Securities Fraud

Securities Firm News: Rabobank NA to Pay Almost $369M After Pleading Guilty to Felony Conspiracy, Alabama Supreme Court Says Lawsuit Against Sterne Agee Can Proceed, and Maryland Wealth Management Firm is Accused of Fraud

Published on: February 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Rabobank NA Admits to Anti-Money Laundering Deficiencies, Will Pay Nearly $369M

Rabobank National Association, a subsidiary of Rabobank UA (RABO), has pleaded guilty to felony conspiracy for obstructing the Department of the Treasury’s Office of the Comptroller of the Currency’s examination of the bank while hiding that its anti-money laundering program had certain deficiencies. Now, the firm will pay almost $369M for not preventing illicit funds from going through the bank.

With its guilty plea, Rabobank is admitting that it conspired with a number of its ex-executives to try defrauding the US by “unlawfully impeding” the OCC’s efforts to regulate the California subsidiary, including obstruction of an OCC examination of the bank’s branches throughout the state. Rabobank acknowledged that because of deficiencies in its AML program, the bank made it possible for hundreds of millions of dollars from Mexico and other places to be deposited in its rural bank branches and then allowed to money to move via checks, wire transfers, and withdrawals. Federal regulators were not notified even though they should have been.

During a 2012 OCC examination, Rabobank executives purposely tried to “hide and minimize” its AML program deficiencies so as to avoid new sanctions. Rabobank was already sanctioned in ’06 and ’08 for failures that were “nearly identical” to the ones at issue now. Late last year, ex-Rabobank VP George Martin reached a deferred prosecution deal with the US government for aiding and abetting the bank in not having an AML program that met Bank Secrecy Act requirements.

Securities Fraud Cases: Businessman Accused in Jay Peak Resort-Related Investment Scheme Must Pay Back Over $81M in Investor Money, Former State Street VP Faces Another Criminal Charge, and Lawyer Pleads Guilty in $20M Stock Scam

Published on: February 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Businessman Settles SEC Case Over Immigrant Visa-Related Investor Scam

Ariel Quiros, a businessman accused of defrauding foreign investors seeking to earn US residency through the EB-5 Immigrant Investor Program, has agreed to the settle the Securities and Exchange Commission’s case against him. As part of the settlement, which a court still has to approve, Quiros will be held liable for over $81M in disgorgement of ill-gotten gains and a $1M penalty. He also has to forfeit about $417K.

Over 700 investors from at least 75 nations invested with Quiros. Their funds were supposed to go toward “construction projects at the Jay Peak Resort and a proposed (nearby) biomedical research facility,” said the SEC. Instead, contends the regulator, Quiros misused over $50M to buy another ski resort and pay for his own spending, including the purchase of two luxury condos. He also failed to direct about $30M to the construction projects, which was necessary for these investors to become US residents.

Now, Quiros must give up the two condos and the resort that he bought using investors’ funds, as well as surrender his ownership stake in Jay Peak and many other properties.

Two Former Morgan Stanley Investment Advisers Accused of Fraud Plead Guilty

Published on: January 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In the criminal case brought against them, two ex-Morgan Stanley (MS) investment advisers, James S. Polese and Cornelius Peterson, have pleaded guilty to the criminal charges against them. Polese was charged with conspiracy, aggravated identity theft, investment adviser fraud, and multiple counts of bank fraud. Peterson is charged with conspiracy, investment adviser fraud, and bank fraud.

In a parallel civil case, the US Securities and Exchange Commission claims that beginning in 2014, the two men defrauded three clients of almost half a million dollars. The allegations include:

*Stealing almost $450K from one client and using the funds to make their own investments and pay for Polese’s credit card bills and the college tuition of his children.
*Using a client’s assets to obtain loan financing for an entity in which they were investors.
*Investing client monies in a venture in which they both had a financial stake without telling the client.
*Getting a loan with unfavorable terms for a client.
*Charging one client advisory fees that were 50% more than what he told her they would be.

BNP Paribas to Pay $90M After Pleading Guilty in FX Currency Rigging Probe

Published on: January 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

BNP Paribas USA (BNP), A BNP Paribas unit, will pay $90M to settle a criminal case alleging foreign currency price manipulation. It also pleaded guilty by admitting that it conspired to fix prices for Eastern European, Central European, African, and Middle Eastern (CEEMEA)currencies between 9/2011 and 7/2013.

According to the US Justice Department, the BNP Paribas unit engaged in rigging prices through fake trades, orchestrated trades, and by quoting specific prices to certain customers, all on an electronic trading platform. The settlement also settles investigations conducted by the New York State Department of Financial Services and the US Federal Reserve.

In a statement, BNP Paribas USA said that it regretted “the past misconduct” that resulted in this case. The unit will now cooperate with the US government’s ongoing investigation into currency rigging involving the FX market. The bank joins Barclays Plc (BARC), JPMorgan Chase & Co. (JP), Citigroup (C), UBS Group AG (UBS), and Royal Bank of Scotland Group Plc (RBS) in pleading guilty to currency rigging in US probes. Together, the six banks have agreed to pay over $2.8B in fines.

Deutsche Bank, UBS, and HSBC Securities Settle Respective Spoofing Cases with the CFTC for $46.6M

Published on: January 29, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank Securities Inc. and Deutsche Bank AG (DB) will pay a $30M civil penalty to resolve charges brought by the Commodity Futures Trading Commission accusing them of spoofing. According to the regulator, from at least 2/2008 through 9/2014, DB AG, with the help of a number of precious metal traders, sought to rig the price of precious metals futures contracts that were traded on the Commodity Exchange, Inc.

The CFTC’s order said that the traders worked alone and with each other to buy or sell these contracts while planning all along to cancel them before they were executed after a smaller offer was made on the opposite side of the market. The spoof orders were purportedly made to give the impression of market depth in order to generate trading interest.

The regulator found that through the traders’ actions, Deutsche Bank AG sought to not only rig the price of precious metals futures contracts but also to profit from these manipulations. The CFTC said the firm worked with one trader in Singapore who made orders and trades to “trigger customer stop-loss orders.”

Goldman Sachs is Lead Plaintiff in Institutional Investor Fraud Lawsuit Against Startup Outcome Health

Published on: January 25, 2018 | by Shepherd Smith Edwards & Kantas, LLP

After backing Outcome Health, an advertising company, Goldman Sachs Investment Partners (GS) and other investors are among those suing the startup for fraud and to get their money back. The lawsuit, filed a couple of months ago, comes in the wake of allegations that investors were fooled by inflated information financial performances and were charged for ad space that they never received. Outcome denies any wrongdoing.

It wasn’t too long ago that the company was generating high profits and revenue, while investors were told that their returns were guaranteed. Just last spring, institutional investors, including Goldman, infused $478M into the ad company, which streams pharmaceutical advertising onto tablets and flatscreens at doctor offices.

According to the Wall Street Journal, there had been red flags even back then. The newspaper noted how even the “savviest investors” can miss or ignore warnings. For example, Outcome already had a lot of debt, including $325M for a loan. It also lacked an independent board to conduct oversight and its co-founders were poised to make an “unusually large payout.”

Securities Fraud: Fast Food Restaurant Employees Allegedly Posed as SEC Employees to Bilk Investors, Chicago Investment Adviser Pleads Guilty to Defrauding Senior Investors, and Man Awaiting Real Estate Investment Fraud Sentence is Arrested While Trying to Leave the US

Published on: January 24, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Two Fast Food Restaurant Workers are Accused of Impersonating SEC Employees
Frank Gregory Cedeno and Leonel Alexis Valerio Santana, two employees at a Florida restaurant, are accused of pretending to be SEC employees who tried to get at least 95 investors to give pay them $1.3M. The men are charged with wire fraud and conspiracy.

According to the criminal complaint, Cedeno and Santana targeted investors of binary options, in particular those that bought them from Banc de Binary and other entities that had been the subject of lawsuits brought by US regulators. For example,in 2016, Banc de Binary settled with the SEC and the CFTC for $11M allegations that they illegally solicited US investors via its trading platform. But even as early as the year before that, prosecutors contend, Banc de Binary securities buyers began receiving calls and emails from supposed SEC employees wanting money related to these investments. Investor targets were purportedly told that they would have to pay money to get part of the Banc de Binary settlement. More than two dozen people reportedly gave the scammers over $235,000 collectively.

Chicago Investment Adviser Arrives at Plea Agreement in Senior Fraud Case
Daniel Glick, a former investment advisor, has pleaded guilty to wire fraud. Per the plea deal, Glick bilked clients of at least $5.2M and lied to them about their money. The majority of his victims were older investors, including his in-laws and a nursing home resident.

CFTC and Massachusetts Regulator Accuse Bitcoin and Cryptocurrency Operators of Selling Unregistered Securities

Published on: January 22, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Commodity Futures Trading Commission has filed civil cases against virtual currency operators CabbageTech, Entrepreneurs Headquarters Ltd., and My Big Coin Pay Inc. The regulator is alleging fraud, misappropriation, misrepresentation, and other unregistered securities allegations. It wants disgorgement, fines, restitution, injunctions, and other remedies.

In the case against CabbageTech, doing business as Coin Drop Markets, and its owner Patrick K. McDonnell, the Defendants are accused of participating in a virtual currency scam to solicit investor for funds and virtual money, supposedly in exchange for real-time trading advice and the sale and trading of virtual currency under McDonnell’s guidance.

Instead, claims the CFTC, investors received no such advice and they never saw their money again because McDonnell and CabbageTech misappropriated their funds. The regulator believes that the defendants sought to hide their scam by eliminating their online and social media presence and ending communications with customers.

The CFTC’s civil action against McDonnell and his company was announced the same day as its case against The Entrepreneurs Headquarters Limited, which is a company registered in the UK, and founder Dillon Michael Dean. The regulator believes that beginning in April 2017 through now, the defendants solicited at least $1.1M of Bitcoin from over 600 investors, with the promise that the Bitcoin would be turned into fiat currency and invested in a pooled investment vehicle to trade commodity interests.
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US Supreme Court to Hear Challenge Against SEC Over In-House Judges

Published on: January 12, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Supreme Court has agreed to hear the appeal of an investment adviser who is challenging the liability findings against him in a securities fraud case presided over by a US Securities and Exchange Commission (SEC) administrative law judge. Raymond Lucia, also a former radio host, was accused of misleading prospective investors about his “Buckets of Money” investment strategy by claiming the methodology he used was back-tested when that was not the case. This created a false sense of security especially among retirees who were told that their money would grow.

An SEC ALJ found him liable for fraud, including that he violated the Investment Advisers Act. Lucia was not only barred from the securities industry but also ordered to pay a $300K fine. He appealed the ruling.

Lucia also questioned whether it was constitutional for the SEC to hire administrative law judges and if they should instead be appointed rather than brought in through human resources. In 2016, The U.S. Court of Appeals for the District of Columbia Circuit turned down Lucia’s appeal, finding that contrary to his contention, SEC judges are not officers with the power to make decisions but are, in fact, employees. Also, the Commission has to approve their rulings.

Securities News: Meyers Associates Fined $75K for Sales Literature, Former Royal Bank of Scotland Trader is Banned For Rigging Libor, and Ex-Credit Union CEO is Sentenced in Bank Fraud Case

Published on: January 10, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Meyers Associates is Fined by FINRA Over Misleading Sales Literature
The Financial Industry Regulatory Authority is ordering Meyers Associates, now called Windsor Street Capital, to pay a $75K fine for a number of securities violations, including sending sales literature that was misleading via email and not supervising books and records preparations. The firm’s principal, Bruce Meyers, is now barred from working as a firm supervisor or principal.

According to the regulator’s National Adjudicatory Council, Meyers Association has been named in 16 disciplinary actions this century. It paid about $390K in sanctions for different issues, including issuing false statements, supervisory deficiencies, omissions related to a securities offering, improper review of emails, inadequate maintenance of books and records, and not reporting customer complaints in a timely manner. Last year, the US Securities and Exchange Commission turned down Meyers’ appeal of a FINRA securities ruling that prevented him from serving as firm CEO.

Ex-RBS Trader Banned and Fined £250,000 for Manipulating Libor
The UK’s Financial Conduct Authority has banned ex-Royal Bank of Scotland Group (RBS) trader Neil Danzinger from the securities industry and ordered him to pay a $338,000 over allegations that he rigged the London interbank offered rate (Libor). According to the regulator, Danziger, a former RBS interest rate derivatives trader, “routinely” asked RBS Libor submitters to modify the rate to benefit his trading positions. He also allegedly factored in certain trading positions when serving as a submitter and on more than one occasion got a broker to help him to rig other banks’ yen Libor submissions.