Mishcon Fraud Watch - June 2014

Posted on 26 June 2014


Abuse of position

Michael Webster, 49, a former chairman of the Black Solicitors Network, is guilty of fraud by abuse of position at Webster Dixon LLP, which he co-founded, having admitting to taking £75,000 from clients. Webster funnelled clients' money into the account of a business associate and tried to take out a loan to cover the money he had taken.
Times, 24 May 2014


Bank fraud

Italy's financial police have arrested Giovanni Berneschi, vice-chairman of the country's banking association, and six others on allegations that they defrauded the Genoan bank, Carige. €22 million has been seized in a nationwide swoop. The seven - who include the former head of Carige's insurance arm Ferdinando Menconi – are accused of intending to defraud the bank, money laundering and fraudulently seeking to move monies out of Italy to Switzerland.
Rachel Sanderson
FT, 23 May 2014


Securities and Exchange Committee (SEC)

The SEC has announced an enforcement action against the New York Stock Exchange and two affiliated exchanges for failure to comply with the responsibilities of self-regulatory organizations to conduct their business operations.  Also charged was the NYSE exchanges’ affiliated routing broker, Archipelago Securities. The NYSE exchanges agreed to settle the SEC’s charges by retaining an independent consultant and together with Archipelago Securities paying a $4.5 million penalty. 
SEC Press release 2014-87, 1 May 2014

The SEC has filed insider trading charges against Lawson Software’s co-chairman Herbert Richard Lawson, his brother William Lawson and family friend John Cerullo. Lawson tipped the latter two with nonpublic information about the status of the company’s 2011 merger discussions with Infor Global Solutions, a privately-held software provider. The three have agreed to pay nearly $5.8 million to settle the SEC’s charges.
SEC Press release 2014-93, 12 May 2014

The SEC has charged Behrooz Sarafraz, a Tiburon, California-based securities salesman, for selling millions of dollars in oil-and-gas investments without being registered with the SEC as a broker-dealer or associated with a registered broker-dealer. Behrooz Sarafraz has agreed to settle the SEC’s charges by paying disgorgement of his commissions, prejudgment interest, and a penalty for a total of more than $22 million.
SEC Press release 2014-98, 15 May 2014

The SEC has announced fraud charges and an asset freeze against Chicago-based investment fund manager, Neal V. Goyal, who is accused of stealing money he raised from investors to pay personal and business expenses. Goyal is accused of operating a Ponzi scheme that used more than $11.4 million of new investor funds to pay redemptions to existing investors and fund his own lavish lifestyle, and of fraudulently hiding losses from his investors.
SEC Press release 2014-108, 29 May 2014

The SEC has announced charges against Saleem Khan, Roshanlal Chaganlal, Ranjan Mendonsa and Ammar Akbari with insider trading in Ross Stores stock.  According to the SEC, Mr. Chaganlal, a director in Ross Stores’ finance department, tipped his friend, Mr. Khan, and two colleagues, Messrs. Mendonsa and Akbari, with nonpublic information, enabling the men to earn more than $12 million in improper profits.  Mr. Khan also traded in two other individuals’ accounts; those two men, Michael Koza and Shahid Khan, agreed to settle the SEC’s charges and pay the full amount of insider trading profits remaining in their accounts.  The SEC also charged Mr. Khan with insider trading of the stock of Taleo Corporation prior to that company’s acquisition by Oracle Corporation.
SEC Press Release, 13 June 2014

The SEC has filed an emergency action against Albany, New York investment advisor Scott Valente and his firm, The ELIV Group LLC, to stop an ongoing fraud.  According to the SEC, Mr. Valente and his firm raised over $8 million by lying to clients about the success of their investments.  In reality, the SEC claims, the money was stolen for Mr. Valente’s personal use.
SEC Press Release, 3 June 2014

The SEC charged Chicago, Illinois-based charter school operator UNO Charter School Network Inc. and United Neighborhood Organization of Chicago with defrauding investors by making materially misleading statements about a contract with a company owned by the brother of one of its senior officers and the impact of the transaction on the company’s ability to repay bonds.  UNO agreed to settle the charges, undertake steps to improve its internal procedures and training, and appoint an independent monitor.
SEC Press Release, 2 June 2014


Bank fraud

A billionaire businessman convicted of the biggest bank fraud Iran has ever seen has been executed. Mahafarid Amir-Khosravi, was reportedly hanged at Tehran's Evin Prison after being convicted of a scam that was said to have cost Iranian banks nearly £1.5 billion. Alongside Khosravi, 39 defendants were convicted of fraud.
Independent, 26 May 2014

Department of Justice

Department of Justice announced that Takayuki Yagami, a former Cooperative Centrale Raiffeisen-Boerenleenbank B.A. Japanese Yen derivatives trader, pled guilty to participation in a conspiracy to manipulate Rabobank’s Yen LIBOR submissions to benefit his trading positions.  Mr. Yagami admitted to conspiring with Paul Robson of the United Kingdom, Paul Thompson of Australia, and Tetsuya Motomura of Japan.  Mr. Yagami is the ninth person to face charges in connection with the Justice Department’s LIBOR investigation.
Department of Justice Press Release, 10 June 2014

Department of Justice announced the indictment of Gikou Nakajima, a former executive at Takata Corp., with participation in a conspiracy to fix the prices of seatbelts.  Mr. Nakajima was the director of customer relations at Takata, a Tokyo-based manufacturer of automotive parts.  The indictment charges Mr. Nakajima with one count of violating the Sherman Act.  Including Mr. Nakajima, 35 individuals have been charged in connection with the Justice Department’s investigation into price fixing and bid rigging in the auto parts industry. 
Department of Justice Press Release, 5 June 2014

Overstating revenue

Creditors of collapsed Chinese forestry group Sino-Forest have sued Allen Chan Tak-yuen, the company's former chairman and chief executive, for C$3 billion ($2.8 billion) and accused him of fraudulently inflating revenues and assets. The lawsuit alleges Chan caused Sino-Forest to "materially overstate the values of SFC's revenues and assets and to conceal personal profits made in connection therewith". Having filed for bankruptcy protection in 2012, the group was then separated into a business unit holding its identifiable assets and a litigation trust. Its former auditor, Ernst & Young, also agreed to pay $117 million to settle investor class action suits.
Naomi Rovnick
FT, 20 May 2014