Mishcon Fraud Watch - October 2013

Welcome to the October 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.

We make no judgment whatsoever as to the morality, legality or appropriateness of the conduct which forms the subject matter of this bulletin. We simply aim to bring these matters to the attention of those involved in the prevention, detection and investigation of fraud.


Cyber fraud

Four men have appeared in court charged with a £1.3million bank cyber fraud. Darius Bolder, 34, and Tony Colston-Hayter, 47, are alleged to have set up a sophisticated system to siphon off cash from bank accounts after gaining access to a Barclays branch computer in Swiss Cottage, London. Lewis Murphy, 29, and Michael Harper, 26, are charged with credit card fraud linked to Selfridges.
Independent, 22 September 2013

United states of AMERICA

Securities and Exchange Commission (SEC)

The SEC has charged the Public Health Trust (PHT), the operator of Jackson Health System, the largest hospital in Miami-Dade County, with misleading investors about the extent of its deteriorating financial condition prior to an $83 million bond offering. The PHT projected a $56 million non-operating loss for its fiscal year ending 30 September 2009. External auditors discovered problems which resulted in the PHT ultimately reported a non-operating loss of $244 million, more than four times the projection made to bond investors. The PHT has agreed to settle the SEC’s charges.
SEC Press release 2013-181, 13 September 2013

The SEC has charged Indiana company Imperial Petroleum and several executives, including CEO Jeffrey Wilson, and suppliers for posing to investors as a legitimate biodiesel production business while concealing the extensive illegal activity that accounted for 99 percent of its revenues. When the deception scheme fell apart, Imperial’s stock price plummeted to less than 10 cents per share, resulting in a market loss of approximately $60 million.
SEC Press release, 2013-184, 18 September 2013

JPMorgan Chase has agreed to pay $200 million and has admitted wrongdoing to settle SEC charges. The firm must pay $920 million in total penalties in a global settlement after the SEC charged them with fraud for misstating financial results and lacking effective internal controls to detect and prevent its traders from fraudulently overvaluing investments to conceal hundreds of millions of dollars in trading losses.
SEC Press release 2013-187, 19 September 2013

The SEC has charged TD Bank and regional vice president, Frank A. Spinosa, with violating securities laws in connection with a massive South Florida-based Ponzi scheme conducted by Scott Rothstein, who is now serving a 50-year prison sentence. TD Bank has agreed to settle the SEC’s charges in an administrative proceeding and pay $15 million.
SEC Press release 2013-192, 23 September 2013

The SEC has charged Larry Polhill, the former president of American Pacific Financial Corporation (APFC), a purported private equity real estate firm based in California, with defrauding nearly 500 investors who purchased promissory notes under the false premise that they were secured by specific properties or other collateral. APFC eventually filed for bankruptcy, naming the investors as unsecured creditors owed nearly $160 million.
SEC Press release 2013-197, 24 September 2013

The SEC announced that Rodrigo Terpins and Michel Terpins pled guilty to trading call options for H.J. Heinz Company on non-public information. The SEC had previously obtained an emergency order freezing the assets in a Swiss-based account holding the profits from this improper trading. The account belonged to Cayman Islands-based Alpine Swift, which was also named as a defendant in the case. The Terpins brothers agreed to disgorge $1.8 million in illegal profits and an additional $3 million in penalties.
SEC Press release, 10 October 2013

The SEC charged Chan Tze Ngon, former CEO and Chairman of ChinaCast Education Corporation, with stealing $41 million of investors' money by transferring it to a purported subsidiary in which he actually had a controlling ownership stake. Mr. Chan also purportedly pledged more than $30 million of ChinaCast's cash deposits to secure unrelated debts. The SEC also alleged that Jiang Xiangyuan, ChinaCast's former president for operations in China, illegally sold 50,000 ChinaCast shares. The men's conduct caused the company's market capitalization to drop $5 million.
SEC Press release, 26 September 2013

Department of Justice (DoJ)

The Department of Justice announced criminal charges against New Zealand resident Darrell Read and English residents Daniel Wilkinson and Colin Goodman for their roles in a LIBOR manipulation scheme. According to the charges, between July 2006 and September 2009, Messrs. Read, Wilkinson, and Goodman, employed at ICAP, worked together to move Yen LIBOR in a direction favorable to a UBS trader with whom the men were working. The men were each charged with conspiracy to commit wire fraud and two counts of wire fraud for allegedly conspiring to manipulate benchmark interest rates.
Department of Justice Press release, 25 September 2013

The Department of Justice announced that Jing Wang, a former Executive Vice President and President of Global Business Operations for Qualcomm Inc., had been charged with insider trading of Qualcomm's and Atheros Communications Inc.'s shares. Mr. Wang purportedly utilized a secret brokerage account and offshore shell company to hide the illegal profits of the trading. The Department of Justice also announced that Bing Wang and Jing Wang's former stockbroker, Gary Yin, were charged with conspiring with Jing Wang to obstruct the Security and Exchange's investigation and laundering of the illegal profits.
Department of Justice Press release, 23 September 2013

Insider trading

Billionaire Mark Cuban, has appeared in court charged with insider trading, following the sale of 600,000 shares of in June 2004, soon after he had allegedly learned of an equity offering that could depress the Montreal-based Internet search company's stock price, allowing him to avoid a roughly $750,000 loss on his 6.3 per cent stake.
City AM, 30 September 2013


Political fraud

Rasheed Masood, 66, an MP from India's ruling Congress Party, became the first to lose his seat under new rules for convicted politicians. He was found guilty last month of cheating and forgery in a fraud case and jailed for four years.
Times, 2 October 2013

Mishcon de Reya

Mishcon's Fraud Watch is published by the Dispute Resolution Department of Mishcon de Reya. Widely recognised as the leader in the field of fraud investigations, the Department has pioneered the use of financial fraud techniques in numerous fields, including the rapidly growing areas of theft of confidential information and counterfeiting. The Department founded and run both the International Fraud Group, made up of international legal fraud specialists and the Financial Risk Group, for risk and compliance officers.