Welcome to the November edition of Mishcon Fraud Watch. Its aim is to provide businesses and their advisors with a snapshot of what has been happening in the world of fraud in the last month.
Former Moore Capital trader Julian Rifat has pleaded guilty to insider trading relating to trades that raised £250,000 in profit. He is the third person the FCA has found guilty in their ongoing investigating into insider trading.
Marion Dakers, Daily Telegraph, 8 November 2014
Mubbashir Alam, has been jailed for 5 years for a VAT fraud in which he used fake clothing companies to cheat the Inland Revenue out of £1.25m by faking invoices and claiming he had spent large sums on machinery. He learned the skills required to perpetrate this fraud by studying tax books during a previous prison sentence for heroin dealing.
Martin Evans, Daily Telegraph, 20 November 2014
Former JJB Sports boss Chris Ronnie has been convicted of receiving over £1m in kickbacks from suppliers and using the money to purchase a extravagant Florida mansion. Ronnie was convicted on three counts of fraud and two of furnishing false information, and refused to give evidence during the two month trial at Southwark Crown Court. The offences relate to the purchase of Travel Fox, a US trainer brand, for £1.5m, out of which Ronnie received a £650,000 backhander, and to a false loan document Ronnie presented to Kaupthing Singer and Friedlander relating to his purchase of a stake in JJB.
Marcus Leroux, The Times, 21 November 2014
David Michael Michaels, a former mutual fund salesman, has been ordered by the British Columbia Securities Commission to pay a $17m fine after being convicted of fraudulently advising nearly 500 clients to purchase $65m of exempt market securities between 2007 and 2010. Despite the fine, it is considered unlikely many of his victims will regain their funds.
CBC News Canada, 5 November 2014
The former controller of the Hereditary Disease Foundation, a New York non-profit support group, has been arrested and charged with appropriating over $1.8m of the group's funds for her own personal use. Karen Alameddine, who has almost exclusive authority over the foundation's finances, had been diverting funds that were meant for researchers into accounts which she controlled, and had created a fictitious accounting firm to prepare tax returns that continued to cover the theft.
Benjamin Weiser, The New York Times, 19 November 2014
The Securities and Exchange Commission charged Pankaj Srivastava and Nataraj Kavuri with operating a high-yield investment scheme that used fraudulent social media campaigns on Facebook, YouTube, and Twitter to attract investors. According to the SEC, the two men promised guaranteed returns in exchange for investments into Profits Paradise, their alleged investment management company, and hid behind pseudonyms to conceal their identities.
SEC Press Release, 12 November 2014
The Securities and Exchange Commission charged Richard Weed, a California attorney, Thomas Brazil and Coleman Flaherty with engaging in a pump-and-dump scheme that involved CitySide Tickets Inc., a Boston, Massachusetts-based ticket brokering business. According to the SEC, in conjunction with helping CitySide become a publicly traded company through reverse mergers, Mr. Weed created backdated promissory notes and false legal opinions that allowed Messrs. Brazil and Flaherty to obtain purportedly unrestricted stock in CitySide. Following a misleading promotional campaign to pump CitySide’s value, Messrs. Brazil and Flaherty sold their shares, earning approximately $3 million in profits. The U.S. Attorney’s Office for the District of Massachusetts also commenced a parallel criminal proceeding against the three men.
SEC Press Release, 6 November 2014
The Securities and Exchange Commission charged Bruce D. Strebinger and Brent Howard Chapman, both Canadian citizens, with engaging in an international microcap fraud scheme related to a Tennessee coal mining company. According to the SEC, Mr. Strebinger enabled a reverse merger between Americas Energy Company-AECo and a private start-up company. He and Mr. Chapman purportedly then acquired substantial ownership positions in the company without disclosing their beneficial ownership stake, conducted a campaign to pump Americas Energy stock with false and misleading statements, and then sold their shares through a web of offshore companies and accounts in several countries. The men purportedly earned more than $17 million through their scheme.
SEC Press Release, 3 November 2014
The Securities and Exchange Commission charged Bio-Rad Laboratories with violations of the Foreign Corrupt Practices Act relating to Bio-Rad’s subsidiaries’ payments to officials in Russia, Vietnam, and Thailand. According to the SEC, subsidiaries of Bio-Rad paid approximately $7.5 million in bribes over a five-year period, improperly recorded these payments to make them look legitimate, and enabled Bio-Rad to earn $35 million in profits. Bio-Rad agreed to settle the SEC’s charges, and charges brought in a parallel action by the Department of Justice, for $55 million.
SEC Press Release, 3 November 2014
The Securities and Exchange Commission charged Layne Christensen Company with violations of the Foreign Corrupt Practices Act relating to payments mostly made by the company’s Australian and African subsidiaries to officials in several African countries. According to the SEC, Layne Christensen received nearly $4 million in unlawful benefits as a result of the bribes. The company agreed to pay more than $5 million to settle the SEC’s charges.
SEC Press Release, 27 October 2014
Brazilian multimillionaire Eike Batista is on trial and facing 13 years in jail on fraud charges. He is accused of manipulating the financial markets by failing to invest a nearly $1bn in his oil company, and using insider knowledge to get rid of shares in the company before its value plummeted. The case continues, and alongside the investigation into corruption at Petrobas, is considered an indictment on Brazil's corporate regulations.
Luciana Magalhaes, Wall Street Journal, 19 November 2014
Danish fuel company OW Bunker is on the verge on bankruptcy following a major fraud by high-ranking employees in a Singapore-based subsidiary, Dynamic Oil Trading. The company has lost around $12m following the fraud, details of which have not yet been released. This has compounded a $150m loss from its risk management division.
Richard Milne, Financial Times, 6 November 2014
José Sócrates, the former prime minister of Portugal, has been held by police during an investigation into money laundering and tax fraud. The attorney general's office says that Mr Sócrates, along with three other high profile individuals, was being held after a bank filed a notification under money laundering legislation. No further information has yet been released.
Peter Wise, Financial Times, 24 November 2014