Posts tagged 'Fraud'

Banks have a dubious business model and markets have noticed

The tendency toward restriction that runs through the tone of the presentation seems to me to be quite problematic. It seems to me to support a wide variety of misguided policy impulses.

–Larry Summers, Jackson Hole 2005

You might think Summers had changed his mind in the eleven years since he called Raghuram Rajan a “Luddite” for daring to suggest the financial system had gotten riskier since the 1970s thanks to competition and the rise of performance-based pay. After all, in a new paper, Summers and graduate student Natasha Sarin not only cited Rajan’s work approvingly, they concluded lenders are still too vulnerable to panics. You would, however, be wrong. Read more

How to steal a cyber billion swiftly

As reported in the FT on Friday, a fresh cyber attack has been identified by Swift, the bank transaction messaging system, potentially linking the recent theft from the Bangladesh central bank to the data breach at Sony in 2014.

At the heart of the attack was a “sophisticated knowledge of specific operational controls within the targeted banks — knowledge that may have been gained from malicious insiders or cyber attacks, or a combination of both.”

But also… a bit of malware which targeted the bank’s PDF reader.

As we’ve had it explained by Swift on Friday, the malware essentially created a decoy interface which obfuscated the true state of underlying accounts, ensuring the spent transactions went unnoticed by the impacted institution for longer than would otherwise be normal. Read more

The “financial adviser” scammers

While many in the financial advice industry admirably try to help regular folks figure out how much to save and how to allocate their assets, a stubbornly large group is in the business of systematically ripping people off.

At first, this might seems strange. Financial advice is a competitive industry and FINRA — the government-sanctioned regulatory organisation — makes it easy to search the records of individual advisers and firms. So, in theory, fraudsters shouldn’t have much staying power.

But according to an important new paper from Mark Egan, Gregor Matvos, and Amit Seru, these parasites survive simply because a subset of firms prey on customers, mainly the elderly and less-educated, who don’t know to check their brokers for a history of past misconduct. Read more

The security/access paradox and digital lenders

The following advert from Quicken Loans may have given you the impression that money grows on trees and that there are no downsides to providing credit instantly with a one-click process.

Kenya’s mobile money fraud problem

Eagle-eyed readers may have spotted this notice in the Financial Times last week (click to enlarge):

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“If it were a museum, some say that it would probably be the best museum in the world”

This fab alleged art market fraud story is fast developing…. While it does so, here’s the Bouvier brochure. Click to read:

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Yes, looser credit — and fraud — drove the housing bubble

There are two basic explanations for the US housing bubble:

  • There was a sudden change in the supply of mortgage credit, which led people to spend a lot more on housing and (more importantly) extract a lot of home equity
  • There was a sudden change in the demand for mortgage credit because people got caught up in a self-reinforcing mania

The disagreement has important implications for policy. If you think the excesses were caused by an insatiable demand for “safe” assets that encouraged lenders to boost volumes by lowering standards so much that you barely needed a pulse to qualify for a mortgage, there is a pretty straightforward list of things you can do to reduce the expected loss from a repeat performance. But if you think the bubble was caused by a temporary period of “irrational exuberance” about future house prices, it’s a lot less obvious what should be done.

We tend to think the supply-side view — excess lending fueled a bubble, rather than accommodated it — makes more sense, and we particularly like Hyun Song Shin’s argument that the big driver was the creation of the euro and the concomitant collapse in risk premia. Read more

Guest post: The SEC could find new uses for an old law

It is probably too late to change the number of individuals charged in relation to the financial crisis, even if US regulators reconsider their treatment of offending corporations, but there may be a route to more aggressive enforcement by dusting off a little used part of a 1934 statute. Jordan Thomas, a former SEC Enforcement Director and chairman of the whistleblower representation practice at Labaton Sucharow, outlines a way the Commission could go after malign managers in the future.

Since the Financial Crisis, the Securities and Exchange Commission has been criticized for not holding senior executives accountable for corporate wrongdoing. But Wall Street’s top cop has now signaled that it will begin using a statute that has been off the radar for decades to pursue charges against parties who violate the securities laws “through or by means of any other person.” Read more

Spot the industry plagued by wrongdoing and huge fines

No, not everybody’s favourite inside trading hedge fund. The fine that really made us gasp this week was the $2.2bn penalty levied against Johnson & Johnson for promoting unapproved uses of anti-psychotic drugs in children, the elderly, and disabled.

From the FT: Read more

Kabul Bank: of fraud and airplane food trays

This has been a while coming… Afghanistan has just got a new independent report published into what has previously been described as a Ponzi scheme operated at Kabul Bank, the country’s biggest lender.

It’s grim, grubby stuff, detailing how the men at Kabul Bank and their friends and relatives got rich off $861m in bogus loans and sparked a bank run in 2010, while political interference has since hampered the clean-up of the mess. Read more

Stanford due in court for fraud trial

Allen Stanford, the Texas businessman accused of orchestrating a $7bn Ponzi scheme over a decade, goes on trial on Monday, the FT reports. US prosecutors allege Mr Stanford enriched himself by misleading customers to invest in certificates of deposit, misused their funds and bribed an Antiguan regulator with Super Bowl tickets to obstruct a US Securities and Exchange Commission investigation into his bank. During that time, Mr Stanford flew around the globe on private jets to promote the bank, Stanford Financial Group, ran an international cricket tournament and owned Antigua’s largest newspaper. He has been held in prison since his arrest in June 2009 on 14 counts of conspiracy, fraud and obstruction. The Texan has denied wrongdoing. Mr Stanford’s lawyers say he will testify in his own defence at the trial, which is being held in Houston. They have suggested in court filings that they will argue he never intended to defraud customers and that the value of his other companies could have been used to pay CD depositors.

UBS discloses $2bn unauthorised trade

UBS shocked investors on Thursday with news that it had discovered a potential $2bn loss due to unauthorised trading at its investment bank, the FT reported. The Swiss group gave no further details, other than saying the loss had been caused by “a trader” and the matter was under investigation. It warned that the discovery could prompt it to report an overall loss for the group when third-quarter figures are revealed in October. UBS officials could not identify in which area of the investment bank the unauthorised trades occurred, when they had taken place, or when more information might become available. Reuters reports that police in London made a related arrest of a 31-year old man on suspicion of fraud at 0230 London Time on Thursday. The individual remains in police custody. The loss will inevitably recall the €4.9bn ($6.8bn) loss caused to Société Générale by Jerôme Kerviel, a relatively junior trader in its investment bank, which caused the French group to wobble, and the actions of “rogue trader” Nick Leeson which led to the collapse of Barings in 1995.

Sino-Forest scorched by Canadian regulators

This really wasn’t what Sino-Forest hoped for when it welcomed the Ontario Securities Commission investigation following the release of Muddy Waters’ now infamous report into the firm.

The OSC has decided to not wait around for Sino-Forest’s independent investigation. Read more

Traders unprepared for anti-fraud rules

Tough new anti-fraud and manipulation rules for futures and swaps that came into effect last week have caught trading firms unprepared for a coming crackdown, the FT reports. Traders are crowding into seminars and some firms are stepping up investment in surveillance technology as they seek to catch up with the rules passed last month by the Commodity Futures Trading Commission. The first of dozens of new derivatives regulations required by the 2010 Dodd-Frank financial reform act, the anti-fraud provisions broadened the rules to include swaps and made it easier for the commission to win cases by allowing it to punish attempted frauds and reckless behaviour, in addition to wilful, successful price manipulation. The commission, on orders from Congress, will also go after investors who trade on non-public information where they were tipped off in violation of a pre-existing legal duty. Gary Gensler, CFTC chairman, said: “These rules close significant gaps in terms of our scope and in terms of the cases we can bring. Over time, this will be part of the arsenal to insure that the markets work for the American people.”

Ex-Citi executive charged with fraud

A former vice-president in Citigroup’s finance department has entered a not guilty plea after being charged with embezzling $19m from the bank and depositing it into his personal account, the FT says. Gary Foster, 35, was arrested on Sunday morning at John F. Kennedy airport in New York after returning from Bangkok. The New York Times says the the incident is yet another embarrassment for a bank that once made its entire work force take an ethics pledge and uses “responsible finance” as a corporate slogan.

Raj Rajaratnam: guilty of all charges

After a deliberation length that would make Henry Fonda blush, Raj Rajaratnam has been found guilty on all 14 counts of conspiracy and securities fraud. Bernie could now have a cell mate.

From the FT, which also has a batch of instant analysis: Read more

Data breach hits 70m Sony customers

More than 70m users of Sony’s online gaming network have had their names, e-mail addresses and passwords stolen by a hacker in one of the largest privacy breaches to date, the FT reports. Sony announced on Tuesday that the information had been taken – six days after it closed the PlayStation Network – as it began e-mailing users of the free service with warnings to be on the lookout for scams. The Japanese electronics and entertainment powerhouse said it was possible that credit card information had been taken as well, recommending that customers who had supplied those numbers online should review their bills carefully. The breach is troubling because many Sony gamers are likely to have used the same passwords for e-mail and social networking accounts. The hacker could resell user name and password combinations to other criminals, who could take control of those accounts and mine them for bank account passwords or send bogus e-mails to friends’ addresses.

The trouble with defining insider trading

Jonathan Macey, a law professor at Yale University, has an op-ed in Tuesday’s WSJ arguing that the SEC’s definition of insider trading is too strict and at odds with Supreme Court precedent. (Hat tip Stacy Marie-Ishmael.)

Using the ongoing Galleon case as an example, Macey says there is an important distinction between Raj Rajaratnam allegedly bribing Rajiv Goel for tips on Clearwire and other allegations that “accuse Mr. Rajaratnam of simply talking to people and then trading”. Read more

Nicholas Levene: Has-Beano?

From the wire of the Serious Fraud Office, London on Friday:

Nicholas Levene has today been charged with offences of fraud, forgery, money laundering and false accounting,.   Mr Nicholas David Levene (DOB 23. 04.1964) has today been charged with 16 offences relating to an alleged investment fraud. He has been charged with: 11 offences of fraud by misrepresentation (s1 (2) Fraud Act 2006) two offences of possession of an article for use in a Fraud (s.6 Fraud Act 2006) two offences of money laundering (s.327 (1) (d) Proceeds of Crime Act 2002) and one offence of False accounting (s.17a Theft Act 1968). Read more

Former Apple employee pleads guilty to fraud

A former Apple procurement manager has pleaded guilty to wire fraud and other charges in a multimillion-dollar kickback scheme, the FT reports. Paul Devine entered a plea agreement on Monday in federal court in San Jose, California, accepting responsibility for one count each of wire fraud, conspiracy and money laundering, prosecutors said. The ultimate loss to Apple was more than $2.4m, according to the agreement, and Mr Devine agreed to forfeit $2.25m in proceeds from his actions. He has been free on bail and is scheduled to be sentenced in June. Mr Devine, 38, was indicted and arrested in August after a probe begun within Apple found incriminating e-mails and formal agreements for him to be paid for inside information.

Treasury targets LCB, Hizbollah and used car salesmen [corrected]

Correction: The fifth paragraph originally included a reference to the Daedong Credit Bank, rather than Banco Delta Asia. This was a mistake — as the links to the Treasury site and New York Times article show, Daedong Credit Bank has never been subject to Section 311. Apologies.

Here’s another reason to never pay sticker price. Read more

Insider trading investigations, continued

The insider trading investigations continue — and move beyond expert networks. From the FT on Tuesday:

Federal prosecutors have charged three hedge fund portfolio managers and a hedge fund analyst with insider trading.

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US widens currency trade probes

An organised group of whistle-blowers is helping US state prosecutors in a widening probe into whether banks overcharged US public pension funds by tens of millions of dollars for foreign-exchange transactions, reports the WSJ. The whistle-blowers, who are using Delaware shell companies to remain anonymous, are helping with investigations by attorneys general in California and Virginia, according to court documents and people close to the matter. Other states, including Florida and Tennessee, also are conducting probes. The investigations could cast new light on a key corner of the $4 trillion-a-day international FX market. The states are examining whether certain banks charged state pension funds the highest FX price on days a trade took place, rather than the rate paid by the bank – and paid them the lowest price on the day the currencies were sold.

In pursuit of 475,500 stolen European Union Allowances

If you thought illiquid European sovereign markets weren’t enough of a problem — time now to familiarise yourselves with the latest trading quagmire to hit Europe.

On Wednesday, the European Union was forced to suspend transfers of its carbon units, known as European Union Allowances (EUAs), after it transpired that yet more contracts had been stolen from national registry accounts. The Czech Republic’s, in this case. Read more

DoJ launches assault on mini-Madoffs

Question — was Operation Broken Trust:

a) An unusually self-referential piece of nomenclature from US government officials; Read more

JPMorgan dragged back into Madoff saga

The trustee charged with recovering assets for victims of Bernard Madoff has sued JPMorgan for $6.4bn, NYT Dealbook reports. Irving H. Picard contends that the bank ignored ‘clear, documented suspicions’ about Mr Madof’s fund, and was “willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff.” While the lawsuit itself is under deal, FT Alphaville points out an interesting related document: a suspicious activity report filed to UK regulators by JPMorgan in October 2008, two months before Madoff’s arrest. The bank noted that Madoff’s investment performance was ‘too good to be true’ and said that it was withdrawing its money from some Madoff feeder funds — but did not share similar points with US regulators/

Wall Street prosecutor turns to civil tools

Preet Bharara, US attorney for the southern district of New York, will unveil another weapon against Wall Street fraud on Thursday, according to the FT, with renewed emphasis on civil litigation alongside existing criminal actions. Mr Bharara will announce the appointment of Heidi Wendel, a former New York state deputy attorney-general, to head a six-strong unit focused on taking civil enforcement action against fraud. Her remit covers “every single type of fraud”, including complex financial misconduct, mortgage deals, abuse of the government’s troubled asset relief programme and healthcare scams, Mr Bharara said.

Lord Black set to be freed on bail

Lord Black, the former publishing magnate who was convicted of fraud, could be released from a Florida prison on bail within days pending an appeal, the FT reports. The decision to release Lord Black by a three-judge appeals court panel follows a sweeping ruling by the US Supreme Court in June that found prosecutors wrongly applied the the so-called “honest services” law in their case against the former media executive. White Collar Watch talks discusses the wider impact of the so-called Skilling ruling.

Supreme Court finds fault in Skilling conviction

The US Supreme Court on Thursday put strict new limits on prosecutors’ ability to charge white collar criminals in a decision that touches on two of the most high-profile corporate crime cases in recent history, the FT reports. The court said the cases of both Conrad Black, former publisher of the Chicago Sun-Times, and Jeffrey Skilling, the former chief executive of Enron, could be reviewed by US appeals courts. The ruling significantly narrows the scope of the ‘honest services’ law defending against fraud, the NYT says

ICP accused of defrauding CDO investors

The SEC on Monday broadened its crackdown on alleged abuses in the market for complex debt products, accusing a boutique investment bank of defrauding investors in CDOs. In a civil suit, the SEC alleged that ICP Asset Management reaped tens of millions of dollars through a series of improper trades and triggered losses at CDOs it managed, the FT reports. The firm said it intended to “vigorously defend the allegations”.