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.

CFTC ANNOUNCES REPORT BY OTC DERIVATIVE REGULATORS TO THE G20

FROM:  U.S. COMMODITY FUTURES EXCHANGE COMMISSION,
OTC Derivatives Regulators Issue Report to the G20

Washington, DC – Today, authorities with responsibility for the regulation of over-the-counter (OTC) derivatives markets in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland and the United States issued a report regarding common understandings to improve the cross-border implementation of OTC derivatives reforms.  This report responds to an April 2013 request by the G20 Finance Ministers and Central Bank Governors, urging key OTC regulators to intensify their efforts to address and resolve remaining cross-border conflicts, inconsistencies, gaps and duplicative requirements by the St. Petersburg Summit, which will take place on September 5-6, 2013.

The report reflects a number of substantive understandings to improve the cross-border implementation of OTC derivatives reforms, including the following:

• Early and comprehensive consultation among relevant authorities when equivalence or substituted compliance assessments are being undertaken is essential.

• A flexible, outcomes-based approach should form the basis of final assessments regarding equivalence or substituted compliance assessments.

• A “stricter-rule” approach would apply to address gaps in mandatory trading or clearing obligations.

• Authorities have a framework for consultation on mandatory clearing determinations.

• Jurisdictions should remove barriers (1) to reporting to trade repositories by market participants and (2) to access to trade repository data by authorities.

• There should be appropriate transitional measures and a reasonable but limited transition period for foreign entities to implement OTC derivatives reforms.

The report also recognizes that challenges will continue to arise in the implementation of OTC derivatives reforms and presents a number of additional topics for further discussion, including authorities’ direct access to registrant information and the treatment of foreign bank branches and guaranteed subsidiaries.

Finally, the report recognizes that open communication is vital to ensure there is common understanding of each jurisdiction’s processes and timelines to implement OTC derivatives reforms, and that flexibility in the application of cross-border regulation will be needed to make progress toward cross-border consistency.

SEC CHARGES MAN AND COMPANY WITH TARGETING RETIREMENT SAVINGS INVOLVING PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
The Securities and Exchange Commission today charged a Noblesville, Ind., resident and his company with defrauding investors in a Ponzi scheme that targeted retirement savings. 

The SEC alleges that John K. Marcum touted himself as a successful trader and asset manager to raise more than $6 million through promissory notes issued by his company Guaranty Reserves Trust.  Marcum helped investors set up self-directed IRA accounts and gained control over their retirement assets, saying he would earn them strong returns on the promissory notes by day-trading in stocks while guaranteeing the safety of their principal investment.  Yet Marcum did little actual trading and almost always lost money when he did.  Throughout his scheme, Marcum provided investors with false account statements showing annual returns of more than 20 percent.  Meanwhile, he used investor funds to pay for his luxurious personal lifestyle and finance several start-up companies.

The SEC obtained an emergency court order to freeze the assets of Marcum and his company.

“Marcum tricked investors into putting their retirement nest eggs in his hands by portraying himself as a talented trader who could earn high returns while eliminating the risk of loss,” said Timothy L. Warren, Acting Director of the Chicago Regional Office.  “Marcum tried to carry on his charade of success even after he squandered nearly all of the funds from investors.”

According to the SEC’s complaint filed in federal court in Indianapolis, Marcum began his scheme in 2010.  Investors gave Marcum control of their assets by either rolling their existing IRA accounts into the newly-established self-directed IRA accounts or by transferring their taxable assets directly to brokerage accounts that Marcum controlled.  Marcum and certain investors co-signed the promissory notes, and Marcum then placed them in the IRA accounts.

The SEC alleges that Marcum assured investors he could safely grow their money through investments in widely-held publicly-traded stocks, and he promised annual returns between 10 percent and 20 percent.  Marcum also told a number of investors that their principal was “guaranteed” and would never be at risk.  He falsely told at least one investor that her principal would be federally insured.  In the little trading he has done, Marcum has suffered losses amounting to more than $900,000.  He has misappropriated the remaining investor funds for various unauthorized uses.

According to the SEC’s complaint, Marcum used investor money as collateral for a $3 million line of credit at the brokerage firm where he used to work.  He took frequent and regular advances from the line of credit to fund such start-up ventures as a bridal store, a bounty hunter reality television show, and a soul food restaurant owned and operated by the bounty hunters.  None of these businesses appear to be profitable, and Marcum’s investors were not aware that their money was being used for these purposes.  Marcum used nearly $1.4 million of investor money to make payments directly to the start-up ventures and other companies.  He also used more than a half-million dollars to pay personal expenses accrued on credit card bills, including airline tickets, luxury car payments, hotel stays, sports and event tickets, and tabs at a Hollywood nightclub.

According to the SEC’s complaint, Marcum did not have the funds needed to honor investor redemption requests.  So he provided certain investors with a “recovery plan” that revealed his intention to solicit funds from new investors so that he could pay back his existing investors.  Marcum had a phone conversation with three investors in June 2013 and admitted that he had misappropriated investor funds and was unable to pay investors back.  During this call, Marcum begged the investors for more time to recover their money.  He offered to name them as beneficiaries on his life insurance policies, which he claimed include a “suicide clause” imposing a two-year waiting period for benefits.  He suggested that if he is unsuccessful in returning their money, he would commit suicide to guarantee that they would eventually be repaid.

The SEC’s complaint alleges that Marcum and Guaranty Reserves Trust violated the antifraud provisions of the federal securities laws.  The SEC sought and obtained emergency relief including a temporary restraining order and asset freeze.  The SEC additionally seeks permanent injunctions, disgorgement of ill-gotten gains and financial penalties from Marcum and Guaranty Reserves Trust, and disgorgement of ill-gotten gains from Marcum Companies LLC, which is named as a relief defendant.

The SEC’s investigation was conducted by John J. Sikora, Jr., Brian D. Fagel, and Ann M. Tushaus in the Chicago Regional Office.  The SEC’s litigation will be led by Robert Moye.

CFTC GETS INJUNCTION GETS INJUNCTION FORCING MAN AND COMPANY TO PAY RESTITUTION AND PENALTY

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Federal Court in Maryland Orders Sidney J. Charles, Jr. and his Company, The Borrowing Station, LLC, to pay over $600,000 to Settle CFTC Forex Fraud Action

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court consent Order of permanent injunction requiring Defendants Sidney J. Charles, Jr., formerly of Bowie, Maryland, and his company, The Borrowing Station, LLC (Borrowing Station) of Bowie, Maryland, jointly and severally to pay $254,236 in restitution and a $350,000 civil monetary penalty in connection with an off-exchange leveraged foreign currency (forex) Ponzi scheme.

The Order, entered on August 23, 2013, by Judge Paul W. Grimm of the U.S. District Court of the District of Maryland, also imposes permanent registration and trading bans against both Defendants and prohibits them from further violations of the Commodity Exchange Act (CEA) and CFTC Regulations, as charged. The court’s Order stems from a CFTC complaint filed on April 23, 2012, that charged Defendants with solicitation fraud, misappropriation, issuing false statements, and registration violations (see CFTC Press Release 6247-12).

The Order finds that, from at least October 2009 through at least July 2011, Defendants fraudulently solicited $369,326 from 18 individuals or entities for participation in a pooled investment vehicle managed by Borrowing Station, through Charles, that traded forex. According to the Order, Defendants solicited pool participants directly and through a website. In their solicitations, Defendants promised substantial investment returns such as 25 percent per year or 10 percent per month, and falsely claimed that pool participant funds were guaranteed against trading losses. The Order finds that Defendants deposited only a portion of pool participant funds into trading accounts and lost a majority of those funds unsuccessfully trading forex.

The Order also finds that Defendants issued checks to pool participants that represented purported “monthly returns” or “return on investment.” However, any purported profits that Defendants paid to pool participants came from the principal of other pool participants in the manner of a Ponzi scheme. In addition, Charles misappropriated pool participant funds to pay for personal expenses and to fund Borrowing Station’s operations, according to the Order.

The Order further finds that Borrowing Station and Charles failed to register as a Commodity Pool Operator (CPO) and Associated Person of a CPO, respectively, as required under the CEA and CFTC Regulations.

The CFTC appreciates the assistance of the U.K. Financial Conduct Authority.

CFTC Division of Enforcement staff responsible for this case are Kara Mucha, Kassra Goudarzi, Michael Solinsky, Gretchen L. Lowe, and Vincent A. McGonagle.

CFTC FILES TO REVOKE REGISTRATION OF COMMODITY TRADING ADVISOR

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Files Action to Revoke Registration of Commodity Trading Advisor Prestige Capital Advisors, LLC

Washington, DC- The U.S. Commodity Futures Trading Commission (CFTC) today filed a Notice of Intent (Notice) to revoke the registration of Prestige Capital Advisors, LLC (Prestige) of Charlotte, North Carolina, as a Commodity Trading Advisor (CTA).

The CFTC Notice alleges that Prestige is subject to statutory disqualification from CFTC registration based on an Order of default judgment and permanent injunction entered against Prestige in the U.S. District Court for the Western District of North Carolina on January 25, 2013 (see CFTC Press Release 6615-13). The Order finds that Prestige fraudulently solicited and accepted more than $4.7 million from multiple pool participants for investment in one or more commodity pools that traded among other things, commodities and futures contracts. The Order also finds that Prestige misappropriated pool participant funds, posted false trading returns on a website called BarclayHedge (where fund managers could post unverified historical returns for prospective clients to view), sent false trading results to at least one Prestige pool participant, and issued false account statements. As a result, Prestige was ordered to pay approximately $6.9 million in civil monetary penalties and restitution of over $4.1 million.

CFTC Division of Enforcement staff members responsible for this case are Eugenia Vroustouris, Daniel Jordan, Michael Loconte, Erica Bodin, Rick Glaser, and Richard Wagner.

Statement Regarding Joint Rule Reproposal Concerning Credit Risk Retention

Statement Regarding Joint Rule Reproposal Concerning Credit Risk Retention