Articles Posted in Bank Fraud

Ex-American Reality CFO to Go to Prison for 18 Months
In Manhattan, a US District Court Judge has sentenced Brian Block to 18 months behind bars. Block, who was the CFO of American Reality Capital Properties, was found guilty of fraud when he inflated the financial statements of the real estate investment trust.

Prosecutors accused Block of inputting bogus figures when preparing the REIT’s financial reporting. He allegedly did this to hide a calculation mistake that occurred in an earlier financial report.

Following the disclosure of the accounting misstatements, American Realty’s share price plunged, taking with it over $3B of the REIT’s market worth. It was in late 2014 that the REIT announced that employees had purposely hid accounting errors.

The REIT’s ex-chief accounting officer, Lisa McAlister, has also pleaded guilty to charges over this matter.

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In New York federal court, Barclays PLC (BAC) is trying to get the US government’s civil residential mortgage-backed securities fraud lawsuit against it dismissed. Prosecutors went after the British bank, a number of its affiliates, and two ex-employees—former mortgage securitizations head Paul Menefee and former subprime loan acquisitions head trader John T. Carroll.

The government contends that the defendants misrepresented the loans packaged in 36 securitizations from 2005 through 2007 were doing well when, in fact, thousands of them had been deemed defective during the vetting process, with hundreds more in default or delinquent.

The RMBS fraud lawsuit is accusing Barclays of letting the loans be packaged into the securitizations despite knowing they were faulty, and even, on occasion, adding in faulty loans that had already been removed from other deals. According to the government, the securitizations failed badly, over half of the mortgages underlying them defaulted, and investors, including banks that were investors, lost billions of dollars.

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The US Federal Reserve is ordering HSBC Holdings PLC (HSBC) to pay a $175M fine, accusing the bank of engaging in practices that were “unsafe and unsound” in its foreign exchange trading business. According to the Fed, HSBC did not properly oversee chat rooms in which traders exchanged information about investment positions.

The authorities contend that the bank’s traders exchanged confidential information about client orders and coordinated trades to enhance profits. As part of the securities enforcement action, HSBC will have to improve its controls and compliance risk management as it pertains to FX Trading.

Ex-HSBC Forex Spot Trader Head Accused of Front Running
In a different case, Mark Johnson, the former head of HSBC’s foreign exchange cash trading desk, is on trial over allegations of “front-running” involving forex spot trading. He and co-conspirator Stuart Scott have been charged with wire fraud and conspiracy for allegedly defrauding Cairn Energy PLC in a multi-billion dollar transaction that occurred in 2011. Front-running involving forex markets usually refers to the making of a trade that is proprietary prior to a customer making a potentially market-moving trade in order to profit.

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Ex-Merrill Lynch Broker Pleads Guilty to Bank Fraud
Jeffrey Kluge, a longtime Merrill Lynch broker, has pleaded guilty to defrauding two banks of more than $8.7M. His bank fraud ran from 2001 through November 2016.

Kluge’s plea agreement said that he fabricated account statements under Merrill Lynch’s name and pledged fake collateral to the banks so he could set up multi-million dollar credit lines. For instance, in 2001 he was able to get a $150K credit line with Alliance Bank in Minnesota by telling the financial institution that he had enough municipal bond funds as collateral. In fake account statements he sent the bank as evidence of these bond holdings, Kluge concealed from Alliance Bank that he had already promised the assets in the accounts for loans from the firm.

In 2007, Kluge was able to get a $1M credit line from Platinum Bank, which is also in Minnesota. He defrauded Platinum Bank in similar fashion.

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Oceanografía, formerly the biggest oil and gas company in Latin America, is accusing Citigroup (C) of using it to detract from probes into the fraud involving Banamex, which is Citibank’s Mexican subsidiary. Oceanografía collapsed in 2014.

Citigroup is accused of granting a $585M credit line to Oceanografía so that the latter could get hundreds of millions of dollars in cash advances for work by Pemex, an oil company owned by Mexico. However in February 2014, Pemex notified Citigroup that about $400M in Oceanografía invoices, which were supposed to secure the cash advances, had been forged, possibly by a Banamex employee. Because of this, Citibank cancelled Oceanografía’s credit line and the oil and gas company collapsed.

Oceanografía maintains that it never forged the invoices nor did it have cause for such illegal action.

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Bloomberg reports that according to sources, Matt Gardiner, a former UBS Group AG (UBS) trader who was part of the instant-messaging group the federal government identified when obtaining guilty pleas from Barclays PLC (BARC), Royal Bank of Scotland (RBS), UBS, Citigroup (C), and JPMorgan Chase & Co.(JPM) over currency-rate manipulation, is working with prosecutors to pursue certain individuals over the rigging allegations. The Cartel chat room to which Gardiner belonged existed from at least 12/07 through 1/013.

According to prosecutors, traders who were part of the chat room communicated in code to share information about orders made by clients and to coordinate euro-dollar trades so that they could make more money. Having someone like Gardiner working with the government could help prosecutors understand what the traders were doing together. It’s unknown at this time whether his cooperation is part of a prosecution deal he may have reached.

His former firm, UBS, was granted immunity from antitrust charges because it was the first financial institution to report the market misconduct. Meantime, the banks whose traders were in the Cartel have turned over chat transcripts to the U.S. Department of Justice and foreign authorities. A lot of the chats occurred right before daily fixes, which is the short period of time when data providers are able to get a picture of trading in order to establish daily rates.

A federal judge has sentenced ex- Taylor, Bean & Whitaker chairman Lee Farkas to 30-years behind bars for heading up a $2.9 billion financial scheme that led to the downfall of both mortgage lender Taylor Bean and Colonial Bank. The bank fraud cheated the government and investors of billions.

Farkas, who was convicted by a jury of numerous criminal counts, conspiracy to bank fraud, wire fraud, and securities fraud, is accused of making $40 million from the scam. He must now turn over about $35 million.

Also paying a price for her involvement in the fraud is ex-Colonial Bank senior vice president Catherine Kissick. The 50-year-old former head of Colonial’s’ mortgage-warehouse lender pleaded guilty to one count of conspiracy to commit bank fraud, wire fraud, and securities fraud.

The SEC is accusing Kissick of enabling the sale of impaired and bogus securities and mortgage loans to Taylor Bean. She also is accused of mischaracterizing the securities as liquid, quality assets to investors.

Assistant Attorney General Lanny Breuer has said that not only did Kissick assist in the execution of the largest bank fraud ever, but also she used her position at Colonial to purchase hundreds of million dollars in assets from TBW that were worthless to fool investors, shareholders, and regulators. Kissick is sentenced to 8-years in prison.

Several others have pleaded guilty to the financial scam, including Teresa Kelly, a former operations supervisor who worked under Kissick. Kelly, who pleaded guilty to the same charge as Kissick, is sentenced to three months behind bars. She is accused of abusing her access to the accounting systems at Colonial Bank to perpetuate the fraud.

Others who have pleaded guilty for their involvement are ex-Taylor Bean president Raymond E. Bowman and former firm treasurer Desiree Brown. Former chief executive Paul Allen was sentenced to 40 months for his participation in the bank scam.

Related Web Resources:

Mortgage Executive Receives 30-Year Sentence, The New York Times, Jhttp://online.wsj.com/article/BT-CO-20110617-711800.htmlJune 30, 2011

Ex-Colonial Bank Executive Kelly Admits to Conspiracy in Taylor Bean Fraud, Bloomberg, March 16, 2011

Ex-Colonial Bank Exec Gets 8-Year Prison Sentence In $2.9B Fraud, The Wall Street Journal, June 17, 2011


More Blog Posts:

Washington Mutual Bank Bondholders’ Securities Fraud Lawsuit Against J.P. Morgan Chase & Co. is Revived by Appeals Court, Institutional Investors Securities Blog, June 29, 2011

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011

Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011

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