Archive

August 12, 2016

Ralph Metters, formerly of Los Angeles, California, was ordered to pay $1 million in penalties and disgorgement in connection with operating an off-exchange foreign currency fraud scheme.  CFTC

August 9, 2016

Michigan announced that James Mulholland, of St. Petersburg, Florida and Thomas Mulholland, of Midland, both 59, have been found guilty by a jury on 8 felonies each for the Ponzi Scheme they ran through their Lansing-based business Mulholland Financial. Starting in 2009 until they filed for bankruptcy in 2010, the brothers raised almost $2 million from investors. They made no mention that their business was in trouble and promised a 7% rate of return from the real estate profits and that the principal and interest were guaranteed and could be liquid within 30 days of making a written request. In reality almost every month from January 2009 to February 2010, Mulholland Financial lost money and new investor money began being used to pay off earlier investors. Mulholland Financial was forced to file for bankruptcy in February of 2010 due to overwhelming debt. By this time there were multiple investigations being conducted into the business practices. The case sat dormant with another agency until spring of 2016 until Schuette’s office picked up the case. Over 250 investors lost $18.3 million. MI

August 8, 2016

Georgia and 42 other states announced a $100 million multistate settlement with Barclays Bank PLC and Barclays Capital Inc. for fraudulent and anti-competitive conduct involving the manipulation of the London interbank offered rate, or, Libor. This is a benchmark interest rate that affects financial instruments worth trillions of dollars and has a widespread impact on global markets and consumers. Barclays has agreed to pay $100 million, of which about $93 million will be used to reimburse government and nonprofit organizations that had Libor-linked swaps and other investment contracts with Barclays and that were harmed by the activity. A multistate investigation revealed that Barclays had manipulated Libor during the financial crisis period of 2007-2008 by understating the interest rates it would need to pay to borrow money in order to avoid the appearance that Barclays was in financial difficulty and would need to pay a higher rate than some of its peers. Government entities and not-for-profit organizations were defrauded when they entered into swaps and other investment instruments with Barclays without knowing that Barclays and other banks on the U.S. dollar-Libor-setting panel were manipulating Libor and colluding with other banks to do so. GA, VA, IL

August 4, 2016

Barclays Capital, Inc., a Connecticut corporation headquartered in New York City, agreed to pay $800,000 to resolve charges that it failed to diligently supervise the processing of exchange and clearing fees it charged customers for trading and clearing Chicago Mercantile Exchange, Inc. products.  CFTC

August 3, 2016

Jonathan A. Parker and QuantX Capital, LLC, both of Marietta, Georgia, were ordered to pay over $1 million in penalties and restitution for committing fraud and misappropriation in connection with operating a commodity pool that offered leveraged or margined off-exchange foreign currency transactions.  CFTC

July 26, 2016

Massachusetts-based State Street Bank and Trust Company agreed to pay a total of at least $382.4 million -- including $155 million to the DOJ, $167.4 million in disgorgement and penalties to the SEC, and at least $60 million to ERISA plan clients in an agreement with the Department of Labor -- to settle allegations that it deceived its custody clients when providing them with indirect foreign currency exchange (FX) services.  According to the government, State Street admitted that contrary to its representations to certain custody clients, it did not price FX transactions at prevailing interbank market rates and instead executed FX transactions by applying a predetermined, uniform mark-up (if the custody client was a FX purchaser) or mark-down (if the custody client was an FX seller) to the prevailing interbank rate for FX.  State Street is also alleged to have falsely informed custody clients that it provided “best execution” on FX transactions, that it guaranteed the most competitive rates available on FX transactions and that it priced FX transactions based on a variety of factors when, in fact, prices were largely driven by hidden mark-ups designed to maximize State Street’s profits.  The allegations originated from famed Bernie Madoff whistleblower Harry Markopolos under the whistleblower provisions of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  State Street will pay an additional $147.6 to resolve private class action lawsuits filed by the bank’s customers alleging similar misconduct.  DOJ

July 28, 2016

The SEC filed an emergency action in federal court and obtained an asset freeze against Matthew E. White, Rodney A. Zehner, and Daniel J. Merandi who allegedly fraudulently issued $1 billion in unsecured corporate bonds out of a shell company they own and claimed invested money would be used to fund a resort project.  In fact, they never came close to raising the funds necessary to start the project.  In the meantime, they pocketed the $5.6 million in investor funds they had raised and used it for personal purchases at Saks Fifth Avenue, Gucci, Louis Vuitton, Prada, and Versace.  SEC

July 26, 2016

State Street Bank and Trust Company will pay $382.4 million in a global settlement for misleading mutual funds and other custody clients by applying hidden markups to foreign currency exchange trades.  As part of its custody bank line of business, State Street safeguards clients’ financial assets and offers such services as indirect foreign currency exchange trading (Indirect FX) for clients to buy and sell foreign currencies as needed to settle their transactions involving foreign securities.  An SEC investigation found that State Street realized substantial revenues by misleading custody clients about Indirect FX, telling some clients that it guaranteed the most competitive rates available on their foreign currency trades, provided “best execution,” or charged “market rates” on the transactions.  Instead, State Street set prices largely driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients.  State Street will pay $167.4 million in disgorgement and penalties to the SEC, a $155 million penalty to the Department of Justice, and at least $60 million to ERISA plan clients in an agreement with the Department of Labor.  SEC

July 25, 2016

South American-based LAN Airlines will pay more than $22 million to settle parallel civil and criminal cases related to improper payments it authorized during a dispute between the airline and its union employees in Argentina.  An SEC investigation found that when LAN encountered problems negotiating labor agreements with the unions, it was contacted by a consultant from Argentina, then a Cabinet Advisor with the Department of Transportation, who offered to negotiating on the company’s behalf.  The consultant made clear that he would expect compensation and that payments would be made to third parties who had influence over the unions.  LAN’s CEO approved $1.15 million in payments to the consultant through a sham contract for a purported study of existing air routes in Argentina.  The CEO knew that no actual study would be performed and that it was possible the consultant would pass some portion of the money to union officials in Argentina to settle the wage disputes.  SEC

July 22, 2016

The SEC obtained an asset freeze against James Hugh Brennan III and Douglas Albert Dyer, two former brokers with disciplinary histories who allegedly raised more than $5 million from investors without using the money as promised.  In an emergency action field in federal court, the SEC alleged that Brennan and Dyer sold purported shares in eight similarly named companies to more than 240 investors since 2008 without ever registering the stock as promised.  Instead, according to the SEC’s complaint, Brennan and Dyer transferred investor funds into their personal accounts or those belonging to their wives.  The SEC further alleged that Brennan and Dyer continue to solicit investors while touting their securities industry experience and failing to disclose that Brennan was banned from the brokerage industry and Dyer suspended and fined for executing unauthorized transactions in customers’ accounts.  SEC