WALL STREET FIRM CHARGED WITH NOT MONITORING SUSPICIOUS ACTIVITY

FROM:  U.S. JUSTICE DEPARTMENT 

Brokerage Firm Charged With Anti-Money Laundering Failures

FOR IMMEDIATE RELEASE

2016-102

Washington D.C., June 1, 2016 — The Securities and Exchange Commission today charged a Wall Street-based brokerage firm with failing to sufficiently evaluate or monitor customers’ trading for suspicious activity as required under the federal securities laws.

An SEC investigation found that Albert Fried & Company failed to file Suspicious Activity Reports (SARs) with bank regulators for more than five years despite red flags tied to its customers’ high-volume liquidations of low-priced securities.  On more than one occasion, an AF&Co customer’s trading in a security on a given day exceeded 80 percent of the overall market volume.  In other instances, customers were trading in stocks issued by companies that were delinquent in their regulatory filings or involved in questionable penny stock promotional campaigns.  Certain customers also were the subject of grand jury subpoenas received by AF&Co.

AF&Co agreed to pay a $300,000 penalty to settle the charges.

“Albert Fried & Company ignored numerous instances when customer trading activity should have triggered the firm to file SARs.  Brokerage firms must take their anti-money laundering responsibilities seriously so they can serve as a line of defense against misconduct and market risks,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.

The SEC’s order finds that AF&Co violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8.  AF&Co agreed to be censured and pay the $300,000 penalty without admitting or denying the findings in the order, which credits the firm for its cooperation and the remedial measures already undertaken.

While the SEC has charged other firms with anti-money laundering failures under the federal securities laws, this is the first case against a firm solely for failing to file SARs when appropriate.

The case stemmed from the work of the Enforcement Division’s Broker-Dealer Task Force, led by Associate Director Antonia Chion and New York Regional Office Director Andrew M. Calamari.  The task force focuses on current issues and practices within the broker-dealer community and develops national initiatives for potential investigations.

The SEC’s investigation was conducted by Matt Reilly and supervised by Melissa Hodgman with assistance from Eric Kringel, Daniel Goldberg, Damon Reed, and Andrae Eccles of the Enforcement Division’s Bank Secrecy Act Review Group.

MAN WHO RAN OFFSHORE BROKERAGE SENTENCED FOR ROLE IN INTERNATIONAL STOCK FRAUD

FROM:  U.S. JUSTICE DEPARTMENT 

Friday, March 18, 2016

Former Head of Offshore Brokerage Sentenced to 18 Years for Conspiracy to Commit International Stock Fraud and Money Laundering

A California man was sentenced to 216 months in prison today for two counts of conspiracy to commit wire fraud and one count of conspiracy to commit international money laundering in connection with an international “pump and dump” scheme involving stocks traded on the over-the-counter (OTC) market.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia and Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office made the announcement.

Harold Bailey Gallison II, 58, of Valley Center, California, pleaded guilty on Dec. 10, 2015, and was sentenced by U.S. District Judge Anthony J. Trenga of the Eastern District of Virginia, who also ordered Gallison to pay $1,724,770 in restitution.  Gallison was charged in an indictment unsealed on July 14, 2015, along with eight other individuals for their roles in complex international stock manipulation and money laundering schemes.

In his guilty plea, Gallison admitted that he conspired to artificially “pump” or inflate the trading volume and price of the shares of Warrior Girl Corp., quoted on the OTC market under the ticker symbol WRGL, and Everock Inc., quoted on the OTC market under the ticker symbol EVRN, by touting business activities and deceptive revenue forecasts and by engaging in coordinated trading activity to create the appearance of increasing market demand.  Gallison also admitted that he and others then “dumped” or sold the shares at the inflated prices and laundered proceeds through bank accounts in the United States and overseas.  Gallison facilitated the schemes through an offshore brokerage and money laundering platform that went by various names, including Sandias Azucaradas, Moneyline Brokers and Trinity Asset Services (collectively Moneyline), he admitted.  According to the plea, through Moneyline, Gallison created nominee accounts in the names of shell companies to conceal both the true source and ownership of the securities and the flow of funds.  In addition, Gallison pleaded guilty to one count of conspiring to launder the proceeds of a number of securities fraud schemes, including Warrior Girl and Everock, totaling more than $25 million.

The FBI’s Washington Field Office is investigating the case.  Senior Trial Attorney N. Nathan Dimock and Trial Attorney Michael O’Neill of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Kosta S. Stojilkovic of the Eastern District of Virginia are prosecuting the case.  The Securities and Exchange Commission, the Financial Industry Regulatory Authority and the Criminal Division’s Office of International Affairs also provided significant assistance.

FORMER OFFSHORE BROKERAGE HEAD PLEADS GUILTY TO CHARGES STEMMING FROM INTERNATIONAL PUMP AND DUMP SCHEME

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, December 10, 2015

Former Head of Offshore Brokerage Pleads Guilty to Conspiracy to Commit International Stock Fraud and Money Laundering Scams

A California man pleaded guilty today to two counts of conspiracy to commit wire fraud and one count of conspiracy to commit international money laundering in connection with an international “pump and dump” scheme involving stocks traded on the over-the-counter (OTC) market.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia and Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office made the announcement.

Harold Bailey Gallison II, 58, of Valley Center, California, was charged in an indictment unsealed on July 14, 2015, along with eight other individuals for their roles in complex, international stock manipulation and money laundering schemes.

In entering his guilty plea, Gallison admitted that he conspired to artificially “pump” or inflate the trading volume and price of the shares of Warrior Girl Corp., quoted on the OTC market under the ticker symbol WRGL, and Everock Inc., quoted on the OTC market under the ticker symbol EVRN, by touting business activities and deceptive revenue forecasts and by engaging in coordinated trading activity to create the appearance of increasing market demand.  Gallison admitted that he and others then “dumped” or sold the shares at the inflated prices and laundered proceeds through bank accounts in the United States and overseas.  Gallison further admitted that he facilitated the schemes through an offshore brokerage and money laundering platform that went by various names, including Sandias Azucaradas, Moneyline Brokers and Trinity Asset Services (collectively Moneyline).  Through Moneyline, Gallison created nominee accounts in the names of shell companies to conceal both the true source and ownership of the securities and the flow of funds.  In addition, Gallison pleaded guilty to one count of conspiring to launder the proceeds of a number of securities fraud schemes, including Warrior Girl and Everock, totaling more than $25 million.

Several of Gallison’s co-defendants are scheduled to proceed to trial on Jan. 25, 2016, and are presumed innocent until and unless proven guilty.  Gallison is scheduled to be sentenced on March 18, 2016.

The FBI’s Washington Field Office is investigating the case.  Senior Trial Attorney N. Nathan Dimock and Trial Attorney Michael O’Neill of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Kosta Stojilkovic of the Eastern District of Virginia are prosecuting the case.  Assistant U.S. Attorneys James P. Gillis and G. Zachary Terwilliger of the Eastern District of Virginia assisted in the prosecution.  The Securities and Exchange Commission, the Financial Industry Regulatory Authority and the Criminal Division’s Office of International Affairs also provided significant assistance.

MAN INDICTED IN $20 MILLION PROMISSORY NOTE FRAUD CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Joseph Paul Zada Indicted for Fraud

The Securities and Exchange Commission announced today that on September 4, 2013, a Grand Jury sitting in the United States District Court for the Southern District of Florida returned an Indictment charging Joseph Paul Zada with 21 counts of mail fraud, two counts of wire fraud, two counts of money laundering, and two counts of interstate transportation of stolen property. The Indictment also seeks forfeiture of properties obtained as a result of the alleged criminal violations.

The Indictment alleges that from at least January 1998 through August 2009, Zada caused over twenty investors to invest over $20 million based on materially false statements and omissions. According to the Indictment, Zada attracted investors by projecting an image of great wealth, portraying himself as a successful businessman and investor with connections to Saudi Arabian oil ventures. He also hosted extravagant parties, drove expensive luxury vehicles, and maintained expensive homes in Wellington, Florida and Grosse Pointe, Michigan. The investors sent money to Zada with the understanding that he would use the funds to invest in various oil ventures on their behalf. The investors usually received promissory notes reflecting the principal amount of their investment. Zada deposited investors' funds into bank accounts he controlled. Instead of investing the funds in oil ventures, Zada used the money to support his lavish lifestyle and to make purported returns on investments to prior investors.

The Indictment's allegations are based on the same conduct underlying the Commission's November 10, 2010 Complaint against Zada in the United States District Court for the Eastern District of Michigan. The Commission charged Zada with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. On July 31, 2013, the Court granted the Commission's motion for summary judgment against Zada, finding that Zada had violated the provisions alleged by the Commission in its Complaint. The Court set a hearing for October 9, 2013 on the Commission's claims for disgorgement and civil penalties against Zada.

BRIBERY OF VENEZUELAN DEVELOPMENT BANK OFFICIAL LEADS TO THREE GUILTY PLEAS IN U.S.

FROM:  U.S. JUSTICE DEPARTMENT
Friday, August 30, 2013
Three Former Broker-dealer Employees Plead Guilty in Manhattan Federal Court to Bribery of Foreign Officials, Money Laundering and Conspiracy to Obstruct Justice

Three employees of a New York-based U.S. broker-dealer have pleaded guilty for their roles in bribery schemes involving two state economic development banks in Venezuela.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge George Venizelos of the New York Office of the FBI made the announcement.

Ernesto Lujan, Jose Alejandro Hurtado and Tomas Alberto Clarke Bethancourt pleaded guilty in New York federal court to conspiring to violate the Foreign Corrupt Practices Act (FCPA), to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.  These charges relate to a scheme to bribe a foreign official named Maria de los Angeles Gonzalez de Hernandez at Banco de Desarrollo Económico y Social de Venezuela (BANDES), a state economic development bank in Venezuela, in exchange for receiving trading business from BANDES.  Lujan, Hurtado and Clarke each also pleaded guilty to an additional charge of conspiring to violate the FCPA in connection with a similar scheme to bribe a foreign official employed by Banfoandes (the “Banfoandes Foreign Official”), another state economic development bank in Venezuela, and to conspiring to obstruct an examination by the U.S. Securities and Exchange Commission (SEC) of the New York-based broker-dealer (the “Broker-Dealer”) where all three defendants had worked, to conceal the true facts of the Broker-Dealer’s relationship with BANDES.

Lujan, 50, and Clarke, 43, entered their guilty pleas yesterday before U.S. Magistrate Judge James C. Francis IV, and Hurtado, 38, pleaded guilty today, also before Judge Francis. The men each pleaded guilty to the same six offenses and face a maximum penalty of five years in prison on each count except money laundering, which carries a maximum penalty of 20 years in prison.  Sentencing for Lujan and Clarke is scheduled for Feb. 11, 2014, before U.S. District Judge Paul G. Gardephe.  Hurtado is scheduled for sentencing before U.S. District Judge Harold Baer Jr. on March 6, 2014.

According to the informations filed against Lujan, Hurtado and Clarke this week, the criminal complaints previously filed, and statements made during the plea proceedings, Lujan, Clarke and Hurtado worked or were associated with the Broker-Dealer, principally through its Miami offices.  In 2008, the Broker-Dealer established a group called the Global Markets Group, which included Lujan, Clarke and Hurtado, and which offered fixed income trading services to institutional clients.

One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance.  The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding.  Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity.  At her direction, BANDES conducted substantial trading through the Broker-Dealer.  Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed-income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.

The Broker-Dealer also conducted business with Banfoandes, another state development bank in Venezuela that, along with its 2009 successor Banco Bicentenario, operated under the direction of the Venezuelan Ministry of Finance.  Banfoandes acted as a financial agent of the Venezuelan government in order to promote economic and social development by, among other things, offering credit to low-income Venezuelans.  The Banfoandes Foreign Official was responsible for some of Banfoandes’s foreign investments.

Court records state that from early 2009 through 2012, Lujan, Clarke and Hurtado participated in a bribery scheme in which Gonzalez allegedly directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer split the revenue the Broker-Dealer generated from this trading business with Gonzalez.  During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES.  Agents and employees of the Broker-Dealer, including Lujan, Clarke and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.  Emails, account records and other documents collected from the Broker-Dealer and other sources reveal that Gonzalez allegedly received a substantial share of the revenue generated by the Broker-Dealer for BANDES-related trades.  Specifically, Gonzalez allegedly received kickbacks and payments from Broker-Dealer agents and employees that were frequently in six-figure amounts.

To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places.  For instance, Lujan, Clarke and Hurtado used accounts they controlled in Switzerland to transfer funds to an account Gonzalez allegedly controlled in Switzerland.  Additionally, Hurtado and his spouse received substantial compensation from the Broker-Dealer, portions of which Hurtado transferred to an account allegedly held by Gonzalez in Miami and to an account held by an associate of Gonzalez in Switzerland.  Hurtado also sought and allegedly received reimbursement from Gonzalez for the U.S. income taxes he had paid on money that he used to make kickback payments to Gonzalez.  Lujan and Clarke also derived substantial profit from their roles in the bribery scheme.
   
According to court records, beginning in or about November 2010, the SEC commenced a periodic examination of the Broker-Dealer, and from November 2010 through March 2011 the SEC’s examination staff made several visits to the Broker-Dealer’s offices in Manhattan.  In early 2011, Lujan, Clarke and Hurtado discussed their concern that the SEC was examining the Broker-Dealer’s relationship with BANDES and asking questions regarding certain emails and other information that the SEC examination staff had discovered.  Lujan, Clarke and Hurtado agreed that they would take steps to conceal the true facts of the Broker-Dealer’s relationship with BANDES, including deleting emails.  Lujan, Clarke and Hurtado then, in fact, deleted emails.  Additionally as part of this effort to obstruct the SEC examination, Clarke lied to SEC examination staff in response to an interview question about his relationship to an individual who had received purported foreign associate payments relating to BANDES.

In a related scheme, from 2008 through mid-2009, Lujan, Clarke and Hurtado paid bribes to the Banfoandes Foreign Official, who, in exchange, directed Banfoandes trading business to the Broker-Dealer.

Gonzalez was charged in a criminal complaint and arrested on May 3, 2013, in connection with the BANDES bribery scheme.  The charges against Gonzalez are merely accusations, and she is presumed innocent unless and until proven guilty.

This ongoing investigation is being conducted by the FBI, with assistance from the SEC and the Justice Department’s Office of International Affairs.

Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Harry A. Chernoff and Jason H. Cowley of the Southern District of New York’s Securities and Commodities Fraud Task Force are in charge of the prosecution.  Assistant U.S. Attorney Carolina Fornos is responsible for the forfeiture aspects of the case.

INVESTMENT FRAUDSTER GETS 20 YEARS IN PRISON

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Minneapolis-Based Fraudster Patrick Joseph Kiley Sentenced to 20 Years in Priso
The Securities and Exchange Commission announced that on July 15, 2013, the Honorable Chief Judge Michael J. Davis of the United States District Court for the District of Minnesota sentenced Patrick J. Kiley to 20 years in prison and ordered him to pay $155 million in restitution.  The sentence was based on Kiley’s conviction on 15 criminal counts including mail and wire fraud, conspiracy to commit mail and wire fraud, and money laundering for his role in a $194 million foreign currency trading scheme that defrauded approximately 1,000 investors.  Kiley was charged on July 19, 2011, and a jury found him guilty on June 12, 2012.

Kiley is one of the defendants in a pending civil injunctive action filed by the Commission on November 23, 2009 in the United States District Court for the District of Minnesota.  The Commission’s action against Kiley arose out of the same facts that are the subject of the criminal case against him.

The Commission’s complaint alleges that from at least July 2006 through at least July 2009, Kiley and co-defendant Trevor G. Cook of Minneapolis, Minnesota, raised at least $190 million (later determined to be $194 million) from 1,000 investors through the unregistered offer and sale of investments in a purported foreign currency trading venture.  According to the Commission’s complaint, Cook and Kiley pooled investors’ funds in bank and trading accounts in the names of entities they controlled.  The Commission’s complaint alleges that the foreign currency trading they conducted resulted in millions of dollars in losses, and they misused approximately one half of the investor funds to make Ponzi-like payments to earlier investors and pay for, among other things, Cook's gambling losses and the purchase of the historic Van Dusen Mansion in Minneapolis.

The Commission’s complaint charges Cook and Kiley with violating Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  On November 23, 2009, the Court entered a preliminary injunction order against Cook and Kiley and froze all of their assets.  On March 7, 2011, the Commission also filed a civil complaint in the U.S. District Court in Minneapolis against Jason Bo-Alan Beckman and his registered investment advisory firm Oxford Private Client Group, LLC, for their roles in this scheme.  On August 27, 2010, the Court entered an order of permanent injunction against Cook.  The Court also appointed a receiver to marshal and preserve all of the Defendants’ assets

MULTIMILLION DOLLAR PONZI FRAUDSTER GETS 33 YEARS IN PRISON

FROM:  SECURITIES AND EXCHANGE COMMISSION 

April 11, 2012

Robert Stinson, Jr. Sentenced to 33 Years in Prison and Ordered to Pay $14 Million in Restitution for Orchestrating Multimillion Dollar Ponzi SchemeThe Securities and Exchange Commission announced that on April 10, 2012, Robert Stinson, Jr., of Berwyn, Pennsylvania, was sentenced in a parallel criminal action for orchestrating a Ponzi scheme that defrauded at least 263 investors of more than $17 million. Judge Michael M. Baylson of the United States District Court for the Eastern District of Pennsylvania sentenced Stinson to 33 years in federal prison, followed by three years of supervised release, and ordered him to pay more than $14 million in restitution. On August 15, 2011, Stinson pleaded guilty to five counts of wire fraud, four counts of mail fraud, nine counts of money laundering, one count of bank fraud, three counts of filing false tax returns, two counts of obstruction of justice, and two counts of making false statements to federal agents.

On June 29, 2010, the Commission filed a civil injunctive action against Stinson and related persons and entities based on the same conduct, and sought and obtained a Temporary Restraining Order and Order Freezing Assets and the appointment of a receiver. According to the Commission’s complaint, from 2004 through June 2010, Stinson, primarily through Life’s Good, Inc. and Keystone State Capital Corporation, two companies he controlled, sold purported “units” in four Life’s Good private real estate hedge funds. Stinson falsely claimed that the Life’s Good funds generated annual returns of 10 to 16 percent by originating more than $30 million in commercial mortgage loans, and other investment income gained on the sale of foreclosure and investment properties. The Commission’s complaint alleges that Stinson stole investor funds for his personal use, transferred money to family members and others, and used new investor proceeds to pay existing investors as part of a Ponzi scheme. On June 20, 2011, the United States District Court entered partial summary judgment against Stinson and his co-defendants, finding violations of the federal securities laws and ordering permanent injunctive relief. The court deferred the determination of the amount of disgorgement and prejudgment interest, as well as the imposition of any civil penalties.