First Charges Brought in Investigation of Collusion Among Heir Location Services Firms

President and Company to Plead Guilty for Agreeing Not to Compete

The president and CEO of a California-based heir location services provider and his firm have agreed to plead guilty to allocating customers with another heir location firm, announced Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.

Bradley N. Davis, president of Brandenburger & Davis, and his firm will plead guilty to conspiring between 2003 and 2012 to eliminate competition in the heir location services industry.  Heir location services firms identify people who may be entitled to an inheritance from the estate of a relative who died without a will.  The heir location services firms then help heirs secure their inheritances in exchange for a contingency fee paid out of the inheritances they are due to receive.

“The defendants conspired for nearly a decade to enrich themselves at the expense of beneficiaries,” said Assistant Attorney General Baer.  “Heirs of relatives who died without a will deserve better.  Working with the FBI and our other law enforcement partners, the Antitrust Division will continue to hold the leaders of companies that corrupt the competitive process accountable for their crimes.”

Brandenburger & Davis has agreed to pay an $890,000 criminal fine for its role in the conspiracy.  In a separate plea agreement, Davis and the Antitrust Division have jointly agreed to allow the court to determine an appropriate criminal sentence.  In addition, both the company and Davis have agreed to assist the government in its investigation.  The charge was filed today in the U.S. District Court of the Northern District of Illinois.  The terms of the plea agreements are subject to approval of the court.

Today’s charge is the first to result from an ongoing federal antitrust investigation into customer allocation, price fixing, bid rigging and other anticompetitive conduct in the heir location services industry, being conducted by the Antitrust Division’s Chicago Office and the FBI’s Salt Lake City Division, with assistance from the U.S. Attorney’s Office of the Northern District of Illinois.

Anyone with information concerning the focus of this investigation should contact the Antitrust Division’s Chicago Office at 312-984-7200, visit or call the FBI’s Salt Lake City office at 801-579-1400.

Three Japanese Auto Parts Executives Indicted for Bid-Rigging Conspiracy Involving Body Sealing Products Installed in U.S. Cars

A federal grand jury in Covington, Kentucky, returned an indictment against one former and two current Japanese automotive executives for their alleged participation in a conspiracy to fix prices and rig bids for the sale of automotive body sealing products sold in the United States.

The indictment, filed today in the U.S. District Court of the Eastern District of Kentucky, charges Keiji Kyomoto, Mikio Katsumaru and Yuji Kuroda – all Japanese nationals – with conspiring to rig bids for and fix the prices of body sealing products sold to Honda Motor Company Ltd., Toyota Motor Corp. and certain of their subsidiaries and affiliates for installation in vehicles manufactured and sold in the United States and elsewhere.  Automotive body sealing products consist of body-side opening seals, door-side weather-stripping, glass-run channels, trunk lids and other smaller seals, which are installed in automobiles to keep the interior dry from rain and free from wind and exterior noises.

“These executives conspired for years with their competitors to fix the prices of body sealing products sold to Honda and Toyota and installed in U.S. cars,” said Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division.  “Today’s indictment is another reminder that antitrust violations are not just corporate offenses but also crimes by individuals.  The Antitrust Division will continue to vigorously prosecute executives who orchestrate their companies’ efforts to break the law.”

“The FBI is committed to aggressively investigating individuals who engage in criminal conduct that corrupts the global marketplace,” said Special Agent in Charge Howard S. Marshall of the FBI’s Louisville Division.  “We will continue our work with the Department of Justice Antitrust Division to uncover schemes aimed at creating an unfair competitive advantage by way of price fixing, bid rigging or other illegal means.”

The indictment alleges that Kyomoto, Katsumaru and Kuroda participated in the conspiracy from at least as early as September 2003 until at least October 2011.  For most of this period, Kyomoto resided in the United States and served as President of an unnamed joint venture with offices in Indiana and Michigan, which manufactured and sold automotive body sealing products.

Katsumaru, who resided in Japan, served in multiple managerial positions during the conspiracy period, including Manager of the Sales and Marketing Division, for an unnamed company based in Hiroshima, Japan, that partially owned the joint venture and also manufactured and sold automotive body sealing products.  Kuroda, who resided in Japan, served as a sales branch manager at the same Hiroshima-based company for the entirety of the charged period.

According to the indictment, Kyomoto, Katsumaru and Kuroda each instructed subordinates at their respective companies to communicate with co-conspirators at other companies in order to allocate sales of, rig bids for and fix the prices of automotive body sealing products; were aware that employees under their supervision were engaging in such communications; and condoned such communications.  The indictment further alleges that Kyomoto attended meetings in the United States with co-conspirators during which Kyomoto and the co-conspirators reached agreements regarding sales of automotive body sealing products to Honda and Toyota.  The indictment also alleges that Katsumaru and Kuroda instructed and encouraged certain employees at their company to destroy evidence of the conspiracy.  Each individual faces a maximum penalty to 10 years in prison and a $1 million criminal fine if convicted.

Today’s charge is the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by the Antitrust Division’s criminal enforcement sections and the FBI.  A total of 58 individuals and 37 companies have been charged and have agreed to pay more than $2.6 billion in criminal fines.  This indictment was brought by the Antitrust Division’s Chicago Office and the FBI’s Louisville Field Office, Covington Resident Agency, with the assistance of the FBI’s International Corruption Unit and the U.S. Attorney’s Office of the Eastern District of Kentucky.  Anyone with information about anticompetitive conduct in the automotive parts industry should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258, visit or call the FBI’s Louisville Field Office at 502-263-6000.

Antitrust Division Provides Guidance for an Effective Compliance Program

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

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.

Five School Bus Owners Indicted for Bid-Rigging and Fraud Conspiracies at Puerto Rico Public School Bus Auction

A federal grand jury in San Juan, Puerto Rico, returned an indictment against five individuals for participating in bid rigging and fraud conspiracies at an auction for public school bus transportation contracts in Puerto Rico’s Caguas municipality, the Department of Justice announced today.

A seven-count felony indictment was filed yesterday in U.S. District Court of the District of Puerto Rico in San Juan against five bus transportation company owners: Gavino Rivera-Herrera, Luciano Vega-Martínez, Alfonso Gonzales-Nevarez, José L. Arroyo-Quiñones and René Garay-Rodríguez.

Count one charges the bus owners with participating in a conspiracy to rig bids and allocate the market for public school bus transportation services in the Caguas municipality.  The second count charges the bus owners with conspiracy to commit mail fraud and counts three through seven charge the bus owners with committing mail fraud.  According to the indictment, the defendants and others defrauded, and conspired to defraud, the Puerto Rico Department of Education and the Caguas municipality, among others, in order to fraudulently obtain contracts for school bus transportation services.

These charges relate to a 2013 Caguas municipality auction, at which four-year contracts for public school bus transportation were awarded.  The indictment alleges that the defendants participated in the charged offenses from around August 2013 until at least May 2015.

“The defendants are charged with depriving taxpayers, the Municipality of Caguas and the Puerto Rico Department of Education of the benefits of a competitive bidding process for school bus contracts,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “This is unacceptable.  The Division will continue its efforts to protect U.S. citizens across the country and hold accountable those who subvert competition.”

“Today’s case is the latest in our ongoing efforts to investigate and prosecute financial crimes, one of the priorities of the Department of Justice,” said U.S. Attorney Rosa Emilia Rodríguez-Vélez of the District of Puerto Rico.  “These arrests serve as a reminder that federal law enforcement agencies intend to vigorously prosecute those who manipulate the economic system to enrich themselves at the expense of the government.”

“Price fixing victimizes the consumer which in this case are the honest, hardworking and tax paying citizens living in Puerto Rico,” said Special Agent in Charge Carlos Cases of the FBI’s San Juan Division.  “Let there be no doubt, the FBI, along with law enforcement partners, will continue to investigate, charge and prosecute any individuals involved in these type of acts.”

The bus owners are charged with bid rigging and market allocation in violation of the Sherman Act, which carries a maximum sentence of 10 years in prison and a $1 million criminal fine for individuals.  The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than $1 million.  Each count of mail fraud, and conspiracy to commit mail fraud, carries a maximum sentence of 20 years in prison and a $250,000 fine.

This is the first case resulting from an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in Puerto Rico’s school bus transportation services industry.  This investigation is being conducted by the Antitrust Division’s Washington Criminal I Section, the U.S. Attorney’s Office of the District of Puerto Rico, the FBI’s Puerto Rico Field Office and the U.S. Department of Education Office of Inspector General.  Anyone with information in connection with this investigation is urged to call the Antitrust Division’s Washington Criminal I Section at 202-307-6694, visit or call the FBI’s Puerto Rico Field Office at 787-754-6000.

CCC’s: Some Thoughts On Compliance and Other Issues Raised by the Forex Guilty Pleas

It’s been almost two weeks since the Department of Justice announced its plea agreements in the Forex investigation. To recap the highlights, in his remarks announcing the case filings, Bill Baer Assistant Attorney General for the Antitrust Division said (here):

Today’s guilty pleas to criminal charges represent major developments in our investigation into collusion affecting foreign exchange markets, particularly the spot market for trading U.S. dollars and euros. The antitrust guilty pleas announced today involving four major international financial institutions – Citicorp, JPMorgan Chase, The Royal Bank of Scotland and Barclays – are without precedent. In light of the seriousness of the crimes and the unjustified benefit to the bottom lines of these banks, we demanded parent-level guilty pleas, secured record fines of more than $2.5 billion and insisted upon three years of court-supervised probation.

In addition, UBS agreed to plead guilty to a violation in the Libor market. UBS had previously received non-prosecution protection in the Libor investigation, but that protection was withdrawn in light of UBS’s participation in the Forex cartel.

Since the news of the case filings first broke, I’ve had some additional thoughts on the matter.  First, I want to give a big pat on the back to my former colleague, Joe Muoio, who signed the pleadings on behalf of the Antitrust Division. Joe and I worked together for many years in the now closed Philadelphia Field office. Joe was the Assistant Chief and transferred to the New York Field office when the Philadelphia office was closed in 2013. The Forex investigation was a team effort (a large international team, no doubt) and there could not have a better team leader than Joe.   Congratulations to Joe and the rest of the team.

The Forex plea agreements have two noteworthy departures from previous pleas in the financial sector. For the first time, the Antitrust Division acknowledged giving credit to a company for implementing an effective compliance program after the start of the investigation. Little has been revealed about what made Barclay’s compliance program effective, why the Division chose to give credit in this case, and what the value of the credit given to Barclays was?  The plea agreements states only: “The parties further agree that Recommended Sentence is sufficient, but not greater than necessary to comply with the purposes set forth in 18 U.S.C. §§ 3553(a), 3572(a), in considering, among other factors, the substantial improvements to the defendant’s compliance and remediation program to prevent recurrence of the charged offense.”  This language, while limited, is still an important first step for the Antitrust Division to acknowledge (and thereby encourage) implementation of effective antitrust compliance programs. The Antitrust Division does not make changes in policy lightly and it is likely they will have more to say about this development in future speeches.

Another noteworthy fact about the Forex plea agreements is that the Antitrust Division required pleas from the parent company. Previously, in most situations where financial institutions have been charged in Forex and Libor, the plea has come from a foreign subsidiary to avoid the collateral consequences that would flow from a conviction of a publicly traded company. Requiring the parent to plead was a relatively small step, however, as the pleas were only entered after waivers were secured from the SEC.  The banks wanted assurances from U.S. regulators that they would not be barred from certain businesses before agreeing to plead guilty to criminal charges. (here). The defendants received the desired waivers.

Public Reaction

The historic pleas have not been without some public criticism. An example is an editorial in the New York Times titled: “Banks as Felons, Or Criminality Lite

Besides the criminal label, however, nothing much has changed for the banks. And that means nothing much has changed for the public. There is no meaningful accountability in the plea deals and, by extension, no meaningful deterrence from future wrongdoing.”

SEC Commission, Kara M. Stein, was harsh in her dissent from the grant of waivers to the recidivist banks.

Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored. It is not sufficient to look at each waiver request in a vacuum.

And, in an article in USA Today (here), four leading antitrust commentators who are not usually found to be in agreement (Judge Douglas Ginsburg, FTC Commission Josh Wright and Albert Foer and Professor Robert H. Lande of the American Antitrust Institute) called for harsher penalties against individuals convicted of antitrust offenses.

Some thoughts on Compliance

As already noted, the Antitrust Division took a big step forward in encouraging the implementation of effective compliance programs. Hopefully, more details will be forthcoming about why now? What was it about Barclays’ program that was considered effective? And what was the monetary benefit for the compliance program.

The Division’s encouragement of an effective compliance program should be bolstered by the sheer magnitude of the fines and other consequences of these guilty pleas. In the compliance world, FCPA is “Top Dog” in terms of compliance resources and attention. No doubt issues like vetting third-party vendors worldwide rightfully account for this attention. But the consequences of an antitrust offense call out for an equally keen focus on antitrust compliance. I’ve written about this before (here), but the combination of huge fines, jails sentences for individuals, investigation by multiple U.S. agencies, and competition agencies around the world, and the significant damages paid out in civil class action lawsuits make a compelling case for robust antitrust compliance efforts.

Indeed, the Antitrust Division’s plea agreements with the other banks besides Barclays call for devoting resources to compliance programs:

“The defendant shall implement and shall continue to implement a compliance program designed to prevent and detect the conduct set forth in Paragraph 4 (g)-(i) above and, absent appropriate disclosure, the conduct in Paragraph 13 below throughout its operations including those of its affiliates and subsidiaries and provide an annual report to the probation officer and the United States on its progress in implementing the program, commencing on a schedule agreed to by the parties.”

The plea agreements, however, do not call for external compliance monitors. Given that the cartel involved billions of dollars, the brazen nature of the crime (the conspirators referred to themselves in private chat rooms as the “Cartel Club” and “The Mafia,” and finally, the degree of recidivism, one wonders (OK, I wonder) why no external compliance monitors? The Division sought (and received from the court) external compliance monitors in the Apple case, (a civil violation) and in AU Optronics (a first offense).  Unless the Antitrust Division provides further guidance, it appears that the only criteria for seeking an external monitor is if a company goes to trial against the Division and loses.

The Investigation Is Ongoing

There is some validity to the charge that the corporate fines are just a cost of doing business and don’t provide sufficient deterrent. Perhaps requiring a parent to plead was one step closer towards requiring a plea and no regulatory waivers. But fears of collateral damage to innocent employees (who would lose jobs), stockholders (who could be wiped out) and the economy in general make this a hard trigger to pull.  The real deterrent comes with prosecution of individuals—i.e., the guys in The Cartel or The Mafia, as they put it.   It is extremely likely that the Antitrust Division will seek charges against individuals in this case. The hard part is not so much prosecuting the traders who operated in the chat rooms and left a trail of evidence, but in determining if knowledge of the cartel went higher up in the banks. Holding the highest-level person in an organization responsible for the crime is the highest deterrence. But, this is challenging as superiors are often shielded from direct involvement in the crime and can only be convicted on the basis of the testimony of subordinates whose credibility may be compromised by their own plea. The public often cries for higher level executives to be held accountable, but juries take seriously their obligation to convict only where the proof establishes guilt “beyond a reasonable doubt.”

There will be much more to this story so stay tuned. Thanks for reading.

Connolly’s Cartel Capers: Seventh Circuit Panel to Rehear Motorola Mobility v. AU Optronics

Seventh Circuit Panel to Rehear Motorola Mobility v. AU Optronics: A Preview of Some of the FTAIA Issues in Component International Price Fixing Cases

The Seventh Circuit has decided to rehear the appeal from a judgment dismissing nearly Motorola’s entire $3.5 billion antitrust claim against foreign manufacturers of LCD panels. The Court has not yet set a schedule for the filing of supplemental briefs.

In Motorola Mobility v. AU Optronics Corp, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014)(vacated), the Seventh Circuit (J. Posner) upheld a lower court ruling dismissing most of Motorola’s damage claims from price fixing of LCD panels. The commerce at issue was LCD panels sold by defendants to Motorola’s foreign subsidiaries and incorporated into products such as cell phones. The finished product was imported into the U.S. The Court found that a damage claim based on the purchases by Motorola’s foreign subsidiaries was barred by the FTAIA. The Court held that because the price-fixed panels were sold to customers overseas, the effect on U.S. commerce was indirect, even though the price of the finished product later imported into the U.S. may have been inflated by the component price fixing.

The Motorola Mobility Court rejected the view that the component price fixing had a “direct, substantial and reasonably foreseeable effect” on U.S. commerce. The Court noted “nothing is more common nowadays than for products imported into the United States to include components that the producers had bought from foreign manufacturers.” From this the Court concluded: “The position for which Motorola [and the U.S.] contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries and ‘resent[ment at] the apparent effort of the United States to act as the world’s competition police officer,’ a primary concern motivating the foreign trade act.” The DOJ joined in the request for en banc review. Motorola Mobility involves the same LCD panel cartel that the Antitrust Division successfully prosecuted, sending many foreign defendants to prison.

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Connolly’s Cartel Capers: Plea Agreements in a Criminal Antitrust Trial

The Proper Use of Plea Agreements in a Criminal Antitrust Trial

by Robert E. Connolly

Criminal antitrust trials occur relatively infrequently these days, so an occasional review of some of the issues that arise at trial can be useful as a refresher. Many government witnesses at a criminal antitrust trial are testifying pursuant to some type of agreement with the government. Such agreements include amnesty, immunity, non-prosecution/cooperation agreements and plea agreements. The essence of the agreement is that the witness will receive some type of benefit in the form of a reduced punishment (or immunity). In return, the witness agrees to cooperate with the government and testify at trial. If the witness does not give truthful testimony, he/she is theoretically subject to prosecution for perjury, and may also lose the benefits conferred by the agreement

A recent Second Circuit decision, U.S. v. Certified Environmental Services, Inc., No. 11-4872 (2d Cir. May 28, 2014), provides a chance to review the proper use of plea agreements at trial.   The court reversed convictions on several counts related to a scheme by defendants to violate various state and federal environmental regulations. The convictions were reversed based, in part, on the government having improperly bolstered the witness’s credibility by referring to the cooperation agreement requirement that the witness tell the truth.

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GeyerGorey partner Allen Grunes to speak at conference in Seoul, South Korea, about private antitrust enforcement.

Allen Grunes will speak at a conference on international trends in private antitrust enforcement that is being held in Seoul, South Korea on November 1, 2013.  He will present a paper on the U.S. experience with treble damages as part of a program examining private enforcement in the EU, U.S. and China and recent developments in Korea.  The program is jointly sponsored by the Korea University ICR Law Center, the Korean Competition Law Association, and the SNU Center for Competition Law.  More information may be found on the ICR website.


Three Former Broker-dealer Employees Plead Guilty in Manhattan Federal Court to Bribery of Foreign Officials, Money Laundering and Conspiracy to Obstruct Justice

Three employees of a New York-based U.S. broker-dealer have pleaded guilty for their roles in bribery schemes involving two state economic development banks in Venezuela.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge George Venizelos of the New York Office of the FBI made the announcement.

Ernesto Lujan, Jose Alejandro Hurtado and Tomas Alberto Clarke Bethancourt pleaded guilty in New York federal court to conspiring to violate the Foreign Corrupt Practices Act (FCPA), to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.  These charges relate to a scheme to bribe a foreign official named Maria de los Angeles Gonzalez de Hernandez at Banco de Desarrollo Económico y Social de Venezuela (BANDES), a state economic development bank in Venezuela, in exchange for receiving trading business from BANDES.  Lujan, Hurtado and Clarke each also pleaded guilty to an additional charge of conspiring to violate the FCPA in connection with a similar scheme to bribe a foreign official employed by Banfoandes (the “Banfoandes Foreign Official”), another state economic development bank in Venezuela, and to conspiring to obstruct an examination by the U.S. Securities and Exchange Commission (SEC) of the New York-based broker-dealer (the “Broker-Dealer”) where all three defendants had worked, to conceal the true facts of the Broker-Dealer’s relationship with BANDES.

Lujan, 50, and Clarke, 43, entered their guilty pleas yesterday before U.S. Magistrate Judge James C. Francis IV, and Hurtado, 38, pleaded guilty today, also before Judge Francis. The men each pleaded guilty to the same six offenses and face a maximum penalty of five years in prison on each count except money laundering, which carries a maximum penalty of 20 years in prison.  Sentencing for Lujan and Clarke is scheduled for Feb. 11, 2014, before U.S. District Judge Paul G. Gardephe.  Hurtado is scheduled for sentencing before U.S. District Judge Harold Baer Jr. on March 6, 2014.

According to the informations filed against Lujan, Hurtado and Clarke this week, the criminal complaints previously filed, and statements made during the plea proceedings, Lujan, Clarke and Hurtado worked or were associated with the Broker-Dealer, principally through its Miami offices.  In 2008, the Broker-Dealer established a group called the Global Markets Group, which included Lujan, Clarke and Hurtado, and which offered fixed income trading services to institutional clients.

One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance.  The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding.  Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity.  At her direction, BANDES conducted substantial trading through the Broker-Dealer.  Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed-income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.

The Broker-Dealer also conducted business with Banfoandes, another state development bank in Venezuela that, along with its 2009 successor Banco Bicentenario, operated under the direction of the Venezuelan Ministry of Finance.  Banfoandes acted as a financial agent of the Venezuelan government in order to promote economic and social development by, among other things, offering credit to low-income Venezuelans.  The Banfoandes Foreign Official was responsible for some of Banfoandes’s foreign investments.

Court records state that from early 2009 through 2012, Lujan, Clarke and Hurtado participated in a bribery scheme in which Gonzalez allegedly directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer split the revenue the Broker-Dealer generated from this trading business with Gonzalez.  During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES.  Agents and employees of the Broker-Dealer, including Lujan, Clarke and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.  Emails, account records and other documents collected from the Broker-Dealer and other sources reveal that Gonzalez allegedly received a substantial share of the revenue generated by the Broker-Dealer for BANDES-related trades.  Specifically, Gonzalez allegedly received kickbacks and payments from Broker-Dealer agents and employees that were frequently in six-figure amounts.

To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places.  For instance, Lujan, Clarke and Hurtado used accounts they controlled in Switzerland to transfer funds to an account Gonzalez allegedly controlled in Switzerland.  Additionally, Hurtado and his spouse received substantial compensation from the Broker-Dealer, portions of which Hurtado transferred to an account allegedly held by Gonzalez in Miami and to an account held by an associate of Gonzalez in Switzerland.  Hurtado also sought and allegedly received reimbursement from Gonzalez for the U.S. income taxes he had paid on money that he used to make kickback payments to Gonzalez.  Lujan and Clarke also derived substantial profit from their roles in the bribery scheme.

According to court records, beginning in or about November 2010, the SEC commenced a periodic examination of the Broker-Dealer, and from November 2010 through March 2011 the SEC’s examination staff made several visits to the Broker-Dealer’s offices in Manhattan.  In early 2011, Lujan, Clarke and Hurtado discussed their concern that the SEC was examining the Broker-Dealer’s relationship with BANDES and asking questions regarding certain emails and other information that the SEC examination staff had discovered.  Lujan, Clarke and Hurtado agreed that they would take steps to conceal the true facts of the Broker-Dealer’s relationship with BANDES, including deleting emails.  Lujan, Clarke and Hurtado then, in fact, deleted emails.  Additionally as part of this effort to obstruct the SEC examination, Clarke lied to SEC examination staff in response to an interview question about his relationship to an individual who had received purported foreign associate payments relating to BANDES.

In a related scheme, from 2008 through mid-2009, Lujan, Clarke and Hurtado paid bribes to the Banfoandes Foreign Official, who, in exchange, directed Banfoandes trading business to the Broker-Dealer.

Gonzalez was charged in a criminal complaint and arrested on May 3, 2013, in connection with the BANDES bribery scheme.  The charges against Gonzalez are merely accusations, and she is presumed innocent unless and until proven guilty.

This ongoing investigation is being conducted by the FBI, with assistance from the SEC and the Justice Department’s Office of International Affairs.

Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Harry A. Chernoff and Jason H. Cowley of the Southern District of New York’s Securities and Commodities Fraud Task Force are in charge of the prosecution.  Assistant U.S. Attorney Carolina Fornos is responsible for the forfeiture aspects of the case.