DOJ ANNOUNCES INDICTMENTS IN ALLEGED LIBOR INTEREST RATE MARKET MANIPULATION CASE

FROM:  U.S. JUSTICE DEPARTMENT 

THURSDAY, OCTOBER 16, 2014

TWO FORMER RABOBANK TRADERS INDICTED FOR ALLEGED

MANIPULATION OF U.S. DOLLAR, YEN LIBOR INTEREST RATES

Six Individuals Now Charged in Rabobank LIBOR Investigation

WASHINGTON — Two former Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) derivative traders – including the bank’s former Global Head of Liquidity & Finance in London – have been charged in a superseding indictment for their alleged roles in a scheme to manipulate the U.S. Dollar (USD) and Yen London InterBank Offered Rate (LIBOR), a benchmark interest rate to which trillions of dollars in interest rate contracts were tied, the Justice Department announced today.  Six former Rabobank employees have now been charged in the Rabobank LIBOR investigation.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.

Earlier today, a federal grand jury in the Southern District of New York returned a superseding indictment charging Anthony Allen, 43, of Hertsfordshire, England; and Anthony Conti, 45, of Essex, England, with conspiracy to commit wire fraud and bank fraud and with substantive counts of wire fraud for their participation in a scheme to manipulate the USD and Yen LIBOR rate in a manner that benefitted their own or Rabobank’s  financial positions in derivatives that were linked to those benchmarks.

The indictment also charges Tetsuya Motomura, 42, of Tokyo, Japan, and Paul Thompson, 48, of Dalkeith, Australia, who were charged in a prior indictment with Paul Robson, a former Rabobank LIBOR submitter.  In addition to adding as defendants Allen and Conti, the superseding indictment alleges a broader conspiracy to manipulate both the USD LIBOR and the Yen LIBOR.

Robson and Takayuki Yagami, a former Rabobank derivatives trader, each pleaded guilty earlier this year to one count of conspiracy in connection with their roles in the scheme.

“Today, we have charged two more members of the financial industry with influencing Dollar LIBOR and Yen LIBOR to gain an illegal advantage in the market, unfairly benefitting their own trading positions in financial derivatives,” said Assistant Attorney General Caldwell.  “LIBOR is a key benchmark interest rate that is relied upon to be free of bias and self-dealing, but the conduct of these traders was as galling as it was greedy.  Today’s charges are just the latest installment in the Justice Department’s industry-wide investigation of financial institutions and individuals who manipulated global financial rates.”

“With today’s charges against Messrs. Allen and Conti, we continue to reinforce our message to the financial community that we will not allow the individuals who perpetrate these crimes to hide behind corporate walls,” said Deputy Assistant Attorney General Snyder.  “This superseding indictment, with its charges against Mr. Allen, makes an especially strong statement to managers in financial institutions who devise schemes to undermine fair and open markets but leave the implementation – and often the blame – with their subordinates.”

“With today’s indictments the FBI’s investigation into Rabobank’s manipulation of LIBOR benchmark rates expands in scope to include the U.S. Dollar,” said Assistant Director in Charge McCabe. “I would like to thank the special agents, forensic accountants, and analysts, as well as the prosecutors who have worked to identify and stop those who hide behind complex corporate and securities fraud schemes.”

According to the superseding indictment, at the time relevant to the charges, LIBOR was an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believed they would be charged if borrowing from other banks.   LIBOR was published by the British Bankers’ Association (BBA), a trade association based in London.  LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The published LIBOR “fix” for U.S. Dollar and Yen currency for a specific maturity was the result of a calculation based upon submissions from a panel of 16 banks, including Rabobank.

LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.

Rabobank entered into a deferred prosecution agreement with the Department of Justice on Oct. 29, 2013, and agreed to pay a $325 million penalty to resolve violations arising from Rabobank’s LIBOR submissions.

According to allegations in the superseding indictment, Allen, who was Rabobank’s Global Head of Liquidity & Finance and the manager of the company’s money market desk in London, put in place a system in which Rabobank employees who traded in derivative products linked to USD and Yen LIBOR regularly communicated their trading positions to Rabobank’s LIBOR submitters, who submitted Rabobank’s LIBOR contributions to the BBA.  Motomura, Thompson, Yagami and other traders entered into derivative contracts containing USD or Yen LIBOR as a price component and they asked Conti, Robson, Allen and others to submit LIBOR contributions consistent with the traders’ or the bank’s financial interests, to benefit the traders’ or the banks’ trading positions.  Conti, who was based in London and Utrecht, Netherlands, served as Rabobank’s primary USD LIBOR submitter and at times acted as Rabobank’s back-up Yen LIBOR submitter.  Robson, who was based in London, served as Rabobank’s primary submitter of Yen LIBOR.  Allen, in addition to supervising the desk in London and money market trading worldwide, occasionally acted as Rabobank’s backup USD and Yen LIBOR submitter.  Allen also served on a BBA Steering Committee that provided the BBA with advice on the calculation of LIBOR as well as recommendations concerning which financial institutions should sit on the LIBOR contributor panel.

The charges in the superseding indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The investigation is being conducted by special agents, forensic accountants and intelligence analysts in the FBI’s Washington Field Office.  The prosecution is being handled by Senior Litigation Counsel Carol L. Sipperly and Trial Attorney Brian R. Young of the Criminal Division’s Fraud Section and Trial Attorney Michael T. Koenig of the Antitrust Division.  The Criminal Division’s Office of International Affairs has provided assistance in this matter.

The Justice Department expresses its appreciation for the assistance provided by various enforcement agencies in the United States and abroad.  The Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the department and, along with the U.K. Financial Conduct Authority, has played a major role in the LIBOR investigation.  The Securities and Exchange Commission also has played a significant role in the LIBOR series of investigations, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation. The department has worked closely with the Dutch Public Prosecution Service and the Dutch Central Bank in the investigation of Rabobank.  Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance.

This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes.  For more information about the task force visit: www.stopfraud.com.

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SEC CHARGES ONLINE STOCK RECOMMENDATION BUSINESS OWNER WITH FRAUD

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged the operator of an online stock recommendation business with conducting several fraudulent securities offerings and siphoning some of the money raised from investors for a Caribbean vacation and plastic surgery.

An SEC investigation found that Anthony Coronati, who lives on Staten Island, initially held himself out as an investment adviser to a hedge fund that he claimed would invest in equity securities.  But the hedge fund was fictitious and Coronati used investor money for other purposes.  When the money began drying up, he went on to defraud investors in additional schemes involving his New Jersey-based company Bidtoask LLC.  Coronati and Bidtoask sold membership interests in the company for the purpose of investing in promising technology companies that had yet to hold initial public offerings (IPOs).  Investors were told that Bidtoask would invest directly in pre-IPO Facebook shares without charging any fees, commissions, or markups to investors.  However, Bidtoask’s Facebook-related investments actually did require the payment of significant fees that Coronati and Bidtoask concealed from investors.  Bidtoask did not even own the shares of other technology companies in which it was supposedly investing, and these companies were not actually in the process of an IPO.
Coronati and Bidtoask have agreed to settle the SEC’s charges.  Coronati must pay back $400,000 in funds stolen from investors, and the money will be deposited into a Fair Fund for distribution to victims of the fraud schemes.  Coronati also agreed to be permanently barred from the securities industry.

“Coronati and Bidtoask blatantly lied in order to lure investors into fraudulent schemes, and Coronati then misappropriated large sums of money entrusted to him,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “The Fair Fund will help put money back in investors’ pockets.”

Coronati, who operates the website BidToAsk.com that offers stock recommendations to subscribers, was the subject of a subpoena enforcement action filed by the SEC late last year when he failed to produce documents or appear for scheduled testimony during the SEC’s investigation.  As a result of his continued failure to comply with SEC subpoenas in spite of a court order, Coronati was held in contempt of court and arrested earlier this year.
“Despite Coronati’s repeated attempts to defy SEC subpoenas and impede our work, the SEC investigative staff doggedly pursued the case and gathered the necessary evidence to bring this enforcement action that makes it possible to return stolen funds back to investors,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.

According to the SEC’s order instituting a settled administrative proceeding, Coronati conducted his schemes from at least 2009 to 2013.  As the various schemes unraveled, he faced increasing concerns from investors.  Coronati placated certain investors by making Ponzi-like payments to them using other investors’ money, and he sent a phony account statement to at least one investor purporting a position in the fake hedge fund that was worth more than $120,000.  The account statement also purported that the fictitious hedge fund was more than 80 percent invested in well-known public companies such as Apple.  Meanwhile, Coronati used investor funds to pay business expenses and such personal expenses as the Caribbean vacation and plastic surgery, and he also used investor money to purchase securities in a personal brokerage account he held in his own name.

The SEC’s order finds that Coronati and Bidtoask violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Coronati additionally violated Sections 206(1), 206(2), 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Without admitting or denying the findings, Coronati and Bidtoask consented to the SEC’s order requiring them to cease and desist from further violations of those provisions of the securities laws and SEC rules.  Information about the Fair Fund will be available at: www.sec.gov/litigation/fairfundlist.htm

The SEC’s investigation was conducted by Jess Velona, Kenneth Byrne, and Thomas Feretic.  The litigation related to the subpoena enforcement action against Coronati was led by Preethi Krishnamurthy.  The case was supervised by Mr. Wadhwa and Sharon Binger.

SEC OBTAINS JUDGEMENT AGAINST DEFENDANTS IN SECURITIES FRAUD CASE

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23114 / October 15, 2014

Securities and Exchange Commission v. Stephen D. Ferrone, et al., Civil Action No. 1:11-cv-05223, USDC, N.D.Ill.

SEC Obtains Summary Judgment Against Defendants in Securities Fraud Involving Biopharmaceutical Company

The Securities and Exchange Commission announced that on October 10, 2014, the Honorable Elaine E. Bucklo of the United States District Court for the Northern District of Illinois granted the SEC's motion for summary judgment and for partial summary judgment, respectively, against Defendants Douglas McClain, Sr. ("McClain Sr."), of Fair Oaks, Texas, and Douglas McClain Jr. ("McClain Jr."), formerly of Savannah, Georgia. The Court found that McClain Sr. violated the antifraud provisions of the federal securities laws by making misrepresentations and omissions and that McClain Sr. and McClain Jr. engaged in insider trading.

The SEC filed this action against the defendants in August 2011, alleging that McClain Sr., McClain Jr., Immunosyn Corporation ("Immunosyn") Argyll Biotechnologies, LLC ("Argyll"), Stephen D. Ferrone, and James T. Miceli ("Miceli") committed securities fraud in connection with materially misleading statements during 2006-2010 regarding the status of regulatory approvals for Immunosyn's sole product, a drug derived from goat blood referred to as "SF-1019." The SEC also charged Argyll, McClain, Jr., McClain, Sr., Miceli, Argyll Equities, LLC ("Argyll Equities"), and Padmore Holdings, Ltd. with insider trading.

The SEC's complaint, filed in federal court in Chicago, alleged, among other things, that the defendants misleadingly stated in public filings with the SEC and in oral presentations that Argyll, Immunosyn's controlling shareholder, planned to commence the regulatory approval process for human clinical trials for SF-1019 in the U.S. or that regulatory approval was underway. The complaint alleges that these statements misled investors because the statements omitted to disclose that the U.S. Food and Drug Administration ("FDA") had already twice issued clinical holds on drug applications for SF-1019, which prohibited clinical trials involving SF-1019 from occurring.

After completion of discovery, the SEC moved for summary judgment, and for partial summary judgment, respectively, against McClain Sr. and McClain Jr. In granting the SEC's motion for summary judgment, the Court found that McClain Sr. committed securities fraud by taking money from investors and failing to deliver Immunosyn shares and by telling investors that Immunosyn would secure approval for SF-1019 from the FDA in about a year and that the U.S. Department of Defense had purchased SF-1019. The Court also found that McClain Sr. and McClain Jr. engaged in insider trading by selling their Immunosyn stock based on the material, non-public information that the FDA had issued clinical holds on drug applications for SF-1019. The Court found that McClain Sr. and McClain Jr. violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5.

The Court will determine the appropriate remedies against McClain Sr. and McClain Jr. at a later date.

FACT SHEET: Safeguarding Consumers’ Financial Security | The White House

FACT SHEET: Safeguarding Consumers’ Financial Security | The White House

SEC ANNOUNCES JURY FINDS FORMER CHAIRMAN FAILED START-UP, LIABLE FOR SECURITIES FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23112 / October 15, 2014

Securities and Exchange Commission v. iShopNoMarkup.com, Inc., et al., Civil Action No. 04-CV-4057 (E.D.N.Y.)

Jury Finds Anthony M. Knight, Former Chairman of a Failed Internet Startup, Liable for Securities Fraud and Illegal Sale of Unregistered Securities

On Tuesday, October 14, 2014, a jury in federal court in Central Islip, New York returned a verdict in favor of the U.S. Securities and Exchange Commission. The jury found the former Chairman of failed Long Island-based internet startup, iShopNoMarkup.com, Inc., liable for securities fraud and illegally selling unregistered securities. The defendant, Anthony M. Knight co-founded iShop, and was formerly the Chairman of iShop's Board of Directors. He also served at various times as iShop's Secretary and Chief Executive Officer. The Commission had charged that from the fall of 1999 until the summer of 2000, iShop, Knight and others conducted a fraudulent securities offering scheme that defrauded over 350 investors who invested approximately $2.3 million. iShop also failed to file any registration statement with the Commission as to the securities sold.

United States District Judge Denis R. Hurley, who presided over the trial, will determine the remedies and sanctions to be imposed against the defendant. The Commission is seeking a judgment requiring the defendant to pay disgorgement of ill-gotten gains plus prejudgment interest, as well as civil monetary penalties, an injunction, and an officer and director bar.

Anthony Knight, age 48, was at the time of the conduct a resident of Great Neck, New York, and is currently a resident of San Diego, California.

The Commission charged that from the fall of 1999 until the summer of 2000, iShop conducted a fraudulent and unregistered securities offering. iShop distributed offering memoranda and other documents to investors that misrepresented, and failed to disclose, material information concerning iShop's business operations. Knight and others also made oral misrepresentations to investors to persuade them to invest in iShop stock. Knight also supervised Scott W. Brockop, iShop's former Vice President of Sales and Marketing, who oversaw an operation at iShop through which employees cold-called potential investors, and made material misrepresentations to induce them to purchase iShop stock. Through the offering, iShop sold nearly 6.75 million shares of stock to over 350 investors, and obtained proceeds of approximately $2.3 million. iShop did not file a registration statement for the sale of these securities, and there was no registration statement otherwise in effect.

The Commission also charged iShop, Brockop, and Moussa Yeroushalmi a/k/a Mike Yeroush, iShop's former President. On October 26, 2006, the District Court entered a final judgment by default against Brockop, and on February 15, 2007, a Commission administrative law judge entered an order by default against Brockop barring him from association with any broker or dealer. On January 21, 2011, the District Court entered a final judgment by consent against Yeroush. On April 30, 2014, the District Court entered a final judgment by consent against iShop, leaving Knight as the sole remaining defendant in the litigation.

The jury found that defendant Knight violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Judge Hurley will make the determination as to the final relief that should be imposed against the defendant. The Commission seeks an order permanently enjoining the defendant from violations of the above provisions of the federal securities laws, requiring disgorgement of ill-gotten gains, plus prejudgment interest thereon, and imposing civil penalties pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act. The Commission also seeks an order barring the defendant from acting as an officer or director of a public company under Section 21(d)(2) of the Exchange Act.

FORMER WELLS FARGO EMPLOYEE ACCUSED BY SEC OF ALTERING A DOCUMENT

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced an enforcement action against a former Wells Fargo Advisors compliance officer who allegedly altered a document before it was provided to the SEC during an investigation.

According to the SEC’s order instituting an administrative proceeding against Judy K. Wolf, she was responsible for identifying potentially suspicious trading by Wells Fargo personnel or the firm’s customers and clients and then analyzing whether the trades may have been based on material nonpublic information.  Wolf created a document in September 2010 to summarize her review of a particular Wells Fargo broker’s trading, and she closed her review with no findings.  The SEC Enforcement Division alleges that Wolf altered that document in December 2012 after the SEC charged the broker with insider trading.  By altering the document, Wolf made it appear that she performed a more thorough review in 2010 than she actually had.  After Wells Fargo provided the document to the SEC as part of its continuing investigation, SEC enforcement staff spotted the alteration and questioned Wolf specifically about the document.  At first she unequivocally denied altering the document after September 2010, but in later testimony she testified that she had done so.

The SEC previously charged Wells Fargo in the case, and the firm agreed to pay $5 million to settle these and other violations of the securities laws.  Prior to the enforcement action, Wells Fargo placed Wolf on administrative leave and ultimately terminated her employment.

“We allege that Wolf intentionally altered a trading review document after she knew that the SEC had charged a Wells Fargo employee with insider trading based on facts related to her review,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Regardless of her motivation, her conduct was inconsistent with what the SEC expects of compliance professionals and what the law requires.”

The SEC Enforcement Division alleges that Wolf, who lives in St. Louis, willfully aided and abetted and caused Wells Fargo to violate Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4(j) as well as Rule 204(a) under the Investment Advisers Act of 1940.  

The SEC Enforcement Division’s investigation was conducted by Megan Bergstrom and David S. Brown of the Market Abuse Unit.  The case was supervised by Mr. Hawke, Robert A. Cohen, and Diana Tani.  The litigation will be led by Donald Searles.