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
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. Read more
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. Read more
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
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.” Read more
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. Read more
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
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. Read more
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
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
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. Read more
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
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. Read more
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. Read more
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
Question — was Operation Broken Trust:
a) An unusually self-referential piece of nomenclature from US government officials; Read more
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/ Read more
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. Read more
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. Read more
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 Read more
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”. Read more
The Securities and Exchange Commission today charged four Canadian men and two others living in Florida with perpetrating a $300 million international Ponzi scheme on investors in a purportedly successful gold mining operation. Read more
Affinity fraud, as defined by moneymadeclear:
Affinity fraud refers to investment scams that target members of a group, such as community, religious, ethnic, elderly or professional groups. Examples include church congregations, members of old people’s clubs, community groups – and many, many more. Read more
From Howard Schilit, founder and CEO of Financial Shenanigans Detection Group, who is presenting at the CFA Institute 2010 Annual Conference, which begins on Sunday in Boston…
Recently I had the opportunity to address a group of graduating accounting and auditing students and asked them a question they had never discussed in any of their classes. “Who could come up with the most clever way to put the most positive spin on a company’s financial statements – even if you have to violate the spirit or letter of the accounting rules?” Needless to say, they were surprised and stunned by my question. After much prodding, we began drawing up a list of how to inflate revenue, hide expenses, report bloated operating cash flow, hide ballooning debt, and other tricks to mislead investors. Read more
Fresh Ponzi news on Wednesday:
The Securities and Exchange Commission today charged a prominent Miami Beach-based businessman and philanthropist with fraud for orchestrating a $900 million offering fraud and Ponzi scheme. Read more
Hong Kong’s market regulator has applied for a court order to freeze HK$1bn in funds raised by a Chinese fabric maker in its IPO three months ago, the FT said. Hontex International Holdings used false and misleading information to induce investors to buy its shares, High Court documents filed by the Securities and Futures Commission allege. The regulator said it planned to return the proceeds of Hontex’s IPO to investors, including those who bought the shares on the market after its listing on Christmas Eve. Read more
The latest fraud allegations from the SEC, emphasis ours:
19. These joint venture agreements represented that Global Holdings would utilize those funds “for the purpose of buying and selling Standard and Poor’s AAA or AA rated bonds and/or Medium Term Notes” on an “overseas trading platform.” Read more
Okay, this is really sly. Let’s refer to the SEC’s specimen (alleged) heist to give a flavour…
16. AmeriServe Financial Inc. is a publicly traded, Johnstown, Pennsylvania based bank. The company’s shares are traded on the NASDAQ Global Market under the symbol ASRV. From December 1 – December 20,2009, ASRV traded an average of approximately 11,300 shares per day. On December 21,2009, trading in ASRV increased more than twenty times, with 277,567 shares trading that day. At least 200,000 shares were bought or sold between BroCo’s trades and the unauthorized trades placed through compromised Scottrade accounts. On that day, ASRV opened at $1.60 per share and increased to an intraday high of$1.80 per share. Read more
Watch this space: at 1pm ET on Monday, Tarp overlord Neil Barofsky will discuss the arrest of one Charles J Antonucci Sr, the former president and chief executive of the (failed) Park Avenue Bank in New York.
The FDIC closed the bank on March 12. Read more
Fraud – it brings people together. As Bloomberg reported on Wednesday:
Victims of Bernard Madoff and accused Ponzi schemer R. Allen Stanford are banding together to lobby Congress for a law that could require Wall Street firms to pay billions of dollars to cover some of the losses they suffered. Read more