Computer Programmer Arrested for Stealing Proprietary Code from the Federal Reserve Bank of New York

Preet Bharara, the United States Attorney for the Southern District of New York, and Janice K. Fedarcyk, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (“FBI”) announced today the unsealing of a complaint charging BO ZHANG, a computer programmer, with stealing proprietary software code from the Federal Reserve Bank of New York, where ZHANG worked as a contract employee. ZHANG was arrested this morning by agents of the FBI and the Department of the Treasury Office of Inspector General (“OIG”) and is expected to be presented in Manhattan federal court later today.

Manhattan U.S. Attorney Preet Bharara said: “As today’s case demonstrates, our cyber infrastructure is vulnerable not only to cybercriminals and hackers, but also alleged thieves like Bo Zhang who used his position as a contract employee to steal government intellectual property. Fighting cyber crime is one of the top priorities of this office and we will aggressively pursue anyone who puts our computer security at risk.”

FBI Assistant Director in Charge Janice K. Fedarcyk stated: “Zhang took advantage of the access that came with his trusted position to steal highly sensitive proprietary software. His intentions with regard to that software are immaterial. Stealing it and copying it threatened the security of vitally important source code.”

According to the complaint unsealed today in Manhattan federal court:

The Government-Wide Accounting and Reporting Program (“GWA”) is a software system that is owned by the United States Department of the Treasury (“DOT”). It is used principally to help keep track of the United States government’s finances. Among other things, the GWA handles ledger accounting for each appropriation, fund, and receipt within the DOT, and provides federal agencies with an account statement—similar to bank statements provided to bank customers—of the agencies’ account balances with the United States Treasury. The proprietary computer source code associated with the GWA is maintained by the Federal Reserve Board of New York (“FRBNY”) in an access-controlled electronic repository. The FRBNY is further developing the source code for the GWA.

As alleged in the complaint, between May 2011 and August 11, 2011, BO ZHANG was a contract employee assigned to the FRBNY to work on further developing a specific portion of the GWA’s source code (the “GWA Code”), which the United States has spent approximately $9.5 million to develop. In the summer of 2011, ZHANG allegedly stole the GWA Code. According to the complaint, ZHANG admitted that in July 2011, while working at the FRBNY, he checked out and copied the GWA Code onto his hard drive at the FRBNY; he subsequently copied the GWA Code onto an FRBNY-owned external hard drive; and he connected that external hard-drive to his private office computer, his home computer, and his laptop. ZHANG stated that he used the GWA Code in connection with a private business he ran training individuals in computer programming.

***

ZHANG, 32, of Queens, New York, faces a maximum term of 10 years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, or twice the gross pecuniary gain derived from the offense or twice the gross pecuniary loss to the victims.

Mr. Bharara praised the outstanding investigative work of the FBI. He also thanked the Department of the Treasury OIG and the FRBNY for their assistance in the investigation.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Niketh Velamoor and Nicholas Lewin are in charge of the prosecution.

The charge and allegations contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

International Bank of Commerce Robbery Lands Former Bank Teller in Federal Prison

HOUSTON—Estefany Danelia Martinez, a former bank teller convicted for bank robbery and embezzlement of bank funds arising from a robbery of the International Bank of Commerce (IBOC) has been sentenced to federal prison, United States Kenneth Magidson announced today. U.S. District Judge Keith Ellison handed down the sentences for Martinez, 18, as well as Arturo Solano, 22, in federal court this morning.

 

The two were indicted along with Ricky Gonzalez, 19, the boyfriend of Martinez, and Anna Margarita Rivera, 19, another former IBOC bank teller, on May 11, 2011. All four pleaded guilty to the charges earlier this year.

 

On March 23, 2011, two men wearing masks and hooded sweatshirts and who appeared to be armed with semi-automatic pistols entered the Eldridge Parkway branch of the IBOC. They robbed the bank by threatening the two bank tellers on duty, Martinez and Rivera. The tellers were allegedly forced to empty their teller drawers of cash as well as to fill bags provided by the robbers with cash from the vault. After the two men left the bank, the two tellers—who had remained in the vault, called 911. The tellers described the events and provided a false description of the two robbers to police.

 

Shortly after the robbery, an anonymous tip to Crimestoppers claimed that bank employees, Martinez and Rivera, had actually staged the bank robbery along with Gonzalez and another male and directed investigators to the Facebook pages of Martinez and Gonzalez. Through further investigation, investigating agents ultimately identified Gonzales and Solano as the two males who had robbed the IBOC bank with the assistance of former bank tellers Martinez and Rivera and recovered a portion of the money stolen from the bank.

 

Today, Judge Ellison sentenced Martinez to 15 months on each count to run concurrently, while Solano will serve 10 months in federal prison. Gonzalez and Rivera are pending sentencing on Jan. 5, 2012, and Dec. 8, 2011, respectively.

 

The investigation leading to the filing of federal charges against these four defendants was conducted by the FBI and the Houston Police Department and substantially assisted by a tip called into Houston Crimestoppers.

 

Assistant United States Attorney Suzanne Elmilady is prosecuting the case.

Treasury Sanctions Three Drug Traffickers Tied to Mexican Drug Lord Chapo Guzman

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today designated three individuals with ties to Sinaloa Cartel leader Joaquin Guzman Loera (a.k.a. Chapo Guzman) as Specially Designated Narcotics Traffickers (SDNTs) pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act). As a result of today’s action, U.S. persons are prohibited from conducting financial or commercial transactions with the designees and any assets they may have under U.S. jurisdiction are frozen.

 

“Today marks the fourth time in the past year that OFAC has targeted and exposed the support structures of the organization led by Chapo Guzman, the world’s most powerful drug trafficker,” said OFAC Director, Adam J. Szubin. “OFAC will continue to work with law enforcement and foreign counterparts to help disrupt, and eventually dismantle, Chapo Guzman’s criminal empire.”

 

Two of the individuals designated today, Mexican nationals Oscar Alvarez Zepeda and Joel Valdez Benites, are from Culiacan, Sinaloa, Mexico. The other individual, Colombian national Carlos Mario Torres Hoyos, is from Medellin, Colombia. These three individuals provide material support to the drug trafficking activities of Guzman Loera and the Sinaloa Cartel and also have ties to Colombian drug trafficker Jorge Milton Cifuentes Villa. Oscar Alvarez Zepeda is the brother of the previously-designated Mexican national Alfredo Alvarez Zepeda. The Alvarez Zepeda brothers are relatives of Chapo Guzman.

 

Guzman Loera and the Sinaloa Cartel were identified by the President as drug kingpins pursuant to the Kingpin Act in 2001 and 2009, respectively. OFAC designated Cifuentes Villa as an SDNT in February 2011 along with more than 70 other individuals and entities. Guzman Loera and Jorge Milton Cifuentes Villa were indicted on drug trafficking and/or money laundering charges in the U.S. District Court for the Southern District of Florida in November 2010. In February 2011, Jorge Milton Cifuentes Villa was also indicted on drug trafficking charges in the U.S. District Court for the Southern District of New York.

 

OFAC coordinated on this investigation with the Drug Enforcement Administration. Today’s action is part of ongoing efforts pursuant to the Kingpin Act to apply financial measures against significant foreign narcotics traffickers and their organizations worldwide. Treasury has designated more than 1,000 individuals and entities pursuant to the Kingpin Act since June 2000.

 

Penalties for violations of the Kingpin Act range from civil penalties of up to $1.075 million per violation to more severe criminal penalties. Criminal penalties for corporate officers may include up to 30 years in prison and fines up to $5 million. Criminal fines for corporations may reach $10 million. Other individuals face up to 10 years in prison and fines pursuant to Title 18 of the United States Code for criminal violations of the Kingpin Act.

Malware Targets Bank Accounts

‘Gameover’ Delivered Via Phishing E-Mails

 

Cyber criminals have found yet another way to steal your hard-earned money: a recent phishing scheme involves spam e-mails—purportedly from the National Automated Clearing House Association (NACHA), the Federal Reserve Bank, or the Federal Deposit Insurance Corporation (FDIC)—that can infect recipients’ computers with malware and allow access to their bank accounts.

 

The malware is appropriately called “Gameover” because once it’s on your computer, it can steal usernames and passwords and defeat common methods of user authentication employed by financial institutions. And once the crooks get into your bank account, it’s definitely “game over.”

 

Gameover is a newer variant of the Zeus malware, which was created several years ago and specifically targeted banking information.

 

How the scheme works: Typically, you receive an unsolicited e-mail from NACHA, the Federal Reserve, or the FDIC telling you that there’s a problem with your bank account or a recent ACH transaction. (ACH stands for Automated Clearing House, a network for a wide variety of financial transactions in the U.S.) The sender has included a link in the e-mail for you that will supposedly help you resolve whatever the issue is. Unfortunately, the link goes to a phony website, and once you’re there, you inadvertently download the Gameover malware, which promptly infects your computer and steals your banking information.

 

After the perpetrators access your account, they conduct what’s called a distributed denial of service, or DDoS, attack using a botnet, which involves multiple computers flooding the financial institution’s server with traffic in an effort to deny legitimate users access to the site—probably in an attempt to deflect attention from what the bad guys are doing.

 

But that’s not the end of the scheme: Recent investigations have shown that some of the funds stolen from bank accounts go towards the purchase of precious stones and expensive watches from high-end jewelry stores. The criminals contact these jewelry stores, tell them what they’d like to buy, and promise they will wire the money the next day. So the next day, a person involved in the money laundering aspect of the crime—called a “money mule”—comes into the store to pick up the merchandise. After verifying that the money is in the store’s account, the jewelry is turned over to the mule, who then gives the items to the organizers of the scheme or converts them for cash and uses money transfer services to launder the funds.

 

In many cases, these money mules are willing participants in the criminal scheme. But increasingly, as part of this scheme, we see an increasing number of unsuspecting mules hired via “work at home” advertisements who end up laundering some of the funds stolen from bank accounts. The criminals e-mail prospective candidates claiming to have seen their resumes on job websites and offer them a job. The hired employees are provided long and seemingly legitimate work contracts and actual websites to log into. They’re instructed to either open a bank account or use their own bank account in order to receive funds via wire and ACH transactions from numerous banks…and then use money remitting services to send the money overseas.

 

If you think you’ve been victimized by this type of scheme, contact your financial institution to report it, and file a complaint with the FBI’s Internet Crime Complaint Center.

 

How Can You Protect Yourself?

- Obviously, make sure your computer’s anti-virus software is up to date.

 

- Don’t click on e-mail attachments from unsolicited senders. NACHA, FDIC, and the Federal Reserve all say they don’t send out unsolicited e-mails to bank account holders. If you want to confirm there’s a problem with your account or one of your recent transactions, contact your financial institution directly.

 

-Don’t accept unsolicited jobs online that require you to receive funds from numerous bank accounts and then wire the money to overseas accounts—you could get caught up in a criminal investigation.

GE Funding Capital Market Services Inc. Admits to Anticompetitive Conduct by Former Traders in the Municipal Bond Investments Market and Agrees to Pay $70 Million to Federal and State Agencies

WASHINGTON – GE Funding Capital Market Services Inc. entered into an agreement with the Department of Justice to resolve the company’s role in anticompetitive activity in the municipal bond investments market and agreed to pay a total of $70 million in restitution, penalties and disgorgement to federal and state agencies, the Department of Justice announced today.

 

 As part of its agreement with the department, GE Funding admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former traders.  According to the non-prosecution agreement, from 1999 through 2004, certain former GE Funding traders entered into unlawful agreements to manipulate the bidding process on municipal investment and related contracts, and caused GE Funding to make payments and engage in other related activities in connection with those agreements through at least 2006.  These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other public entities.

 

 “GE Funding’s former traders entered into illegal agreements to manipulate the bidding process on municipal investment contracts,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Justice Department’s Antitrust Division.  “This anticompetitive conduct harmed municipalities, as well as taxpayers.  Today’s resolution requires GE Funding to pay penalties, disgorgement and restitution to the victims of its illegal activity.  We will continue to use all the tools at our disposal to uphold our nation’s antitrust laws and ensure competition in the financial markets.”

 

Under the terms of the agreement, GE Funding agreed to pay restitution to victims of the anticompetitive conduct and to cooperate fully with the Justice Department’s Antitrust Division in its ongoing investigation into anticompetitive conduct in the municipal bond derivatives industry.  To date, the ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation.  Nine of the 18 executives charged have pleaded guilty.   

 

The Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS) and 25 state attorneys general also entered into agreements with GE Funding requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of restitution to the victims harmed by the bid manipulation by GE Funding employees, as well as other remedial measures.

 

 As a result of GE Funding’s admission of conduct; its cooperation with the Department of Justice and other enforcement and regulatory agencies; its monetary and non-monetary commitments to the SEC, IRS and state attorneys general; and its remedial efforts to address the anticompetitive conduct, the department agreed not to prosecute GE Funding for the manipulation of bidding for municipal investment and related contracts, provided that GE Funding satisfies its ongoing obligations under the agreement.

 

 JPMorgan Chase & Co., UBS AG and Wachovia Bank N.A. also reached agreements with the Department of Justice and other federal and state agencies to resolve anticompetitive conduct in the municipal bond derivatives market.  On May 4, 2011, UBS AG agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies for its participation in the anticompetitive conduct.  On July 7, 2011, JPMorgan agreed to pay a total of $228 million in restitution, penalties and disgorgement to federal and state agencies for its role in the conduct.  On Dec. 8, 2011, Wachovia Bank agreed to pay a total of $148 million in restitution, penalties and disgorgement to federal and state agencies for its participation in the anticompetitive conduct.

 

 The department’s ongoing investigation into the municipal bonds industry is being conducted by the Antitrust Division, the FBI and the IRS-Criminal Investigation.  The department is coordinating its investigation with the SEC, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.  The department thanks the SEC, IRS and state attorneys general for their cooperation and assistance in this matter.

 

The Antitrust Division, SEC, IRS, FBI and state attorneys general are members of the Financial Fraud Enforcement Task Force.  President Obama established the interagency task force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information about the task force, visit Stopfraud.gov.

Two Former Leaders of the United Auto Workers Sentenced to Prison for Extorting General Motors

Donny Douglas, 70, of Holly, Michigan, a former United Auto Workers (“UAW”) International Servicing Representative, and Jay Campbell, 70, of Davisburg, Michigan, a former UAW Local 594 Chairman, were both sentenced today to terms of imprisonment United States Attorney Barbara L. McQuade announced. Douglas was sentenced to 18 months in prison, and Campbell was sentenced to 12 months and one day in prison based on their June 2006 convictions following a jury trial.

 

McQuade was joined in the announcement by James Vandenberg, the Special Agent in Charge of the Department of Labor, Office of Investigations–Office of Labor Racketeering and Fraud Investigations and FBI Special Agent in Charge Andrew Arena.

 

Douglas and Campbell stand convicted of conspiring to commit extortion and conspiring to violate the Labor-Management Relations Act. The jury found that Douglas and Campbell had conspired to commit extortion by threatening to extend the 1997 strike at the Pontiac Truck Plant by UAW Local 594 unless General Motors hired two unqualified, non-UAW members who were family members or friends of the defendants as skilled tradesmen. Based on the demands of the defendants and in order to avoid continued significant losses from the strike, General Motors hired Campbell’s son and a former UAW Local 594 President’s son-in-law as journeymen even though neither man was a member of the UAW, worked for General Motors, or was qualified for the position.

 

Previously, in May 2007, the district court had sentenced Douglas and Campbell to terms of probation. These sentences were overturned on appeal before the Court of Appeals for the Sixth Circuit. Today, the district court conducted another sentencing hearing based on the decision of the Sixth Circuit.

 

The case was investigated by agents of the Department of Labor, Office of Inspector General–Office of Labor Racketeering and Fraud Investigations and the Federal Bureau of Investigation. It is being prosecuted by Assistant United States Attorneys David A. Gardey and Kathleen Moro Nesi.

Overland Park Man Charged with Scheme to Sell Phony Investments in Facebook

WICHITA, KS—A Kansas man has been charged with devising a scheme to sell phony investments in Facebook, U.S. Attorney Barry Grissom said today.

 

Ronald D. Catrell, 45, Overland Park, Kan., is charged with three counts of bank fraud, one count of money laundering, one count of wire fraud and one count of aggravated identity theft. Federal criminal charges were filed Friday in U.S. District Court in Kansas City, Kan.

 

The charges allege Catrell fraudulently obtained business loans from three banks including Valley View Bank, Bank of the West and M&I Bank. In order to obtain the loan from Valley View Bank, for instance, he gave the bank a personal account statement claiming his account balance was more than $297,000 when the actual balance was less than $179.

 

As part of the investment fraud scheme, Catrell created a business called Blue Valley Capital Management, LP, which he claimed had an office at 244 Fifth Avenue, Suite 1882, New York, N.Y. In fact, the building at that address did not have an 18th floor and the business located there, Aerobeep & Voicemail, offered postal mail boxes to persons or businesses desiring a mailing address on Fifth Avenue in New York.

 

Catrell offered investors the opportunity to purchase Facebook stock through him. He falsely told investors he could purchase stock in Facebook through Goldman Sachs. In fact, Facebook was a privately held company that was not publicly traded. One victim, identified as William L., gave Catrell $35,000 to invest in BCVM and $50,000 to invest in Facebook stock.

 

Upon conviction, the crimes carry the following penalties:

 

■Bank fraud: A maximum penalty of 20 years and a fine up to $1 million.

■Aggravated identity theft: A mandatory two years and a fine up to $250,000.

■Money laundering: A maximum penalty of 10 years and a fine up to $250,000.

■Wire fraud: A maximum penalty of 20 years and a fine up to $250,000.

The FBI investigated. Assistant U.S. Attorney Chris Oakley is prosecuting.

 

In all cases, defendants are presumed innocent until and unless proven guilty. The charges merely contain allegations of criminal conduct.

Ten Years Later: The Enron Case

Boxes of evidence and data

It was 10 years ago this month that the collapse of Enron precipitated what would become the most complex white-collar crime investigation in the FBI’s history.

 

Top officials at the Houston-based company cheated investors and enriched themselves through complex accounting gimmicks like overvaluing assets to boost cash flow and earnings statements, which made the company even more appealing to investors. When the company declared bankruptcy in December 2001, investors lost millions, prompting the FBI and other federal agencies to investigate.

 

The sheer magnitude of the case prompted creation of the multi-agency Enron Task Force, a unique blend of investigators and analysts from the FBI, the Internal Revenue Service-Criminal Investigation Division, the Securities and Exchange Commission, and prosecutors from the Department of Justice.

 

Agents conducted more than 1,800 interviews and collected more than 3,000 boxes of evidence and more than four terabytes of digitized data. More than $164 million was seized; to date about $90 million has been forfeited to help compensate victims. Twenty-two people have been convicted for their actions related to the fraud, including Enron’s chief executive officer, the president/chief operating officer, the chief financial officer, the chief accounting officer, and others.

 

“The Enron Task Force’s efforts resulted in the convictions of nearly all of Enron’s executive management team,” said Michael E. Anderson, assistant special agent in charge of the FBI’s Houston Division, who led the FBI’s Enron Task Force in Houston. “The task force represented a model task force—the participating agencies selflessly and effectively worked together in accomplishing significant results. The case demonstrated to Wall Street and the business community that they will be held accountable.”

Former Senior Trader at Bernard L. Madoff Investment Securities LLC Pleads Guilty to Creating Fake Trades

NEW YORK, NY—David L. Kugel, a former senior trader in the Market Making and Proprietary Trading operations of Bernard L. Madoff Investment Securities LLC (BLMIS), pleaded guilty today in Manhattan federal court to a six-count superseding information related to his conduct while employed at BLMIS, announced Preet Bharara, the U.S. Attorney for the Southern District of New York. Kugel admitted that, beginning in the early 1970s, he helped create fake, backdated trades for the purpose of defrauding BLMIS’s investment advisory (IA) clients. Kugel pleaded guilty today before U.S. District Judge Laura Taylor Swain to two counts of conspiracy, as well as substantive counts of securities fraud, falsifying books and records of a broker-dealer, falsifying books and records of an investment adviser, and bank fraud. In addition to pleading guilty, Kugel agreed to cooperate with the government in its ongoing investigation of the fraud that occurred at BLMIS.

 

According to the superseding Information, plea agreement and other documents filed in connection with the case:

 

Kugel was employed at BLMIS from 1970 through Dec. 11, 2008. Beginning in 1970, Kugel was a trader in BLMIS’s Proprietary Trading and Market Making operations. In the late 1990s, he assumed a managerial position on the trading floor and later took on the role of “trading floor compliance analyst.”

 

From the 1970s through the collapse of BLMIS, Kugel provided historical trade information to other BLMIS employees, including Annette Bongiorno and Joann Crupi, which allegedly enabled them to create fake trades. Beginning in the early 1970s, Kugel provided certain historical information to Bongiorno so that she could select particular stocks and purchase prices to be used for each IA client, in order to meet the rate of return pre-determined by Bernard Madoff for that client. The information that Kugel provided included stock names; the buy and sell dates of potential trades; as well as the historical price ranges of those stocks for the respective dates that Bongiorno could allegedly use to make a profit. Kugel’s information often mimicked trades previously executed in connection with BLMIS’s proprietary trading operation. Beginning in the early 1990s, Kugel similarly provided Crupi with historical price information to enable her to allegedly create false, backdated trades for IA clients. These false, backdated trades were used to defraud IA clients because, when included on their account statements and trade confirmations, they gave the appearance of profitable trading when none, in fact, had occurred.

In addition, Kugel, and allegedly Crupi and others, defrauded numerous banks by using false financial information to obtain loans. On multiple occasions, Kugel and allegedly Crupi, submitted false and misleading information to banks concerning Kugel’s assets and the assets of others, in order to obtain loans for the purchase and construction of homes. With the assistance of Crupi and others, Kugel obtained multiple million-dollar loans based on the submission of this fraudulent information.

 

Kugel, 66, faces a total statutory maximum sentence of 85 years in prison. A chart identifying the maximum penalties for each of the charged offenses is attached to this release. Kugel is also subject to mandatory restitution and criminal forfeiture and faces criminal fines up to twice the gross gain or loss derived from the offense. According to the agreements entered into with the government, Kugel has agreed to forfeiture of more than $170 billion, including his interests in homes, a luxury car, various accounts at financial institutions and other specific assets. The net proceeds from the sale of the forfeited property will be used to compensate victims of the fraud, consistent with applicable Department of Justice regulations.

 

Following the guilty plea, Judge Swain released Kugel on a $3 million bond on the condition that the bond be co-signed by six financially responsible individuals and secured by $900,000 in cash and property. In addition, Kugel’s travel is restricted to the Southern and Eastern Districts of New York and the District of New Jersey. He will be subject to strict pretrial supervision. Kugel has surrendered his passport.

 

Judge Swain set a sentencing date for Kugel of May 4, 2012, at 11:00 a.m.

Charges against Bongiorno and Crupi remain pending and are merely accusations. They are presumed innocent unless and until proven guilty.

 

Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission for its assistance.

 

These cases were brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Lisa A. Baroni, Julian J. Moore, Arlo Devlin-Brown, Barbara A. Ward and Matthew L. Schwartz are in charge of the prosecution.

Securities and Exchange Commission Failed to Stop Bernie Madoff Fraud

November 11, Washington Post – (National) Eight SEC employees disciplined over failures in Madoff fraud case; none are fired. The Securities and Exchange Commission (SEC), which failed to stop a long-running investment fraud despite repeated warnings, has disciplined eight agency employees over their handling of the matter but did not fire anyone, reported the Washington Post. The SEC’s head of human resources and a law firm hired to advise the agency had recommended the chairman fire one person, whom the SEC described as a manager in the office that inspects investment firms. But the chairman did not fire the worker because doing so "would harm the agency’s work," a SEC spokesman said.

The Washington Post reported November 11 seven SEC employees had been disciplined, based on details provided by a person familiar with the actions. A second source, an official involved in the process, told the Post the chairman had received recommendations to fire an employee over the mishandling of the case. Later November 11, the SEC spokesman confirmed details and added that an eighth employee also received disciplinary action. A ninth employee, who was facing a 7-day suspension, resigned before disciplinary action was taken, the spokesman said.

 

The punishments given the SEC employees varied and included suspensions, pay cuts, and demotions. Although the SEC conducted five examinations and inspections of the hedge fund manager based on complaints, agency personnel "never took the necessary and basic steps to determine if [he] was misrepresenting his trading," the inspector general reported. "While examiners and investigators discovered suspicious information and evidence and caught [the manager] in contradictions and inconsistencies, they either disregarded these concerns or relied inappropriately upon [his] representations and documentation in dismissing them," the inspector general added.

 

Read more.

 

Source: Washington Post via Homeland Security Daily Open Source Infrastructure Report

Triton President and CEO Kurt Barton Sentenced to Federal Prison

The United States Attorney’s Office announced that in Austin today, 44-year-old Kurt Branham Barton, founder, president, and CEO of Triton Financial, L.L.C., was sentenced to 17 years in federal prison followed by five years of supervised release for carrying out a Ponzi scheme which victimized more than 300 individuals and resulted in a total estimated loss to investors of over $50 million.

In addition to the prison term, United States District Judge Sam Sparks ordered that Barton pay restitution in the amount of $63,707.496.

On August 17, 2011, a federal jury convicted Barton of conspiracy to commit wire fraud, making false statements to secure loans from financial institutions, and money laundering, as well as multiple substantive counts including one count of securities fraud, 15 counts of wire fraud, five counts of making a false statement related to the acquisition of loans, and 17 counts of money laundering.

Evidence presented during the eight-day trial revealed that from December 2005 and December 2009, Barton devised a scheme to obtain money from investors under false pretenses. Barton represented to investors, including members of the defendant’s family, members of the Church of Jesus Christ of Latter Day Saints, business leaders, as well as professional football players, that Triton was purchasing properties, businesses and other assets with their funds when, in fact, he was using their money to satisfy the needs of other ventures and the need to pay quarterly dividends or redemptions to prior investors. Testimony also revealed that Barton used prominent former National Football League players and Heisman Trophy winners to solicit and encourage additional investors. To conceal his scheme, Barton presented fabricated and fictitious versions of his E*Trade monthly account statement to financial institutions, commercial lenders and potential investors.

“Mr. Barton’s scheme adversely affected the lives of many investors who trusted him with not only with their money but with their faith also. His reckless actions were driven by greed and selfishness as he continued to seek out more victims to perpetuate the misery to others and supplement his extravagant lifestyle. The other victims in this tragedy are the reputations of the retired National Football League players, who Mr. Barton used to market his company and then recruit more victims for his Ponzi scheme. The FBI warns all investors to highly scrutinize investment opportunities where the return seems extremely high and too good to be true,” stated FBI Special Agent in Charge Cory B. Nelson.

IRS Criminal Investigations Special Agent in Charge Steve McCollough reminds investors that “they should diligently check out claims of unusually high rates of return like those posed by Barton and DiMeglio before investing. Investors should not blindly follow the advice of any one person, always get a second opinion.”

“Today’s sentence concludes a very trying and devastating time for a great number of investors. The story of this case should be a great reminder to potential investors that the old adage ‘if it sounds too good to be true, it probably is,’ still holds true. We hope today’s sentence will serve as a deterrent and a warning—those who engage fraud will be prosecuted to greatest extent that the law allows,” stated Texas Securities Commissioner Benette L. Zivley.

This investigation was conducted by the Federal Bureau of Investigation and the Internal Revenue Service - Criminal Investigation together with the Texas State Securities Board. Assistant United States Attorneys Mark Lane and Jennifer Freel prosecuted this case on behalf of the government.

Nogales CBP Officers Seize $290,000 in Illicit Outbound Currency

Nogales, Ariz. — U.S. Customs and Border Protection officers assigned to the Tucson Field Office, a component of the Customs and Border Protection Joint Field Command-Arizona, arrested a Mexican woman for attempting to smuggle more than $290,000 in undeclared U.S. currency into Mexico yesterday. 

CBP officers at the Dennis DeConcini Port were conducting outbound inspections, when they referred a Dodge sedan driven by a 36-year-old Mexican woman for further inspection. During a search of the vehicle, five packages of undeclared U.S. currency totaling a little more than $290,000 were located. The vehicle and the currency were seized and the driver was arrested and turned over to U.S. Immigration and Customs Enforcement’s Homeland Security Investigations

“I congratulate our CBP officers for preventing this large amount undeclared currency from being taken out of the country,” said Area Port Director Guadalupe Ramirez. “Our outbound enforcement team will continue to intercept illicit funds and keep it from reaching the hands of transnational criminal organizations.”

Individuals arrested are charged with a criminal complaint, which raises no inference of guilt. An individual is presumed innocent until competent evidence is presented to a jury that establishes guilt beyond a reasonable doubt.

CBP announced the JFC-AZ in February 2011 as an organizational realignment that brings together the U.S. Border Patrol, Air and Marine, and Field Operations under a unified command structure. The JFC-AZ integrates CBP’s border security, commercial enforcement, and trade facilitation missions to more effectively meet the unique challenges faced in Arizona.

CBP's Office of Field Operations is the primary organization within Homeland Security tasked primarily with an anti-terrorism mission at our nation’s ports. CBP officers screen all people, vehicles and goods entering the United States while facilitating the flow of legitimate trade and travel. Their mission also includes carrying out border-related duties, including narcotics interdiction, enforcing immigration and trade laws, and protecting the nation's food supply and agriculture industry from pests and diseases.

U.S. Customs and Border Protection is the unified border agency within the Department of Homeland Security charged with the management, control and protection of our nation's borders at and between the official ports of entry. CBP is charged with keeping terrorists and terrorist weapons out of the country while enforcing hundreds of U.S. laws.

SIX JAPANESE FREIGHT FORWARDING COMPANIES AGREE TO PLEAD GUILTY TO CRIMINAL PRICE-FIXING CHARGES

Companies Agree to Pay a Total of $46.8 Million in Criminal Fines

WASHINGTON — Six Japanese freight forwarders have agreed to plead guilty and to pay criminal fines totaling $46.8 million for their roles in a conspiracy to fix certain fees in connection with the provision of freight forwarding services for air cargo shipments from Japan to the United States, the Department of Justice announced today. These are the second round of charges filed as a result of the department's antitrust investigation of the freight forwarding industry.

According to charges filed separately today in U.S. District Court for the District of Columbia, six companies - Kintetsu World Express Inc.; Hankyu Hanshin Express Co. Ltd.; Nippon Express Co. Ltd.; Nissin Corporation; Nishi-Nippon Railroad Co. Ltd.; and Vantec Corporation - engaged in a conspiracy to fix and impose certain freight forwarding service fees, including fuel surcharges and various security fees, charged to customers for services provided in connection with air freight forwarding shipments of cargo shipped by air from Japan to the United States from about September 2002 until at least November 2007.

Under the plea agreements, which are subject to court approval, the six companies have agreed to pay the following criminal fines: Kintetsu World Express, $10,465,677; Hankyu Hanshin Express, $4,522,065; Nippon Express, $21,115,396; Nissin Corporation, $2,644,779; Nishi-Nippon Railroad, $4,673,114; and Vantec Corporation, $3,339,648. Each company has also agreed to cooperate with the department's ongoing antitrust investigation.

"Including today's charges, 12 companies have agreed to plead guilty and nearly $100 million in criminal fines have been obtained as a result of the Antitrust Division's ongoing freight forwarding investigation," said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice's Antitrust Division. "Prosecuting these kinds of global price fixing conspiracies, that are harmful to the economy and consumers, has been and will continue to be a top priority of the Antitrust Division."

Freight forwarders manage the domestic and international delivery of cargo for customers by receiving, packaging, preparing and warehousing cargo freight, arranging for cargo shipment through transportation providers such as air carriers, preparing shipment documentation, and providing related ancillary services.

According to the charges, the companies carried out the conspiracy by, among other things, agreeing during meetings and discussions to coordinate and impose certain freight forwarding service fees and charges on customers purchasing freight forwarding services for cargo shipped by air from Japan to the United States. The department said that the companies levied freight forwarding service fees in accordance with the agreements reached and engaged in meetings and discussions for the purpose of monitoring and enforcing adherence to the agreed-upon freight forwarding service fees.

As a result of the department's investigation into the freight forwarding industry, on Sept. 30, 2010, six international freight forwarders - EGL Inc.; Kühne + Nagel International AG; Geologistics International Management (Bermuda) Limited; Panalpina World Transport (Holding) Ltd.; Schenker AG; and BAX Global Inc. - agreed to plead guilty and to pay criminal fines totaling $50.27 million for their roles in several conspiracies to impose certain charges or fees on customers purchasing international freight forwarding services for cargo freight destined for air shipment to the United States during various periods between 2002 and 2007.

Each company is charged with price fixing in violation of the Sherman Act, which carries a maximum $100 million fine for corporations. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today's charges are the result of a joint investigation into the freight forwarding industry being conducted by the Antitrust Division's National Criminal Enforcement Section, the FBI's Washington Field Office and the Department of Commerce's Office of Inspector General. Anyone with information concerning the price fixing or other anticompetitive conduct in the freight forwarding industry is urged to call the Antitrust Division's National Criminal Enforcement Section at 202-307-6694 or visit www.justice.gov/atr/contract/newcase.htm or call the FBI's Washington Field Office at 202-278-2000.

Former Microsoft Manager Sentenced to Prison for Embezzlement Scheme

Used Unwitting Third Party Vendor to Steal More Than $400,000

ROBERT D. CURRY, 41, of Seattle, Washington, was sentenced today in U.S. District Court in Seattle to 33 months in prison, three years of supervised release, and $459,341.63 in restitution for wire fraud. CURRY, a former management employee of Microsoft has agreed to repay the company for its losses as well as for the cost of the internal investigation of his criminal conduct. At sentencing today Chief U.S. District Judge Marsha J. Pechman noted that the public has grown increasingly outraged over those who lie to line their own pockets.

According to records filed in the case, CURRY worked as a manager in the online business development area of Microsoft. A highly regarded and well-paid professional with an MBA from Yale, CURRY claims he began the fraud scheme in 2010 when he was disillusioned with Microsoft because of an abusive manager. CURRY convinced one of the vendors he supervised to bill Microsoft for audio equipment he said had been purchased for X-Box 360 promotional events. In fact CURRY had purchased the equipment for his own use. Later, CURRY used the third party vendor to bill Microsoft for downloads of Microsoft’s search engine software. The third party later discovered that the download information was fraudulent, and that the money was passing into companies controlled by CURRY or his friends. Before the scheme was discovered, CURRY tried to embezzle an additional $1.3 million from Microsoft. In all CURRY defrauded Microsoft out of $459,341.

In their request for prison time, prosecutors noted that this was not a simple crime of opportunity. “Mr. Curry stole nearly half a million dollars from his employer in an intricate and sophisticated scheme that took deliberation and careful execution. This was not a hastily committed crime that would have been easily detected, nor was it something that was designed to be a one-time event. This crime was serious because of the careful efforts that Mr. Curry took to manipulate third parties, forge documents, and set up a shell company in a manner that indicated that he intended to continue to exploit his employer for as long as possible and for as much as possible,” the prosecutor wrote in her sentencing memo. The prosecutor also noted that CURRY was the third defendant this year to have been sentenced in this district for theft from Microsoft and urged the court to send a strong deterrent message to make clear that stealing from this company will not be tolerated.

The case was investigated by the FBI. The case was prosecuted by Assistant United States Attorney Katheryn Kim Frierson.

For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110 or Emily.Langlie@USDOJ.Gov.

Bridgestone Corporation Agrees to Plead Guilty to Participating in Conspiracies to Rig Bids and Bribe Foreign Government Officials

Company Agrees to Pay $28 Million Criminal Fine

WASHINGTON — Bridgestone Corporation has agreed to plead guilty and to pay a $28 million criminal fine for its role in conspiracies to rig bids and to make corrupt payments to foreign government officials in Latin America related to the sale of marine hose and other industrial products manufactured by the company and sold throughout the world, announced Acting Assistant Attorney General Sharis A. Pozen of the Department of Justice’s Antitrust Division and Assistant Attorney General Lanny A. Breuer of the Department of Justice’s Criminal Division.

A two-count criminal information was filed today in U.S. District Court in Houston against Bridgestone, a Tokyo-headquartered manufacturer of marine hose and other industrial products, charging the company with conspiring to violate the Sherman Act and the Foreign Corrupt Practices Act (FCPA).  According to the court document, Bridgestone conspired to rig bids, fix prices and allocate market shares of marine hose in the United States and elsewhere and, separately, conspired to make corrupt payments to government officials in various Latin American countries to obtain and retain business.  The department said Bridgestone participated in the conspiracies from as early as January 1999, and continuing until as late as May 2007.

Under the terms of the plea agreement, which is subject to court approval, Bridgestone has also agreed to cooperate fully in the department’s ongoing investigations.

Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities.  During the bid rigging conspiracy, according to the court document, the cartel affected prices for hundreds of millions of dollars worth of marine hose and related products sold worldwide.

According to the antitrust charge, Bridgestone and its co-conspirators agreed to allocate shares of the marine hose market and to use a price list for marine hose in order to implement the conspiracy.  Bridgestone and its co-conspirators agreed not to compete for one another’s customers either by not submitting prices or bids, or by submitting intentionally high prices or bids to certain customers.  As part of the conspiracy, Bridgestone and its co-conspirators provided information received from customers in the United States and elsewhere about upcoming marine hose jobs to a co-conspirator who served as the coordinator of the conspiracy.  Bridgestone received marine hose prices for customers in the United States and elsewhere from the coordinator of the conspiracy and then sold the marine hose to those customers at collusive and noncompetitive prices and then concealed the conspiracy through various means, including code names, private email accounts and telephone numbers.

The department also charged that, in order to secure sales of marine hose in Latin America, Bridgestone authorized and approved corrupt payments to foreign government officials employed at state-owned entities.  Bridgestone’s local sales agents agreed to pay employees of state-owned customers a percentage of the total value of proposed sales.  When Bridgestone secured a sale, it would pay the local sales agent a “commission” consisting of not only the local sales agent’s actual commission but also the corrupt payments to be made to employees of the state-owned customer.  The local sales agent then was responsible for passing the agreed-upon corrupt payment to the employees of the customer.

Bridgestone is the fifth company to be charged in the Antitrust Division’s bid rigging investigation.  To date, nine individuals have been convicted and sentenced to a total of 4,557 days in prison for their involvement in the marine hose conspiracy, including Misao Hioki, the former general manager of Bridgestone’s international engineered products department, who was sentenced to two years in prison on Dec. 10, 2008.  Hioki also pleaded guilty and was sentenced for his role in the FCPA conspiracy.

Bridgestone is charged with conspiring to violate the Sherman Act, which carries a maximum $100 million criminal fine for corporations.  Bridgestone is also charged with conspiring to violate the FCPA, which carries a maximum $500,000 fine for corporations.  The maximum fine for each count may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Under t he plea agreement, the department recognized Bridgestone’s cooperation with the investigations, including conducting a worldwide internal investigation, voluntarily making employees available for interviews, and collecting, analyzing and providing to the department voluminous evidence and information.  In addition, the plea agreement acknowledges Bridgestone’s extensive remediation, including restructuring the relevant part of its business, terminating many of its third-party agents and taking remedial actions with respect to employees responsible for many of the corrupt payments.  Under the terms of the plea agreement, Bridgestone has committed to continuing to enhance its compliance program and internal controls.  As a result of these mitigating factors, the department agreed to recommend a substantially reduced fine.

This case is being prosecuted by the Antitrust Division’s National Criminal Enforcement Section and the Criminal Division’s Fraud Section.  In addition to the Antitrust and Criminal Divisions, the ongoing investigation is being conducted by the Defense Criminal Investigative Service (DCIS) of the Department of Defense’s Office of Inspector General, the U.S. Navy Criminal Investigative Service and the FBI.  Law enforcement agencies from multiple foreign jurisdictions are also investigating or assisting in the ongoing matter.

Anyone with information concerning bid rigging or other anticompetitive conduct in the marine products industry is urged to call the Antitrust Division’s National Criminal Enforcement Section at 202-307-6694, visit www.justice.gov/atr/contact/newcase.htm or the Long Beach, Calif., Resident Agency of the DCIS at 562-256-2501.  Anyone with information concerning corrupt payments to foreign officials is urged to e-mail the Criminal Division’s Fraud Section at FCPA.Fraud@usdoj.gov or to call 202-514-7023.  To learn more about the department’s ongoing FCPA enforcement efforts, go to www.justice.gov/criminal/fraud/fcpa.

CSK Auto Corporation Agrees to Pay $20.9 Million to Resolve Violations of Securities Laws Related to Scheme to Manipulate Corporate Earnings

WASHINGTON – CSK Auto Corporation, a specialty retailer of automotive parts and accessories and formerly a publicly-traded company, has agreed to pay a $20.9 million penalty to resolve securities law violations stemming from a corporate earnings manipulation and double-billing scheme, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division.

As part of an agreement with the Department of Justice, CSK has accepted responsibility for the illegal conduct of its former employees.  According to the non-prosecution agreement, from 2001 through 2006, certain former CSK employees, including senior executives, conspired to willfully manipulate CSK’s earnings.   To date, the criminal investigation has resulted in charges against three former CSK executives, all of whom have pleaded guilty.  Don W. Watson, CSK’s former chief financial officer, pleaded guilty to conspiracy to commit securities and mail fraud in connection with the scheme.  Edward W. O’Brien III, the former controller of CSK, and Gary M. Opper, the former director of credits and receivables at CSK, each pleaded guilty to obstruction of justice for making material false statements during an internal investigation of CSK’s accounting practices.  

As part of an agreement with the Department of Justice, CSK has accepted responsibility for the illegal conduct of its former employees.  According to the non-prosecution agreement, from 2001 through 2006, certain former CSK employees, including senior executives, conspired to willfully manipulate CSK’s earnings. 

According to the agreement, CSK purchased hundreds of millions of dollars in automotive parts and accessories every year from vendors.  CSK received vendor allowances, or discounts, on its purchases in return for marketing vendors’ products for sale in CSK’s stores.  These allowances reduced CSK’s expenses and thereby increased its pre-tax income.  CSK recognized vendor allowances based on anticipated purchases from vendors.  According to the agreement, certain employees manipulated CSK’s largest and most lucrative vendor allowance program by concealing amounts it had recognized based on anticipated purchases that ultimately did not take place, thus making the allowances uncollectible.  The employees concealed these uncollectible amounts by applying collections for allowances from subsequent years to cover shortfalls in collections from prior years and by moving uncollectible balances to subsequent years.  In so doing, the employees gave the false appearance that CSK had collected or was going to collect vendor allowances that it had already recognized as earnings.  As a result of these manipulations, the employees caused CSK to conceal approximately $52 million in uncollectable receivables for fiscal years 2002 through 2004.  By failing to write off uncollectible balances in these fiscal years, CSK overstated its pre-tax income in its public filings. 

According to the agreement, in July 2005, CSK employees attempted to conceal their scheme by billing CSK’s vendors for approximately $30 million in vendor allowances, approximately $15 million of which they knew the vendors did not owe CSK.  Additionally, throughout the duration of the scheme, they provided false information to CSK’s independent auditor to further conceal the accounting improprieties. 

O’Reilly Automotive Inc., which acquired CSK after the accounting improprieties were uncovered and disclosed to the government, is also a party to the non-prosecution agreement because of its acquisition of CSK.  The agreement and monetary penalty recognizes CSK’s timely, voluntary and complete disclosure of the illegal conduct; CSK’s and O’Reilly’s thorough cooperation with the government’s investigation; O’Reilly’s extensive remedial efforts pertaining to CSK’s internal training, compliance and reporting; and O’Reilly’s acquisition of CSK after the illegal conduct was discovered and disclosed to the government.  As a result of these mitigating factors, the department agreed not to prosecute CSK or O’Reilly for the manipulation of CSK’s earnings, provided that CSK and O’Reilly satisfy their ongoing obligations under the agreement for a period of two years. 

The sentencings for the CSK executives are scheduled to take place in Phoenix in September and November before U.S. District Judge Susan Bolton. 

The U.S. Securities and Exchange Commission (SEC) conducted its own investigation, which resulted in a filed action against CSK and pending actions against Watson, O’Brien and Opper.  The SEC also referred the conduct to the department.

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Andrew H. Warren of the Criminal Division’s Fraud Section.  The case is being investigated by the FBI, the IRS-Criminal Investigation and the U.S. Postal Inspection Service.  The department thanks those agencies as well as the SEC for their substantial assistance in this matter.