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DOJ and SEC Announce Parallel Action Against Former Investment Banking Analyst and Two Individuals for Alleged Involvement in Insider Trading Scheme
On August 25, the DOJ unsealed an indictment charging three defendants each with (i) one count of conspiracy to commit securities and tender offer fraud; (ii) 13 counts of securities fraud; (iii) 13 counts of tender offer fraud; and (iv) three counts of wire fraud. In a parallel action, the SEC filed a complaint in the Central District of California against the same three individuals, asserting that the three individuals violated certain provisions of the Securities Exchange Act by participating in a scheme that involved “coordinated, illegal trading in stock and stock options of two separate companies that participated in merger activity” in which the same investment bank played an advisory role. According to the SEC, having learned of impending acquisitions involving two of the investment bank’s clients and other companies, one of the investment bank’s former analysts allegedly provided information regarding the transaction to a friend before any public announcements were made. The friend then communicated the information to a third individual, and the two made a series of trades in the two companies’ securities. When the acquisitions were publicly announced, both companies’ stock prices increased, resulting in profits of more than $670,000 for the two individuals on the receiving end of the former analyst’s inside information. The SEC’s complaint seeks a final judgment ordering the three defendants “to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of [certain] provisions of the federal securities laws.”
Former Bank Executive Sentenced to 30 Months in Prison for Role in TARP Fraud Scheme
On August 20, former bank executive Charles Antonucci was sentenced to 30 months in prison for his role in organizing a scheme involving self-dealing, bank bribery, embezzlement of bank funds, attempting to fraudulently obtain more than $11 million from the Troubled Asset Relief Program (TARP), and participating in a $37.5 million fraud scheme that left an Oklahoma insurance company in receivership. Antonucci pled guilty to the charges in 2010 pursuant to a cooperation agreement with the government. He was the first defendant convicted of fraud of TARP funds, which was a program established in 2008 to provide liquidity to troubled financial institutions during the financial crisis. The judge also ordered Antonucci to forfeit $11.2 million to the United States and to provide $54.6 million in restitution to the victims of his crimes, including, among others, the bank’s shareholders and the FDIC. Antonucci’s plea and sentencing was before U.S. District Judge Naomi Reice Buckwald of the Southern District of New York. The case was handled by the Southern District of New York’s Office of Complex Frauds and Asset Forfeiture Units, with investigative assistance from the Office of the Special Inspector General for TARP.
Former SAP Executive Pleads Guilty to Paying "Necessary" Bribes
On August 12, the DOJ and SEC announced joint enforcement actions against software giant SAP International’s former head of Latin American sales, Vicente Garcia. Garcia pleaded guilty to conspiracy to violate the FCPA and will be sentenced on December 16, 2015 in the Northern District of California. The DOJ alleges that SAP paid bribes to Panamanian officials to secure software license sales in late 2009, using sham contracts and fake invoices. Garcia “admitted that he believed paying such bribes was necessary” to secure the contracts.
The SEC simultaneously issued an administrative cease and desist order against Garcia describing a scheme by which Garcia, in violation of SAP’s internal controls, gave discounts to a local business partner to generate excess earnings, which were used to create the slush fund used to pay at least $145,000 in bribes to secure approximately $3.7 million in sales. Garcia and others also arranged to receive kickbacks from the sales. Garcia agreed to pay disgorgement of the kickbacks he received plus prejudgment interest, totaling $92,395.
Orthofix Deferred Prosecution Agreement Extended for Two Months
In a recently-filed status report, the DOJ and medical device manufacturer Orthofix revealed that the company’s Deferred Prosecution Agreement (DPA) will be extended by two months. The DPA was due to expire on July 17, 2015, but the status report states that Orthofix agreed to the extension in June to give DOJ “additional time to (1) evaluate Orthofix’s compliance with the internal controls and compliance undertakings in the DPA and (2) further investigate potentially improper conduct the company disclosed during the term of the DPA.” The report continued that DOJ intended to complete its investigation in August and inform Orthofix “of its proposed course of action shortly thereafter.”
Orthofix entered into the DPA on July 10, 2012 to resolve allegations that a Mexico-based subsidiary paid bribes to employees of Mexico’s government-operated health system (see prior FCPA scorecard coverage).
Earlier this year, another medical device manufacturer, Biomet, announced that its DPA would be extended for one year after it disclosed additional potential FCPA violations to the DOJ and SEC.
SEC Sues 32 Defendants Involved in Insider Trading Operation; DOJ Files Criminal Charges Against Leaders
On August 10, the SEC filed a complaint against 32 defendants in the District of New Jersey for their alleged involvement in an international scheme to profit from stolen, confidential information regarding corporate earnings announcements. According to the SEC, the defendants hacked at least two newswire services’ computer servers to retrieve unpublished corporate press releases, subsequently using it to make trades generating over $100 million in profits. The SEC further asserted that the two leaders of the scheme designed a “secret web-based location to transmit the stolen data to traders in Russia, the Ukraine, Malta, Cyprus, France, and three U.S. states, Georgia, New York, and Pennsylvania.” The SEC contends that, for five years, the two leaders of the scheme (i) disguised their identity by posing as newswire service employees, using proxy servers, and/or using backdoor access-modules; and (ii) recruited traders by making a video that displayed their ability to steal earnings information prior to public release. In return for information, the traders paid the hackers either a percentage of the profits obtained from trading the stolen information, or a flat fee. The SEC Director called the scheme “one of the most intricate and sophisticated trading rings [the agency has] ever seen.” The U.S. Attorneys’ offices for New Jersey and the Eastern District of New York also announced criminal charges against nine of the same defendants, including the two leaders of the scheme.
Vantage Drilling Self-Reports Potential FCPA Violation
On August 4, Vantage Drilling Company, an international offshore drilling contractor, acknowledged that an overseas agent had entered into plea discussions with Brazilian authorities and provided evidence in the ongoing corruption investigation focused on Petrobras. Vantage acknowledged that the agent had purportedly provided evidence related to a former director of Vantage and Petrobras. The company disclosed that it had opened an internal investigation and self-reported the matter to the DOJ and the SEC.
The Brazilian corruption investigations into Petrobras and its affiliates and counterparties continue to expand with no end in sight, and the expected related U.S. investigations are beginning to be disclosed.
SEC Subpoenas Flowserve Corporation Related to FCPA Investigation
On July 30, Flowserve Corporation, a global supplier of industrial pumps, valves, and seals, disclosed that the SEC had issued a subpoena in connection with an investigation of potential FCPA violations. Flowserve revealed earlier this year that it had terminated an employee of an overseas subsidiary for conduct that violated its Code of Business Conduct and “may have violated” the FCPA. It self-reported the matter to the SEC and the DOJ and has now completed an internal investigation. Flowserve stated that it “currently believe[s] that this matter will not have a material adverse financial impact,” but that there are no assurances that it will not be subjected to penalties and additional costs.
SEC Drops Investigation of NCR Corporation
On July 28, NCR Corporation, a leading global provider of ATM machines, announced that the SEC had decided not to pursue an enforcement action following an investigation of the company’s FCPA compliance. In 2013, the company disclosed that an anonymous whistleblower had alleged various FCPA and other violations in China, the Middle East (including Syrian sanctions issues), and Africa. The company stated that it had investigated internally and determined the allegations to be without merit. The company then disclosed the matter to the SEC and the DOJ, both of whom requested additional information. The company did not provide an update regarding the status of the DOJ’s inquiries.
DOJ Announces Charges Against Two Florida Men for Operating Underground Bitcoin Exchange
On July 21, U.S. Attorney for the Southern District of New York Preet Bharara, along with the Assistant Director-in-Charge of the New York Field Office of the FBI and the Special Agent-in-Charge of the New York Field Office of the United States Secret Service, announced the unsealing of criminal complaints filed against Anthony R. Murgio and Yuri Lebedev. According to the complaints, since at least late 2013, the two men and their co-conspirators illegally ran a money transfer operation called Coin.mx, which allowed customers to exchange cash for bitcoins for a fee. Murgio's and Lebedev’s allegedly illegal money transfer operation involved exchanging cash for people whom they believed may be engaging in criminal activity, as well as allowing victims of “ransomware” attacks to trade cash for bitcoins. During these “ransomware” attacks, cybercriminals would “electronically block access to a victim’s computer system until a sum of ‘ransom’ money, typically in bitcoins, [was] paid to them.” In an attempt to evade detection, Murgio, Lebedev, and their co-conspirators operated through “Collectables Club,” a fake front-company. Also in an attempt to avoid detection, Murgio obtained beneficial control of a New Jersey-based federal credit union, then placed Lebedev and others on the Board of Directors so that Coin.mx’s operations could be transferred to the credit union. The individuals used the credit union as a “captive bank for their unlawful business,” until at least early 2015, at which point, the NCUA discovered the illegal activity and forced the credit union to “cease engaging in such activity,” but Murgio “thereafter found new, overseas payment processing channels for his unlawful business.” Murgio and Lebedev are each being charged with one count of conspiracy to operate an unlicensed money transmitting business, and one count of operating an unlicensed money transmitting business. Each of these charges carries a maximum prison sentence of five years. Murgio also was charged with one count of money laundering and one count of willful failure to file a suspicious activity report. These additional charges carry maximum prison sentences of 20 years and 5 years, respectively.
CFPB and DOJ Reach $24 Million Settlement with Indirect Auto Lender to Resolve Discriminatory Pricing Allegations
On July 14, the CFPB and DOJ announced a $24 million settlement with an indirect auto lender to resolve allegations that the lender offered higher interest rates to minority borrowers compared to white borrowers with a similar credit risk profile. Specifically, both agencies contended that the lender allowed their partnering dealers excessive discretion to increase the lender’s base interest rate with a “dealer markup” on auto loan contracts, which resulted in discriminatory pricing. Under terms of the settlement, the lender agreed to, among other things, (i) pay $24 million in restitution to affected borrowers, (ii) impose dealer markup rate caps on auto loans, and (iii) improve its policies and procedures related to auto loan pricing and compensation program. Notably, the Bureau did not impose a civil money penalty due to the lender’s responsible conduct. The Bureau filed its consent order in an administrative enforcement action. In a separate announcement, the DOJ filed its complaint and consent order in federal court, which will require judicial approval. The lender was represented in the matter by BuckleySandler.