Tag Archives: Financial Fraud, Procurement Fraud and Grant Fraud Trends by Bradford L. Geyer, Joan E. Marshall and Phillip Zane

Two Northern California Real Estate Investors Agree to Plead Guilty to Bid Rigging at Public Foreclosure Auctions

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29 Individuals Have Agreed to Plead Guilty to Date

WASHINGTON – Two Northern California real estate investors have agreed to plead guilty for their role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.

Felony charges were filed today in the U.S. District Court for the Northern District of California in Oakland against Peter McDonough of Pleasanton, Calif., and Michael Renquist of Livermore, Calif.

Including today’s pleas, 29 individuals have pleaded guilty or agreed to plead guilty as a result of the department’s ongoing antitrust investigation into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

According to court documents, for various lengths of time between November 2008 and January 2011, McDonough and Renquist conspired with others not to bid against one another, but instead designated a winning bidder to obtain selected properties at public real estate foreclosure auctions in Alameda County, Calif . McDonough and Renquist were also charged with a conspiracy to use the mail to carry out a scheme to fraudulently acquire title to selected Alameda County properties sold at public auctions, to make and receive payoffs and to divert money to co-conspirators that would have gone to mortgage holders and others by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions often took place at or near the courthouse steps where the public auctions were held. Renquist was also charged with additional counts for his involvement in similar conduct in Contra Costa County, Calif.

“The conspirators suppressed competition and lined their pockets through fraudulent and collusive conduct at the expense of lenders and distressed homeowners,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The Antitrust Division and its law enforcement partners at the FBI will continue to hold accountable individuals who subvert the competitive process at foreclosure auctions around the country.”

The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at Alameda and Contra Costa County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. According to court documents, the conspirators paid and received money 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.

“The FBI and the Antitrust Division continue to bring to justice those individuals who engage in fraudulent anticompetitive practices at foreclosure actions,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office.   “The foundation of our real estate market depends on fairness and transparency of all participants, and we are committed to working with our local and federal partners to ensure that conspirators are held accountable.”

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.

The charges today are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or frau d related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Field Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm, or call the FBI tip line at 415-553-7400.

Today’s case was done 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’s 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. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov .

North Carolina Commodities Firm Owner Sentenced to 36 Months in Prison for Multimillion-dollar Fraud

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The principal and co-owner of North Carolina-based Integra Capital Management LLC, was sentenced today to serve 36 months in prison for his role in a scheme to defraud commodities trading investors of more than $3.2 million, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney of the Western District of North Carolina Anne M. Tompkins.

 Nicholas Cox, 35, of Lexington, N.C., was sentenced by U.S. District Judge Max O. Cogburn Jr., in the Western District of North Carolina. In addition to his prison term, Cox was sentenced to serve three years of supervised release and ordered to pay $1,981,477 in restitution.

On Dec. 22, 2012, Cox pleaded guilty in the Western District of North Carolina to one count of conspiracy to commit mail fraud, five counts of mail fraud and one count of conspiracy to commit money laundering.

According to court documents, between September 2006 and January 2009, Cox and his co-conspirator, Rodney Whitney, 50, of Archdale, N.C., the co-owner of Integra, engaged in a scheme to defraud investors in commodity trading pools operated by the firm.  Integra was established purportedly for the purpose of pooling investors’ funds in commodity pools, and investing in commodity futures and foreign currency exchange trading.  According to court documents, Cox and Whitney obtained and misappropriated more than $3.2 million in investor funds and fabricated account statements and tax forms to conceal their fraud.

According to court documents, Cox and Whitney falsely represented, among other things, that Integra’s managers had more than 30 years of combined market experience; that Integra paid dividends of two to five percent of the investor’s initial investment, which was derived from Integra’s trading profits; and investors could remove their principal investments within five days upon giving notice to Integra.  According to court documents, Cox and Whitney used the money invested by later investors to pay the monthly investment returns they had promised to earlier investors, to purchase real estate, to fund other business ventures and to purchase automobiles and other personal goods and services.

On March 21, 2011, Whitney pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering.  He was sentenced on Jan. 7, 2013, to 60 months in prison for his role in the scheme.

The case was prosecuted by Trial Attorney Luke Marsh of the Criminal Division’ s Fraud Section and Benjamin Bain-Creed and Kenny Smith of the U.S. Attorney’s Office for the Western District of North Carolina. The case was investigated by the U.S. Postal Inspection Service.

 

This prosecution was done in coordination 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’s 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.  Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov .

GeyerGorey LLP Opens New York Office

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FOR IMMEDIATE RELEASE

PRLog (Press Release) – Feb. 18, 2013 – WASHINGTON — GeyerGorey LLP today announced the opening of a new office in New York. This is the firm’s fourth office.  The New York office now joins with the firm’s Washington, D.C., Philadelphia and Boston offices in providing international and inside-the-beltway experience to individuals and companies that have become — or wish to avoid becoming — the subject of federal criminal law enforcement agency interest. Partner Robert J. Zastrow, resident in the Boston office, will oversee client matters in New York.
GeyerGorey LLP aims to meet the needs of companies for advice and training in compliance with federal criminal laws and in the detection of wrongdoing by corporate employees. The firm also specializes in the defense of white-collar criminal cases. The firm’s Web site may be found at www.GeyerGorey.com.

The New York office is located at 112 W. 34th Street, 17th Floor, New York, NY  10120.  The office telephone number is (212) 920-0676.  For further information, please call Robert Zastrow at (212) 920-0676 or send an email to [email protected].

Florida-Based Lender Processing Services Inc. to Pay $35 Million in Agreement to Resolve Criminal Fraud Violations Following Guilty Plea from Subsidiary CEO Agreement Also Follows Closure of Subsidiary DocX Operations

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Lender Processing Services Inc. (LPS), a publicly traded mortgage servicing company based in Jacksonville, Fla., has agreed to pay $35 million in criminal penalties and forfeiture to address its participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States.  The settlement, which follows a felony guilty plea from the chief executive officer of wholly owned LPS subsidiary DocX LLC, was announced today by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney for the Middle District of Florida Robert E. O’Neill.

 The non-prosecution agreement, which LPS entered into today with the U.S. Department of Justice and the U.S. Attorney’s Office for the Middle District of Florida, requires the company to make the payment and meet a series of other conditions.

 

Lorraine Brown, the former CEO of DocX LLC, pleaded guilty on Nov. 20, 2012, in federal court in Jacksonville to conspiracy to commit mail and wire fraud.   During her guilty plea, Brown admitted to her leadership role in the scheme.

 

LPS has taken a number of remedial actions to address the misconduct at DocX.   Among other things, LPS has wound down all of DocX’s operations, re-executed and re-filed mortgage assignments as appropriate and terminated Brown and others.   LPS has also demonstrated changes in its compliance, training and overall approach to ensuring its adherence to the law, and has retained an independent consultant to review and report on LPS’s document execution practices; assess related operational, compliance, legal and reputational risks; and establish a plan for reimbursing any financial injuries to mortgage servicers or borrowers.

 

According to the statement of facts accompanying the agreement, before its wind-down, DocX was in the business of assisting residential mortgage servicers with creating and executing mortgage-related documents to be filed with property recorders’ offices throughout the United States.   Employees of DocX, at the direction of Brown and others, falsified signatures on the documents.   Through this scheme and unbeknownst to the clients, Brown and subordinates at DocX directed authorized signers to allow other, unauthorized personnel to sign and to have documents notarized as if they were executed by authorized signers.   These signing practices were used at DocX from at least March 2003 until late 2009, and were implemented to increase profits.

 

Also to increase profits, Brown hired temporary workers to sign as authorized signers.     These temporary employees would sign mortgage-related documents at a much lower cost and without the quality controls represented to clients.   These documents were then falsely notarized by employees at DocX, allowing the fraud scheme to remain undetected.

 

After these documents were falsely signed and fraudulently notarized, Brown authorized DocX employees to file and record them with local county property records offices across the country.   Many of these documents – particularly mortgage assignments, lost note affidavits and lost assignment affidavits – were later relied upon in court proceedings, including property foreclosures and federal bankruptcy actions.

 

In entering into the non-prosecution agreement with LPS, the Justice Department took several factors into consideration.   Soon after discovering the misconduct at DocX, LPS conducted a thorough internal investigation, reported all of its findings to the government, cooperated with the government’s investigation and effectively remediated any problems it discovered.   The government’s investigation also revealed that Brown and others at DocX took various steps to actively conceal the misconduct from detection, including from LPS senior management and auditors.

 

Brown, 51, of Alpharetta, Ga., faces a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the offense.   She is scheduled to be sentenced on April 23, 2013, before U.S. District Judge Henry Lee Adams Jr. in Jacksonville.

 

This case is being handled by Trial Attorney Ryan Rohlfsen and Assistant Chief Glenn S. Leon of the Justice Department’s Criminal Division Fraud Section and Assistant U.S. Attorney Mark B. Devereaux of the U.S. Attorney’s Office for the Middle District of Florida.   The case is being investigated by the FBI, with assistance from the state of Florida’s Department of Financial Services.

 

Today’s disposition is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF).   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’s 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. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

Former Title Agent and Broker Convicted in Miami for Role in Reverse Mortgage Scheme

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A Miami title agent and former mortgage broker was found guilty late yesterday, Feb. 4, 2013, for her role in a “reverse mortgage” fraud scheme in connection with a loan worth more than $400,000, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.

After a six-day jury trial before the Honorable Richard W. Goldberg, sitting by designation in the Southern District of Florida, a federal jury convicted Yesenia Pouparina (aka Yesenia Campos), 40, of four counts of wire fraud and one count of mail fraud for her role in securing a fraudulent Home Equity Conversion Mortgage (HECM), commonly referred to as a reverse mortgage loan, and making false representations related to the occupancy of the property and its subsequent “short sale.”  A HECM is a federally insured loan that enables older Americans to withdraw equity from a home so they can remain independent and financially secure.  The jury also found that three bank accounts controlled by the defendant, which were seized by the government during the course of the investigation, should be forfeited.

According to court documents and evidence presented at trial, Pouparina, a licensed title agent in the state of Florida, devised a scheme to obtain a reverse mortgage loan on her own property in the name of her mother, an individual who failed to meet the requirements of the HECM program.  Pouparina submitted to a lending institution a false loan application and doctored records in support of that application, misrepresenting her mother’s eligibility to participate in the HECM program.  Pouparina acted as the title agent for the loan and disbursed the loan proceeds directly to her own personal bank accounts.  Pouparina also enriched herself by collecting fees generated by the loan, and also profited by using the loan proceeds in connection with her business as a “hard money lender” in other mortgage deals.

Judge Goldberg ordered Pouparina to surrender to the U.S. Marshals on Feb. 20, 2013.  At sentencing, currently scheduled for May 9, 2013, Pouparina faces a maximum potential penalty per count of 20 years in prison and a $250,000 fine, or twice the net gain or loss from the offense.

This case was investigated by the Office of Inspector General, U.S. Department of Housing and Urban Development.  Trial Attorneys Sandra L. Moser and Mary Ann McCarthy of the Justice Department Criminal Division’s Fraud Section prosecuted the case, with assistance from the U.S. Attorney’s Office for the Southern District of Florida.

This conviction is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 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’s 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.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

Northern California Real Estate Investor Agrees to Plead Guilty to Bid Rigging at Public Foreclosure Auctions

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Investigation Has Yielded 27 Plea Agreements to Date

WASHINGTON — A Northern California real estate investor has agreed to plead guilty for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.

Felony charges were filed today in the U.S. District Court for the Northern District of California in San Francisco against Gilbert Chung of Burlingame, Calif. Chung is the 27th individual to plead guilty or agree to plead guilty as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

According to court documents, Chung conspired with others not to bid against one another, but instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in San Francisco and San Mateo counties, Calif. Chung was also charged with conspiring to use the mail to carry out schemes to fraudulently acquire title to selected properties sold at public auctions, to make and receive payoffs and to divert to co-conspirators money that would have otherwise gone to mortgage holders and others.

The department said Chung conspired with others to rig bids and commit mail fraud at public real estate foreclosure auctions in San Francisco and San Mateo counties beginning as early as January 2010 and continuing until about December 2010.

“The conspirators went to great lengths to suppress competition and prices at these foreclosure auctions,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The division will continue to vigorously enforce the antitrust laws and to prosecute those who violate them at the expense of distressed homeowners.”

The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at San Francisco and San Mateo County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.

“Today’s charges are another example of our resolve to bring to justice those who engaged in fraudulent bid rigging and anticompetitive practices at foreclosure auctions,” said FBI Special Agent in Charge David J. Johnson of the San Francisco Field Office. “We continue our partnership with the Antitrust Division in aggressively pursuing individuals who participate in these criminal acts.”

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.

The charges today are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Field Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400.

Today’s charges are part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 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’s 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. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

Former Financial Services Broker Sentenced to 10 months in MuniBonds Investigation

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WASHINGTON — A former financial services broker was sentenced today in U.S. District Court for the Southern District of New York, for his participation in conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.

Adrian Scott-Jones, of Morriston, Fla. , a former broker for Tradition N.A. , was sentenced by District Court Judge Harold Baer Jr. for his role in the conspiracies. Scott-Jones was sentenced to serve 18 months in prison and to pay a $12,500 criminal fine.

“From soliciting intentionally losing bids for investment agreements to paying out kickbacks to manipulate the competitive bidding process, the conspirators went to great lengths to defraud municipalities across the country,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “Today’s sentence sends a clear message that the division will continue to hold executives accountable for their anticompetitive conduct. ”

On Sept. 8, 2010, Scott-Jones pleaded guilty to participating in multiple conspiracies with executives of General Electric Co. (GE) affiliates, from as early as 1999 until 2006. According to the charges, GE and other financial institutions and insurance companies (providers), offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States. The public entities hired brokers like Scott-Jones and Tradition to conduct bidding for contracts to invest money from a variety of sources, primarily the proceeds of municipal bonds issued to raise money for, among other things, public projects. Scott-Jones also participated in a conspiracy with representatives of a second provider located in New York City.

According to court documents, in each conspiracy, Scott-Jones gave co-conspirators information about the prices, price levels or conditions in competitors’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations. Scott-Jones also solicited and received intentionally losing bids for certain investment agreements and other municipal finance contracts. As a result of Scott-Jones’ role in corrupting the bidding process for investment agreements, he and his co-conspirators deprived the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds used by municipalities for various public works projects, such as water pollution abatement projects and low-cost housing. The department said that the conspiracies cost municipalities around the country millions of dollars.

“Today’s sentencing reaffirms the ongoing success of our efforts to weed out corruption in the municipal bond market,” said George Venizelos, Acting Director in Charge of the FBI in New York. “The FBI will continue to work closely with our partners from the Antitrust Division to protect the integrity of the competitive bidding process in public finance. ”

“Individuals who manipulate the competitive bidding system to benefit themselves will be held accountable for their criminal activity,” said Richard Weber, Chief, Internal Revenue Service Criminal Investigation (IRS-CI). “Quite simply, Mr. Scott-Jones profited at the expense of the towns and cities that needed the money for important public works projects. IRS Criminal Investigation is committed to working with our law enforcement partners to uncover this kind of corruption and secure justice for American taxpayers. ”

A total of 20 individuals have been charged as a result of the department’s ongoing municipal bonds investigation, 19 of whom have been convicted at trial or pleaded guilty; one is currently awaiting trial. Additionally, one company has pleaded guilty.

The sentences announced today resulted from an ongoing investigation conducted by the Antitrust Division’s New York Office, the FBI and IRS-CI. The division is coordinating its investigation with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.

Today’s convictions are part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 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’s 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. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

UBS Securities Japan to Plead Guilty to Felony Wire Fraud For Long Running Manipulation of LIBOR Benchmark Interest Rates

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Two Former Senior UBS Traders Face Felony Charges Unsealed Today

UBS AG to Pay Substantial Penalty in Agreement Reflecting
Substantial Cooperation, Significant Changes

WASHINGTON — UBS Securities Japan Co. Ltd. (UBS Japan), an investment bank, financial advisory securities firm and wholly-owned subsidiary of UBS AG, has agreed to plead guilty to felony wire fraud and admit its role in manipulating the London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, Attorney General Eric Holder announced today.  The criminal information, filed today in U.S. District Court in the District of Connecticut, charges UBS Japan with one count of engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating LIBOR benchmark interest rates.

As part of the ongoing criminal investigation by the Criminal and Antitrust Divisions of the Justice Department and the FBI into LIBOR manipulation, two former senior UBS traders also are charged.  Tom Alexander William Hayes, 33, of England, and Roger Darin, 41, of Switzerland, were both charged with conspiracy in a criminal complaint unsealed in Manhattan federal court earlier today.  Hayes is also charged with wire fraud, based on the same scheme, and a price fixing violation arising from his collusive activity with another bank to manipulate LIBOR benchmark rates.

UBS Japan has signed a plea agreement with the government admitting its criminal conduct, and has agreed to pay a $100 million fine.  In addition, UBS AG, the parent company of UBS Japan headquartered in Zurich, has entered into a non-prosecution agreement (NPA) with the government requiring UBS AG to pay an additional $400 million penalty, to admit and accept responsibility for its misconduct as set forth in an extensive statement of facts and to continue cooperating with the Justice Department in its ongoing investigation.  The NPA reflects UBS AG’s substantial cooperation in discovering and disclosing LIBOR misconduct within the financial institution and recognizes the significant remedial measures undertaken by new management to enhance internal controls.

Together with approximately $1 billion in regulatory penalties and disgorgement – $700 million as a result of the Commodity Futures Trading Commission (CFTC) action; $259.2 million as a result of the U.K. Financial Services Authority (FSA) action; and $64.3 million as a result of the Swiss Financial Markets Authority (FINMA) action – the Justice Department’s criminal penalties bring the total amount of the resolution to more than $1.5 billion.

“By causing UBS and other financial institutions to spread false and misleading information about LIBOR, the alleged conspirators we’ve charged – along with others at UBS – manipulated the benchmark interest rate upon which many transactions and consumer financial products are based.  They defrauded the company’s counterparties of millions of dollars.  And they did so primarily to reap increased profits, and secure bigger bonuses, for themselves,” said Attorney General Holder. “Today’s announcement – and $1.5 billion global resolution – underscores the Justice Department’s firm commitment to investigating and prosecuting such conduct, and to holding the perpetrators of these crimes accountable for their actions.”

“UBS manipulated one of the cornerstone interest rates in our global financial system,” said Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.  “The scheme alleged is epic in scale, involving people who have walked the halls of some of the most powerful banks in the world.  Today’s agreement by UBS Japan to plead guilty, the charges against individual alleged perpetrators of these crimes, and our agreement recognizing the steps being taken by UBS AG to right itself demonstrate the Justice Department’s determination to hold accountable those in the financial marketplace who break the law.  We cannot, and we will not, tolerate misconduct on Wall Street of the kind admitted to by UBS today, and by Barclays last June.  We will continue to follow the facts and the law wherever they lead us in this matter, as we do in every case.”

“The criminal complaint charges two senior UBS traders with colluding to manipulate Yen LIBOR interest rates for the purpose of improving trading positions held by Hayes and UBS,” said Deputy Assistant Attorney General Scott D. Hammond of the Justice Department’s Antitrust Division.  “Coordinating the movement of interest rates even by a very small margin meant higher profits and bigger bonuses for the conspirators at the expense of those that relied on LIBOR as a reference rate.”

“The manipulation of LIBOR affects financial products including mortgages, credit cards, student loans and many other interest rate products,” said FBI Associate Deputy Director Kevin L. Perkins.  “This practice further erodes Main Street’s confidence in Wall Street.  The public expects our financial institutions to maintain proper oversight of their businesses and to ensure the public is not harmed by criminal activity within these institutions.  In this case, UBS acknowledged its failures and cooperated with our investigation.  The FBI would like to thank its federal partners in this investigation – the Department of Justice Criminal Division’s Fraud Section and Antitrust Division, Commodity Futures Trading Commission’s Division of Enforcement and the Securities and Exchange Commission’s Division of Enforcement whose joint efforts brought a successful resolution to this matter.”
 
According to documents filed in these cases, LIBOR is an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks.  LIBOR serves as the primary benchmark for short-term interest rates globally, and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.  The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were estimated at approximately $450 trillion.

LIBOR, published by the British Bankers’ Association (BBA), a trade association based in London, is calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks.

Between July 2006 and September 2009, Hayes was a senior trader employed in the Tokyo office of UBS Japan, which then operated under the name UBS Securities Japan Ltd.  Among other financial products, Hayes traded in interest rate derivatives that essentially consisted of bets against other traders on the direction in which Yen LIBOR would move.  UBS was a member of the Yen LIBOR panel, and Darin was, at certain times relevant to the criminal complaint, a trader responsible for making and supervising LIBOR submissions to the BBA on behalf of the bank.  In a statement of facts attached to the NPA and plea agreement, Hayes is referred to as “Trader-1” and Darin is referred to as “Submitter-1.”

Beginning in September 2006, UBS Japan and Hayes orchestrated a sustained, wide-ranging and systematic scheme to move Yen LIBOR in a direction favorable to Hayes’ trading positions, defrauding UBS’ counterparties and harming others with financial products referencing Yen LIBOR who were unaware of the manipulation.  Between November 2006 and August 2009, Hayes or one of his colleagues endeavored to manipulate Yen LIBOR on at least 335 of the 738 trading days in that period, and during some periods on almost a daily basis.  Because of the large size of Hayes’ trading positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits.  For example, Hayes once estimated that a 0.01 percent movement in the final Yen LIBOR fixing on a specific date could result in a $2 million profit for UBS.

According to the charging documents, UBS Japan and Hayes employed three strategies to execute the scheme: from November 2006 through September 2009, Hayes conspired with Darin and others within UBS to cause the bank to make false and misleading Yen LIBOR submissions to the BBA; also, Hayes caused cash brokerage firms, which purported to provide market information regarding LIBOR to panel banks, to disseminate false and misleading information about short-term interest rates for Yen, which those banks could and did rely upon in formulating their own LIBOR submissions to the BBA; and Hayes communicated with interest rate derivatives traders employed at three other Yen LIBOR panel banks in an effort to cause them to make false and misleading Yen LIBOR submissions to the BBA.

As alleged in the charging documents, Hayes, Darin and other co-conspirators often executed their scheme through electronic chats.  On Nov. 20, 2006, for example, Hayes asked a UBS Yen LIBOR submitter who was substituting for Darin, “hi . . .  [Darin] and I generally coordinate ie sometimes trade if ity [sic] suits, otherwise skew the libors a bit.”  Hayes went on to request, “really need high 6m [6-month] fixes till Thursday.”  The submitter responded, “yep we on the case there . . . will def[initely] be on the high side.”  The day before this request, UBS’s 6-month Yen LIBOR submission had been tied with the lowest submissions included in the calculation of the LIBOR fix.  Immediately after this request for high submissions, however, UBS’s 6-monthYen LIBOR submissions rose to the highest submission of any bank in the contributor panel and remained tied for the highest, precisely as Hayes had requested.

Another example of such an alleged accommodation occurred on March 29, 2007, when Hayes asked Darin, “can we go low 3[month] and 6[month] pls?  . . .  3[month] esp.” Darin responded “ok”, and the two had the following exchange:

Hayes:

 what are we going to set?

Darin:

 too early to say yet . . .  prob[ably]  .69 would be our unbiased contribution

Hayes:

 ok wd really help if we cld keep 3m low pls
Darin: as i said before – i [don’t] mind helping on your fixings, but i’m not setting libor 7bp away from the truth. . .  i’ll get ubs banned if i do that, no interest in that.
Hayes: ok obviousl;y [sic] no int[erest] in that happening either . . . not asking for it to be 7bp from reality anyway any help appreciated[.]

Hayes received the help he requested.

In addition, the criminal complaint charges Hayes with colluding with a trader employed at another LIBOR panel bank in May 2009, in violation of the Sherman Antitrust Act.  Hayes allegedly engaged in the collusive scheme to fix the price of derivative instruments whose price was based on Yen LIBOR.  In electronic chats, Hayes asked the trader to move 6-month Yen LIBOR up due to a “gigantic” position Hayes had taken.  For the trade in question, UBS trading records confirmed that each 0.01 percent movement in LIBOR would generate profits of approximately $459,000 for Hayes’ book.  The trader at the other bank responded that he would comply, and his bank’s submission moved by 0.06 percent compared to its submission the previous day, for which Hayes thanked him.

In entering into the NPA with UBS AG, the Justice Department considered information from UBS, and from regulatory agencies in Switzerland and Japan, demonstrating that in the last two years UBS has made important and positive changes in its management, compliance and training to ensure adherence to the law.  The department received favorable reports from the Swiss Financial Market Supervisory Authority (FINMA) and the Japan Financial Services Authority (JFSA) describing, respectively, progress that UBS has made in its approach to compliance and enforcement and UBS Japan’s effective implementation of the remedial measures the JFSA imposed based on findings relating to the attempted manipulation of Yen benchmarks.

The investigation is being handled by Deputy Chiefs William Stellmach and Daniel Braun and Trial Attorney Luke Marsh of the Criminal Division’s Fraud Section, and Assistant Chief Elizabeth Prewitt and Trial Attorney Richard Powers of the Antitrust Division, New York Field Office.  Assistant Chief Rebecca Rohr and Trial Attorneys Alexander Berlin and Thomas Hall of the Criminal Division’s Fraud Section, Trial Attorneys Portia Brown and Wendy Norman of the Antitrust Division, and Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut have also provided valuable assistance.  The Criminal Division’s Office of International Affairs also provided assistance in this matter.  The investigation is being conducted by the FBI’s Washington Field Office.

The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad.  The Justice Department acknowledges and expresses its deep appreciation for this assistance.  In particular, the Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the Department and, along with the FSA, has played a major role in the investigation.  The Securities and Exchange Commission has also played a significant role in the LIBOR series of investigations and, among other efforts, has made an invaluable contribution to the investigation relating to UBS.  The Department of Justice also wishes to acknowledge and thank FINMA, the Japanese Ministry of Justice, and the JFSA.  Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the Department is grateful for their cooperation and assistance.

This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.

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NJ Company Pleads Guilty For Role in Bid Rigging Scheme at Municipal Tax Lien Auctions

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Investigation Has Yielded 11 Guilty Pleas

WASHINGTON — A New Jersey company in the business of receiving the assignment of municipal tax liens pleaded guilty today for its role in a conspiracy to rig bids for the sale of tax liens auctioned by municipalities in New Jersey, the Department of Justice announced.

A felony charge was filed today in U.S. District Court for the District of New Jersey in Newark, against Mercer S.M.E. Inc., a company located in Burlington, N.J. According to the charges, from at least 2003 until approximately February 2009, Mercer, in conjunction with a nonprofit corporation and others participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey.  As part of the conspiracy, the co-conspirators agreed to allocate the liens on which each would bid.  Among other things, Mercer was assigned tax liens it understood were purchased in accordance with the unlawful agreement.

“The conspirators agreed to coordinate their bids and allocate the tax liens amongst themselves, at the expense of distressed property owners,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “Today’s guilty plea sends a message that those who profit from illegal, anticompetitive conduct will be held accountable.”

The department said that the primary purpose of the conspiracy was to suppress and restrain competition in order to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates. When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes. If the taxes remain unpaid after a waiting period, the lien may be sold at auction. State law requires that investors bid on the interest rate delinquent property owners will pay upon redemption. By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent. If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached.

According to the court documents, Mercer, along with the nonprofit corporation which assigned some of its liens to Mercer, was involved in a conspiracy with others not to bid against one another at municipal tax lien auctions in New Jersey. Since the conspiracy permitted the conspirators to purchase tax liens with limited competition, each conspirator was able to obtain liens which earned a higher interest rate. Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition, the department said.

A violation of the Sherman Act carries a maximum penalty of $100 million criminal fine for corporations. The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than the statutory maximum.

Today’s plea is the 11th guilty plea resulting from an ongoing investigation into bid rigging or fraud related to municipal tax lien auctions. Eight individuals – Isadore H. May, Richard J. Pisciotta Jr., William A. Collins, Robert W. Stein, David M. Farber, Robert E. Rothman, Stephen E. Hruby and David Butler – and two companies, DSBD LLC and Crusader Servicing Corp., have previously pleaded guilty as part of this investigation.

Today’s charge is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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’s 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. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This ongoing investigation is being conducted by the Antitrust Division’s New York Field Office and the FBI’s Atlantic City, N.J., office. Anyone with information concerning bid rigging or fraud related to municipal tax lien auctions should contact the Antitrust Division’s New York Field Office at 212-335-8000, visit www.justice.gov/atr/contact/newcase.htm or contact the Atlantic City Resident Agency of the FBI at 609-677-6400.

Las Vegas Man Sentenced to 37 Months in Prison for Foreclosure Rescue Scam and Theft of Government Funds

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FOR IMMEDIATE RELEASE
Tuesday, December 11, 2012
Las Vegas Man Sentenced to 37 Months in Prison for Foreclosure Rescue Scam and Theft of Government Funds

WASHINGTON – A Las Vegas man was sentenced today to 37 months in prison for operating a foreclosure rescue scam that defrauded distressed homeowners who were struggling to pay their mortgages, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Daniel G. Bogden of the District of Nevada.

Alex P. Soria, 65, was sentenced today by U.S. District Judge Lloyd D. George in the District of Nevada.  In addition to his prison term, Soria was sentenced to serve three years of supervised release and ordered to pay $320,266 in restitution.

In August 2012, Soria pleaded guilty to one count of wire fraud in connection with his scheme to defraud distressed homeowners and one count of theft of government funds for defrauding the Social Security Disability Insurance benefits program.

According to court documents, Soria identified homeowners whose mortgage debt exceeded the value of their homes and charged them a fee purportedly to reduce the principal balance of their mortgages using money from the Department of the Treasury’s Troubled Asset Relief Program (TARP).  Soria admitted in court that he lied to homeowners about his affiliation with several mortgage lenders and that he provided victims with fraudulent letters stating they had been approved for loans.  Soria also admitted he falsely told victims that his loan program had been successful in the past and charged homeowners for loan modifications he knew he could not deliver.  Court documents show that Soria concealed from homeowners the fact that the state of Nevada had issued a cease and desist order which legally prohibited him from working in the mortgage industry.  Soria collected over $100,000 in fees from distressed homeowners, many of whom lost their homes to foreclosure after Soria failed to deliver the loan modifications he promised.

As part of the same case, Soria also admitted to stealing government funds by continuing to collect Social Security Disability Insurance benefits while at the same time receiving income from his foreclosure relief operation.  The Social Security Disability Insurance program is a federal program that replaces the wages of individuals who become unable to work due to a disability.  Soria admitted to collecting over $200,000 in disability benefits from 1990 to 2010 while at the same time receiving income that he concealed from the Social Security Administration.

This case is being prosecuted by Trial Attorneys Brian R. Young and Mary Ann McCarthy of the Criminal Division’s Fraud Section.  The U.S. Attorney’s Office for the District of Nevada assisted with the investigation and prosecution. The case was investigated by the Offices of Inspector General for the Department of Housing and Urban Development and the Social Security Administration.

This prosecution is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 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’s 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. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.