NEW YORK - 9/6/2015 - United States Attorney for the Southern District of New York Preet Bharara recently announced that Robert Stewart, the father of former investment bank managing director Sean Stewart, pled guilty to participating in a conspiracy to trade on inside information about several mergers and acquisitions announced between 2011 and 2014.
Robert Stewart was arrested on May 14, 2015, and Sean Stewart surrendered to federal authorities that same day
Charges against Sean Stewart remain pending before U.S. District Judge Laura Taylor Swain. A third member of the charged conspiracy, cooperating witness Richard Cunniffe, pled guilty before Judge Swain on May 12, 2015, and awaits sentencing. Steward is scheduled to be sentenced by Judge Swain on November 12.
“Instead of teaching his son lessons of right and wrong, Robert Stewart worked with him to break the law by trading on nonpublic information and sharing in the benefits with him. Robert Stewart’s criminal actions – to which he has pled guilty today – perpetuate the unfortunate perception that the markets are rigged in favor of those with connections,” Bharara said.
According to the agreement pursuant to which Robert Stewart entered his plea of guilty today, the underlying criminal complaint filed May 13, 2015, the Superseding Indictment filed July 15, 2015, and statements made during court proceedings:
In early 2011, Sean Stewart, who at the time held the position of Vice President in the Healthcare Investment Banking Group of a global bank headquartered in Manhattan (“Investment Bank A”), began tipping his father with nonpublic information about upcoming mergers and acquisitions.
The first of these deals involved the acquisition of Kendle International Inc. (“Kendle”) by INC Research, LLC, which was announced publicly on May 4, 2011
Sean Stewart worked on the deal, representing Kendle. Robert Steward made about $7,900 in profits on purchases of Kendle stock executed in February and March of 2011 When questioned by the Securities and Exchange Commission about his Kendle trades in May 2013, Robert Stewart reported that he used the proceeds of those trades to pay expenses related to Sean Stewart’s June 2011 wedding.
The second deal about which Sean Stewart tipped Robert Steward was the acquisition of Kinetic Concepts Inc. (“KCI”) by Apax Partners, announced on July 13, 2011. Although Robert Steward purchased some stock in KCI based on Sean Stewart’s tip, he sold that stock before the acquisition was announced, around the same time that Sean Stewart learned the Financial Industry Regulatory Authority was conducting an inquiry into Robert Steward’s Kendle trading.
Also around this time, in the spring of 2011, Robert Steward expressed a concern to co-conspirator and cooperating witness Richard Cunniffe that Robert Steward was “too close to the source” to be trading in KCI stock in his own account, and asked Cunniffe to make purchases of KCI call options for Robert Steward in Cunniffe’s brokerage account. Cunniffe agreed to do so, and also mirrored for his own benefit the KCI trades that Robert Steward was directing.
When the KCI/Apax Partners deal was announced, Robert Steward and Cunniffe reaped profits totaling approximately $107,790. At around this time, Robert Steward told Cunniffe that the source of the KCI tip and the earlier Kendle tip had been Robert’s son Later, around the spring of 2012, Robert Steward clarified for Cunniffe that the son in question was Sean Stewart, who worked on the “sell side” on Wall Street.
In October 2011, Sean Stewart left Investment Bank A. A few months later, he joined an investment banking advisory firm headquartered in Manhattan (“Investment Bank B”) as a managing director.
During Sean Stewart’s tenure with Investment Bank B, based on tips concerning nonpublic acquisition-related information supplied by Sean Stewart, Robert Steward had Cunniffe conduct options trading in advance of the public announcements of three more deals: (1) the acquisition of Gen-Probe Inc. by Hologic Inc., announced on April 30, 2012; (2) the acquisition, by tender offer, of Lincare Holdings Inc. (“Lincare”) by Linde AG, announced on July 1, 2012; and (3) the acquisition of CareFusion Corp. (“CareFusion”) by Becton, Dickinson & Co. (“Becton”), announced on October 5, 2014. Investment Bank B represented Hologic Inc. in connection with its acquisition of Gen-Probe Inc.; Linde AG in connection with its acquisition of Lincare; and CareFusion in connection with its acquisition by Becton. The profits that Robert Steward and Cunniffe reaped from illegal insider trading in advance of the announcements of these three deals totaled approximately $1.1 million. In the midst of the scheme, in December 2012, Robert Steward transferred at least $15,000 to Sean Stewart.
To try to avoid detection for their crimes, Robert Steward and Cunniffe refrained from speaking explicitly about their trading over the phone or e-mail, sometimes using “golf”-related code For example, shortly after the announcement of Lincare’s proposed acquisition by Linde AG, a German company, Robert Steward wrote to Cunniffe that he had seen a news story about the “high cost of golf reservations since a foreign company purchased all-even more expensive than imagined.” Other steps Robert Steward and Cunniffe took to avoid detection included trying to discuss their trading at face-to-face meetings and adopting a profit-splitting mechanism that had Cunniffe paying Robert Steward his portion of the illegal proceeds in small increments, over time, typically in cash.
In March and April of 2015, Cunniffe recorded meetings he had with Robert Steward During one such meeting, Robert Steward accepted a payment of $2,500 cash from Cunniffe, which was the balance of the proceeds owed to Robert Steward for profitable trading executed in Cunniffe’s account in advance of the CareFusion acquisition announcement. Also during this meeting, Robert Stewart admitted that Sean Stewart once chastised him for failing to make use of a tip, saying, “I can’t believe I handed you this on a silver platter and you didn’t invest in it.”
Source: Financial Fraud Enforcement Task Force
Showing posts with label investors. Show all posts
Showing posts with label investors. Show all posts
Investor to Plead Guilty To Bid Rigging, Fraud
(DOJ) - 12/3/2014 - A Northern California real estate investor has agreed to plead guilty for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the U.S. Department of Justice has announced.
Felony charges were filed on December 2 in the U.S. District Court for the Northern District of California in Oakland against Garry Wan of Concord, California. To date, 50 individuals have agreed to plead or have pleaded guilty, as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
According to court documents, beginning as early as May 2008 until January 2011, Wan conspired with others not to bid against one another, and instead designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in Alameda County. Wan was also charged with conspiring to use the mail to carry out a scheme to fraudulently acquire title to selected Alameda County properties sold at public auctions, to make and receive payoffs, and to divert money to co-conspirators that would have otherwise gone to mortgage holders and other beneficiaries by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions often took place at or near the courthouse steps where the public auctions were held.
“While there has been a lengthy series of guilty pleas by the participants in this activity, the division’s work is not yet over,” said Brent Snyder, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “We will continue to work with our law enforcement partners to investigate and prosecute collusion at real estate foreclosure auctions, which allow the conspirators to profit from illegal payoffs at the expense of financial institutions and distressed homeowners.”
The department said that the primary purpose of the conspiracies was to suppress and eliminate competition and to conceal payoffs in order to obtain selected real estate offered at Alameda County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. According to court documents, these conspirators paid and received money that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.
“These charges demonstrate our continued commitment to investigate and prosecute individuals and organizations responsible for the corruption of the public foreclosure auction process,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office. “The FBI is committed to work these important cases and remains unwavering in our dedication to bring the members of these illegal conspiracies to justice.”
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
Today’s charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa, and Alameda counties, California. These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300, or call the FBI tip line at 415-553-7400.
Source: Financial Fraud Enforcement Task Force
Felony charges were filed on December 2 in the U.S. District Court for the Northern District of California in Oakland against Garry Wan of Concord, California. To date, 50 individuals have agreed to plead or have pleaded guilty, as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
According to court documents, beginning as early as May 2008 until January 2011, Wan conspired with others not to bid against one another, and instead designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in Alameda County. Wan was also charged with conspiring to use the mail to carry out a scheme to fraudulently acquire title to selected Alameda County properties sold at public auctions, to make and receive payoffs, and to divert money to co-conspirators that would have otherwise gone to mortgage holders and other beneficiaries by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions often took place at or near the courthouse steps where the public auctions were held.
“While there has been a lengthy series of guilty pleas by the participants in this activity, the division’s work is not yet over,” said Brent Snyder, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “We will continue to work with our law enforcement partners to investigate and prosecute collusion at real estate foreclosure auctions, which allow the conspirators to profit from illegal payoffs at the expense of financial institutions and distressed homeowners.”
The department said that the primary purpose of the conspiracies was to suppress and eliminate competition and to conceal payoffs in order to obtain selected real estate offered at Alameda County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. According to court documents, these conspirators paid and received money that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.
“These charges demonstrate our continued commitment to investigate and prosecute individuals and organizations responsible for the corruption of the public foreclosure auction process,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office. “The FBI is committed to work these important cases and remains unwavering in our dedication to bring the members of these illegal conspiracies to justice.”
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
Today’s charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa, and Alameda counties, California. These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300, or call the FBI tip line at 415-553-7400.
Source: Financial Fraud Enforcement Task Force
Zillow, Inc. Faces Class Action Suit Over Stock
SEATTLE - (BUSINESS WIRE) - 11/30/2012 - Securities law firm Hagens Berman Sobol Shapiro, LLP (“Hagens Berman”), recently announced the filing of a class-action securities lawsuit against Zillow, Inc. (NASDAQ:Z) (“Zillow”) on behalf of a proposed class of investors who purchased Zillow stock during the period from Feb. 15, 2012, to Nov. 6, 2012 (the “Class Period”), inclusive.
Shareholders who purchased or otherwise acquired Zillow common stock during the Class Period are encouraged to contact Hagens Berman attorney Karl Barth at 206-623-7292 or to contact the Hagens Berman legal team through e-mail at Zillow@hbsslaw.com to discuss their legal rights. Investors can also contact Mr. Barth by visiting www.hb-securities.com/cases/Zillow.
Investors who wish to serve as lead plaintiff in the case must move the court no later than Jan. 28, 2013. Any member of the proposed class may move the court to serve as lead plaintiff through counsel of their choice, or may choose to do nothing and remain an absent class member. Class members need not seek to become a lead plaintiff in order to share in any possible recovery.
Hagens Berman’s lawsuit, filed Nov. 29, 2012, in the United States District Court for the Western District of Washington, alleges that Zillow and certain of its officers violated the Securities Exchange Act of 1934.
On Nov. 5, 2012, Zillow announced its third quarter, 2012, financial results and reduced guidance for the fourth quarter and the full 2012 year. On the news, Zillow’s stock price fell nearly 18 percent, closing at $28.15 per share.
The complaint alleges that the defendants issued false and misleading statements to investors during the Class Period, causing the company’s stock to trade at an artificially high level. It claims the company misled investors regarding issues the company was having in signing up new real estate agents as subscribers, among other issues.
The complaint further alleges that company insiders sold 3.1 million shares of Zillow stock for nearly $115 million while the stock traded at an artificially high price.
The plaintiff in the case seeks to recover damages on behalf of the class and is represented by Hagens Berman Sobol Shapiro, LLP. Hagens Berman is a nationwide investor-protection law firm, with many years of experience prosecuting investor class actions and actions involving financial fraud.
For more information about Hagens Berman Sobol Shapiro, LLP, or to review a copy of the complaint filed in this action, visit www.hb-securities.com/cases/Zillow.
Shareholders who purchased or otherwise acquired Zillow common stock during the Class Period are encouraged to contact Hagens Berman attorney Karl Barth at 206-623-7292 or to contact the Hagens Berman legal team through e-mail at Zillow@hbsslaw.com to discuss their legal rights. Investors can also contact Mr. Barth by visiting www.hb-securities.com/cases/Zillow.
Investors who wish to serve as lead plaintiff in the case must move the court no later than Jan. 28, 2013. Any member of the proposed class may move the court to serve as lead plaintiff through counsel of their choice, or may choose to do nothing and remain an absent class member. Class members need not seek to become a lead plaintiff in order to share in any possible recovery.
Hagens Berman’s lawsuit, filed Nov. 29, 2012, in the United States District Court for the Western District of Washington, alleges that Zillow and certain of its officers violated the Securities Exchange Act of 1934.
On Nov. 5, 2012, Zillow announced its third quarter, 2012, financial results and reduced guidance for the fourth quarter and the full 2012 year. On the news, Zillow’s stock price fell nearly 18 percent, closing at $28.15 per share.
The complaint alleges that the defendants issued false and misleading statements to investors during the Class Period, causing the company’s stock to trade at an artificially high level. It claims the company misled investors regarding issues the company was having in signing up new real estate agents as subscribers, among other issues.
The complaint further alleges that company insiders sold 3.1 million shares of Zillow stock for nearly $115 million while the stock traded at an artificially high price.
The plaintiff in the case seeks to recover damages on behalf of the class and is represented by Hagens Berman Sobol Shapiro, LLP. Hagens Berman is a nationwide investor-protection law firm, with many years of experience prosecuting investor class actions and actions involving financial fraud.
For more information about Hagens Berman Sobol Shapiro, LLP, or to review a copy of the complaint filed in this action, visit www.hb-securities.com/cases/Zillow.
Hedge Fund Managers Sentenced to Prison Terms
NEW YORK – 9/19/2012 - Michael Katz and Christopher Fardella, two former hedge fund managers, were each sentenced on Sept. 19 to three years in prison for their roles in defrauding investors out of nearly $1 million, announced Preet Bharara, U.S. attorney for the Southern District of New York. Katz and Fardella each pleaded guilty in October 2011 to one count of conspiracy to commit securities fraud and mail fraud and one count of securities fraud before U.S. District Judge Laura T. Swain, who also imposed today’s sentences.
“In order to lure investors, Michael Katz and Christopher Fardella created resumes and marketing materials for their phony investment fund out of whole cloth. Their sentences demonstrate to those who may consider similar schemes that smoke and mirrors will not fool law enforcement, and you will be held accountable for such fraudulent activity,” Bharara said.
According to the information filed in Manhattan federal court, as well as statements made in court proceedings: From April 2005 through November 2006, Katz, Fardella and two other co-conspirators were partners in KMFG International LLC, a hedge fund located primarily in Florida with ties to New York. Katz was KMFG’s Portfolio Manager, and Fardella was KMFG’s Treasurer.
Katz, Fardella and their co-conspirators used “cold calls” to solicit approximately $1.03 million from investors across the country. Investors were misled about KMFG’s principals and about the firm’s financial performance. For example, KMFG’s marketing materials falsely claimed that KMFG was operated by “a management team consisting of hedge fund managers, traders and top level executives from independent oil and gas companies” with a track record of generating substantial trading profits for KMFG’s investors. In fact, Katz, Fardella and their co-conspirators had no genuine experience running a hedge fund and were never top level executives in the oil and gas industry. KMFG’s marketing materials also falsely claimed that KMFG had generated “cumulative returns for 30 months of over 165 percent.” In truth, KMFG had no prior financial track record, and never made a profit for any of its investors.
The defendants used investor funds for their own personal benefit without investor knowledge. Specifically, Katz and Fardella used investors’ funds to finance a lavish lifestyle by making personal cash withdrawals and using the funds for expensive meals and trips to Las Vegas.
To conceal the fact that Katz, Fardella and their co-conspirators were misappropriating investor funds and the fact that KMFG was never profitable, the defendants submitted false financial statements to their clients that indicated their investments were making profits when they were not. KMFG clients continued to invest hundreds of thousands of dollars with KMFG after receiving the false financial statements. In total, Katz, Fardella and their co-conspirators either lost or spent $981,000 out of the $1,031,086 collected in investor funds.
In addition to their prison terms, Katz, 33, of Brooklyn, N.Y., and Fardella , 34, of Fort Lauderdale, Fla., were each sentenced to three years of supervised release and ordered to forfeit $981,000.
Co-conspirator Kristian Murphy-Fuhse, who was charged in a separate information for his role in the same scheme, pleaded guilty in January 2012 and is awaiting sentencing before U.S. District Judge Thomas P. Griesa.
Bharara praised the work of the U.S. Postal Inspection Service.
These cases were brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group.
This case is being handled by the U.S. Attorney’s Office for the Southern District of New York’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Jason P. Hernandez is in charge of the prosecution.
Source: National Fraud Enforcement Task Force
“In order to lure investors, Michael Katz and Christopher Fardella created resumes and marketing materials for their phony investment fund out of whole cloth. Their sentences demonstrate to those who may consider similar schemes that smoke and mirrors will not fool law enforcement, and you will be held accountable for such fraudulent activity,” Bharara said.
According to the information filed in Manhattan federal court, as well as statements made in court proceedings: From April 2005 through November 2006, Katz, Fardella and two other co-conspirators were partners in KMFG International LLC, a hedge fund located primarily in Florida with ties to New York. Katz was KMFG’s Portfolio Manager, and Fardella was KMFG’s Treasurer.
Katz, Fardella and their co-conspirators used “cold calls” to solicit approximately $1.03 million from investors across the country. Investors were misled about KMFG’s principals and about the firm’s financial performance. For example, KMFG’s marketing materials falsely claimed that KMFG was operated by “a management team consisting of hedge fund managers, traders and top level executives from independent oil and gas companies” with a track record of generating substantial trading profits for KMFG’s investors. In fact, Katz, Fardella and their co-conspirators had no genuine experience running a hedge fund and were never top level executives in the oil and gas industry. KMFG’s marketing materials also falsely claimed that KMFG had generated “cumulative returns for 30 months of over 165 percent.” In truth, KMFG had no prior financial track record, and never made a profit for any of its investors.
The defendants used investor funds for their own personal benefit without investor knowledge. Specifically, Katz and Fardella used investors’ funds to finance a lavish lifestyle by making personal cash withdrawals and using the funds for expensive meals and trips to Las Vegas.
To conceal the fact that Katz, Fardella and their co-conspirators were misappropriating investor funds and the fact that KMFG was never profitable, the defendants submitted false financial statements to their clients that indicated their investments were making profits when they were not. KMFG clients continued to invest hundreds of thousands of dollars with KMFG after receiving the false financial statements. In total, Katz, Fardella and their co-conspirators either lost or spent $981,000 out of the $1,031,086 collected in investor funds.
In addition to their prison terms, Katz, 33, of Brooklyn, N.Y., and Fardella , 34, of Fort Lauderdale, Fla., were each sentenced to three years of supervised release and ordered to forfeit $981,000.
Co-conspirator Kristian Murphy-Fuhse, who was charged in a separate information for his role in the same scheme, pleaded guilty in January 2012 and is awaiting sentencing before U.S. District Judge Thomas P. Griesa.
Bharara praised the work of the U.S. Postal Inspection Service.
These cases were brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group.
This case is being handled by the U.S. Attorney’s Office for the Southern District of New York’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Jason P. Hernandez is in charge of the prosecution.
Source: National Fraud Enforcement Task Force
Man Sentenced in $400 Million Ponzi Scheme
BEAUMONT, Texas – 5/9/2012 - A federal judge has sentenced a 36-year-old Dallas man in connection with his role in a pair of complex, lucrative oil and gas Ponzi schemes that operated in Michigan and Texas, U.S. Attorney for the Eastern District of Texas John M. Bales announced on May 4.
Joseph Blimline was sentenced to 240 months in federal prison on each of the charges related to the Ponzi schemes following a five-hour sentencing hearing on May 3 before U.S. District Judge Marcia A. Crone, who ordered the sentences to run concurrently and ordered that restitution be made to the victims of the schemes.
“The Michigan agents worked hand in hand with the agents in Texas and with federal and state securities regulators to untangle both of these complicated Ponzi schemes and bring the perpetrators to justice for their abuse of the trust of others to obtain criminal profits,” Bales said. “To all potential investors, I urge you to be wary of investment vehicles that promise exorbitant rates of return. Remember: If the opportunity appears too good to be true, then it probably is.”
At the sentencing hearing, the government presented testimony and evidence which established that Blimline and others began operating a Ponzi scheme in Michigan between November 2003 and December 2005, specifically by promising inflated rates of return in order to obtain payments from investors. Lacking any legitimate source of income with which to make payouts to the investors, Blimline directed that later investor payments be used to pay previous investors and diverted investor payments for his own personal benefit. The Michigan scheme netted over $28 million from its investor victims before its collapse.
In early 2006, Blimline exported the Michigan Ponzi scheme to Texas, where Blimline and his new co-conspirators began the operation of Provident Royalties in Dallas. Consistent with his previous actions in Michigan, Blimline made materially false representations and failed to disclose material facts to their investors in order to induce the investors into providing payments to Provident. Blimline received millions of dollars in unsecured loans from investor funds and also directed the purchase by Provident of worthless assets from his Michigan enterprise. In the Provident scheme, funds from later investors were also consistently used to make payments to early investors, resulting in the collapse of the scheme in 2009. The Provident scheme netted over $400 million from approximately 7,700 investor victims.
U.S. Attorney for the Western District of Michigan Donald A. Davis praised the diligent work and cooperation of all involved. “Stealing money through fraud and deceit will not be tolerated,” he said.
The Michigan case was investigated by the FBI and the U.S. Postal Inspection Service and was prosecuted by Assistant U.S. Attorney for the Western District of Michigan Nils Kessler. The Texas case was investigation by the FBI and prosecuted by Assistant U.S. Attorney for the Eastern District of Texas Shamoil T. Shipchandler.
Source: www.stopfraud.gov.
Joseph Blimline was sentenced to 240 months in federal prison on each of the charges related to the Ponzi schemes following a five-hour sentencing hearing on May 3 before U.S. District Judge Marcia A. Crone, who ordered the sentences to run concurrently and ordered that restitution be made to the victims of the schemes.
“The Michigan agents worked hand in hand with the agents in Texas and with federal and state securities regulators to untangle both of these complicated Ponzi schemes and bring the perpetrators to justice for their abuse of the trust of others to obtain criminal profits,” Bales said. “To all potential investors, I urge you to be wary of investment vehicles that promise exorbitant rates of return. Remember: If the opportunity appears too good to be true, then it probably is.”
At the sentencing hearing, the government presented testimony and evidence which established that Blimline and others began operating a Ponzi scheme in Michigan between November 2003 and December 2005, specifically by promising inflated rates of return in order to obtain payments from investors. Lacking any legitimate source of income with which to make payouts to the investors, Blimline directed that later investor payments be used to pay previous investors and diverted investor payments for his own personal benefit. The Michigan scheme netted over $28 million from its investor victims before its collapse.
In early 2006, Blimline exported the Michigan Ponzi scheme to Texas, where Blimline and his new co-conspirators began the operation of Provident Royalties in Dallas. Consistent with his previous actions in Michigan, Blimline made materially false representations and failed to disclose material facts to their investors in order to induce the investors into providing payments to Provident. Blimline received millions of dollars in unsecured loans from investor funds and also directed the purchase by Provident of worthless assets from his Michigan enterprise. In the Provident scheme, funds from later investors were also consistently used to make payments to early investors, resulting in the collapse of the scheme in 2009. The Provident scheme netted over $400 million from approximately 7,700 investor victims.
U.S. Attorney for the Western District of Michigan Donald A. Davis praised the diligent work and cooperation of all involved. “Stealing money through fraud and deceit will not be tolerated,” he said.
The Michigan case was investigated by the FBI and the U.S. Postal Inspection Service and was prosecuted by Assistant U.S. Attorney for the Western District of Michigan Nils Kessler. The Texas case was investigation by the FBI and prosecuted by Assistant U.S. Attorney for the Eastern District of Texas Shamoil T. Shipchandler.
Source: www.stopfraud.gov.
Brokerage Firm Chief, Stock Promoter Convicted
WASHINGTON – 2./2/2012 - The principal of a Costa Rican brokerage firm and a Las Vegas stock promoter were each convicted on January 31 in the Southern District of Florida of all charges for their roles in a stock manipulation scheme that defrauded investors, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Chief Postal Inspector Guy Cottrell of the U.S. Postal Inspection Service (USPIS) and James W. McJunkin, assistant director in Charge of the FBI’s Washington Field Office.
Jonathan Curshen, 47, the principal of Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks, was found guilty of conspiracy to commit securities fraud, wire fraud and mail fraud; two counts of mail fraud; and conspiracy to commit international money laundering. Nathan Montgomery, 30, a Las Vegas stock promoter, was found guilty of conspiring to commit securities fraud and wire fraud.
The evidence at trial showed that in January and February 2007, Curshen, of Costa Rica and Sarasota, Fla., and Montgomery, of Las Vegas, were involved in a scheme to illegally manipulate the stock price of a company called CO2 Tech (ticker CTTD), which traded on the Pink Sheets, an inter-dealer electronic quotation and trading system.
Evidence at trial showed that Curshen’s and Montgomery’s co-conspirators controlled the outstanding shares of CO2 Tech, which were used in the stock manipulation scheme. Montgomery and his conspirators engaged in coordinated trades in conjunction with the issuance of false and misleading press releases that were designed to artificially inflate the price of CO2 Tech shares to make it appear that it had significant business prospects. According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes, when in fact CO2 Tech never had any business or relationship with Boeing.
According to the evidence at trial, Montgomery and his co-conspirators, Robert Weidenbaum, Timothy Barham Jr., Ryan Reynolds and others fraudulently “pumped” the market price and demand for CO2 Tech stock through these press releases and coordinated trades of shares of CO2 Tech stock in order to create the appearance of legitimate buying interest by legitimate investors. The evidence showed that as Montgomery and his conspirators pumped the price of the stock, Curshen and his conspirators facilitated the “dumping” of shares through the trading desk at Red Sea and Sentry Global Securities by selling the shares at the direction of their conspirators to the general investing public. The evidence showed that these shares, which became virtually worthless, were purchased by unsuspecting investors, including investors in the Southern District of Florida. The evidence showed that Montgomery, Weidenbaum, Reynolds and Barham were paid approximately $1 million in cash by their conspirators to participate in sham stock trades of CO2 Tech. The cash was delivered to Miami via a private jet from an airport outside New York.
The evidence further showed that, from approximately 2003 through 2008, Curshen operated Red Sea as a money laundering hub in Costa Rica that established bank accounts and brokerage accounts in the United States and Canada under false pretenses and through nominee owners. The evidence further showed that Curshen and his co-conspirators laundered the proceeds of the stock fraud from accounts in the United States to an account in Canada, all in an effort to conceal and disguise the nature and source of the proceeds.
At sentencing, Curshen faces a sentence of up to five years in prison on the conspiracy to defraud count, and up to 20 years on each count of mail fraud and money laundering conspiracy. Montgomery faces a sentence of up to five years for the conspiracy to defraud count. The defendants are scheduled to be sentenced by Judge Richard W. Goldberg on May 11, 2012.
Stock promoters Weidenbaum, Barham and Reynolds, who were also charged in this case, previously pleaded guilty to conspiring to commit securities fraud, wire fraud and mail fraud. They also will be sentenced by Judge Goldberg on May 9, 2012. Michael Simon Krome, a securities attorney from New York, who participated in the conspiracy and evaded federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free trading” shares of CO2 Tech that were used to execute the stock manipulation, also pleaded guilty to conspiring to commit securities fraud, mail fraud and wire fraud.
The case was investigated by the FBI’s Washington Field Office and the USPIS. The case is being prosecuted by Trial Attorneys N. Nathan Dimock and Rina Tucker Harris of the Fraud Section in the Justice Department’s Criminal Division. The U.S. Attorney’s Office for the Southern District of Florida provided significant assistance in this case. The Department of Justice acknowledges the significant assistance of the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) in its investigation. The SEC has a pending parallel civil case. The Criminal Division’s Office of International Affairs and Costa Rican authorities also provided assistance.
Source: Financial Fraud Enforcement Task Force
Jonathan Curshen, 47, the principal of Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks, was found guilty of conspiracy to commit securities fraud, wire fraud and mail fraud; two counts of mail fraud; and conspiracy to commit international money laundering. Nathan Montgomery, 30, a Las Vegas stock promoter, was found guilty of conspiring to commit securities fraud and wire fraud.
The evidence at trial showed that in January and February 2007, Curshen, of Costa Rica and Sarasota, Fla., and Montgomery, of Las Vegas, were involved in a scheme to illegally manipulate the stock price of a company called CO2 Tech (ticker CTTD), which traded on the Pink Sheets, an inter-dealer electronic quotation and trading system.
Evidence at trial showed that Curshen’s and Montgomery’s co-conspirators controlled the outstanding shares of CO2 Tech, which were used in the stock manipulation scheme. Montgomery and his conspirators engaged in coordinated trades in conjunction with the issuance of false and misleading press releases that were designed to artificially inflate the price of CO2 Tech shares to make it appear that it had significant business prospects. According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes, when in fact CO2 Tech never had any business or relationship with Boeing.
According to the evidence at trial, Montgomery and his co-conspirators, Robert Weidenbaum, Timothy Barham Jr., Ryan Reynolds and others fraudulently “pumped” the market price and demand for CO2 Tech stock through these press releases and coordinated trades of shares of CO2 Tech stock in order to create the appearance of legitimate buying interest by legitimate investors. The evidence showed that as Montgomery and his conspirators pumped the price of the stock, Curshen and his conspirators facilitated the “dumping” of shares through the trading desk at Red Sea and Sentry Global Securities by selling the shares at the direction of their conspirators to the general investing public. The evidence showed that these shares, which became virtually worthless, were purchased by unsuspecting investors, including investors in the Southern District of Florida. The evidence showed that Montgomery, Weidenbaum, Reynolds and Barham were paid approximately $1 million in cash by their conspirators to participate in sham stock trades of CO2 Tech. The cash was delivered to Miami via a private jet from an airport outside New York.
The evidence further showed that, from approximately 2003 through 2008, Curshen operated Red Sea as a money laundering hub in Costa Rica that established bank accounts and brokerage accounts in the United States and Canada under false pretenses and through nominee owners. The evidence further showed that Curshen and his co-conspirators laundered the proceeds of the stock fraud from accounts in the United States to an account in Canada, all in an effort to conceal and disguise the nature and source of the proceeds.
At sentencing, Curshen faces a sentence of up to five years in prison on the conspiracy to defraud count, and up to 20 years on each count of mail fraud and money laundering conspiracy. Montgomery faces a sentence of up to five years for the conspiracy to defraud count. The defendants are scheduled to be sentenced by Judge Richard W. Goldberg on May 11, 2012.
Stock promoters Weidenbaum, Barham and Reynolds, who were also charged in this case, previously pleaded guilty to conspiring to commit securities fraud, wire fraud and mail fraud. They also will be sentenced by Judge Goldberg on May 9, 2012. Michael Simon Krome, a securities attorney from New York, who participated in the conspiracy and evaded federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free trading” shares of CO2 Tech that were used to execute the stock manipulation, also pleaded guilty to conspiring to commit securities fraud, mail fraud and wire fraud.
The case was investigated by the FBI’s Washington Field Office and the USPIS. The case is being prosecuted by Trial Attorneys N. Nathan Dimock and Rina Tucker Harris of the Fraud Section in the Justice Department’s Criminal Division. The U.S. Attorney’s Office for the Southern District of Florida provided significant assistance in this case. The Department of Justice acknowledges the significant assistance of the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) in its investigation. The SEC has a pending parallel civil case. The Criminal Division’s Office of International Affairs and Costa Rican authorities also provided assistance.
Source: Financial Fraud Enforcement Task Force
Survey: Investors Doubtful About GOP Candidates
FT. LAUDERDALE, Fla. - (BUSINESS WIRE) - 11/3/2011 - Although many active investors are hopeful the end of 2011 will ultimately deliver a positive return from the stock market, they don’t appear to be banking on any of the Republican presidential candidates for long term economic recovery, according to a recent survey of approximately 240 independent investors conducted by online broker TradeKing.
When asked which of the seven GOP presidential hopefuls would be the most effective in moving the economy forward, 36 percent of respondents said “none of the above,” with the leading contenders Romney, Paul and Cain garnering percentage points in the teens. Candidate Bachman came in last with less than one percent of responses.
Overall bullishness rebounded this quarter, up to 33 percent from 15 percent in August, but still well below the high of 51 percent that was reported in January’s survey.
The in-house survey was conducted October 26-31, 2011 via email to 4,000+ TradeKing clients, with an estimated 95 percent confidence level.
Key highlights from the October 2011 survey:
Overall Market Sentiment
Thirty-three percent of investors described themselves as either “bullish” or “very bullish” over the next three months, up from 15 percent in August, but still below the April (41 percent) and January (51 percent) figures.
Twenty-two percent of investors described themselves as “bearish” or “very bearish,” down sharply from the 41 percent in August, but above the 11 percent in April and six percent in January.
The remaining 45 percent described themselves as “neutral or not sure” regarding the market’s outlook.
General optimism around the market’s 2011 performance has increased slightly, as 46 percent of investors polled said they expect the S&P to finish up 5-10 percent by the end of the year, up from 36 percent in August. However, the majority surveyed (51 percent) said the market would finish either flat or down 5-10 percent.
Economic Recovery
When asked which of the current GOP candidates for president would be most effective in moving the economy forward, 36 percent answered “none of the above.” The candidates receiving the most positive responses were Romney with 16 percent, Paul also with 16 percent and Cain with 14 percent. All other candidates garnered less than 10 percent of responses.
When asked what would be the most effective catalyst for jump-starting the U.S. economy, respondents put investments in the country’s infrastructure first (43 percent), tax cuts second (29 percent), the passing of the Jobs Bill and mortgage/foreclosure reform third (11 percent each) and more foreign trade fourth (4 percent). Twenty percent answered “other.”
Unemployment Maintains Top Spot as #1 Trade Trigger; Investors Long on Energy and Technology, Short on Finance and Retail (Still)
Among those investors surveyed, 43 percent ranked U.S. unemployment claims as their top trade trigger to watch for the next three months, followed by U.S. consumer spending at 39 percent and quarterly earnings results at 37 percent.
When asked to pick the favored sectors for the next three months from a “long” position, respondents gave energy and technology strong endorsement as the top picks at 49 and 46 percent, respectively. This quarter, respondents once again picked the finance and retail sectors as having the most potential from a “short” position.
Real Estate Investors to Admit To Rigging Bids
WASHINGTON – 10/27/2011 - Eight Northern California real estate investors have agreed to plead guilty today for their roles in two separate conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.
Charges were filed on October 27 in U.S. District Court for the Northern District of California in San Francisco against Gary Anderson of Saratoga, Calif.; Patrick Campion of San Francisco; James Doherty of Hillsborough, Calif.; Keith Goodman of San Francisco; Troy Kent of San Mateo, Calif.; Craig Lipton of San Francisco; Henry Pessah of Burlingame, Calif.; and Laith Salma of San Francisco.
According to the felony charges, the real estate investors participated in a conspiracy to rig bids by agreeing to refrain from bidding against one another at public real estate foreclosure auctions in San Francisco County and San Mateo County. Doherty, Goodman and Lipton participated in the conspiracy in San Francisco, and Anderson, Campion, Kent, Pessah and Salma participated in the conspiracy in San Mateo.
“The collusion taking place at these auctions allowed the conspirators to line their pockets with funds that otherwise would have gone to lenders and, at times, financially distressed homeowners,” said Sharis Pozen, acting assistant attorney general in charge of the Department of Justice’s Antitrust Division. “The investigation into collusion at these foreclosure auction markets is ongoing, and the Antitrust Division will continue to pursue the perpetrators of these fraudulent schemes until they are brought to justice.”
The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at San Francisco County and San Mateo County public foreclosure auctions at noncompetitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.
According to court documents, the eight real estate investors conspired with others not to bid against one another at public real estate foreclosure auctions in Northern California, participating in a conspiracy for various lengths of time between November 2008 and January 2011. The real estate investors were also charged with conspiracies to use the mail to carry out a fraudulent scheme to make payoffs to obtain title to selected real estate at fraudulently suppressed prices, to receive payoffs and to divert money to co-conspirators and away from mortgage holders and others with a legal interest in these properties.
Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. Each count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.
The charges are the latest cases filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. To date, as a result of the investigation, 18 individuals have agreed to plead guilty.
The ongoing investigation into fraud and bid rigging at certain real estate foreclosure auctions in Northern California is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400.
According to the felony charges, the real estate investors participated in a conspiracy to rig bids by agreeing to refrain from bidding against one another at public real estate foreclosure auctions in San Francisco County and San Mateo County. Doherty, Goodman and Lipton participated in the conspiracy in San Francisco, and Anderson, Campion, Kent, Pessah and Salma participated in the conspiracy in San Mateo.
“The collusion taking place at these auctions allowed the conspirators to line their pockets with funds that otherwise would have gone to lenders and, at times, financially distressed homeowners,” said Sharis Pozen, acting assistant attorney general in charge of the Department of Justice’s Antitrust Division. “The investigation into collusion at these foreclosure auction markets is ongoing, and the Antitrust Division will continue to pursue the perpetrators of these fraudulent schemes until they are brought to justice.”
The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at San Francisco County and San Mateo County public foreclosure auctions at noncompetitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.
According to court documents, the eight real estate investors conspired with others not to bid against one another at public real estate foreclosure auctions in Northern California, participating in a conspiracy for various lengths of time between November 2008 and January 2011. The real estate investors were also charged with conspiracies to use the mail to carry out a fraudulent scheme to make payoffs to obtain title to selected real estate at fraudulently suppressed prices, to receive payoffs and to divert money to co-conspirators and away from mortgage holders and others with a legal interest in these properties.
Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. Each count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.
The charges are the latest cases filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. To date, as a result of the investigation, 18 individuals have agreed to plead guilty.
The ongoing investigation into fraud and bid rigging at certain real estate foreclosure auctions in Northern California is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400.
Source: U.S. Department of Justice release
Adviser Pleads Guilty in $7 Million Ponzi Scheme
According to court documents, DeMiro was an investment adviser to various municipalities, credit unions, school districts, and trade unions through his Southfield-based companies MuniVest Financial Group and MuniVest Services LLC.
From August 2007 to September 2010, DeMiro used the MuniVest entities to operate a bank and wire fraud Ponzi scheme. DeMiro falsely promised investor clients that he would invest their funds in various certificates of deposit. He did not invest their funds as promised, but instead, used their funds to purchase personal items and real property, to gamble, to make payments to other investors in the same scheme, and to make loans to several individuals and a local jewelry store.
DeMiro stipulated that the loss caused by his fraud exceeds $7 million, and that he abused a position of trust in his fiduciary capacity as an investment adviser.
“We have seen more and more of these investment schemes, which prey upon school districts, municipalities, and unions,” McQuade said. “Our hope is that cases like this one will deter other investment advisers from stealing from these vulnerable investors.”
The case is being prosecuted by Assistant United States Attorney Erin Shaw. Joining in the announcement was Special Agent in Charge Andrew Arena, Federal Bureau of Investigation (FBI).
“Today's swindlers artfully conceal their greed with sophisticated marketing and numerous misrepresentations. Investors and pension plan participants must remain diligent in following their money,” Arena stated.
Source: U.S. Department of Justice release.
Hedge Fund Adviser Confesses to Ponzi Scheme
NEW HAVEN, Conn. – 3/16/2011 - Three men have been charged with various offenses stemming from a scheme to defraud investors and creditors of Fairfield County, Conn., hedge funds managed by one of the defendants, Francisco Illarramendi, 42, of New Canaan, Conn., announced David B. Fein, U.S. attorney for the District of Connecticut, and Kimberly K. Mertz, special agent in charge of the New Haven Division of the FBI. As a result of the scheme, the investors and creditors of Illarramendi’s funds face potential losses of hundreds of millions of dollars.
On March 7, Illarramendi waived his right to indictment and pleaded guilty before U.S. District Judge Stefan R. Underhill in Bridgeport, Conn., 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 U.S. Securities and Exchange Commission (SEC).
On March 3, 2011, special agents from the New Haven, Conn., and Miami Divisions of the FBI arrested Juan Carlos Guillen Zerpa, 43, and Juan Carlos Horna Napolitano, 40, in Florida on federal criminal complaints charging each with engaging in a conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC. Guillen is an accountant and a citizen of Venezuela, and Horna is a Venezuelan citizen living in Pembroke Pines, Fla.
According to court documents and statements made in court, Illarramendi acted as an investment adviser to certain hedge funds. Around 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 scheme to defraud and mislead his investors and creditors to prevent the truth about the losses from being discovered. As a result of this scheme, the hedge funds and related entities managed and advised by Illarramendi currently have outstanding liabilities that greatly exceed the true value of their assets.
“This investigation has revealed that Francisco Illarramendi operated a massive Ponzi scheme that has defrauded foreign investors of hundreds of millions of dollars,” Fein stated. “While the precise dollar losses will not be known for some time, based on this fast-moving investigation, we believe this case represents the largest white-collar prosecution ever brought by this office. I want to commend the FBI and the SEC for their forceful pursuit of this fraud, and for their partnership in the Connecticut Securities, Commodities and Investor Fraud Task Force, which is actively investigating this and other financial fraud schemes.”
From approximately 2006 to February 2011, Illarramendi engaged in a scheme to defraud his investors, creditors and the SEC by creating fraudulent documents, including a bogus debt instrument and a phony letter purporting to have been issued by an investment bank, as well as 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 addition, Illarramendi misled investors, creditors and the SEC about the true performance of the funds, the assets under management by the funds and the transactions being conducted by the funds and related entities.
In pleading guilty, Illarramendi admitted that he used money provided by new investors to the funds to pay out the returns he promised to earlier investors, created fraudulent and misleading documents related to the funds’ assets, made false representations to his investors and creditors in an effort to obtain new investments from them and to prevent them from seeking to liquidate their investments, improperly commingled the investments in each individual hedge fund with investments in the other hedge funds and engaged in transactions that were not in the best interests of the funds and agreed to pay kickbacks to persons connected with those transactions.
For example, on one occasion around 2008, Illarramendi created a fraudulent letter that purported to be a representation by an investment bank that assets of the funds and related entities were segregated from one another at the investment bank. Illarramendi created the letter by using the letterhead of the investment bank. Today, Illarramendi admitted that this document, which he sent from Connecticut to numerous foreign investors, was false. Also in 2008, Illarramendi sent an e-mail to a creditor attaching a bogus debt instrument, which purported to be a credit linked note issued by the same investment bank with a face value of $30 million. This document, too, was fabricated by Illarramendi.
In addition, in 2010, Illarramendi used approximately $53 million from two funds he managed and controlled by transferring the money to entities affiliated with the Michael Kenwood Group LLC (MK Group), an entity that he also controlled, without disclosing the use of this money to all of the investors.
Thereafter, in an effort to generate a sufficient return to fill the hole in the funds’ assets, Illarramendi used the approximately $53 million to invest in private equity companies. The investments were made in the name of entities affiliated with the MK Group, and not in the name of the funds.
Beginning in 2010, the SEC sought information and documentation from Illarramendi and the MK Group. As part of its enforcement authority, the SEC served a subpoena for records upon, among others, MK Group. In December 2010 and January 2011, the SEC conducted an enforcement-directed review of MK Group and related entities as part of its official enforcement investigation. On Jan. 14, 2011, the SEC filed a civil action (SEC v. Illarramendi, et al., 3:11-CV-00078), seeking, among other things, to enjoin Illarramendi and entities related to MK Group from violating the federal securities laws and to submit an accounting of investor funds. Subsequent to the filing of the SEC civil action, U.S. District Judge Janet Bond Arterton appointed, and sought input from, business advisers and a receiver to ascertain the assets and liabilities of the hedge funds affiliated with MK Group, among other tasks.
In connection with the SEC investigation, Illarramendi, Guillen and Horna allegedly conspired to obstruct the SEC and the filed court action. As set forth in court documents, with the assistance of Guillen and Horna, Illarramendi gave the SEC a fictitious asset verification letter. That document represented that STLF had at least $275 million in credits as a result of outstanding loans to various companies. Illarramendi has admitted that this representation was false: STLF had not made those loans and was not owed that money.
Illarramendi has admitted that he agreed to pay Guillen and Horna more than $3 million for fabricating the letter and creating false support for the $275 million in loans. It is alleged that on Jan. 24, 2011, $1 million was wired from a Swiss bank account to an account allegedly associated with Horna. Court documents reveal consensual recorded telephone calls and other communications in which Guillen and Horna allegedly agree to create documentation so that the companies that purportedly owe the money would support the story if contacted by the SEC. Further, it is alleged that, in January 2010, Guillen personally spoke to the SEC, told them that he had been asked to verify the existence of the loan portfolio, and reported that he had spoken to all of the companies and had begun receiving confirmation from them. In pleading guilty, Illarramendi admitted that he and others conspired to obstruct the SEC investigation and civil court proceedings by creating and fraudulently attempting to substantiate a list of fictitious assets.
When he is sentenced, Illarramendi faces a maximum term of 70 years in prison, fines, restitution for the full amount of the losses suffered by investors and creditors and forfeiture of assets. A sentencing date has not been scheduled.
Guillen and Horna are each charged with one count of conspiracy and one count of obstruction of an official proceeding. They are both detained. If convicted of the charges in the criminal complaint, Guillen and Horna each faces a maximum term of 25 years in prison.
U.S. Attorney Fein stressed that a complaint is only a charge and is not evidence of guilt. Charges are only allegations, and each defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.
This matter is being investigated by the FBI with the assistance of the SEC, Boston Regional Office.
This case is being prosecuted by Senior Litigation Counsel Richard J. Schechter and Assistant U.S. Attorney Paul A. Murphy.
U.S. Attorney Fein also acknowledged the substantial assistance provided by the U.S. Attorney’s Office for the Southern District of Florida.
In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The Task Force includes representatives from the U.S. Attorney’s Office; FBI; Internal Revenue Service – Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; SEC; U.S. Commodity Futures Trading Commission; Office of the Special Inspector General for the Troubled Asset Relief Program; Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich, Conn., Police Department and Stamford, Conn., Police Department.
Citizens are encouraged to report any financial fraud schemes by calling the FBI toll free, 855-236-9740, or by sending an email to ctsecuritiesfraud@ic.fbi.gov.
Source: U.S. Department of Justice release
On March 7, Illarramendi waived his right to indictment and pleaded guilty before U.S. District Judge Stefan R. Underhill in Bridgeport, Conn., 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 U.S. Securities and Exchange Commission (SEC).
On March 3, 2011, special agents from the New Haven, Conn., and Miami Divisions of the FBI arrested Juan Carlos Guillen Zerpa, 43, and Juan Carlos Horna Napolitano, 40, in Florida on federal criminal complaints charging each with engaging in a conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC. Guillen is an accountant and a citizen of Venezuela, and Horna is a Venezuelan citizen living in Pembroke Pines, Fla.
According to court documents and statements made in court, Illarramendi acted as an investment adviser to certain hedge funds. Around 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 scheme to defraud and mislead his investors and creditors to prevent the truth about the losses from being discovered. As a result of this scheme, the hedge funds and related entities managed and advised by Illarramendi currently have outstanding liabilities that greatly exceed the true value of their assets.
“This investigation has revealed that Francisco Illarramendi operated a massive Ponzi scheme that has defrauded foreign investors of hundreds of millions of dollars,” Fein stated. “While the precise dollar losses will not be known for some time, based on this fast-moving investigation, we believe this case represents the largest white-collar prosecution ever brought by this office. I want to commend the FBI and the SEC for their forceful pursuit of this fraud, and for their partnership in the Connecticut Securities, Commodities and Investor Fraud Task Force, which is actively investigating this and other financial fraud schemes.”
From approximately 2006 to February 2011, Illarramendi engaged in a scheme to defraud his investors, creditors and the SEC by creating fraudulent documents, including a bogus debt instrument and a phony letter purporting to have been issued by an investment bank, as well as 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 addition, Illarramendi misled investors, creditors and the SEC about the true performance of the funds, the assets under management by the funds and the transactions being conducted by the funds and related entities.
In pleading guilty, Illarramendi admitted that he used money provided by new investors to the funds to pay out the returns he promised to earlier investors, created fraudulent and misleading documents related to the funds’ assets, made false representations to his investors and creditors in an effort to obtain new investments from them and to prevent them from seeking to liquidate their investments, improperly commingled the investments in each individual hedge fund with investments in the other hedge funds and engaged in transactions that were not in the best interests of the funds and agreed to pay kickbacks to persons connected with those transactions.
For example, on one occasion around 2008, Illarramendi created a fraudulent letter that purported to be a representation by an investment bank that assets of the funds and related entities were segregated from one another at the investment bank. Illarramendi created the letter by using the letterhead of the investment bank. Today, Illarramendi admitted that this document, which he sent from Connecticut to numerous foreign investors, was false. Also in 2008, Illarramendi sent an e-mail to a creditor attaching a bogus debt instrument, which purported to be a credit linked note issued by the same investment bank with a face value of $30 million. This document, too, was fabricated by Illarramendi.
In addition, in 2010, Illarramendi used approximately $53 million from two funds he managed and controlled by transferring the money to entities affiliated with the Michael Kenwood Group LLC (MK Group), an entity that he also controlled, without disclosing the use of this money to all of the investors.
Thereafter, in an effort to generate a sufficient return to fill the hole in the funds’ assets, Illarramendi used the approximately $53 million to invest in private equity companies. The investments were made in the name of entities affiliated with the MK Group, and not in the name of the funds.
Beginning in 2010, the SEC sought information and documentation from Illarramendi and the MK Group. As part of its enforcement authority, the SEC served a subpoena for records upon, among others, MK Group. In December 2010 and January 2011, the SEC conducted an enforcement-directed review of MK Group and related entities as part of its official enforcement investigation. On Jan. 14, 2011, the SEC filed a civil action (SEC v. Illarramendi, et al., 3:11-CV-00078), seeking, among other things, to enjoin Illarramendi and entities related to MK Group from violating the federal securities laws and to submit an accounting of investor funds. Subsequent to the filing of the SEC civil action, U.S. District Judge Janet Bond Arterton appointed, and sought input from, business advisers and a receiver to ascertain the assets and liabilities of the hedge funds affiliated with MK Group, among other tasks.
In connection with the SEC investigation, Illarramendi, Guillen and Horna allegedly conspired to obstruct the SEC and the filed court action. As set forth in court documents, with the assistance of Guillen and Horna, Illarramendi gave the SEC a fictitious asset verification letter. That document represented that STLF had at least $275 million in credits as a result of outstanding loans to various companies. Illarramendi has admitted that this representation was false: STLF had not made those loans and was not owed that money.
Illarramendi has admitted that he agreed to pay Guillen and Horna more than $3 million for fabricating the letter and creating false support for the $275 million in loans. It is alleged that on Jan. 24, 2011, $1 million was wired from a Swiss bank account to an account allegedly associated with Horna. Court documents reveal consensual recorded telephone calls and other communications in which Guillen and Horna allegedly agree to create documentation so that the companies that purportedly owe the money would support the story if contacted by the SEC. Further, it is alleged that, in January 2010, Guillen personally spoke to the SEC, told them that he had been asked to verify the existence of the loan portfolio, and reported that he had spoken to all of the companies and had begun receiving confirmation from them. In pleading guilty, Illarramendi admitted that he and others conspired to obstruct the SEC investigation and civil court proceedings by creating and fraudulently attempting to substantiate a list of fictitious assets.
When he is sentenced, Illarramendi faces a maximum term of 70 years in prison, fines, restitution for the full amount of the losses suffered by investors and creditors and forfeiture of assets. A sentencing date has not been scheduled.
Guillen and Horna are each charged with one count of conspiracy and one count of obstruction of an official proceeding. They are both detained. If convicted of the charges in the criminal complaint, Guillen and Horna each faces a maximum term of 25 years in prison.
U.S. Attorney Fein stressed that a complaint is only a charge and is not evidence of guilt. Charges are only allegations, and each defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.
This matter is being investigated by the FBI with the assistance of the SEC, Boston Regional Office.
This case is being prosecuted by Senior Litigation Counsel Richard J. Schechter and Assistant U.S. Attorney Paul A. Murphy.
U.S. Attorney Fein also acknowledged the substantial assistance provided by the U.S. Attorney’s Office for the Southern District of Florida.
In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The Task Force includes representatives from the U.S. Attorney’s Office; FBI; Internal Revenue Service – Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; SEC; U.S. Commodity Futures Trading Commission; Office of the Special Inspector General for the Troubled Asset Relief Program; Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich, Conn., Police Department and Stamford, Conn., Police Department.
Citizens are encouraged to report any financial fraud schemes by calling the FBI toll free, 855-236-9740, or by sending an email to ctsecuritiesfraud@ic.fbi.gov.
Source: U.S. Department of Justice release
