘insider trading’ is unmistakable. Millions of investors have entrusted their life savings to the integrity of the financial markets and the belief of a level playing field. Insider trading corrupts the process and tilts the playing field in favor of those privileged few with access to information not available to the public, and at the expense of unsuspecting and unknowing investors. The subjects in this case allegedly attempted to cover their tracks with tradecraft of which Gordon Gecko would have been proud, but in the end their downfall was similar; criminal activity has been exposed, professional reputations tarnished, and in the end their own financial assets are the ones placed at risk.”
According to the complaint unsealed today:
Bauer, Kluger, and a co-conspirator—referred to in court documents as CC-1—engaged in an insider trading scheme that began in 1994. During the last five years, the conspirators invested more than $109 million and made more than approximately $32 million in illicit profits.
Over time, Kluger worked at three of the nation’s premier mergers and acquisitions law firms. From 1994 to 1997, he worked first as a summer associate and later as a corporate associate at Cravath Swaine & Moore (“Cravath”) in New York. From 1998 to 2001, he worked at Skadden, Arps, Slate, Meagher & Flom (“Skadden”) as an associate in their corporate department. From December 5, 2005 to March 11, 2011, Kluger worked at Wilson Sonsini Goodrich & Rosati (“Wilson Sonsini”), as a senior associate in the Mergers & Acquisitions department of the firm’s Washington office.
While at the law firms, Kluger regularly stole and disclosed to CC-1 material, nonpublic information regarding anticipated corporate mergers and acquisitions on which his firms were working. While at Cravath and Skadden, Kluger disclosed information relating to deals on which he personally worked. In an effort to avoid law enforcement detection later in the scheme, Kluger took information which he found primarily by viewing documents on Wilson Sonsini’s internal computer system, rather than from deals on which he personally worked.
Once Kluger provided the inside information to CC-1, CC-1 passed it to Bauer, a professional trader. Bauer then purchased shares for himself, Kluger, and CC-1 in Bauer’s trading accounts. He quickly sold the shares once the relevant deal was publicly announced and the stock price rose. Bauer gave CC-1 and Kluger their shares of the illicit profits in cash—often tens or hundreds of thousands of dollars—that Bauer withdrew in multiple transactions from ATMs.
Bauer spent over $7 million of his share of the proceeds to purchase two properties—approximately $6.65 million for an Upper East Side condominium in New York and approximately $875,000 for a home in Boca Raton, Fla.
The complaint specifically identifies 11 transactions ahead of which Bauer, Kluger and CC-1 traded between April 2006 and February 2011, as outlined in an appended chart.
After Kluger joined Wilson Sonsini, the three conspirators took greater efforts to prevent detection of their insider trading scheme. They generally only spoke to each other about proposed transactions on payphones or prepaid cellular phones that they referred to as “throwaway phones” and purchased with cash. They often got a new phone for each of their insider trading deals.
As they became increasingly concerned that their criminal activity would be detected, Bauer and Kluger destroyed various pieces of evidence relating to their scheme and took other action designed to obstruct any investigation. Bauer destroyed a prepaid phone, discarding the pieces in two separate trash cans at a New York McDonald’s. Bauer also directed CC-1 to burn approximately $175,000 in cash that Bauer had paid him out of concern his fingerprints would be found on the money. Kluger destroyed his home computer, iPhone and a prepaid phone. Kluger also directed CC-1 to destroy his prepaid phone and discard the contents in a garbage can down the street from his house.
The complaint details a number of recorded conversations among the conspirators. Over the course of his conversations with CC-1, Kluger made several statements regarding the likelihood that he would be charged for his illegal activities. During a March 17, 2011 call, Kluger stated, “I think there’s a pretty good chance that we get past it. I don’t think that they’re gonna conclude that they have enough to go to court with.” He also discussed destroying evidence, saying, “By the way, I got rid of my computer. I got rid of my iPhone where I had looked up some stock quotes. Those are gone. I mean history. Gone.” Kluger also told his co-conspirator that “...if they start looking at me and look at my bank records and all that other stuff it could be, it could get ugly.”
In a call recorded the next day, Bauer also referenced his concerns that he would get caught, saying, “I can’t sleep. I can’t sleep. I am waiting for the FBI to ride into my apartment. And I am on edge all night thinking that they’re coming in.” During the same call, he talked about how he would explain his large cash withdrawals, saying, “I used that as spending money. I don’t know, I will say I bought prostitutes if it comes down to it.” On March 21, 2011, he stated, “...the fact is we did something wrong. So it is not like we are being convicted of doing nothing. We did something wrong here.” In a March 28, 2011, call, Bauer said, “Yes, well you just feel more comfortable that we talk all on cell phones this entire time. You know. And that there is no way that they could ever be recorded.”
Wednesday, April 6, 2011
SEC Charges Satyam Computer Services With Financial Fraud
Washington, D.C., April 5, 2011 – The Securities and Exchange Commission today charged India-based Satyam Computer Services Limited with fraudulently overstating the company’s revenue, income and cash balances by more than $1 billion over five years.
The SEC’s complaint, filed in U.S. District Court in Washington, D.C., alleges that former senior officials at Satyam – an information technology services company based in Hyderabad, India – used false invoices and forged bank statements to inflate the company’s cash balances and make it appear far more profitable to investors. Although Satyam’s shares primarily traded on the Indian markets, its American depository shares traded on the New York Stock Exchange.
According to the SEC’s complaint, shortly after the fraud came to light in January 2009, the India government seized control of the company by dissolving Satyam’s board of directors and appointing new government-nominated directors; removed former top managers of the company; and oversaw a bidding process to select a new controlling shareholder in Satyam. In addition, India authorities filed criminal charges against several former officials.
In addition to the actions taken by the India authorities, Satyam, whose new leadership cooperated with the SEC’s investigation, has agreed to pay a $10 million penalty to settle the SEC’s charges, require specific training of officers and employees concerning securities laws and accounting principles, and improve its internal audit functions. Satyam also agreed to hire an independent consultant to evaluate the internal controls the company is putting in place.
In a related settlement, the SEC sanctioned Satyam’s former independent auditors for violations of federal securities laws and improper professional conduct while auditing the company’s financial statements from 2005 through January 2009.
“The actions of Indian and U.S. authorities have transformed Satyam into a new company with new management, directors and investors and state-of-the art controls, resulted in criminal charges against seven former executives and given harmed shareholders the chance to recoup losses,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This comprehensive and thoughtful response underscores the ability of regulators across the globe to respond to cross-border misconduct in a coordinated manner.”
Cheryl Scarboro, Chief of the SEC’s Foreign Corrupt Practices Act Unit, added, “The fact that Satyam’s former top officers were able to maintain a fraud of this scale represents a company-wide failure of extreme proportions that cut across a wide array of functions from customer invoicing to cash management.”
According to the SEC’s complaint, Satyam’s former senior managers engineered a scheme that created more than 6,000 phony invoices to be used in Satyam’s general ledger and financial statements. Satyam employees created bogus bank statements to reflect payment of the sham invoices. This resulted in more than $1 billion in fictitious cash and cash-related balances, representing half the company’s total assets.
The SEC alleges that when the fraud was finally revealed, Satyam’s then-Chairman, B. Ramalinga Raju, declared that maintaining Satyam’s inflated revenues and profits “was like riding a tiger, not knowing how to get off without being eaten.”
Raju and other former senior and mid-level Satyam executives, as well as two lead engagement partners from Satyam’s former external audit firm, are defendants in a criminal trial now underway in India.
Tuesday, April 5, 2011
Sidney S. Hanson Sentenced to 22 Years for Ponzi Scheme
CHARLOTTE, NC—Sidney S. Hanson, 63, of Charlotte, was sentenced today to 22 years in federal prison, to be followed by a supervised release term of three years, United States Attorney Anne M. Tompkins announced. In addition, Chief U.S. District Judge Robert J. Conrad, Jr. ordered restitution in an amount to be finalized within 60 days of sentencing, which is expected to be in excess of $33,000,000. Hanson has been in custody since his bond was revoked on February 25, 2010. Tompkins is joined by North Carolina Secretary of State Elaine F. Marshall and Edward W. Montooth, Acting Special Agent in Charge of the Federal Bureau of Investigation, Charlotte Division, in making today's announcement.
In July 2009, Hanson pled guilty to securities fraud and mail fraud. According to court documents, Hanson controlled Queen Shoals, LLC, and related entities in Charlotte. From about 2006 through 2009, Hanson and others solicited investments by falsely representing extraordinary rates of return with practically no risk of loss of principal by investing in Treasury bills, precious metals, and foreign currency. In reality, the overwhelming majority of the investor funds were invested in speculative business ventures. Investors were further deceived by receiving monthly interest payments, which came, in "Ponzi" scheme fashion, not from profits, but from new investments by other unwitting investors.
Over 100 victims of Hanson's fraud appeared at the sentencing hearing. Ten victims, representative of the group, spoke to the court about the devastating impact of the scheme, describing the loss of life savings, feelings of betrayal, bankruptcy, loss of homes, being forced to come out of retirement at advanced ages, and the numerous impacts of the stress and anxiety caused by the loss of a lifetime of work on their mental states, marriages, and family relationships.
In pronouncing the sentence of 22 years, Chief Judge Conrad described how "heinous" the crime was, and stated there was no doubt that the defendant "utterly took advantage and preyed upon people." Chief Judge Conrad also suggested that but for the defendant's cooperation with the Government, among other factors, Hanson would have received an even longer sentence.
"My heart is with the victims," said U.S. Attorney Anne Tompkins. "The damage caused by Hanson's crimes goes well beyond the loss of material wealth," Tompkins added. "If conscience will not deter fraudsters from taking advantage of the elderly and vulnerable, the certainty that justice is coming should."
"Since the day our securities investigators first raided the Queen Shoals offices we believed we had uncovered a major Ponzi scheme," Secretary Elaine F. Marshall said. "What made this case even more sickening was that the scam was crafted to appeal to victims through their deeply held religious beliefs. I thank the court for this verdict and our federal law enforcement partners for all their hard work to bring North Carolina investors a true measure of justice."
Monday, April 4, 2011
Louis J. Borstelmann Pleads Guilty in $18 Million Ponzi Scheme
EUGENE, OR—Today, Louis J. Borstelmann, 68, of Thousand Oaks, California, pleaded guilty to mail fraud and money laundering in connection with a Ponzi scheme that reached Florence, Oregon.
The d efendant admitted to soliciting approximately 100 individuals, a majority of whom are residents of Florence, Oregon, to invest in real estate through his company, Sunburst Associates, Inc., a California corporation, bilking them out of more than $18 million.
The defendant claimed to offer hard-money loans through his company that were secured by real estate deeds of trust. To entice individuals to invest, the defendant falsely promised high rates of return and a security interest in the property allegedly pledged to secure the investment. Additionally, the defendant sent investors fraudulent investment materials, including the supposed deeds of trust.
As part of his plea, the defendant admitted that the alleged investments never existed and that it was all a Ponzi scheme—he used new investor money to pay existing investment obligations. The defendant further admitted to spending investor money on personal items, including a car and a home.
“The citizens that are defrauded in schemes like this are quite often left financially and emotionally devastated,” said Marcus Williams, Special Agent in Charge of the Seattle Field Office of Internal Revenue Service - Criminal Investigation. “The talents of investigators from IRS-Criminal Investigation, the FBI, and the state of Oregon were utilized in this case to ensure this man was held accountable for his actions.”
Friday, April 1, 2011
Former TBW Financial Analyst Sean W. Ragland Pleads Guilty in $1.5 Billion Fraud Scheme
WASHINGTON—Sean W. Ragland, a former senior financial analyst at Taylor, Bean & Whitaker (TBW), pleaded guilty today to conspiring to commit bank and wire fraud for his role in a scheme that defrauded approximately $1.5 billion from financial investors in TBW's mortgage lending facility, Ocala Funding.
The guilty plea was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Acting Special Inspector General Christy Romero for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI's Washington Field Office; Michael P. Stephens, Inspector General of the Department of Housing and Urban Development (HUD OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA OIG); and Victor F.O. Song, Chief of the Internal Revenue Service (IRS) Criminal Investigation.
Ragland, 37, of San Antonio, Texas, pleaded guilty before U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia. Ragland faces a maximum penalty of five years in prison when he is sentenced on June 21, 2011.
According to a statement of facts submitted with his plea agreement, in 2005 TBW established a wholly owned lending facility called Ocala Funding. Ocala Funding raised money by selling asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas, and used the money to purchase TBW mortgages. The facility was managed by TBW and had no employees of its own.
Ragland had tracking and reporting responsibilities with respect to Ocala Funding, and today he admitted that from 2006 through August 2009, he and other co-conspirators engaged in a scheme to mislead investors and auditors as to the financial health of the lending facility. According to court records, shortly after Ocala Funding was established, Ragland learned there were inadequate assets backing its commercial paper. Ragland tracked this deficiency, which was referred to internally at TBW as a "hole" in Ocala Funding. He reported the status of the "hole" to senior TBW executives, including its CEO and CFO. Ragland was also aware that TBW co-conspirators were improperly transferring hundreds of millions of dollars from Ocala Funding to TBW accounts. At the time that TBW ceased operations, the hole was approximately $1.5 billion.
Ragland admitted that, at the direction of other co-conspirators, he prepared documents that inaccurately and intentionally inflated figures representing the aggregate value of the loans held in Ocala Funding or under-reported the amount of outstanding commercial paper. He sent this false information to the financial institution investors, other third parties, and an outside audit firm.
To date, four other individuals have pleaded guilty to charges for their roles in this and related fraud schemes.
Thursday, March 31, 2011
David A. Smith Pleads Guilty to $220 Million Ponzi Fraud and Money Laundering Charges
Source- http://tampa.fbi.gov/dojpressrel/pressrel11/ta032911.htm
ORLANDO, FL—United States Attorney Robert E. O'Neill announces that David A. Smith, (41, a Jamaican citizen) who was living in the Turks and Caicos Islands, today pleaded guilty to four counts of wire fraud, one count of conspiracy to commit money laundering, and 18 counts of money laundering. The wire fraud counts carry a maximum penalty of 20 years in federal prison, a fine of $250,000, and a term of supervised release of not more than three years. In addition, for each count of wire fraud the fine may be assessed at twice the amount of gross gain or loss.
Last year, Smith pleaded guilty to fraud and conspiracy charges filed in the Turks and Caicos Islands arising from his investment scam there, and he was sentenced to serve six-and-a-half years in prison.
An information charging Smith with these offenses was filed by the United States Attorney on August 18, 2010. In November 2010, he was brought to the United States. His initial appearance in Federal District Court in Orlando was on November 19, 2010. The case was set for trial in April 2011.
According to the plea agreement, for more than three years, Smith executed a Ponzi scheme to defraud over 6,000 investors located in the Middle District of Florida and elsewhere out of more than $220 million. Smith led investors to believe that he was investing their money in foreign currency trading, earning 10 percent per month on average. In fact, he was not trading their funds. Foreign currency trading is a highly volatile and risky investment vehicle that is regulated in the United States by the Commodity Futures Commission and the National Futures Association.
In addition to defrauding those investors, Smith conspired to launder the proceeds that were received in his scam, and he participated in the laundering of millions of dollars of proceeds that were obtained as a result of wire fraud.
The four counts of wire fraud are based on Smith’s transmitting false and fraudulent account statements to several investors through email and the OLINT Internet website.
Smith also conspired with others to launder approximately $128 million of proceeds that were obtained as a result of the wire fraud scheme, and he in fact laundered those millions of dollars. The purpose of the money laundering engaged in by Smith and his conspirators was to conceal and disguise the nature, the location, the source, the ownership, and the control of the proceeds of the wire fraud.
During the entire time that Smith operated his Ponzi scheme, the only source of income for he and his wife was from investors’ funds. Smith’s operation of the Ponzi scheme effectively ended on July 15, 2008, when the Royal Turks and Caicos Police Force, Financial Crimes Unit, executed search warrants at Smith’s place of business and residence in Providenciales, Turks and Caicos Islands.
Wednesday, March 30, 2011
FDA Chemist Cheng Yi Liang and Son Andrew Liang Charged with Trading on Inside Information
WASHINGTON—A Food and Drug Administration (FDA) chemist and his son were arrested in Maryland today in connection with an alleged $2.27 million insider trading scheme, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney for the District of Maryland Rod J. Rosenstein; James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office; and Elton Malone, Special Agent in Charge, Department of Health and Human Services, Office of the Inspector General (HHS-OIG), Office of Investigations, Specials Investigations Branch.
A criminal complaint unsealed today in the District of Maryland charges Cheng Yi Liang, 57, and his son, Andrew Liang, 25, both residents of Gaithersburg, Md., with conspiracy to commit securities and wire fraud, securities fraud, and wire fraud relating to their trading in the securities of five companies: Clinical Data Inc., Vanda Pharmaceuticals Inc., Progenics Pharmaceuticals Inc., Middlebrook Pharmaceuticals Inc., and Momenta Pharmaceuticals Inc. They were both arrested at their residence this morning and made their initial appearances in U.S. District Court in Greenbelt, Md. Law enforcement agents executed four search warrants today in connection with the investigation.
“Cheng Yi Liang was entrusted with privileged information to perform his job of ensuring the health and safety of his fellow citizens,” said Assistant Attorney General Breuer. “According to the complaint, he and his son repeatedly violated that trust to line their own pockets. Insider trading is an insidious crime. Together with our law enforcement partners, we will continue to root out corruption in our securities markets at every level. Our use of innovative investigative tools like the security software used in this case will provide an additional deterrent the next time someone sits in front of a computer and thinks about committing a crime.”
“It is unacceptable for any government employee to take confidential information and use it for personal gain,” said U.S. Attorney Rosenstein.
“Those in positions of trust, who have access to privileged and valuable information are expected to follow the law,” said Assistant Director in Charge McJunkin of the FBI’s Washington Field Office. “The charges today represent long hours and hard work by the special agents and investigators who are tasked with enforcing laws and regulations designed to ensure the fair operation of our financial markets.”
“Profiting based on sensitive, insider information—as Liang is charged with today—is not only illegal, but taints the image of thousands of hard-working government employees,” said Special Agent in Charge Malone of HHS-OIG Special Investigations Branch. “We will continue to insist that federal government employee conduct be held to the highest of standards.”
According to court documents, Cheng Yi Liang has been employed as a chemist since 1996 at the FDA’s Office of New Drug Quality Assessment (NDQA). Through his work at NDQA, Cheng Yi Liang had access to the FDA’s password-protected internal tracking system for new drug applications, known as DARRTS. FDA utilizes DARRTS to manage, track, receive, and report on new drug applications. The complaint alleges that by accessing DARRTS, and through other unauthorized means, Cheng Yi Liang was able to review confidential non-public documents or inside information, relating to whether and when certain drug applications would be approved.
The complaint alleges that from approximately November 2007 through March 2011, Cheng Yi Liang and Andrew Liang profited from the inside information by repeatedly trading in securities issued by companies with pending drug applications, allegedly reaping illicit profits of more than approximately $2.27 million. According to court documents, the trading was executed in accounts held in the name of Andrew Liang, as well as several accounts in the names of four different nominees. The proceeds from the Liangs’ insider trading were then transferred to various bank and brokerage accounts benefitting the father and son.
According to the complaint, on Jan. 6, 2011, HHS-OIG installed software on Cheng Yi Liang’s work computer, allowing it to collect screen shots from that computer, which revealed Liang was accessing the secure DARRTS database to review information related to a pending drug application submitted by Clinical Data Inc. for an anti-depressant drug called Viibryd. In one instance on Jan. 18, 2011, the software captured information that showed Liang accessed the database and reviewed an internal FDA document recommending approval of Viibryd. The complaint alleges that within minutes, several accounts controlled by Liang and his son purchased 4,875 shares of Clinical Data. Altogether, the defendants, through various accounts which they controlled, acquired 48,875 shares of Clinical Data before Viibryd’s approval was announced on Jan. 21, 2011, and subsequently sold their entire position for a profit of more than $379,000.
The complaint also alleges that Cheng Yi Liang and Andrew Liang traded in advance of a May 6, 2009, announcement by Vanda Pharmaceuticals Inc., that the FDA had approved its drug Fanapt. Utilizing Andrew Liang’s account and several nominee accounts, the Liangs allegedly made a nearly 800 percent profit, netting more than $1 million.
As described in the complaint, the defendants used the proceeds from the scheme to pay various personal expenses, including purchasing cars, paying for travel, and paying credit cards bills.
The maximum penalty for conspiracy to commit securities and wire fraud is five years in prison and a fine of $250,000, or twice the gross gain from the offence. The maximum penalty for wire fraud is 20 years in prison and a fine of $250,000, or twice the gross gain from the offence. The maximum penalty for securities fraud is 20 years in prison and a fine of $5 million for each count.
A criminal complaint is merely an accusation, and a defendant is presumed innocent unless proven guilty in a court of law.
Tuesday, March 29, 2011
Igor Levin and Yergeny Shvartsshteyn Each Sentenced in Manhattan Federal Court to 87 Months in Prison
The United States Attorney for the Southern District of New York, announced that IGOR LEVIN and YEVGENY SHVARTSSHTEYN were each sentenced in Manhattan federal court to 87 months in prison for their leadership roles in a conspiracy to defraud investors of more than $7 million through a fraudulent hedge fund. LEVIN, 41, and SHVARTSSHTEYN, 40, were sentenced before U.S. District Judge SIDNEY H. STEIN on Friday, March 25.
According to court records in this case:
From 2005 through September 2006, LEVIN and SHVARTSSHTEYN were among the individuals who controlled and operated A.R. Capital, which was the general partner of A.R. Capital Global Fund, L.P. (the “ARC Global Fund”), a purported hedge fund that solicited investors with false promises and representations. These false and fraudulent representations included, among others, claims that: (i) the ARC Global Fund was a hedge fund that invested primarily in the equity of international real estate companies; and (ii) the ARC Global Fund invested in real estate, oil, gas, and other commodities. In reality, there were no such investments. The defendants defrauded their victims of more than $7 million in investor funds, which were wired to various bank accounts in Eastern Europe. From February 2006 until September 2006, when the United States Securities and Exchange Commission (“SEC”) shut down the operation, LEVIN and SHVARTSSHTEYN controlled the ARC Global Fund.
LEVIN, of Brooklyn, New York, and SHVARTSSHTEYN, of Belle Harbor, New York, each previously pled guilty to one count of conspiring to commit mail and wire fraud for their participation in the investment scheme. Judge STEIN also entered forfeiture orders in the amount of $7 million against LEVIN and SHVARTSSHTEYN, which constituted proceeds from their crime.
Monday, March 28, 2011
Richard H. Nickles Pleads Guilty to Fraud Charges in Ponzi Scheme That Caused Over $6 Million in Losses
SANTA ANA, CA—The owner and operator of a Santa Ana investment firm pleaded guilty today to mail fraud and securities fraud charges for operating a Ponzi scheme that collected more than $10 million from about two dozen victims, many of whom were elderly residents of Orange County and Los Angeles County. As a result of the scheme, victims suffered losses of approximately $6.22 million.
Richard H. Nickles, 58, of Irvine, the owner of Innovative Advisory Services, Inc., pleaded guilty to the two felony charges before United States District Judge Cormac J. Carney.
Nickles admitted in court today that he placed advertisements in the Orange County Register and the Los Angeles Times advertising safe investments through Innovative Advisory Services. The advertisements variously described the investments as “U.S. Government Guaranteed,” “FDIC Insured,” “Guaranteed,” or “Insured” and stated that there was a “$50,000 Minimum Investment.” After being contacted by potential investors, Nickles met with them and offered investments in various types of low-risk bonds. According to court documents, Nickles took money from investors, but, instead of investing the money in the bonds he recommended, he used the money to pay off prior investors or trade in securities not authorized by the investors. As part of his scheme, Nickles created fraudulent statements from Innovative Advisory Services that were mailed to investors.
The charge of mail fraud carries a statutory maximum penalty of 20 years in federal prison. The charge of securities fraud carries a statutory maximum of five years in prison. Therefore, when he is sentenced by Judge Carney on August 8, Nickles faces a maximum possible penalty of 25 years in federal prison.
Nickles has been in custody since he was arrested by special agents with the FBI on July 9, 2010 during a meeting with two victims at his Santa Ana office.
Saturday, March 26, 2011
SEC Charges Daniel Frishberg and Talk Radio "MoneyMan" for Fraudulent Conduct at Advisory Firm
Washington, D.C., March 25, 2011 — The Securities and Exchange Commission today charged Houston-area businessman Daniel Frishberg with fraudulent conduct in connection with promissory note offerings made to clients of his investment advisory firm.
The SEC alleges that Frishberg's firm Daniel Frishberg Financial Services (DFFS) advised clients to invest in notes issued by Business Radio Networks (BizRadio), a media company founded by Frishberg where he hosts his own show under the nickname "The MoneyMan." Frishberg failed to tell his clients about BizRadio's poor financial condition or his significant conflicts of interest with the note offerings that helped fund his salary at BizRadio.
Frishberg agreed to settle the SEC's charges by paying a $65,000 penalty that will be distributed to harmed investors. He will be barred from future association with any investment adviser.
"Contrary to his obligations as an investment adviser, Frishberg approved risky investment recommendations to his clients without ensuring that the risks and conflicts were properly disclosed," said Rose Romero, Director of the SEC's Fort Worth Regional Office. "Frishberg personally benefitted from the questionable investments that were recommended to his clients."
According to the SEC's complaint filed in federal district court in Houston, at least $11 million in promissory notes were issued by BizRadio and Kaleta Capital Management (KCM), which is owned by Frishberg's associate Albert Fase Kaleta. Frishberg and Kaleta jointly controlled BizRadio.
The SEC charged Kaleta and his firm with fraud in 2009, and the court appointed a receiver to marshal the assets of KCM and relief defendants BizRadio and DFFS.
The SEC alleges that Frishberg authorized Kaleta to recommend the notes to DFFS clients, and clients were not provided with critical disclosures. Investors were not told of BizRadio's poor financial condition and the likely inability of KCM and BizRadio to repay the notes. Nor were investors informed about Frishberg's significant conflicts of interest in the note offerings because the proceeds funded his salary as a BizRadio talk show host.
The SEC alleges that Frishberg chose Kaleta to recommend the BizRadio notes even though he was aware of complaints about Kaleta's lack of truthfulness in sales presentations regarding other investments.
The SEC's complaint alleges that Frishberg violated Section 206(2) of the Investment Advisers Act of 1940 and aided and abetted violations of Sections 206(1) and 206(2) of the Advisers Act.
Without admitting or denying the SEC's allegations, Frishberg consented to the entry of a permanent injunction against these violations and to pay a $65,000 penalty. Frishberg consented to the establishment of a fair fund for the distribution of his penalty to harmed investors, and agreed to be barred from association with any investment adviser or certain other registered entities.
