NY RESIDENT AND COMPANY CHARGED BY CFTC WITH MAKING FALSE STATEMENTS TO NFA

FROM:  U.S. COMMODITIES FUTURES TRADING COMMISSION 

CFTC Charges New York Resident Gary Creagh and his Company, Wall Street Pirate Management, LLC, with Making False Statements to the National Futures Association

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an enforcement action charging Defendants Gary Creagh and Wall Street Pirate Management, LLC (Wall Street Pirate), both of New York, New York, with making false, fictitious, or fraudulent statements or omissions to the National Futures Association (NFA) in statutorily required reports and during an NFA audit, in violation of the Commodity Exchange Act (CEA). Both Wall Street Pirate and Creagh, the managing member and sole employee of Wall Street Pirate, were registered with the CFTC at the time of the conduct.

The CFTC Complaint, filed on August 5, 2015, in the U.S. District Court for the Southern District of New York, charges that, from at least December 2011 through September 2013, Creagh willfully made false statements or representations to the NFA and concealed material information from the NFA. Specifically, Creagh falsely represented to the NFA on multiple occasions that the commodity pool he operated on behalf of Wall Street Pirate was not active, despite the fact that he had accepted funds from prospective pool participants and actively traded commodity futures on behalf of the commodity pool, according to the Complaint. The CFTC Complaint also charges that Wall Street Pirate, by and through Creagh, failed to maintain required books and records and provide account statements and privacy notices to pool participants.

The NFA is a Chicago-based futures association, which is registered with the CFTC and serves as an industry self-regulatory organization. Pursuant to the CEA, the NFA is responsible, under CFTC oversight, for certain aspects of the regulation of futures entities and their associated persons.

In its continuing litigation against the Defendants, the CFTC seeks disgorgement of ill-gotten gains, restitution to defrauded customers, a civil monetary penalty, permanent trading and registration bans, and a permanent injunction against further violations of the federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Jonah E. McCarthy, Timothy J. Mulreany, Patricia Gomersall, and Paul G. Hayeck.

The CFTC would like to thank the NFA for its cooperation in this matter.

CFTC REVOKES REGISTRATIONS OF CONVICTED FRAUDSTER AND COMPANY

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Revokes Registrations of Oregon Resident Joshua W. Wallace and His Company, System Capital, LLC

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the revocation of the registrations of Joshua W. Wallace, a resident of Oregon, and his Oregon-based company, System Capital, LLC (System Capital). System Capital was registered with the CFTC as a Commodity Trading Advisor and Wallace was registered as an Associated Person of System Capital. Wallace is the sole principal and president of System Capital.

The CFTC filed a civil Complaint against Defendants Wallace and System Capital on November 23, 2010, charging them with solicitation fraud and making false statements to the National Futures Association (NFA) (see CFTC Press Release 5940-10). Subsequently, on March 14, 2013, the U.S. District Court for the Southern District of New York entered an Order of permanent injunction against the Defendants that imposes permanent trading and registration bans against them and prohibits them from violating the Commodity Exchange Act, as charged. The court’s Order also required Wallace and System Capital each to pay a $420,000 civil monetary penalty.

On December 23, 2013, the CFTC Judgment Officer issued a Decision against Wallace and System Capital, finding that they were statutorily disqualified from CFTC registration based on both the Order of permanent injunction and on the criminal conviction of Wallace on May 21, 2013, in which Wallace pleaded guilty to commodities fraud and was sentenced to serve 27 months in prison (U.S. v. Wallace, 11 crim 124-01 (LTS) (S.D.N.Y.)). The Judgment Officer’s Decision became a final Order of the CFTC on January 22, 2014.

The CFTC thanks the NFA, the Federal Bureau of Investigation, and the U.S. Attorney’s Office for the Southern District of New York for their assistance.

CFTC Division of Enforcement staff members responsible for this case are Mark A. Picard, Elizabeth C. Brennan, Philip Rix, Steven Ringer, Lenel Hickson, and Manal M. Sultan.

SEC CHARGES GOLD STANDARD MINING CORP. AND OTHERS FOR FALSE AND MISLEADING STATEMENTS

FROM:  U.S. SECURITES AND EXCHANGE COMMISSION
July 3, 2012
On June 29, 2012, the Securities and Exchange Commission filed a civil action in the United States District Court for the Central District of California against Gold Standard Mining Corp. (“Gold Standard”), its Chief Executive Officer/Chief Financial Officer Panteleimon Zachos, attorney Kenneth G. Eade, auditor E. Randall Gruber and his firm Gruber & Company LLC.

In its complaint, the Commission alleges that, between May 2009 and April 2011, Gold Standard filed numerous reports about its purported Russian gold mining operations that were materially false and misleading in various respects. According to the complaint, Gold Standard represented that it had acquired a Russian gold mining company known as Ross Zoloto Co., Ltd. (“Ross Zoloto”), but did not inform investors that it had agreed to allow the prior owner of Ross Zoloto to keep profits from existing operations or of issues surrounding Russian government registration or approval of the business combination. The complaint also alleges that Gold Standard filed false or misleading financial statements.

The complaint alleges that Gold Standard and Zachos were responsible for these misstatements, and that Eade, Gruber and Gruber & Co. substantially assisted Gold Standard in making these false and misleading statements. The complaint further alleges that Gruber & Co., through its sole member Edward Randall Gruber, misrepresented in an audit opinion that it had audited the company’s 2007, 2008 and 2009 consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board.

Without admitting or denying the allegations in the Commission’s complaint, Gold Standard and Zachos consented to final judgments pursuant to which Gold Standard will be enjoined from violating Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rules 10b-5, 12b-20, 13a-11 and 13a-13 thereunder, and Zachos will be enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. Zachos will also be barred from serving as an officer or director of a public company. The judgments are subject to court approval.

The complaint alleges that Eade and Gruber aided and abetted Gold Standard’s violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; Gruber & Co. violated Sections 10(b) and 10A(a) of the Exchange Act and Rule 10b-5(b) thereunder, and aided and abetted the violations of Gold Standard of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; and Gruber violated Section 10A(a) of the Exchange Act and aided and abetted the violations of Gruber & Co. of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder or, in the alternative, in liable as a control person of Gruber & Co. LLC with respect to those violations pursuant to Section 20(a) of the Exchange Act. The Commission seeks permanent injunctions, disgorgement, prejudgment interest and civil penalties against Eade, Gruber and Gruber & Co. and seeks to bar Eade from serving as an officer or director of a public company.

MORTGAGE COMPANY CFO GETS 60 MONTHS IN PRISON FOR PAR TIN $2.9 BILLION FRAUD

FROM:  U.S. DEPARTMENT OF JUSTICE
Friday, June 15, 2012
Former Chief Financial Officer of Taylor, Bean & Whitaker Sentenced to 60 Months in Prison for Fraud Scheme
WASHINGTON – Delton de Armas, a former chief financial officer (CFO) of Taylor, Bean & Whitaker Mortgage Corp. (TBW), was sentenced today to 60 months in prison for his role in a more than $2.9 billion fraud scheme that contributed to the failure of TBW
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De Armas was sentenced today by U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.  The sentence 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, 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 Richard Weber, Chief of the Internal Revenue Service Criminal Investigation (IRS-CI).

De Armas, 41, of Carrollton, Texas, pleaded guilty in March to one count of conspiracy to commit bank and wire fraud and one count of making false statements.

“For years, Mr. de Armas, the CFO of one of the country’s largest private mortgage companies, helped defraud financial institutions by concealing from them billions of dollars in losses,” said Assistant Attorney General Breuer.  “His lies and deceits contributed to the devastating losses suffered by major institutional investors.  As a consequence for his crimes, he will now spend the next five years of his life behind bars.”

“As CFO, Mr. de Armas could have – and should have – put a stop to the massive fraud at TBW the moment he discovered it,” said U.S. Attorney MacBride. “Instead, he and others lied for years on end to investors, banks, regulators and auditors and caused more than $2.4 billion in losses to major financial institutions.”

“Rather than blow the whistle on billions of dollars in fraud, de Armas chose to help conceal it,” said Special Inspector General Romero.  “This CFO lied to investors, banks, regulators and auditors to cover up the massive fraud scheme which resulted in the failure of both TBW and Colonial Bank.  The court’s decision to sentence de Armas to five years in prison reflects the seriousness of his role as a gatekeeper within TBW and the contribution of his crime to our nation’s financial crisis.”

“The actions of Mr. De Armas and others resulted in the loss of billions of dollars to major financial institutions,” said Assistant Director in Charge McJunkin.  “Today’s sentence serves as a warning to anyone who attempts to take advantage of investors and our banking system.  Together with our law enforcement partners, the FBI will pursue justice for anyone involved in such fraudulent schemes.”

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 previously 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 previously 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.

“We are pleased to have joined our law enforcement colleagues in bringing Mr. de Armas to justice,” said Inspector General Rymer.  “The former Chief Financial Officer’s actions contributed to one of the largest bank frauds in the country and led to the demise of TBW.  His punishment, along with the earlier sentencings of other co-conspirators involved in the Colonial Bank and TBW scheme, sends a clear message that those who abuse their positions of trust and seek to undermine the integrity of the financial services industry will be held accountable.  We will continue to pursue such cases in the interest of ensuring the safety and soundness of our Nation’s banks and the strength of the financial services industry as a whole.”

“Delton de Armas was a key player in the TBW fraud; the significant sentence of 60 months handed down today appropriately takes that role into account,” said Inspector General Linick.

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 the IRS Criminal Investigation.  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 SEC in the investigation of the fraud scheme.

This prosecution was brought in coordination with 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.