Financial and Investment Fraud

November 10, 2016

Israeli-based trading firm EZTD Inc. will pay more than $1.7 million for misleading investors into trading binary options over the internet.  Binary options generally have an all-or-nothing payout structure in which investors bet on the increase or decrease in value of a company stock or other securities serving as the underlying asset.  The options contract expires after a fixed time period.  If an investor’s prediction was wrong, then all of the investment can be lost.  According to the SEC’s order, EZTD failed to register as a broker-dealer, failed to register the binary options, and failed to disclose on its trading platforms that there was significantly greater potential for investors to lose rather than earn money.  The SEC’s order found that less than 3 percent of the approximately 4,000 U.S. investors who opened accounts with EZTD actually made any profit on their investment.  The SEC also issued an investor alert detailing red flags that signal binary options fraud and warning investors never to put in more money in an attempt to win back money lost.  SEC

November 9, 2016

The SEC charged former movie producer and self-proclaimed private equity executive David R. Bergstein with defrauding hedge fund investors and siphoning off investment funds to support his extravagant lifestyle.  The SEC alleges that Bergstein, through a series of intricate transactions by Weston Capital Asset Management and two of its unregistered hedge funds, Weston Capital Partners Master Fund II Ltd. and Wimbldeon Fund SPC Class Tt Segregated Portfolio, misappropriated over $5 million meant, in large part, for investment in medical-billing businesses.  The SEC alleges that Bergstein used the stolen millions for purchases from a firearms dealer, an antique watch and jewelry retailer, and a bonsai tree nursery.  SEC

January 12, 2017

Florida announced coordinated settlements with the operators of an online lending scheme. The operators of the alleged scheme are Western Sky Financial, LLC, CashCall, Inc., WS Funding, LLC, Delbert Services Corporation and John Paul Reddam, who is President, CEO, owner and director of CashCall. These settlements, in coordination with a pending Florida class action settlement against CashCall and Reddam filed in the U.S District Court for the Southern District of Florida, resolve allegations that the lender offered, serviced and collected on Western Sky loans to Florida borrowers with illegal interest rates of more than 18 percent. Subject to final court order in the class action, the settlements collectively provide more than $27 million in monetary relief to Floridians. Under the settlements, approximately 14,000 borrowers are expected to be eligible for a cash payment from a combined fund of more than $11 million. To be entitled to share in the fund, borrowers must have taken out a loan from these lenders and paid back more than principal plus 18 percent interest. FL

January 12, 2017

New York announced the resolution of a four-year investigation of Citigroup Global Markets, Inc. (CGMI), a subsidiary of Citigroup, that revealed that CGMI had overcharged over 47,000 of its customers more than $22.5 million in fees. After the Attorney General’s Office launched its investigation, CGMI revised its policies and procedures to address the fee overcharge issues uncovered in the investigation, and as a part of the agreement CGMI admits the findings of Attorney General Schneiderman’s investigation. In cooperation with the Attorney General’s investigation, in October 2014 CGMI began reimbursing its customers in full with interest, for the overcharged fees. The agreement also requires CGMI to report fee overcharge issues to the New York Attorney General’s office for the next three years and to pay a penalty of $1 million to the State of New York. The fee overcharges at issue in the investigation arose (1) when CGMI overcharged some of its customers more than the fees they had negotiated on their managed investment accounts, and (2) when CGMI overcharged customers by failing to rebate certain customers’ accounts after periods of inactivity when fees should not have been charged but were charged. NY

January 5, 2017

Jon S. Corzine was ordered to pay a $5 million penalty for his role in MF Global, Inc.’s unlawful use of customer funds through a consent order entered by Judge Victor Marrero of the United States District Court for the Southern District of New York. Corzine was charged with overseeing the misuse of nearly $1 billion in customer funds. Additionally, Edith O’Brien, the former assistant treasurer of MF global was ordered to pay a $500,000 civil monetary penalty for aiding and abetting the violations by MF Global. CFTC

January 3, 2017

The CFPB issued orders against Equifax, Inc., TransUnion, and their subsidiaries for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers. The companies also lured consumers into costly recurring payments for credit-related products with false promises. The CFPB ordered TransUnion and Equifax to truthfully represent the value of the credit scores they provide and the cost of obtaining those credit scores and other services. Between them, TransUnion and Equifax must pay a total of more than $17.6 million in restitution to consumers, and fines totaling $5.5 million to the CFPB. CFPB

December 14, 2016

Yumin Li was ordered to pay $1.2 million in a judgment ordered by Judge Sara L. Ellis of the United States District Court for the Northern District of Illinois. Li was found to have stolen $300,000 from his former employer by trading the employer’s account noncompetitively against an account belonging to co-Defendant Kering Capital Ltd., a British Virgin Islands company formed by Li’s mother. Li was ordered to pay over $300,000 in restitution to his former employer and $900,000 in a civil monetary penalty. CFTC.

December 1, 2016

Michigan announced that Fuataina Afutiti, of Westland, was sentenced to 30 months to up to 20 years in prison for stealing nearly $2 million dollars from the Veterans Health Administration Credit Union. The former President and CEO of the credit union used the stolen funds for her personal use including leasing luxury cars, gambling and financing personal vacations. Afutiti, 50, plead guilty as charged to one count of Receiving Proceeds from a Continuing Criminal Enterprise and one count of Embezzlement from a Credit Union. She was sentenced Thursday, December 1, 2016 before Judge David Groner, in the 3rd Circuit Court in Wayne County. Afutiti will report to prison on January 4, 2017. MI

November 1, 2016

Anthony Wendel Frederick Sr., a former business manager of Local 657 of the Laborers International Union of North America, pleaded guilty to stealing $1.7 million from the union.  In pleading guilty, Frederick admitted he directed more than $1.7 million in Local 657 funds to Maryland-based STS Contracting which in turn made a number of financial payments to Frederick with the stolen funds.  DOJ

October 24, 2016

New Jersey announced that a doctor from Middlesex County pleaded guilty to engaging in sophisticated fraud and money laundering schemes by which he hid approximately $3.6 million in income from his medical practices to evade taxes. He also pleaded guilty to using money from the schemes to pay illegal kickbacks to doctors. Dr. Manoj Patharkar, 45, of South Amboy, N.J., pleaded guilty before Superior Court Judge Michael A. Toto in Middlesex County to first-degree conspiracy, first-degree money laundering, seven counts of third-degree filing fraudulent tax returns, and three counts of third-degree failure to pay taxes. He also entered guilty pleas to all of those same counts on behalf of his corporation Pain Management Associates of Central Jersey (PMACJ). Those charges were contained in an Aug. 24, 2015 indictment. In addition, he pleaded guilty to an accusation charging him with second-degree conspiracy and second-degree commercial bribery in connection with the illegal kickback scheme. NJ