SEC Charges Traders Affiliated with NYC Broker-Dealer in Venezuelan Bank Kickback Scheme

Thursday, 09 May 2013 20:06

The Securities and Exchange Commission (SEC) charged individuals affiliated with Direct Access Partners, LLC (“DAP”), a New York City broker-dealer, with a massive fraudulent scheme involving tens of millions of dollars in illicit bribes paid to a senior finance official of Banco de Desarrollo Economico y Social de Venezuela (“BANDES”), a state-owned Venezuelan bank.

The SEC Complaint was filed against Defendants Tomas Alberto Clarke Bethancourt (“Clarke”), Jose Alejandro Hurtado (“Hurtado”), Haydee Leticia Pabon (“Pabon”), and Iuri Rodolfo Bethancourt (“Bethancourt”) (collectively, the “Defendants”).

Clarke is an executive vice president in fixed income within DAP’s Global Markets Group (“DAP Global”) who executed fraudulent roundtrip trades with BANDES as both buyer and seller. Between January 2009 and June 2010, DAP Global generated more than $66 million in revenue for DAP from transaction fees resulting from markups and markdowns on the riskless roundtrip trades in Venezuelan sovereign or state-sponsored bonds. Clark also maintained files to track the illicit markups and markdowns resulting from the fraudulent trades.

This $66 million in revenue was the result of a complex kickback scheme devised by the Defendants in which a share of this revenue was illicitly paid to BANDES Vice President of Finance, Maria (Mary) de los Angeles Gonzalez de Hernandez (“Gonzalez”), who authorized the fraudulent trades, and to Defendants Jose Alejandro Hurtado (“Hurtado”), Haydee Leticia Pabon (“Pabon”), and Iuri Rodolfo Bethancourt (“Bethancourt”) for their roles in the scheme.

Hurtado, the intermediary between DAP and Gonzalez, was compensated more than $6 million in kickbacks disguised as salary payments from DAP, a portion of which he remitted to Gonzalez. Pabon, Hurtado’s wife, received approximately $8 million in markups or markdowns on BANDES trades that were funneled to her from DAP in the form of sham finders’ fees. Bethancourt, a Panama resident, received more than $20 million in fraudulent proceeds from DAP via his Panamanian shell company, ETC Investment, S.A. (“ETC”). Bethancourt then paid Gonzalez a portion of this amount.

“These traders triggered a fraud that was staggering in audacity and scope,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “They thought they covered their tracks by using offshore accounts and a shadow accounting system to monitor their illicit profits and bribes, but they underestimated the SEC’s tenacity in piecing the scheme together.”

In a related action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Gonzalez as well as Clarke and Hurtado.

If you would like more information on kickback schemes, DAP, BANDES or other news, please fill out the confidential form below.

Fannie Mae and KPMG Agree to Pay $153M Class Action Settlement

Thursday, 09 May 2013 19:58

Federal National Mortgage Association (Fannie Mae) and accounting firm KPMG LLP (KPMG) agreed to pay $153 million to settle an investor class action lawsuit filed in 2004 by Ohio pension funds.

The lawsuit accused Fannie Mae of overstating its earnings by $6.3 billion and alleged that the company and KPMG violated federal securities laws by issuing false and misleading financial statements, all of which artificially inflated the price of Fannie Mae common stock from April 2001 through December 2004.

“Given the immediate and substantial benefit of $153 million, the risk in establishing settling defendants’ liability and proving damages, and the potential limitation on the ability of Fannie Mae to satisfy a judgment,” the settlement “represents an outstanding recovery,” Ohio Attorney General Mike DeWine said in memo filed in support of the proposed settlement.

“We are satisfied with the outcome and pleased to put the matter behind us,” Bradley Lerman, Fannie Mae’s general counsel, said in an e-mailed statement. “Fannie Mae is focused on enabling people to buy, refinance or rent a home and helping struggling homeowners avoid foreclosure.”

According to the agreement, Fannie Mae and KPMG will each pay half of the settlement.

“KPMG determined that it was in the firm’s best interest to put this matter behind us and avoid the significant additional cost, and the distraction and inherent uncertainty, of protracted litigation,” Manuel Goncalves, the accounting firm’s director of national media relations, said in an e-mailed statement.

The settlement is subject to approval from U.S. District Judge Richard Leon in Washington, D.C.

The class of plaintiffs covered by the settlement “generally encompasses all purchasers of Fannie Mae common stock and call options, and all sellers of Fannie Mae put options, for the period of April 17, 2001 through December 22, 2004, who suffered damages,” according to a statement issued by DeWine.

If you would like more information on the Fannie Mae and KPMG settlement or other news, please fill out the confidential form below.

SEC Issues Annual Report on the Dodd-Frank Whistleblower Program for Fiscal 2012

Thursday, 06 December 2012 14:13

The Dodd Frank Whistleblower Program has been in effect for 18 months and thousands of tips have been pouring in from whistleblowers worldwide.

According to the Annual Report on the Dodd-Frank Whistleblower Program published by the Securities and Exchange Commission (“SEC”) in November 2012, the agency received 3,001 whistleblower tips during the fiscal year ended September 30, 2012. Approximately half of the tips pertained to three categories of allegations as the following chart illustrates:

Allegation Type Number of Tips % of Total Tips


Corporate Disclosure and Financials	547	18.2%
Offering Fraud	465	15.5%
Manipulation	457	15.2%
Subtotal- 3 allegation types	1,469	48.9%

Total Worldwide Tips	3,001

FINRA Fines and Bans David Lerner for Misleading and Overcharging Investors

Thursday, 25 October 2012 14:02

The Financial Industry Regulatory Authority (FINRA) ordered David Lerner Associates, Inc. (DLA) of Syosset, NY, to pay approximately $12 million in restitution to customers who purchased shares in Apple REIT Ten, a non-traded $2 billion Real Estate Investment Trust (REIT) DLA sold, and to customers who were charged excessive markups. FINRA also fined DLA more than $2.3 million for charging unfair prices on municipal bonds and collateralized mortgage obligations (CMOs) it sold over a 30 month period, and for related supervisory violations.

David Lerner personally misled over 1,000 customers at four or more seminars, by characterizing the Apple REIT Ten “a fabulous cash cow” and a “gold mine,” according to FINRA. Lerner was banned from the securities industry for a year and was also fined $250,000. FINRA also sanctioned DLA’s Head Trader, William Mason, $200,000, and suspended him for six months from the securities industry for his role in charging excessive muni and CMO markups.

Susan Axelrod, Executive Vice President of Member Regulation Sales Practice, said, “This case stands for the proposition that senior officers of firms, even at the CEO level, will be held accountable for systemic, detrimental harm to customers. Protection of the investing public remains the most important goal of the examination and enforcement teams throughout the country.”

Brad Bennett, Executive Vice President and Chief of Enforcement, said, “David Lerner and his firm targeted unsophisticated and elderly customers, grossly failing to comply with basic standards of suitability in selling Apple REIT Ten to thousands of customers. Firms must conduct a thorough suitability analysis before selling products, and make accurate disclosure of risks and features at the point of sale, especially with alternative investments such as non-traded REITs.”

FINRA also required DLA to retain independent consultants to review and propose changes to its supervisory systems and training on both sales of non-traded REITs and pricing of CMOs and municipal bonds. In addition, DLA agreed to revise its advertising procedures, including videotaping sales seminars attended by 50 or more people for three years, and is required for one year to pre-file all advertisements and sales literature with FINRA at least 10 days prior to use.

In concluding this settlement, DLA and David Lerner neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. The settlement will also result in a hearing panel decision against the firm and Mason related to excessive muni and CMO markups becoming final.

If you would like more information on FINRA, David Lerner or other news, please fill out the confidential form below.

Report Says 20% of Companies Manage Earnings

Thursday, 11 October 2012 16:39

A survey of conducted by a group of finance professors at Emory University and Duke found that at least 20% of companies are managing earnings and using aggressive accounting methods.

The study, which was based on an anonymous survey of CFOs, also reported that of the 20% of companies that manipulated their earnings, 40% did so to the downside. When asked about the magnitude of the earnings misrepresentations, the study’s respondents said it was around 10% of earnings per share.

To read more about the earnings survey, please click on Class Action Central.

If you would like more information on earnings management or other news, please fill out the confidential form below.

Category: WT Blog

SEC Charges Traders Affiliated with NYC Broker-Dealer in Venezuelan Bank Kickback Scheme

Fannie Mae and KPMG Agree to Pay $153M Class Action Settlement

SEC Issues Annual Report on the Dodd-Frank Whistleblower Program for Fiscal 2012

FINRA Fines and Bans David Lerner for Misleading and Overcharging Investors

Report Says 20% of Companies Manage Earnings

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