Financial and Investment Fraud

May 19, 2022

Sohrab “Sam” Sharma, Robert Farkas, and Raymond Trapani will disgorge over $40 million for raising more than $32 million from investors in their unregistered ICO of “CTR tokens” through their controlled entity, Centra Tech Inc. The fraudsters made material misrepresentations in their marketing of the tokens, including claiming partnerships with Visa, MasterCard, and The Bancorp; created fake executive bios; misrepresented the company’s viability; and manipulated trading in the tokens to generate interest. The three defendants have been sentenced to imprisonment in addition to the financial penalties levied. SEC

May 17, 2022

Allianz Global Investors U.S. LLC pleaded guilty to securities fraud and agreed to pay a criminal fine of $2.3 billion, an SEC penalty of $675 million, and over $5 billion in disgorgement and restitution to victims.  Three former AGI senior portfolio managers, Gregoire Tournant, Trevor Taylor, and Stephen Bond-Nelson, also pleaded guilty to related charges and will be sentenced at a later date.  As part of its plea, AGI admitted that between 2014 and 2020, AGI and the individual defendants made false and misleading statements to current and prospective investors in AGI’s Structured Alpha Funds which understated downside risks and overstated the level of independent risk oversight over the funds.  While the funds promised risk management and hedging, the actual investment strategy prioritized returns over risk management, and the promised hedging positions were not purchased.  To conceal losses and understate the magnitude of the actual risks, defendants fraudulently altered numerous financial reports and other information provided to investors.  The scheme was exposed when the funds experienced billions in losses during the 2020 COVID-related market volatility. With its guilty plea, AGI US is disqualified from providing advisory services to U.S.-registered investment funds for the next ten years, and will exit the business of conducting these fund services.  SEC; DOJ; SDNY

May 13, 2022

Kraft Foods Group, Inc. and Mondelez Global LLC have been ordered to pay $16 million after being found to manipulate the prices of cash wheat and wheat futures, and holding wheat futures positions in excess of speculative position limits established by the CFTC.  The companies allegedly engaged in the scheme in order to lower cash wheat prices after they rose in the summer of 2011.  The misconduct earned the two companies over $5.4 million in profits.  CFTC

May 5, 2022

Arthur Hayes, Benjamin Delo, and Samuel Reed, co-founders of BitMEX, were ordered to pay $30 million for AML violations and for illegally operating a cryptocurrency derivatives trading platform. From late 2014 through 2020, the defendants failed to implement and enforce preventative controls against unlawful conduct. BitMEX operated without CFTC approval to operate as a Designated Contract Market or a Swap Execution Facility. Further, BitMEX operated without registration as a Futures Commission Merchant, failed to implement a Customer Information Program, did not employ proper KYC procedures, and failed to implement an adequate AML program. CFTC

May 4, 2022

Brenda Smith, former investment manager for Broad Reach Capital LP, pleaded guilty to seven counts of securities fraud. She will pay $47.2 million in restitution, spend 109 months in prison, and spend another 3 years thereafter under supervised release, for orchestrating a $100 million securities fraud scheme. To further her fraud, Smith provided investors with false monthly account statements, made false representations about her personal investment in the company, satisfied redemption requests by diverting other investors’ funds to pay the redemption amounts, and transferred clients’ funds to investments that were outside the scope of the promised investment strategy. NJ USAO

April 28, 2022

Publicly-traded asset manager Medley Management and its former CEOs, Brook and Seth Taube, have agreed to pay $10 million in civil penalties to resolve SEC charges of making material misrepresentations to investors and clients.  Through multiple public filings dating back to at least 2016, Medley and the Taubes allegedly overstated assets under management, failed to disclose certain risks, and made unfounded projections of Medley’s likely future growth to sway investors toward voting for a merger between Medley and two of its clients.  SEC

April 21, 2022

Bernard L. Compton, former accountant at Domino’s Pizza, will pay nearly $2 million for insider trading. Compton illicitly leveraged his insider role at Domino’s to trade ahead of 12 of the company’s earnings announcements between 2015 and 2020. Compton attempted to hide his crime by spreading the trades across several different brokerage accounts held by himself and his family members. Compton is permanently enjoined from practicing before the SEC. SEC

April 20, 2022

Waste management company Stericycle Inc. agreed to pay a total of $84 million and enter into a deferred prosecution agreement admitting to the payment of millions of dollars in bribes to government officials in Brazil, Mexico, and Argentina in order to obtain and retain business and to secure improper advantages in violation of the Foreign Corrupt Practices Act.  The company’s foreign subsidiaries maintained false records to conceal the bribes, which were typically paid in cash and recorded on spreadsheets using code words and euphemisms, including describing the payments made in Argentina as “alfajores.”  Stericycle’s total payment consists of a $28 million payment to resolve an investigation by the SEC, a $52.5 million criminal penalty, and $9.3 million to resolve investigations by the Controladoria-Geral da União (CGU) and the Advocacia-Geral de União (Attorney General’s Office) in Brazil, part of which will be credited to reduce the criminal penalty.  DOJ; SEC