BANK EMPLOYEE PLEADS GUILTY TO CONSPIRACY

The following case was taken from the Department of Justice web site:

“WASHINGTON —A former bank employee pleaded guilty today for his participation in a conspiracy related to contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.
According to charges filed today in U.S. District Court in New York City, Brian Scott Zwerner, a resident of Atlanta, engaged in a conspiracy to falsify bank records related to the marketing profits for a type of contract, known as an investment agreement, and other municipal finance contracts, including derivative contracts. Public entities throughout the United States, such as state, county and local governments and agencies, invested the proceeds of bonds issued in these contracts. According to the plea agreement, Zwerner has agreed to cooperate with the department’s ongoing investigation.
“Today’s guilty plea demonstrates the Antitrust Division’s commitment to vigorously pursue and prosecute crimes in the financial services industry that harm competition,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.
According to the court document, the Charlotte, N.C.-based bank that employed Zwerner was a provider of investment agreements and other municipal finance contracts to public entities. Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issued, to raise money for, among other things, public projects. Public entities typically hire a broker to conduct a competitive bidding process for the award of the investment agreements. Competitive bidding for these agreements is the subject of regulations issued by the Department of the Treasury and is related to the tax-exempt status of the bonds.
The department said in the court document that Zwerner was the manager of the Municipal Derivatives Trading Desk at the bank. According to the court document, Zwerner engaged in the conspiracy from at least as early as January 1999 until approximately May 2002. Among other objectives, Zwerner and co-conspirators falsified bank records related to marketing profits so that the bank could pay kickbacks to brokers, including Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, a Beverly Hills, Calif.-based financial products and services firm. Specifically, Zwerner understated the marketing profits on trade tickets for certain investment agreements or other municipal finance contracts so that money could be held back and accumulated in an off-the-books account in order to pay the kickbacks. According to the court document, trade tickets are reports that record the essential terms of investment agreements. The department said that the kickbacks were in exchange for brokers, including CDR, manipulating the competitive bidding process so that the bank would be the winning bidder for certain investment agreements and other municipal finance contracts.
The false bank records conspiracy for which Zwerner is charged carries a maximum penalty of five years in prison and a $250,000 fine. The maximum fine for this offense may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
This is the ninth guilty plea to arise from an ongoing investigation into the municipal bonds industry, which is being conducted by the Antitrust Division’s New York and Cleveland Field Offices, the FBI and Internal Revenue Service-Criminal Investigation. The department is coordinating its investigation with the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.
Three former employees of CDR have pleaded guilty to bid-rigging and fraud conspiracies in relation to the ongoing investigation. Five other individuals have pleaded guilty to charges related to the ongoing investigation. In October 2009, CDR, two of its employees and one former employee were charged for participating in bid-rigging and fraud conspiracies and related crimes. The CDR trial is scheduled to begin on Jan. 9, 2012. In addition, six other former executives at financial service companies or financial institutions have been indicted as a result of this investigation and are awaiting trial.
Today’s guilty plea 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.”

There is an ongoing investigation in this case so maybe someone important might get some jail time eventually.

BANK EMPLOYEE PLEADS GUILTY TO CONSPIRACY IN MUNICPAL BOND AND OTHER ASSEST TRADING

The following case is an excerpt fromt he Department of Justice U.S. web site:

"WASHINGTON —A former bank employee pleaded guilty today for his participation in a conspiracy related to contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.
According to charges filed today in U.S. District Court in New York City, Brian Scott Zwerner, a resident of Atlanta, engaged in a conspiracy to falsify bank records related to the marketing profits for a type of contract, known as an investment agreement, and other municipal finance contracts, including derivative contracts. Public entities throughout the United States, such as state, county and local governments and agencies, invested the proceeds of bonds issued in these contracts. According to the plea agreement, Zwerner has agreed to cooperate with the department’s ongoing investigation.
“Today’s guilty plea demonstrates the Antitrust Division’s commitment to vigorously pursue and prosecute crimes in the financial services industry that harm competition,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.
According to the court document, the Charlotte, N.C.-based bank that employed Zwerner was a provider of investment agreements and other municipal finance contracts to public entities. Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issued, to raise money for, among other things, public projects. Public entities typically hire a broker to conduct a competitive bidding process for the award of the investment agreements. Competitive bidding for these agreements is the subject of regulations issued by the Department of the Treasury and is related to the tax-exempt status of the bonds.
The department said in the court document that Zwerner was the manager of the Municipal Derivatives Trading Desk at the bank. According to the court document, Zwerner engaged in the conspiracy from at least as early as January 1999 until approximately May 2002. Among other objectives, Zwerner and co-conspirators falsified bank records related to marketing profits so that the bank could pay kickbacks to brokers, including Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, a Beverly Hills, Calif.-based financial products and services firm. Specifically, Zwerner understated the marketing profits on trade tickets for certain investment agreements or other municipal finance contracts so that money could be held back and accumulated in an off-the-books account in order to pay the kickbacks. According to the court document, trade tickets are reports that record the essential terms of investment agreements. The department said that the kickbacks were in exchange for brokers, including CDR, manipulating the competitive bidding process so that the bank would be the winning bidder for certain investment agreements and other municipal finance contracts.
The false bank records conspiracy for which Zwerner is charged carries a maximum penalty of five years in prison and a $250,000 fine. The maximum fine for this offense may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
This is the ninth guilty plea to arise from an ongoing investigation into the municipal bonds industry, which is being conducted by the Antitrust Division’s New York and Cleveland Field Offices, the FBI and Internal Revenue Service-Criminal Investigation. The department is coordinating its investigation with the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.
Three former employees of CDR have pleaded guilty to bid-rigging and fraud conspiracies in relation to the ongoing investigation. Five other individuals have pleaded guilty to charges related to the ongoing investigation. In October 2009, CDR, two of its employees and one former employee were charged for participating in bid-rigging and fraud conspiracies and related crimes. The CDR trial is scheduled to begin on Jan. 9, 2012. In addition, six other former executives at financial service companies or financial institutions have been indicted as a result of this investigation and are awaiting trial.
Today’s guilty plea 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."

SEC CHARGES RAE SYSTEMS INC WITH BRIBING CHINESE OFFICIALS

The following is an excerpt from the SEC web site:

The SEC “charged San Jose-based RAE Systems Inc. with violations of the Foreign Corrupt Practices Act (FCPA) for making improper payments through two of its Chinese joint venture entities to Chinese officials in order to obtain significant government contracts for their gas and chemical detection products.

The SEC alleges that the $400,000 in improper payments resulted in contracts worth approximately $3 million in revenue and garnered more than $1.1 million in illicit profits.
RAE agreed to pay approximately $1.25 million to settle the SEC's charges. In a related criminal case, the U.S. Department of Justice announced today that RAE agreed to pay an additional $1.7 million criminal fine.
"RAE Systems develops products to detect harmful emissions, yet it did not have adequate measures in place to detect and root out internal wrongdoing," said Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit. "Companies that fail to respond to red flags can be held liable for the acts of their joint venture partners."
According to the SEC's complaint filed in U.S. District Court for the District of Columbia, the payments — which occurred from 2004 to 2008 — were made primarily by the direct sales force utilized by RAE at the two joint venture entities: RAE-KLH (Beijing) Co., Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co., Ltd. (RAE-Fushun).
The SEC alleges that RAE-KLH and RAE-Fushun sales personnel typically made the illicit payments by obtaining cash advances from accounting personnel, and that RAE did not impose sufficient internal controls or make any meaningful changes to sales personnel practices. Expenses associated with these payments were improperly recorded on the books of RAE-KLH and RAE-Fushun as "business fees" or "travel and entertainment" expenses. Moreover, while the payments were made exclusively in China and by Chinese employees of RAE-KLH and RAE-Fushun, RAE failed to act on red flags indicating this activity, which allowed, at least in part, the misconduct to continue at RAE-KLH.
The SEC's complaint charges RAE with violations of the anti-bribery, books and records, and internal controls provisions of the FCPA. Without admitting or denying the allegations, RAE consented to the entry of a permanent injunction against FCPA violations and agreed to pay $1,147,800 in disgorgement and $109,212 in prejudgment interest. RAE also agreed to comply with certain undertakings regarding its FCPA compliance program. The settlement is subject to court approval.
Ricky Sachar and C. Joshua Felker conducted the SEC's investigation. The Commission acknowledges the assistance of the Department of Justice's Criminal Division-Fraud Section.”

SEC CHARGES EXECUTIVES WITH FLEECING SENIORS

In the following case the SEC alleges that three executives schemed to fleece elderly investors. Take a look at the details of this case in the case below excerpted from the SEC web site:

“Washington, D.C., March 16, 2011 – The Securities and Exchange Commission today charged three senior executives at Akron, Ohio-based Fair Finance Company with orchestrating a $230 million fraudulent scheme involving at least 5,200 investors – many of them elderly.
The SEC alleges that after purchasing Fair Finance Company, chief executive officer Timothy S. Durham, chairman James F. Cochran, and chief financial officer Rick D. Snow deceived investors while selling them interest-bearing certificates. Fair Finance had previously operated for decades as a privately-held consumer finance company. But under the guise of loans, Durham and Cochran schemed to divert investor proceeds to themselves and others as well as struggling and unprofitable entities that they controlled. Durham and Cochran further misused investor funds to buy classic cars and other luxury items to enhance their own lavish lifestyles.

In a parallel criminal proceeding, the U.S. Department of Justice today unsealed criminal charges against Durham, Cochran and Snow for the same alleged misconduct.
“These executives looted Fair Finance and exploited unsuspecting investors who trusted the company to prudently invest their funds as it had done for decades,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “To add insult to injury, they squandered the stolen funds on such extravagances as multiple homes, a private jet, a yacht and more than 40 classic and exotic cars.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of Indiana, Fair Finance historically raised funds by selling interest-bearing certificates to investors and using the proceeds to purchase and service discounted consumer finance contracts. Following the 2002 purchase, Durham and Cochran funneled millions of dollars to themselves and their related companies. By November 2009, Durham, Cochran and their related businesses owed Fair Finance more than $200 million, which accounted for approximately 90 percent of Fair Finance’s total loan portfolio.
The SEC alleges that Durham and Cochran knew that neither they nor their related companies had the earnings, collateral or other resources to ensure repayment on the purported loans. As CFO, Snow knew or was reckless in not knowing that neither Durham and Cochran nor their entities could repay the funds they took from Fair Finance. Nonetheless, they continued to raise hundreds of millions of dollars from investors by using false and misleading financial statements and other information contained in the offering circulars to deceive investors about Fair Finance’s true financial condition. Ultimately, Durham, Cochran and their related companies never repaid these loans, and they used new investor proceeds to repay earlier investors in the nature of a Ponzi scheme.
Durham and Cochran also distributed large amounts of money to family members and friends, and misused investor funds to afford mortgages for multiple homes, a $3 million private jet, a $6 million yacht, and classic and exotic cars worth more than $7 million. They also diverted investor money to cover hundreds of thousands of dollars in gambling and travel expenses, credit card bills, and country club dues, and to pay for elaborate parties and other forms of entertainment.
According to the SEC’s complaint, Durham has residences in Los Angeles and Fortville, Ind.; Cochran resides in McCordsville, Ind.; and Snow lives in Fishers, Ind. Durham currently is the CEO at National Lampoon, and Snow currently is the CFO.
The SEC’s complaint charges Durham, Cochran and Snow with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, penalties and officer and director bars against each of the defendants.
The SEC acknowledges and appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Indiana, the U.S. Department of Justice, Fraud Section, the Federal Bureau of Investigation and the Ohio Division of Securities.”

If you have ever wondered how some people can spend seemingly unlimited amounts of money on personal entertainment well, if the above allegations are true then that question has been answered.

CONVICTED BANKER LOST FREEDOM AND TWO HOMES

Convicted bank fraudster and political operative had two of his homes put on the market by the U.S. Marshals. The following excerpt is from the U.S. Marshals web site:

“WASHINGTON – Two N.Y. properties that belonged to convicted fraudster Hassan Nemazee have been listed for sale by a U.S. Marshals contractor. One of the properties, a New York City duplex, is listed at $28 million and is the highest-priced forfeited asset that the U.S. Marshals have ever listed for sale. Nemazee was convicted for a $292 million fraud scheme and is currently serving 12 years in a federal prison. “

Fraud seems to be a very well paying profession. I wonder why my high school guidance councilor never told me that if I became a fraudster my cribs would be worth more than a lot of small towns in America.

SEC VS FDA INSIDER IN INSIDER TRADING CASE

My father always said that “honesty was the best policy”. Perhaps people who work in government should write “Honesty is the best policy” on a chalk board 1,000 times. In the following case the SEC alleges that an FDA chemist practiced trading stocks illegally in advance of drug approval decisions being made public. Take a look at the following case excerpts from the SEC web site:

" Washington, D.C., March 29, 2011 – The Securities and Exchange Commission today charged a U.S. Food and Drug Administration (FDA) chemist with insider trading on confidential information about upcoming announcements of FDA drug approval decisions, generating more than $3.6 million in illicit profits and avoided losses.
The SEC alleges that Cheng Yi Liang illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded companies. Some announcements concerned the FDA’s approval of new drugs while others concerned negative FDA decisions. In each instance, he traded in the same direction as the announcement. Liang went to great lengths to conceal his insider trading. He traded in seven brokerage accounts, none of which were in his name. One belonged to his 84-year-old mother who lives in China.


In a parallel action, criminal charges filed by the Department of Justice against Liang were unsealed today.
“Liang victimized both the investors who were disadvantaged by his theft of inside information and the American citizens whose trust he violated by placing private gain above public good,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit, added, “The insider trading laws apply to employees of the federal government just as they do to Wall Street traders, corporate insiders, or hedge fund executives. Many government agencies like the FDA routinely possess and generate confidential market-moving information. Federal employees who misappropriate such information to engage in insider trading risk exposing themselves to potential civil and criminal charges for violating the federal securities laws.”
According to the SEC’s complaint filed in the U.S. District Court for the District of Maryland (Greenbelt Division), Liang works in the FDA’s Center for Drug Evaluation and Research. Beginning as early as July 2006, Liang purchased shares for a profit before 19 positive announcements regarding FDA decisions, shorted stock for a profit before six negative announcements, and sold shares to avoid losses before two negative announcements.

For example, the SEC alleges that Liang traded in advance of an FDA announcement approving Clinical Data’s application for the drug Viibryd. Liang accessed a confidential FDA database that contained critical documents and information about the FDA’s review of Clinical Data’s application, and then used that information to purchase more than 46,000 shares of Clinical Data at a cost of more than $700,000. After the markets closed on Friday, Jan. 21, 2011, the FDA issued a press release approving Viibryd. Clinical Data’s stock price rose by more than 67 percent the following Monday and Liang sold his entire Clinical Data position in less than 15 minutes for a profit of approximately $380,000.

The SEC alleges that Liang used the trading profits for his own personal benefit. Checks totaling at least $1.2 million were written from the accounts he used for trading to a bank account in his name, to him or his wife directly, or to credit card companies to pay off balances in accounts in his or his wife’s name. Nearly $65,000 worth of checks were written from the brokerage accounts to car dealerships to purchase vehicles later registered to Liang and his wife.

The SEC’s complaint alleges that Liang violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks a permanent injunction against future violations, disgorgement of unlawful trading profits and losses avoided plus prejudgment interest, and a financial penalty. The SEC’s complaint names Liang’s wife Yi Zhuge and the account holders for the seven trading accounts he used – Liang’s mother Hui Juan Chen, his son Andrew Liang, Shuhua Zhu, Zhongshan Chen, and Honami Toda – as relief defendants for the purpose of recovering ill-gotten funds to which they have no legitimate claim. Criminal charges by the Department of Justice against Andrew Liang were unsealed today in the District of Maryland.

The SEC’s investigation was conducted by Deborah Tarasevich, Carolyn Welshhans, Owen Granke, and Ricky Sachar – members of the SEC’s Market Abuse Unit in Washington, D.C. The SEC’s litigation effort will be led by Matthew Martens and David Williams. The SEC thanks the Department of Justice’s Criminal Fraud Section, the Federal Bureau of Investigation, the Department of Health and Human Services Office of Inspector General, and the U.S. Attorney’s Office for the District of Maryland for their ongoing assistance in this matter. The SEC’s investigation is continuing.”

It looks like Mr. Liang has a lot of problems. It is of course critical that this is not just a single case that the Department of Justice decides to investigate regarding fraud committed by government employees, officials and political appointees and the politicians who appoint them.