Financial and Investment Fraud

June 18, 2015

The SEC announced enforcement actions against 36 municipal underwriting firms for violations in municipal bond offerings.  The cases are the first brought against underwriters under the Municipalities Continuing Disclosure Cooperation (MCDC) initiative, a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents.  The SEC’s actions allege that between 2010 and 2014, the 36 firms violated federal securities laws by selling municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with continuing disclosure obligations.  Under the terms of the MCDC initiative, each firm will pay civil penalties based on the number and size of fraudulent offerings identified, up to $500,000.  The firms and penalty amounts are as follows: The Baker Group, LP ($250,000), B.C. Ziegler and Company ($250,000), Benchmark Securities, LLC ($100,000), Bernardi Securities, Inc. ($100,000), BMO Capital Markets GKST Inc. ($250,000), BNY Mellon Capital Markets, LLC ($120,000), BOSC, Inc. ($250,000), Central States Capital Markets, LLC ($60,000), Citigroup Global Markets Inc. ($500,000), City Securities Corporation ($250,000), Davenport & Company LLC ($80,000),Dougherty & Co. LLC ($250,000), First National Capital Markets, Inc. ($100,000),George K. Baum & Company ($250,000), Goldman, Sachs & Co. ($500,000),Hutchinson, Shockey, Erley & Co. ($220,000), J.P. Morgan Securities LLC ($500,000), L.J. Hart and Company ($100,000), Loop Capital Markets, LLC ($60,000), Martin Nelson & Co., Inc. ($100,000), Merchant Capital, L.L.C. ($100,000), Merrill Lynch, Pierce, Fenner & Smith Incorporated ($500,000),Morgan Stanley & Co. LLC ($500,000), The Northern Trust Company ($60,000),Oppenheimer & Co. Inc. ($400,000), Piper Jaffray & Co. ($500,000), Raymond James & Associates, Inc. ($500,000), RBC Capital Markets, LLC ($500,000),Robert W. Baird & Co. Incorporated ($500,000), Siebert Brandford Shank & Co., LLC ($240,000), Smith Hayes Financial Services Corporation ($40,000), Stephens Inc. ($400,000), Sterne, Agee & Leach, Inc. ($80,000), Stifel, Nicolaus & Company, Inc. ($500,000), Wells Nelson & Associates, LLC ($100,000), William Blair & Co., L.L.C. ($80,000).  SEC

April 6, 2015

The SEC charged 12 companies and six individuals with defrauding investors in a scheme involving applications to the Federal Communications Commission (FCC) for cellular spectrum licenses.  According to the SEC’s complaint, David Alcorn and Kent Maerki orchestrated the offering fraud through their Arizona-based company Janus Spectrum LLC. and raised more than $12.4 million, much of which they and their co-conspirators kept for personal use.  Those alleged to be involved in the scheme include Daryl G. Bank and his companies Dominion Private Client Group LLC, Janus Spectrum Group LLC, Spectrum Management LLC, Spectrum 100 LLC, Spectrum 100 Management LLC, Prime Spectrum LLC and Prime Spectrum Management LLC; Bobby D. Jones and his company Premier Spectrum Group PMA; Terry W. Johnson and Raymon G. Chadwick Jr. and their companies Innovative Group PMA, Premier Group PMA and Prosperity Group PMA.  SECv

December 8, 2015

A federal jury in Las Vegas convicted Anthony Brandel and James Warras of conspiracy, wire fraud and securities fraud for their roles in an approximately $10 million international investment fraud scheme involving numerous victims.  According to evidence presented at trial, Brandel and Warras conspired with others in the US and Switzerland to promote investments and loan instruments they knew to be fraudulent.  Specifically, they misrepresented to victims using fabricated bank documents that, for an up-front payment, a Swiss company known as the Malom (Make A Lot of Money) Group AG would provide access to lucrative investment opportunities and substantial cash loans.  DOJ

December 2, 2015

Franklin American Mortgage Company agreed to pay $70 million to resolve allegations it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.  Specifically, First American audits identified substantial percentages of seriously deficient loans but the company reported very few deficiencies to HUD, causing the FHA to insure hundreds of loans that were not eligible and, as a result, the FHA suffered substantial losses when it later paid insurance claims on those loans.  DOJ

November 6, 2015

Former CEO of TierOne Bank Gilbert G. Lundstrom was convicted for orchestrating a scheme to defraud TierOne’s shareholders and to mislead regulators by concealing more than $100 million in losses on loans and declining real estate.  In 2014, co-conspirators James Laphen, TierOne’s former president and chief operating officer, and Don Langford, TierOne’s former chief credit officer, pleaded guilty to multiple felonies in connection with their participation in the scheme.  DOJ

November 5, 2015

A federal jury convicted Anthony Allen and Anthony Conti, former Rabobank derivative traders, for manipulating the London InterBank Offered Rates (LIBOR) for the US Dollar and the Yen, benchmark interest rates to which trillions of dollars in interest rate contracts were tied.  DOJ

October 20, 2015

Paris-based Crédit Agricole Corporate and Investment Bank, owned by Crédit Agricole S.A. and which operates in over thirty countries, agreed to pay $787.3 million in criminal and civil penalties for violating the International Emergency Economic Powers Act and the Trading With the Enemy Act.  Between August 2003 and September 2008, Crédit Agricole subsidiaries in Geneva knowingly moved approximately $312 million through the US financial system on behalf of sanctioned entities located in Sudan, Burma, Iran and Cuba.  To facilitate these illegal transactions, these subsidiaries used deceptive practices which prevented the government, Crédit Agricole’s New York branch and other US financial institutions from filtering for, and consequently blocking or rejecting, the sanctioned payments.  Whistleblower Insider

October 16, 2015

The US resolved for $4 million a False Claims Act action against the estate and trusts of the late Layton P. Stuart, former owner and president of One Financial Corporation, and its subsidiary, One Bank & Trust N.A., both based in Little Rock, Arkansas.  According to the government, Stuart and One Financial violated the False Claims Act by making false statements about the financial condition of One Financial and One Bank to induce the Department of the Treasury to invest Troubled Asset Relief Program (TARP) funds in One Financial.  Stuart allegedly diverted One Bank funds for personal use, including his purchase of luxury vehicles for his wife and children.  He was terminated from One Bank in September 2012. DOJ

October 6, 2015

Fifth Third Bank agreed to pay $85 million to resolve civil fraud claims arising from the bank’s origination of residential mortgage loans insured by the Federal Housing Administration.  FTB made a voluntary disclosure of approximately 1,400 mortgage loans it had certified as eligible for FHA insurance, later determined were materially defective and thus ineligible for FHA insurance, but never self-reported to HUD, resulting in millions of dollars in HUD losses.  This matter arose, in part, from the filing of a whistleblower complaint under the qui tam provisions of the False Claims Act.  DOJ (NY)

September 30, 2015

Former chief financial officer of Siemens S.A. – Argentina Andres Truppel pleaded guilty to conspiring to pay tens of millions of dollars in bribes to Argentine government officials to secure, implement and enforce a $1 billion contract to create national identity cards.  In connection with his guilty plea, Truppel admitted he engaged in the decade-long scheme which involved concealing the illicit payments through various means, including using shell companies associated with intermediaries to disguise and launder the funds and by paying $7.4 million as part of a hedging contract with a foreign currency company incorporated in the Bahamas.  Truppel also admitted he used a $27 million contract between a Siemens entity and a company called MFast Consulting AG that purported to be for consulting services to conceal bribes to Argentine officials.  DOJ.