Author Archives: Brad Geyer

Real Estate Investor Pleads Guilty to Bid Rigging and Fraud Conspiracies at Georgia Public Foreclosure Auctions

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A Georgia real estate investor pleaded guilty today for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Fulton and DeKalb counties, Georgia.

Morris Podber admitted that he conspired with others not to bid against one another at public real estate foreclosure auctions on selected properties.  After the public foreclosure auctions, Podber admitted that he and his co-conspirators would divvy up the targeted properties in private side auctions, open only to the conspirators.  Podber admitted to conspiring to use the mail to carry out their fraud, which included making and receiving payoffs and diverting money to co-conspirators that should have gone to the mortgage holders and others.

“This is the ninth real estate investor held accountable for bid rigging at public foreclosure auctions in Georgia,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “We will continue to root out anticompetitive conduct at foreclosure auctions and obtain justice for homeowners and lenders.”

According to documents filed with the court, the purpose of the conspiracies was to suppress and restrain competition and divert money to the conspirators that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.  Podber admitted to participating in a conspiracy in Fulton County from July 2005 until August 2010; and to participating in a conspiracy in DeKalb County from October 2006 to August 2011.

“Incidents of bid rigging at public real estate auctions continue to be an issue in Georgia and elsewhere in the United States, and the FBI would like to remind the public that such matters are violations of federal law,” said Special Agent in Charge J. Britt Johnson of the FBI’s Atlanta Field Office.  “The FBI will continue to work with the U.S. Department of Justice’s Antitrust Division in identifying, investigating and prosecuting those individuals engaged in such activities.”

The ongoing investigation is being conducted by the Antitrust Division’s Washington Criminal II Section, the FBI’s Atlanta Division and the U.S. Attorney’s Office of the Northern District of Georgia.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Washington Criminal II Section of the Antitrust Division at 202-598-4000, call the Antitrust Division’s Citizen Complaint Center at 888-647-3258 or visit www.justice.gov/atr/contact/newcase.htm.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorneys’ Offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information about the task force, please visit www.StopFraud.gov.

Antitrust Division Provides Guidance for an Effective Compliance Program

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On Sept 16, 2015, The Antitrust Division announced that Kayaba Industry Co. Ltd., dba KYB Corporation (KYB) had agreed to plead guilty and to pay a $62 million criminal fine for its role in a conspiracy to fix the price of shock absorbers installed in cars and motorcycles sold to U.S. consumers.  The plea agreement indicated that KYB would receive credit for instituting an effective compliance program going forward.  The Division had only recently announced that it was possible for a company to get credit for a forward-looking compliance program that change the culture of the company.  This was a big and new step for the Division so there was a great deal of curiosity as to what the company did that the Division considered credit worthy.  Yesterday, the Division filed its sentencing memorandum which gives an outline of the compliance steps that KYB took.

The first thing to note is that the government praised KYB’s cooperation, noting that it cooperated early, the CEO ordered a complete and timely internal investigation, and the company has made employees and documents available that were outside the US.  I would say that early and complete cooperation is probably the most important factor in convincing the government that there has been a change in culture.   But, in the past, that alone would not earn a company any credit for a compliance program.  In its sentencing memorandum, the Division said this about KYB’s compliance efforts:

“KYB’s compliance policy has the hallmarks of an effective compliance policy including direction from top management at the company, training, anonymous reporting, proactive monitoring and auditing, and provided for discipline of employees who violated the policy.” Case: 1:15-cr-00098-MRB Doc #: 21 Filed: 10/05/15.

These steps closely follow the US Sentencing Guidelines outline for an effective compliance and ethics program:  US Sentencing Guidelines, §8B2.1. Effective Compliance and Ethics Program.

At a recent conference, Brent Snyder indicated that more pleas with credit for compliance programs are in the works and will provide a roadmap for what the Division considers an effective compliance programs.  I wrote about that in  a recent blog post (here). [Note:  There was one other plea agreement in the Forex investigation that indicated credit for a compliance program, but that sentencing memorandum has not yet been filed.  Blog post here.]

The credit for a compliance program is a welcome development. But, the current policy raises one question in my mind.  The Division has indicated that it still will not credit “backward looking compliance programs,” that is, compliance programs that have failed.  But, what if KYB had had this compliance program in place all along, yet certain managers violated it?  In that case, the company would not have received credit for the same program?  It will be interesting to see how the Division’s approach to compliance programs evolves.

Thanks for reading.

Len Blavatnik to Pay $656,000 Civil Penalty for Violating Antitrust Premerger Notification Requirements

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The Justice Department’s Antitrust Division, at the request of the Federal Trade Commission, filed a civil antitrust lawsuit today in U.S. District Court in Washington, D.C., against Len Blavatnik for violating the premerger notification and waiting period requirements of the Hart-Scott-Rodino (HSR) Act of 1976 when he acquired voting securities of TangoMe Inc. in August 2014.  At the same time, the department filed a proposed settlement, subject to approval by the court, under which Blavatnik has agreed to pay a $656,000 civil penalty to resolve the lawsuit.

The HSR Act of 1976, an amendment to the Clayton Act, imposes notification and waiting period requirements for transactions meeting certain size thresholds so that they can undergo premerger antitrust review.  Federal courts can assess civil penalties for premerger notification violations under the HSR Act in lawsuits brought by the Department of Justice.  For a party in violation of the HSR Act, the maximum civil penalty is $16,000 per day.

Further details about this matter are described in the FTC’s press release issued today, and in the attached complaint.

Justice Department Announces BHF-Bank (Schweiz) AG Reaches Resolution under Swiss Bank Program

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The Department of Justice announced today that BHF-Bank (Schweiz) AG (BHF) has reached a resolution under the department’s Swiss Bank Program.

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreement signed today, BHF agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute this bank for tax-related criminal offenses.

BHF was established in 1974 as a wholly-owned Swiss subsidiary of BHF-BANK Aktiengesellschaft (BHF-BANK AG), a private bank located in Germany.  Deutsche Bank AG purchased BHF-BANK AG in 2010, and in 2014, BHF-BANK AG was sold to a consortium of investors.  BHF is headquartered in Zurich and has a branch in Geneva.  The name of the group is now BHF Kleinwort Benson Group.

BHF opened and maintained undeclared accounts for U.S. taxpayers.  It chose to continue to service U.S. customers without disclosing their identities to the Internal Revenue Service (IRS) or taking steps to ensure that clients were compliant with U.S. tax laws and without considering the impact of U.S. criminal law on that decision.

BHF offered a variety of traditional Swiss banking services that it knew could assist, and did assist, U.S. clients in the concealment of assets and income from the IRS, such as “hold mail” services, which minimized the paper trail between the U.S. clients and undeclared assets and income, and debit cards, which allowed U.S. clients to access their undeclared accounts without having to visit BHF.

In 1982, Plinius Management Limited, Zurich (Plinius), a trust company, was formed as a wholly-owned subsidiary of BHF to provide special services for wealthy clients, which included advice regarding trusts, foundations, fiduciary agreements and holding companies in order to protect assets and minimize tax liability.  Plinius had no employees, and BHF provided it with staff and infrastructure.

Plinius also assisted with referrals to establish various types of structures, including Liechtenstein Anstalten and Stiftungen, and British Virgin Islands and Panamanian entities.  Plinius did not create the structures; instead, it would contact an external trust company or law firm in Liechtenstein to set up the entity within the agreed-upon jurisdiction.  While Plinius’ relationship managers did not have access to the Forms A held by BHF that identified the beneficial owners, in some cases they were aware of the ultimate beneficial owner(s) of the accounts.  Four subsidiary-related structured accounts were established for U.S. persons, which improperly sheltered U.S. taxpayer-clients and hid their assets from the IRS.

U.S.-related accounts, including offshore structured accounts, came into BHF through its relationship managers, through external asset managers or otherwise.  For example, one account in the name of an offshore entity was referred to a BHF manager from a U.S.-based structuring lawyer prior to 2008, and transferred to BHF from another Swiss bank.  The file contained a Form W-8BEN and certification of non-U.S. persons for the offshore corporate accountholder.  BHF’s management approved opening the account even though the account also held U.S. securities.  There was no Form W-9 completed or provided to BHF for the U.S. beneficial owner.  BHF did not confirm that the U.S. beneficial owner was compliant with U.S. tax obligations.

In the fourth quarter of 2000, BHF signed a Qualified Intermediary (QI) Agreement with the IRS.  The QI regime provided a comprehensive framework for U.S. information reporting and tax withholding by a non-U.S. financial institution with respect to U.S. securities.  The QI Agreement was designed to help ensure that, with respect to U.S. securities held in an account at BHF, non-U.S. persons were subject to the proper U.S. withholding tax rates and that U.S. persons were properly paying U.S. tax.

BHF implemented a policy that every client had to sign either a Form W-9 or a Declaration of Non-U.S. Person Status, which required the customer to declare whether he or she was a U.S. person for tax purposes.  Some U.S. clients who did not want to have their identities disclosed to the IRS could avoid detection by declining U.S. securities.  Approximately five clients refused to sign a Form W-9, but BHF nevertheless continued to service these clients’ accounts and kept them open.

While participating in the Swiss Bank Program, BHF encouraged existing and prior accountholders and beneficial owners of U.S.-related accounts to provide evidence of tax compliance or of participation in any of the IRS Offshore Voluntary Disclosure Programs or Initiatives or to disclose their accounts to the IRS through such a program.  BHF sought waivers of Swiss bank secrecy from all accountholders and obtained waivers for more than 50 percent of its accounts.  BHF has also provided certain account information related to U.S. taxpayers that will enable the government to make requests under the 1996 Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income for, among other things, the identities of U.S. accountholders.

Since Aug. 1, 2008, BHF held a total of 125 U.S.-related accounts, comprising total assets under management of approximately $202,964,006.  BHF will pay a penalty of $1.768 million.

While U.S. accountholders at BHF who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at BHF must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Acting Assistant Attorney General Ciraolo thanked the IRS, and in particular, IRS-Criminal Investigation and the IRS Large Business & International Division for their substantial assistance.  Ciraolo also thanked Charles M. Duffy, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Attorney Kimberle E. Dodd and Senior Litigation Counsel Nanette L. Davis of the Tax Division.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Medical Biller Sentenced to 45 Months in Prison for Role in $4 Million Health Care Fraud Scheme

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The medical biller of a Chicago-area visiting physician practice was sentenced today to 45 months in prison for her role in a $4 million health care fraud scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Zachary T. Fardon of the Northern District of Illinois, Special Agent in Charge Lamont Pugh III of the U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG) in Chicago and Acting Special Agent in Charge John A. Brown of the FBI’s Chicago Division made the announcement.

Mary Talaga, 54, of Elmwood Park, Illinois, was convicted in May 2015 following a jury trial of one count of conspiracy to commit health care fraud, six counts of health care fraud and three counts of false statements relating to a health care matter.  In addition to imposing the prison term, U.S. District Judge Gary Feinerman of the Northern District of Illinois ordered Talaga to pay approximately $1 million in restitution.

From 2007 to 2011, Talaga was the primary medical biller at Medicall Physicians Group Ltd., a physician practice that visited patients in their homes and prescribed home health care.  The evidence at trial showed that Talaga and her co-conspirators routinely billed Medicare for overseeing patient care plans (a service known as “care plan oversight” or CPO) when, in fact, the doctors at Medicall rarely provided the service.  The evidence at trial also showed that Talaga and her co-conspirators billed Medicare for other services that were never provided, including services rendered to patients who were deceased, services purportedly provided by medical professionals no longer employed by Medicall, and services purportedly provided by medical professionals who, based on billing records, worked over 24 hours per day.

According to the evidence presented at trial, during the five-year conspiracy, Medicall submitted bills to Medicare for more than $4 million in services that were never provided.  Medicare paid more than $1 million on those claims.

Rick Brown, 58, of Rockford, Illinois, and Roger A. Lucero, 64, of Elmhurst, Illinois, were also convicted of offenses based on their roles in the scheme.  Brown was convicted along with Talaga at trial and was previously sentenced to serve more than seven years in prison.  Lucero, Medicall’s Medical Director, pleaded guilty and will be sentenced at a later date.

The case was investigated jointly by HHS-OIG and the FBI, and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Northern District of Illinois.  This case was prosecuted by Trial Attorney Brooke Harper and Senior Trial Attorney Jon Juenger of the Criminal Division’s Fraud Section.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged over 2,300 defendants who collectively have billed the Medicare program for over $7 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

Justice Department and Chinese Ministry of Public Security Coordinate Efforts to Combat International Drug Trafficking

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This week, law enforcement officials from the United States and the People’s Republic of China met in Beijing to coordinate their efforts to fight international drug trafficking.

Representatives of the two sides held two separate but related meetings to exchange law enforcement information, share their assessments of the drug problem, discuss responses in their respective countries, review progress and examine possible mechanisms for further cooperation.  In doing so, the two countries expanded their understanding of the differences in their legal systems, investigative practices and national situations.

The Bilateral Drug Intelligence Working Group, led by officials from the U.S. Drug Enforcement Administration and the Chinese Ministry of Public Security, met on Sept. 14-15, 2015.  Primarily an exchange mechanism for law enforcement information, the Bilateral Drug Intelligence Working Group conducted briefings on the major drug issues faced by each country.

The Counternarcotics Working Group, led by the Department of Justice and Chinese Ministry of Public Security, met on Sept. 16-17, 2015.  This group, which reports to the Joint Liaison Group on law enforcement cooperation, focuses on expanding mutual understanding and cooperation on drug issues.  In this meeting, among other issues, the sides discussed the legal and regulatory challenges posed by “designer drugs” – also known as new psychoactive substances – as well as potential avenues for cooperation in investigating and combating this emerging threat.

Going forward, law enforcement exchange and cooperation mechanisms such as these will facilitate more effective cooperation between the two countries in confronting their shared problem of drug trafficking and abuse.

Former Navy Noncommissioned Officer Pleads Guilty to Accepting Bribes While Serving in Afghanistan

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A former Navy noncommissioned officer pleaded guilty today to accepting approximately $25,000 in cash bribes from vendors while he served in Afghanistan.

The announcement was made by Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Acting U.S. Attorney Christopher P. Canova of the Northern District of Florida, Assistant Director in Charge Paul M. Abbate of the FBI’s Washington, D.C., Field Office, Special Inspector General for Afghanistan Reconstruction (SIGAR) John F. Sopko, Director Frank Robey of the Major Procurement Fraud Unit of the U.S. Army Criminal Investigation Command (Army CID), Acting Special Agent in Charge Paul Sternal of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Brigadier General Keith M. Givens of the Air Force Office of Special Investigations (Air Force OSI).

Donald P. Bunch, 46, of Pace, Florida, pleaded guilty before Senior U.S. District Judge Roger Vinson of the Northern District of Florida to a one-count information charging him with accepting bribes.  Sentencing is scheduled to take place on Dec. 8, 2015.

From February to August 2009, Bunch worked as an U.S. Navy E8 senior chief at the Humanitarian Assistance Yard (HA Yard) at Bagram Airfield in Afghanistan.  The HA Yard purchased supplies from local Afghan vendors for use as part of the Commander’s Emergency Response Program, which enabled U.S. military commanders to respond to urgent humanitarian relief requirements in Afghanistan.

Bunch was responsible for replenishing food and supplies such as rice, beans and clothing at the HA Yard, and for selecting vendors from a pre-determined list to provide the necessary items.  In connection with his guilty plea, Bunch admitted that he had been instructed by his predecessor to rotate among the vendors.

According to admissions made in connection with his plea agreement, certain Afghan vendors offered, and Bunch accepted, money for the purpose of influencing his selection of vendors.  Bunch admitted that he received a total of approximately $25,000 from the vendors and that, as a result, he secured on their behalf more frequent and lucrative contracts.  Bunch also admitted that he sent greeting cards stuffed with proceeds of the bribes to his wife at their residence in Florida, and that they used the money to pay for the construction of a new home.

This case was investigated by the FBI, SIGAR, Army CID, DCIS and Air Force OSI.  This case is being prosecuted by Trial Attorney Daniel P. Butler of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David L. Goldberg of the Northern District of Florida.

CCC’s: A Note on Some Upcoming Cartel Related Events

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There are three upcoming programs that I want to pass along with a brief mention of why I think each is timely and important.   First, on September 22 the Section of Antitrust Law, Cartel and Criminal Practice Committee is hosting a teleconference on extradition.  On September 28, Concurrences is sponsoring a live program on the FTAIA.  Last up, the Georgetown Global Antitrust Symposium is on September 29, 2015.

The first program is an ABA teleconference: Antitrust and Extradition:  Where Are We Now on September 22 from noon to 1:00 pm ET.  The panel line-up is:

Moderator:  Kathryn Hellings – Hogan Lovells

Speakers:

Stuart Chemtob – Wilson, Sonsini Goodrich & Rosati LLP

Greg DelBigio – Thorsteinssons LLP

Mark Krotoski – Morgan, Lewis & Bockius LLP

I know Katie Hellings, Stu Chemtob and Mark Krotoski as colleagues from my days with the Antitrust Division.  They all have a great deal of experience in international cartel matters and have as good a sense as anyone, not only of where we are now, but where we might be going on extradition.  (As an added bonus, Stu Chemtob knows everyone in the world).  Aside from the real estate auction matters, the vast majority of Antitrust Division defendants are foreign fugitives.  Extradition is a hot, and key topic, in the development of cartel enforcement.

Next up is a program sponsored by Concurrences Review & The George Washington University Law School:  EXTRATERRITORIALITY OF ANTITRUST LAW IN THE US AND ABROAD: A HOT ISSUE.  The program in on Monday, September 28, 2015 from 2:30 PM to 6:30 PM (EDT) in Washington, DC.  You can click on the link for the full details, but here are a couple of highlights:

Opening Keynote Speech
Diane P. WOOD | Chief Judge, US Court of Appeals for the Seventh Circuit, Chicago

Panelists:

Douglas H. GINSBURG, Judge, US Court of Appeals for the District of Columbia

James FREDRICKS | Assistant Chief, Department of Justice, Antitrust Appellate Section

After the Supreme Court denied cert. in AU Optronics and Motorola Mobility (here), the FTAIA dropped off the radar–for about 5 minutes.  But, on September 2, 2015 the Antitrust Division announced its first criminal case and plea agreement in capacitors.  The Information alleged both direct import commerce and commerce that fell within the Sherman Act because it had a “direct, substantial, and reasonably foreseeable effect” on US commerce.  If you think application of the FTAIA was complicated when applied to TFT-LCD screens, (I did), then you ain’t seen noting yet.  LCD screens were a significant component cost of the device they were assembled into.  Capacitors, however, typically cost less than a penny and there can be a couple of hundred of them in a device like a cell phone.   Direct?  Substantial?There will certainly be substantial litigation over these issues, and other FTAIA related head scratchers.  Besides capacitors, FTAIA application is being litigated in other civil cases in lower courts.  I am really looking forward to attending this conference.  I’ll try to take notes and pass them along.

Last, but not least, is the Georgetown Global Antitrust Enforcement Symposium on Tuesday, September 29, 2015. Bates White is one of the sponsors.  The Global Antitrust Enforcement Symposium is a leading forum for lawyers, policymakers, corporate executives, economists, and academics to address current issues in competition law and policy. The faculty includes current and former enforcement officials from the United States, European Commission, Germany, France, Brazil and Mexico.  This forum is often the place to hear about significant policy developments.  I recall last year it was in this forum that Bill Baer first hinted at a change in the Antitrust Division’s policy with regard to compliance programs (here).  Then, in the FOREX investigation, the Division for the first time, gave  company credit in a plea agreement for a compliance efforts (here).  Maybe there will be interesting news this time, if not from the Antitrust Division, perhaps from enforcers from other major jurisdictions.

Thanks for reading.

PAE Government Services and RM Asia (HK) Limited to Pay $1.45 Million to Settle Claims in Alleged Bid-Rigging Scheme

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AE Government Services Inc. (PAE) and RM Asia (HK) Limited (RM Asia) have agreed to pay the United States $1.45 million to resolve allegations that they engaged in a bid-rigging scheme that resulted in false claims for payment under a U.S. Army contract for services in Afghanistan, the Justice Department announced today. PAE, headquartered in Arlington, Virginia, provides integrated global mission services. RM Asia, located in Hong Kong, provides motor vehicle parts and supplies.

“Our national security and those of our allies depend on quality goods and services delivered at a fair price,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “Today’s settlement demonstrates our continuing vigilance to ensure that those doing business with the government do not engage in bidrigging or other anticompetitive conduct.”

In 2007, the Army awarded PAE a contract to provide vehicle maintenance capabilities and training services for the Afghanistan National Army at multiple sites across Afghanistan. PAE partnered with RM Asia to supply and warehouse vehicle parts. The government alleged that former managers of PAE and RM Asia funneled subcontracts paid for by the government to companies owned by the former managers and their relatives by using confidential bid information to ensure that their companies would beat out other, honest competitors.

In a related criminal investigation, the U.S. Attorney’s Office of the Eastern District of Virginia previously obtained guilty pleas from former PAE program manager Keith Johnson; Johnson’s wife, Angela Gregory Johnson; and RM Asia’s former project manager, John Eisner, and deputy project manager, Jerry Kieffer, for their roles in the scheme.

“This resolution, following criminal charges that were also brought against the individuals involved, represents the government’s efforts to use all of the criminal and civil tools available to the government to remedy fraudulent conduct,” said U.S. Attorney Dana J. Boente of the Eastern District of Virginia.

The allegations resolved by this settlement arose from a lawsuit filed by Steven D. Walker, a former employee of PAE, under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and share in the recovery. Mr. Walker will receive $261,000.

This case was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office of the Eastern District of Virginia, the Defense Criminal Investigative Service, the U.S. Department of the Army Criminal Investigation Command-Major Procurement Fraud Unit and the Defense Contract Audit Agency.

The lawsuit is captioned United States ex rel. Walker v. PAE, et al., 1:11CV382-LO/TCB (E.D. Va.). The claims resolved by the settlement are allegations only; there has been no determination of liability.

SEC Charges Three RMBS Traders With Defrauding Investors

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FOR IMMEDIATE RELEASE

2015-181

Washington D.C., Sept. 8, 2015 —The Securities and Exchange Commission today announced fraud charges against three traders accused of repeatedly lying to customers relying on them for honest and accurate pricing information about residential mortgage-backed securities (RMBS).

The SEC alleges that Ross Shapiro, Michael Gramins, and Tyler Peters defrauded customers to illicitly generate millions of dollars in additional revenue for Nomura Securities International, the New York-based brokerage firm where they worked.  They misrepresented the bids and offers being provided to Nomura for RMBS as well as the prices at which Nomura bought and sold RMBS and the spreads the firm earned intermediating RMBS trades.  They also trained, coached, and directed junior traders at the firm to engage in the same misconduct.

In a parallel action, the U.S. Attorney’s Office for the District of Connecticut announced criminal charges against Shapiro, Gramins, and Peters, who no longer work at Nomura.

“The alleged misconduct reflects a callous disregard for the integrity and obligations expected of registered securities professionals,” said Andrew Ceresney, Director of the SEC’s Enforcement Division. “Not only did these traders lie to their customers, but they created a corrupt culture on Nomura’s trading desk by coaching more junior traders to employ the same deceptive and dishonest trading practices we allege in our complaint.”

According to the SEC’s complaint filed in federal court in Manhattan:

  • The lies and omissions to customers by Shapiro, Gramins, and Peters generated at least $5 million in additional revenue for Nomura, and lies and omissions by the subordinates they trained and coached generated at least $2 million in additional profits for the firm.
  • Nomura determined bonuses for Shapiro, Gramins, and Peters based on several factors including revenue generation.  Nomura paid total compensation of $13.3 million to Shapiro, $5.8 million to Gramins, and $2.9 million to Peters during the years this misconduct was occurring.
  • Customers sought and relied on market price information from these traders because the market for this type of RMBS is opaque and accurate price information is difficult for a customer to determine.  Therefore it was particularly important for the traders to provide honest and accurate information.
  • Shapiro, Gramins, and Peters went so far as to invent phantom third-party sellers and fictional offers when Nomura already owned the bonds the traders were pretending to obtain for potential buyers.

The SEC’s complaint charges Shapiro, Gramins, and Peters with violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 as well as Section 17(a) of the Securities Act of 1933.

The SEC separately entered into deferred prosecution agreements (DPAs) with three other individuals who have extensively cooperated with the SEC’s investigation and provided enforcement staff with access to critical evidence that otherwise would not have been available.

“The SEC is open to deferring charges based on certain factors, including when cooperators come forward with timely and credible information while candidly acknowledging their own misconduct,” said Michael Osnato, Chief of the SEC’s Complex Financial Instruments Unit.  “The decision to defer charges in this matter reflects the early and sustained assistance provided by these individuals.”

The SEC’s continuing investigation is being conducted by James R. Drabick, Susan Curtin, Rua Kelly, and Celia Moore.  The SEC’s litigation will be led by Ms. Kelly.