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.

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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. 

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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

Also, while the SEC received tips from whistleblowers in all 50 states along with 49 countries outside theUnited States, more than a third of the tips were submitted from whistleblowers in just four states: 

State                                      Number of Tips            % of Total Tips

            The SEC’s Office of the Whistleblower (“OWB”) posts a Notice of Covered Action for each Commission enforcement action where a final judgment or order results in monetary sanctions exceeding $1 million.  The OWB posted 143 Notices of Covered Action for enforcement judgments and orders during the year ended September 30, 2012 and the SEC reported that the OWB will continue to review and process applications for awards that were received during fiscal 2012. 

When awards are issued, whistleblowers receive payment from the SEC Investor Protection Fund (“Fund”) established pursuant to Section 922 of the Dodd-Frank Act.  At the end of fiscal 2012, the Fund’s balance was $453.4 million. 

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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. 

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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. 

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According to news reports, Birkenfeld  provided detailed information on the inner workings of the secretive private wealth management division of the Swiss bank UBS, where the Birkenfeld helped his US clients evade taxes by setting up offshore accounts.  “I knew the other bankers.  I knew the other banks.  And I knew the headhunters,” Birkenfeld said at the time according to CNBC “So, I knew exactly who was doing this business.” 

Birkenfeld was released from federal prison in August after serving 31 months on charges relating to his efforts to help a wealthy client avoid taxes.  He is currently under home confinement in New Hampshire.   The terms of his probation prevented Birkenfeld from attending the press conference announcing his windfall. 

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In the press release issued August 21, the SEC said it rewarded an anonymous tipster who provided documents and other significant information to the SEC the maximum percentage award allowed by the law.  The tipster received $50,000, which represents 30 percent of the amount collected in the SEC enforcement action. 

Since the program was established in August 2011, the SEC has been receiving about eight tips a day.  “The whistleblower program is already becoming a success,” said SEC Chairman Mary L. Schapiro.  “We’re seeing high-quality tips that are saving our investigators substantial time and resources.” 

Robert Khuzami, Director of the SEC’s Division of Enforcement, indicated that the “whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract.   Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.” 

The whistleblower’s assistance led to a court ordering more than $1 million in sanctions of which approximately $150,000 has been collected thus far.  The court is considering whether to issue a final judgment against other defendants in the matter.  Any increase in the sanctions ordered and collected will increase payments to the whistleblower. 

Since the Dodd-Frank Act precludes the SEC from disclosing any information that could expose the identity of an anonymous whistleblower, the agency refused to give specific details about the enforcement action in which Tuesday’s whistleblower award was issued. 

Sean McKessy, Chief of the SEC’s Whistleblower Office, projects continued success for the program, “[t]he fact that we made the first payment after just one year of operation shows that we are open for business and ready to pay people who bring us good, timely information.” 

For a copy of the SEC’s August 21 press release announcing the first whistleblower award, click here. 

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FINRA is a  non-governmental agency created by the securities industry to oversee the operations of all securities firms and professionals doing business in the United States.  The organization’s mission is to protect American investors by making sure the securities industry operates fairly and honestly.  FINRA is funded by brokerage firms such as Merrill Lynch.

Ilene Gormly, a FINRA arbitrator with about 20 years of experience, informed the SEC that she received a “black spot” letter from FINRA in January 2012 several months after she and two other arbitrators ruled against Merrill in a case.  The two other arbitrators, Daniel Kolber, a securities-law attorney and the founder of Intellivest Securities Inc., and Atlanta attorney Fred Pinckney received similar “black spot” letters informing them that they are being scratched off the list of active members of FINRA’s dispute resolution roster of arbitrators. 

The case assigned to the three arbitrators was filed with FINRA by Robert Postell and Joan Postell.  The husband and wife were seeking $640,633 against Merrill Lynch alleging that the financial institution failed to adequately monitor their accounts resulting in breaches of contract and fiduciary duty. 

In May 2011, the FINRA arbitrators heard the Postells’ arbitration claim in seven sessions over four days and found Merrill Lynch liable and ordered the firm to pay to $520,000 ($442,794.00 in compensatory damages plus interest at the rate of 7% per annum from November 6, 2008 until May 6, 2011 in the amount of $77,489.00).  Kolber was the first to receive a “black spot letter” from FINRA, followed by Gormly in January 2012 and Pinckney in June 2012. 

On July 25 FINRA reinstated the three arbitrators, according to a Bloomberg article by William Cohan.  Linda Fienberg, president of FINRA’s dispute resolution, denied any causal link between the firing of the three arbitrators and the complaints from Merrill and its attorney about the Postell award.  “There is no validity to this assertion,” Fienberg wrote. “FINRA simply does not remove arbitrators from the roster based upon their awards, and never has.”

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Bank of America has not been accused of any wrongdoing, but even if it did not participate in the money-laundering scheme, the bank could face fines and sanctions for failing to spot suspicious activity and report it to authorities, according to attorneys.  According to the FBI, brothers Miguel Angel Trevino Morales and Oscar Omar Trevino Morales, allegedly among the top leaders of Los Zetas, used their brother as a front man for the money-laundering operation. 

Jose Trevino Morales, a U.S. citizen, opened a pair of accounts at Bank of America to handle some of the roughly $1 million per month his brothers were sending him to purchase, train and run quarter horses, which specialize in short-distance races.  Trevino Morales, who has pled not guilty to money-laundering charges, also deposited his winnings from various races, which reached nearly $1 million on one occasion, in the BofA accounts, according to the FBI. 

Morales made one of his largest deposits after one of his quarter horses, Mr. Piloto, won the All-American Futurity race in 2010 at Ruidoso Downs Race Track in New Mexico, according to the FBI. Morales’ account, which was under the name Tremor Enterprises LLC, was credited with $968,440 after the race, the FBI says. 

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According to court documents, starting in the early 1990s and continuing until 2007, ING Bank violated U.S. and New York state laws by moving more than $2 billion illegally through the U.S. financial system – via more than 20,000 transactions via its branch in Curaçao – on behalf of Cuban and Iranian entities subject to U.S. economic sanctions.  ING Bank knowingly and willfully engaged in this criminal conduct, which caused unaffiliated U.S. financial institutions to process transactions that otherwise should have been rejected, blocked or stopped for investigation under regulations by OFAC relating to transactions involving sanctioned countries and parties.

ING Bank also eliminated payment data that would have revealed the involvement of sanctioned countries and entities, including Cuba and Iran; advised sanctioned clients on how to conceal their involvement in U.S. dollar transactions; fabricated ING Bank endorsement stamps for two Cuban banks to fraudulently process U.S. dollar travelers’ checks; and threatened to punish certain employees if they failed to take specified steps to remove references to sanctioned entities in payment messages.  Over the years, several ING Bank employees raised concerns to management about the bank’s sanctions violations.  However, no action was taken.

“The fine announced today is the largest ever against a bank in connection with an investigation into U.S. sanctions violations and related offenses and underscores the national security implications of ING Bank’s criminal conduct.  For more than a decade, ING Bank helped provide state sponsors of terror and other sanctioned entities with access to the U.S. financial system, allowing them to move billions of dollars through U.S. banks for illicit purchases and other activities,” said Assistant Attorney General Monaco.  “I applaud the agents, analysts and prosecutors who for years pursued this case.”

“Banks that try to skirt U.S. sanctions laws undermine the integrity of our financial system and threaten our national security,” said U.S. Attorney Machen.  “When banks place their loyalty to sanctioned clients above their obligation to follow the law, we will hold them accountable.  On more than 20,000 occasions, ING intentionally manipulated financial and trade transactions to remove references to Iran, Cuba and other sanctioned countries and entities.  Today’s $619 million forfeiture – the largest ever – holds ING accountable for its wrongdoing.”

“For years, ING Bank blatantly violated U.S. laws governing transactions involving Cuba and Iran, and then used shell companies and other deceptive measures to cover up its criminal conduct,” said Assistant Attorney General Breuer.  “Today’s resolution reflects a strong collaboration among federal and state law enforcement partners to hold ING accountable.”

 “In today’s environment of increasingly sophisticated financial markets, it’s critical that global institutions follow U.S. law, including sanctions against other countries,” said IRS Criminal Investigation Chief Weber.  “The IRS is proud to share its world-renowned financial investigative expertise in this and other complex financial investigations.  Creating new strategies and models of cooperation among our law enforcement partners to ensure international financial compliance is a top-priority of the IRS.”

“Our sanctions laws reflect core U.S. national security and foreign policy interests and OFAC polices them aggressively.  Today’s historic settlement should serve as a clear warning to anyone who would consider profiting by evading U.S. sanctions,” said OFAC Director Szubin.  “We commend our federal and state colleagues for their work on this important investigation.”

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