Welcome to the September 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.
Online banking fraud rises
The first six months of 2014 saw a dramatic rise in online banking fraud. Financial Fraud Action UK says that online fraud reached £29.3m, a 71% rise on Jan-June 2013. Traditional card fraud has fallen over the long-term due to banks improving their security.
Financial Times, 13 September 2014
SFO accuse Alstrom
French engineering company Alstrom's UK subsidiary has been accused by the SFO of paying £5.3m in bribes to win transport contracts in India, Poland and Tunisia.
The Independent, 10 September 2014
US Dept of Justice eyes more insider trading charges
US attorney-general Eric Holder stated that the DoJ expects to bring charges against further individuals in the FOREX fraud scandal in the next few months. He also asked Congress to raise the cap payment available to whistleblowers whose information leads to cases.
Financial Times, 17 September 2014
The Securities and Exchange Commission (SEC) announced charges against Michael Anthony Dupre Lucarelli, a director of market intelligence at a New York-based investor relations firm, for insider trading. According to the SEC, Mr. Lucarelli accessed clients’ draft press releases which were on his company’s computer network, and then traded on the information contained in the releases ahead of their public release. The SEC alleges that Mr. Lucarelli obtained more than $1 million in illicit profits as a result of this improper trading. The U.S. Attorney’s Office for the Southern District of New York also announced parallel criminal charges against Lucarelli.
SEC Press Release, 26 August 2014
Barclays accused of lying about dark pools
New York attorney-general Eric Schneiderman has accused Barclays of concealing the role of predatory high-frequency traders. Schneiderman has launched a lawsuit alleging fraud relating to dark pools against the bank under New York securities laws. Barclays are attempting to have the case thrown out by claiming that US federal law takes precedence.
The Independent, 17 September 2014
The SEC charges AirTouch Communications Inc.
AirTouch Communications Inc a California-based telecommunications equipment company, and the company’s former CEO, Hideyuki Kanakubo, and former CFO, Jerome Kaiser, has been charged with engaging in a fraudulent scheme to misrepresent the company’s revenue and defrauding an investor. According to the SEC, the scheme involved the reporting of revenue for inventory that had been shipped to a warehouse but not actually sold. The SEC further alleged that Messrs. Kanakubo and Kaiser made false and misleading statements to an investor who provided a $2 million short-term bridge loan.
SEC Press Release, 22 August 2014
Autonomy contradict Hewlett-Packard claims
Autonomy have published internal documents they claim contradict some of Hewlett-Packard's claims. HP are claiming that Autonomy committed fraud by Autonomy committed accounting improprieties during the lead up to HP's $11.7bn purchase of the company. Autonomy claim they complied with international accounting standards.
Daily Telegraph, 12 September 2014
Joshua Vandyk sentenced
The Department of Justice announced the sentencing of Joshua Vandyk, a Caribbean-based investment advisor, for his role in a conspiracy to launder monetary instruments. According to the Department of Justice, Mr. Vandyk worked with Canadian citizens Eric St-Cyr and Patrick Poulin to conceal the nature, location, and ownership of $2 million that was believed to be the proceeds of a bank fraud. Mr. Vandyk and his co-conspirators purportedly created an off-shore entity called Zero Exposure Inc. for the purpose of laundering the money, and then invested it with the representation that it would not be reported to the U.S. government. Mr. Vandyk was sentenced to 30 months in prison; Messrs. St-Cyr and Poulin will be sentenced on October 3.
Dep’t of Justice, 5 September 2014
The SEC charged Archer Advisors LLC, an investment advisory firm, the company’s owner and hedge fund manager, Steven R. Markusen, and an employee, Jay C. Cope, with engaging in a scheme to defraud investors. According to the SEC, Mr. Markusen caused management fees earned by Archer Advisors to be reimbursed to Archer as research expenses, and eventually routed the money directly into his own personal bank account. Mr. Markusen also allegedly billed investors twice for the same fake research expenses in a scheme that involved Mr. Cope. In total, the SEC claims that investors were defrauded out of more than $1 million.
SEC Press Release, 8 September 2014
The Department of Justice announced that Don Langford, former senior vice president and chief credit officer of TierOne Bank, pled guilty to participation in a scheme to defraud the bank’s shareholders and regulators. According to the criminal information filed with Mr. Langford’s plea agreement, between 2009 and April 2010, Mr. Langford conspired with others to inflate the value of TierOne’s loan and real estate portfolio in reports by using outdated appraisals and delaying new appraisals. As a result, the bank was able to hide millions of dollars in losses from regulators and investors. Mr. Langford will be sentenced later this year.
Dep’t of Justice Press Release, 9 September 2014
Tianhe suspends shares after fraud accusations
Chinese chemicals group Tianhe has suspended its share three months after listing on the Hong Kong stock exchange after hacker group Anonymous Analytics, who are linked to the hacker collective Anonymous, published a report which claims Tianhe had only generated a small percentage of the sales and profits reported in its listing prospectus. Tianhe claims the report is false and they are considering legal action.
Financial Times, 3 September 2014
India launching new clampdown on securities fraud
The chairman of the Securities and Exchange Board of India has announced a shake-up of insider trading rules and new powers to boost investigations and enforcement. They will expand regulations concerning who can be targeted for insider trading, potentially to include politicians and government officials. New powers will also be introduced allowing the SEB to access phone records, hand out larger financial penalties, and run more investigative raids.
Financial Times, 27 August 2014
US ex-ambassador to Afghanistain faces money-laundering investigation
Former US ambassador to Afghanistan, Iraq and the UN, Zalmay Khalilzad, is being investigated for suspected money-laundering relating to the alleged transfer of €1.15m to an Austrian account owned by Mr Khalilzad's wife.
The Guardian, 9 September 2014
Christine Lagarde under investigation
IMF head Christine Lagarde has been placed under formal investigation by the French authorities in relation to the multi-million euro payment made to Bernard Tapie in 2008 when Lagarde was finance minister. Lagarde says the decision is without basis and that she will appeal.
The Independent, 27 August 2014
Somalia tries to calm corruption concerns
The Somalian government is aiming to rewrite or cancel nine multi-million-dollar contracts on the advice of a committee established following a series of scandals at the country's central bank. The contracts include a controversial agreement with US law firm Shulman Rogers, and a deal with UK company Soma Oil and Gas relating to oil exploration. The committee advised that none of the nine contracts had a competitive tender process.
Financial Times, 18 September 2014