CEO PLEADS GUILTY TO CONSPIRACY TO BRIBE STOCK BROKERS

FROM: U.S. DEPARTMENT OF JUSTICE

Friday, January 11, 2013

Axius Ceo Roland Kaufmann Pleads Guilty to Conspiracy to Pay Bribes in Stock Sales


WASHINGTON – Roland Kaufmann, CEO of Axius Inc., pleaded guilty in Brooklyn for conspiring to bribe stock brokers, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney for the Eastern District of New York Loretta E. Lynch.

Kaufmann, 60, a Swiss citizen, pleaded guilty before U.S. District Judge John Gleeson in the Eastern District of New York to one count of conspiracy to violate the Travel Act.

"Roland Kaufmann conspired to bribe stock brokers and fleece investors in Axius stock," said Assistant Attorney General Breuer. "He took the crooked path, and now faces the prospect of years in prison. Although he committed his crimes from outside the United States, U.S. authorities tracked him down and he has now been held to account. This case shows our determination to prosecute all those who seek to corrupt U.S. securities markets."

"Roland Kaufman sought to game the system with his scheme to bribe stockholders to help him artificially raise the price of his company’s stock," said U.S. Attorney Lynch. "He reached across the ocean to insert his deception into U.S. markets, thereby placing investors at risk. We will continue to bring our resources to bear against anyone who would harm the integrity of United States capital markets for their own personal financial gain, even when those who try to exploit our investors are hatching their schemes from abroad."

"The flagrant market manipulation engaged in by Kaufmann was designed to make him rich," said George Venizelos, Assistant Director in Charge, FBI New York Field Office. "Absent the undercover agent, the scheme also would have made honest investors much poorer. The FBI is committed to policing the securities industry to prevent unjust enrichment for cheaters, victimization of honest investors, and the undermining of public confidence in market integrity."

"This case demonstrates the value of a coordinated approach by law enforcement authorities," said Richard Weber, Chief, Internal Revenue Service (IRS) Criminal Investigation. "As a result of the collaborative effort in this investigation, investors were protected from further financial harm. IRS Criminal Investigation is always ready to lend its financial investigative expertise to the investigation of complex and sophisticated financial crimes."

Kaufmann admitted to conspiring with co-defendant Jean-Pierre Neuhaus, another Swiss citizen, to violate the Travel Act by bribing stock brokers. Axius, which refers to itself as a "holding company and business incubator" that develops other businesses, is incorporated in Nevada, and its principal offices are in Dubai, United Arab Emirates. As part of the scheme, Kaufmann and Neuhaus, while located overseas, enlisted the assistance of an individual they believed had access to a group of corrupt stock brokers; this individual was in fact an undercover law enforcement agent. Kaufmann and Neuhaus believed that the undercover agent controlled a network of stockbrokers in the United States with discretionary authority to trade stocks on behalf of their clients.

According to court documents, Kaufmann and Neuhaus instructed the undercover agent to direct brokers to purchase Axius shares that were owned or controlled by Kaufmann in return for a secret kickback of approximately 26 to 28 percent of the sale price. Kaufmann and Neuhaus instructed the undercover agent as to the price the brokers should pay for the stock, and Kaufmann specifically instructed the undercover agent, in Neuhaus’s presence, that the brokers would have to pay gradually higher prices for the shares they were buying. Kaufmann and Neuhaus directed the undercover agent that the brokers were to refrain from selling the Axius shares they purchased on behalf of their clients for a one-year period. By preventing sales of Axius stock, Kaufmann and Neuhaus intended to maintain the fraudulently inflated share price for Axius stock. Kaufmann and Neuhaus agreed to sell approximately $3.5 million to $5 million worth of Axius shares through the undercover agent’s stock brokers.

Kaufmann and Neuhaus were arrested on March 8, 2012. On Oct. 10, 2012, Neuhaus pleaded guilty to conspiracy to commit securities fraud and violate the Travel Act.

At sentencing, scheduled for May 17, 2013, Kaufmann faces a maximum penalty of five years in prison. As part of his plea agreement, Kaufmann agreed to forfeit $298,740 that victims lost as a result of the crime.

This case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Ilene Jaroslaw of the Eastern District of New York. The case was investigated by the FBI New York Field Office and the IRS New York Field Office. The department also thanks the Securities and Exchange Commission for its assistance in this matter.

FORMER CFO TBW PLEADS GUILTY TO FRAUD

The following excerpt is from the Department of Justice website:
Tuesday, March 20, 2012
WASHINGTON – Delton de Armas, a former chief financial officer (CFO) of Taylor, Bean & Whitaker Mortgage Corp. (TBW), pleaded guilty today to making false statements and conspiring to commit bank and wire fraud for his role in a more than $2.9 billion fraud scheme that contributed to the failures of TBW and Colonial Bank.

 The guilty plea was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Christy Romero, Deputy Special Inspector General, Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; David A. Montoya, Inspector General of the Department of Housing and Urban Development (HUD-OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA-OIG); and Rick A. Raven, Acting Chief of the Internal Revenue Service Criminal Investigation (IRS-CI).

De Armas, 41, of Carrollton, Texas, pleaded guilty before U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.  De Armas faces a maximum penalty of 10 years in prison when he is sentenced on June 15, 2012.

“As TBW’s chief financial officer, Mr. de Armas concealed a massive $1.5 billion deficit in TBW’s funding facility and another large deficit on TBW’s books,” said Assistant Attorney General Breuer.  “He tried to conceal the gaping holes by falsifying financial statements and lying to investors as well as the government.  Ultimately, Mr. de Armas’ criminal conduct, along with that of his co-conspirators, contributed to the collapse of TBW and Colonial Bank.  With today’s guilty plea, Mr. de Armas joins seven other defendants – including the former chairman of TBW Lee Bentley Farkas – who have been convicted of participating in this massive fraudulent scheme.”

“When Mr. de Armas learned of a hole in Ocala Funding’s assets, he used his position as CFO to cover it up and mislead investors,” said U.S. Attorney MacBride.  “Today’s plea is the eighth conviction in one of the nation’s largest bank frauds in history.  As CFO, Mr. de Armas could have put a stop to the fraud the moment he discovered it.  Instead, the hole in Ocala Funding grew to $1.5 billion on his watch, and as it grew, so did his lies to investors and the government.”

According to court documents, de Armas joined TBW in 2000 as its CFO and reported directly to its chairman, Lee Bentley Farkas, and later to its CEO, Paul Allen.  He admitted in court that from 2005 through August 2009, he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a wholly-owned lending facility called Ocala Funding.  Ocala Funding obtained funds for mortgage lending for TBW from the sale of asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas. The facility was managed by TBW and had no employees of its own.

According to court records, shortly after Ocala Funding was established, de Armas learned there were inadequate assets backing its commercial paper, a deficiency referred to internally at TBW as a “hole” in Ocala Funding.  De Armas knew that the hole grew over time to more than $700 million.  He learned from the CEO that the hole was more than $1.5 billion at the time of TBW’s collapse.  De Armas admitted he was aware that, in an effort to cover up the hole and mislead investors, a subordinate who reported to him had falsified Ocala Funding collateral reports and periodically sent the falsified reports to financial institution investors in Ocala Funding and to other third parties.  De Armas acknowledged that he and the CEO also deceived investors by providing them with a false explanation for the hole in Ocala Funding.

De Armas also admitted in court that he directed a subordinate to inflate an account receivable balance for loan participations in TBW’s financial statements.  De Armas acknowledged that he knew that the falsified financial statements were subsequently provided to Ginnie Mae and Freddie Mac for their determination on the renewal of TBW’s authority to sell and service securities issued by them.

In addition, de Armas admitted in court to aiding and abetting false statements in a letter the CEO sent to the U.S. Department of Housing and Urban Development, through Ginnie Mae, regarding TBW’s audited financial statements for the fiscal year ending on March 31, 2009.  De Armas reviewed and edited the letter, knowing it contained material omissions.  The letter omitted that the delay in submitting the financial data was caused by concerns its independent auditor had raised about the financing relationship between TBW and Colonial Bank and its request that TBW retain a law firm to conduct an internal investigation.  Instead, the letter falsely attributed the delay to a new acquisition and TBW’s switch to a compressed 11-month fiscal year.

“With our nation in a housing crisis, de Armas, as chief financial officer of TBW, one of the country’s largest mortgage lenders, papered over a gaping hole in the balance sheet of TBW subsidiary Ocala Funding and lied to regulators and investors to cover it up,” said Deputy Special Inspector General Romero for SIGTARP.  “The fraud provided cover to others at TBW to misappropriate more than $1 billion in Ocala funds and sell fraudulent, worthless securities to conspirators at Colonial BancGroup.  SIGTARP and its law enforcement partners stopped $553 million in TARP funds from being lost to this fraud and brought accountability and justice that the American taxpayers deserve.”
“Mr. de Armas has admitted that, during his tenure at TBW, he purposefully misled investors in a massive scheme to defraud financial institutions,” said FBI Assistant Director in Charge McJunkin.  “The actions of Mr. de Armas and his co-conspirators contributed to the financial crisis and led to the collapse of one of the country’s largest commercial banks.  The FBI and our partners remain vigilant in investigating such fraudulent activity in our banking and mortgage industries.”

“The guilty plea of Mr. de Armas is one small measure in our continued efforts to restore the trust and confidence of the general public and of investors in our financial system,” said HUD Inspector General Montoya.  “In response to the many recent articles of mortgage fraud and misconduct, the mortgage industry needs to do much to rethink their values and their idea of client service in order to help rebuild a stronger economy and to restore the confidence of American homeowners.”

“The Federal Deposit Insurance Corporation Office of Inspector General is pleased to have played a role in bringing to justice yet another senior official in a position of trust who was involved in one of the biggest and most complex bank fraud schemes of our time,” said FDIC Inspector General Rymer.  “The former chief financial officer of Taylor, Bean & Whitaker is the latest participant who will be held accountable for seeking to undermine the integrity of the financial services industry.  Even as the financial and economic crisis seems to be easing, we reaffirm our commitment to ensuring that those contributing to the failures of financial institutions and corresponding losses to the Deposit Insurance Fund will be punished to the fullest extent of the law.”
“Mr. de Armas and his colleagues committed an egregious crime,” said FHFA Inspector General Linick.  “FHFA-OIG is proud to be part of the team that continues to protect American taxpayers.”

In April 2011, a jury in the Eastern District of Virginia found Lee Bentley Farkas, the chairman of TBW, guilty of 14 counts of conspiracy, bank, securities and wire fraud.  On June 30, 2011, Judge Brinkema sentenced Farkas to 30 years in prison.  In addition, six individuals have pleaded guilty for their roles in the fraud scheme, including: Paul Allen, former chief executive officer of TBW, who was sentenced to 40 months in prison; Raymond Bowman, former president of TBW, who was sentenced to 30 months in prison; Desiree Brown, former treasurer of TBW, who was sentenced to six years in prison; Catherine Kissick, former senior vice president of Colonial Bank and head of its Mortgage Warehouse Lending Division (MWLD), who was sentenced to eight years in prison; Teresa Kelly, former operations supervisor for Colonial Bank’s MWLD, who was sentenced to three months in prison; and Sean Ragland, a former senior financial analyst at TBW, who was sentenced to three months in prison.

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia.  This case was investigated by SIGTARP, FBI’s Washington Field Office, FDIC-OIG, HUD-OIG, FHFA-OIG and IRS-CI.  The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury also provided support in the investigation.  The Department would also like to acknowledge the substantial assistance of the U.S. Securities and Exchange Commission in the investigation of the fraud scheme.