CEO of Wall Street Broker-Dealer Charged with Massive FCPA Scheme

FOR IMMEDIATE RELEASE
Monday, April 14, 2014
The chief executive officer and a managing partner of a New York-based U.S. broker-dealer were arrested today on felony charges arising from a conspiracy to pay bribes to a senior official in Venezuela’s state economic development bank.
Acting Assistant Attorney General David A. O’Neil 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.
According to the indictment unsealed today, Benito Chinea and Joseph DeMeneses, who were the Chief Executive Officer and a managing partner, respectively, of a New York-based broker-dealer (Broker-Dealer), are accused of conspiring with others to pay and launder bribes to Maria de los Angeles Gonzalez de Hernandez, a senior official in Venezuela’s state-owned economic development bank, Banco de Desarollo Económico y Social de Venezuela (BANDES), in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. DeMeneses was also charged with conspiring to obstruct an examination of the Broker-Dealer by the U.S. Securities and Exchange Commission (SEC) to conceal the true facts of the Broker-Dealer’s relationship with BANDES.
Chinea, 47, was arrested today in Manalapan, N.J., where he resides, and DeMeneses, 44, was arrested today in Fairfield, Conn., where he resides.   In a separate action, the SEC announced civil charges against Chinea, DeMeneses and others involved in the bribery scheme.
“ These senior Wall Street executives are accused of paying six-figure bribes to an official in Venezuela to secure foreign business for their firm,” said Acting Assistant Attorney General O’Neil.  “Today’s charges show once again that we will aggressively pursue individual executives, all the way up the corporate ladder, when they try to bribe their way ahead of the competition. ”
“These two defendants, senior executives at a U.S. brokerage firm, are the fifth and sixth people to be charged in an alleged conspiracy to corrupt the trading business of a state-run economic development bank of Venezuela,” said U.S. Attorney Bharara.    “They are alleged to have bribed a willing officer at the bank to steer its overseas trading business to the defendants’ brokerage firm, reaping millions for these defendants and their partners in crime.  This Office will not tolerate the kind of outright bribery and concealment that characterized this scheme.”
“As alleged in the indictment, Chinea and Demeneses bribed Gonzalez to secure bank Bandes’s financial trading business,” said FBI ADIC Venizelos.    “Demeneses compounded the Broker-Dealer’s illegal activities by conspiring to obstruct an investigation by regulators.   The arrests today of Chinea and Demeneses should be a reminder to all those in the business community that engaging in bribery schemes to secure business and make a profit is illegal. Together with our law enforcement partners, the FBI will continue to investigate bribery and fraud at all levels.”
According to the allegations in the indictment unsealed today, as well as other documents previously filed in Manhattan federal court, Chinea and DeMeneses worked at the headquarters of the Broker-Dealer in New York City.    In 2008, the Broker-Dealer established a group called the Global Markets Group (GMG), which offered fixed income trading services for institutional clients in the purchase and sale of foreign sovereign debt.    One of the Broker-Dealer’s GMG clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance.    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 commission.
As alleged in court documents, from late 2008 through 2012, Chinea and DeMeneses, together with three Miami-based Broker-Dealer employees, Ernesto Lujan, Tomas Alberto Clarke Bethancourt and Jose Alejandro Hurtado, participated in a bribery scheme in which Gonzalez 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 commissions from trades with BANDES.    In order to conceal their conduct, Chinea, DeMeneses and their co-conspirators routed the payments to Gonzalez, frequently in six-figure amounts, through third-parties posing as “foreign finders” and into offshore bank accounts.    In several instances, Chinea personally signed checks worth millions of dollars that were made payable to one of these purported “foreign finders” and later deposited in a Swiss bank account.
As further alleged in court documents, as a result of the bribery scheme, BANDES quickly became the Broker-Dealer’s most profitable customer.    As the relationship continued, however, Gonzalez became increasingly unhappy about the untimeliness of the payments due her from the Broker-Dealer, and she threatened to suspend BANDES’s business.    In response, DeMeneses and Clarke agreed to pay Gonzalez approximately $1.5 million from their personal funds.    Chinea and DeMeneses agreed to use Broker-Dealer funds to reimburse DeMeneses and Clarke for these bribe payments.    To conceal their true nature, Chinea and DeMeneses agreed to hide these reimbursements in the Broker-Dealer’s books as sham loans from the Broker-Dealer to corporate entities associated with DeMeneses and Clarke.
Court documents also allege that beginning in or around November 2010, the SEC commenced a periodic examination of the Broker-Dealer, and from November 2010 through March 2011, the SEC’s exam staff made several visits to the Broker-Dealer’s offices in Manhattan.    In or about early 2011, DeMeneses and others involved in the scheme discussed that the SEC was examining the Broker-Dealer’s relationship with BANDES.    DeMeneses and others agreed they would take steps to conceal the true facts of the Broker-Dealer’s relationship with BANDES, including by deleting emails, in order to hide the actual relationship from the SEC.
Chinea and DeMeneses were each charged with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and the Travel Act, five counts of violating the FCPA, and five counts of violating of the Travel Act.    Chinea and DeMeneses were also charged with one count of conspiracy to commit money laundering and three counts of money laundering. DeMeneses was further charged with one count of conspiracy to obstruct justice.
Previously, on Aug. 29 and Aug. 30, 2013, Lujan, Hurtado and Clarke each pleaded guilty in Manhattan federal court to conspiring to violate the FCPA, to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses, relating, among other things, to the scheme involving bribe payments to Gonzalez.    On Nov. 18, 2013, Gonzalez pleaded guilty in Manhattan federal court to conspiring to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses, for her role in the corrupt scheme.
The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
This ongoing investigation is being conducted by the FBI, with assistance from the Criminal Division’s Office of International Affairs.    The department appreciates the substantial assistance provided by the SEC.
Senior Deputy Chief James Koukios and Trial Attorney Maria Gonzalez Calvet 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.

Two U.S. Broker-dealer Employees and Venezuelan Government Official Charged for Massive International Bribery Scheme

Senior Venezuelan Banking Official Allegedly Received at Least $5 Million in Bribes in Exchange for Directing Business to U.S. Defendants

Two employees of a U.S. broker-dealer and a senior official in Venezuela’s state economic development bank have been charged in New York’s federal court for their alleged roles in a massive international bribery scheme.

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

According to the criminal complaint unsealed today, Tomas Alberto Clarke Bethancourt (Clarke) and Jose Alejandro Hurtado – who were both employees of a U.S. broker-dealer (Broker-Dealer) – and Maria de los Angeles Gonzalez de Hernandez (Gonzalez) – who is a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (BANDES) – are accused of conspiring to pay bribes to Gonzalez in exchange for her directing BANDES’s financial trading business to the Broker-Dealer.  Gonzalez, 54, a resident of Caracas, Venezuela, was arrested in Miami on May 3, 2013.  Clarke, 43, and Hurtado, 38, were also arrested Friday in Miami, where they reside.  All three defendants were presented yesterday in federal court in Miami and remain in custody.

“Today’s announcement is a wake-up call to anyone in the financial services industry who thinks bribery is the way to get ahead,” said Acting Assistant Attorney General Raman. “The defendants in this case allegedly paid huge bribes so that foreign business would flow to their firm.  Their return on investment now comes in the form of criminal charges carrying the prospect of prison time.  We will not stand by while brokers or others try rig the system to line their pockets, and will continue to vigorously enforce the FCPA and money laundering statutes across all industries.”

“The defendants’ arrests lay bare a web of bribery and corruption in which employees of a U.S. broker-dealer allegedly generated tens of millions of dollars through transactions in order to fund kickbacks to a Venezuelan government official in exchange for her directing the Venezuelan economic development bank’s financial trading business to their employer,” said U.S. Attorney Bharara. “As alleged, the defendants also engaged in international money laundering to carry out their corrupt scheme.  This Office, along with all of our federal partners, is committed to holding individuals who violate the Foreign Corrupt Practices Act to account.”

“As alleged, the defendants conspired to use Venezuela’s economic development bank as their personal piggy bank,” said FBI Assistant Director-in-Charge Venizelos. “Clarke and Hurtado reaped huge commissions from their trading of the bank’s assets, and kicked back significant sums to Gonzalez.  The brazenness of the alleged scheme was exemplified in their buying bank bonds and selling them back on the same day.”

In a separate action, the U.S. Securities and Exchange Commission (SEC) announced
civil charges against Clarke, Hurtado, and two others.

According to the allegations in the criminal complaint unsealed today, the forfeiture complaint, and other documents filed in Manhattan federal court, Clarke and Hurtado worked or were associated with the Broker-Dealer, based in New York City, principally through its Miami offices.  In 2008, the Broker-Dealer established a group called the Global Markets Group, which included Clarke and later Hurtado, and which offered fixed income trading services to institutional clients.  One of the Broker-Dealer’s clients was BANDES.  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.

From April 2009 through June 2010, Clarke, Hurtado, and Gonzalez participated in a bribery scheme in which Gonzalez 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 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 received a substantial share of the revenue generated by the Broker-Dealer for BANDES -related trades.  Specifically, Gonzalez received monthly kickbacks from Broker-Dealer agents and employees that were frequently in six-figure amounts.

Some of the trades the Broker-Dealer executed for BANDES had no discernible business purpose.  For instance, in January 2010, the Broker-Dealer executed at least two round-trip trades between itself and BANDES for the same bonds on the same day.  In other words, the Broker-Dealer bought certain bonds from BANDES and then immediately sold those same bonds back to the bank.  The result of the trades was that BANDES was left with the same bond holdings as before the trades, except that it had paid the Broker-Dealer approximately $10.5 million in mark-ups in the course of the two round-trip transactions.

Certain payments to Gonzalez directly from Hurtado and an entity controlled by Clarke totaled at least $3.6 million. When added together with other payments referenced in the Complaint, Gonzalez received a total of at least $5 million.

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, Clarke used an account he controlled in Switzerland to transfer funds to an account Gonzalez controlled in Switzerland.  Gonzalez then transferred some of this money to an account she held in the United States.  Additionally, Hurtado and his spouse received substantial compensation from the Broker-Dealer, portions of which Hurtado transferred to an account held by Gonzalez in Miami and to an account held by an associate of Gonzalez in Switzerland.  Hurtado also sought and received reimbursement from Gonzalez for the payment of U.S. income taxes related to the money that he used to make kickback payments to Gonzalez.

In addition to the criminal complaint, on May 6, 2013, the government filed a civil forfeiture action in Manhattan federal court, seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland.  The forfeiture complaint also seeks the forfeiture of several properties in the Miami area related to Hurtado that were purchased with his proceeds from the scheme.  As set forth in the forfeiture complaint, in addition to Gonzalez, another BANDES official, identified as CC-1 in the forfeiture complaint, also received kickback payments as part of the scheme.  Also on May 6, 2013, the Court issued seizure warrants for multiple bank accounts and a restraining order relating to the Miami properties.

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 United States 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 United States Attorney Carolina Fornos is also responsible for the forfeiture aspects of the case.

Additional information about the Justice Department’s FCPA enforcement efforts can be
found at www.justice.gov/criminal/fraud/fcpa.

The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.