Securities Industry Commentator by Bill Singer Esq

February 23, 2018

U.S. v. Paul J. Manafort, Jr., and Richard W. Gates III (Indictment, 1:18-CR-83, Eastern District of Virginia) Paul J. Manafort, Jr., and Richard W. Gates III, were indicted in a Superseding Indictment in the United States District Court for the Eastern District of Virginia on 16 counts related to false individual income tax returns, 7 counts of failure to file reports of foreign bank and financial accounts, 5 counts of bank fraud conspiracy, and 4 counts of bank fraud. READ the FULL TEXT SUPERSEDING INDICTMENT As set forth in part in the "Introduction" section of the Superseding Indictment:

1. Defendants PAUL J. MANAFORT, JR. (MANAFORT) and RICHARD W. GATES III (GATES) served for years as political consultants and lobbyists. Between at least 2006 and 2015, MANAFORT and GATES acted as unregistered agents of a foreign government and foreign political parties. Specifically, they represented the Government of Ukraine, the President of Ukraine (Victor Yanukovych, who was President from 2010 to 2014), the Party of Regions (a Ukrainian political party led by Yanukovych), and the Opposition Bloc (a successor to the Party of Regions after Yanukovych fled to Russia).

2. MANAFORT and GATES generated tens of millions of dollars in income as a result of their Ukraine work. From approximately 2006 through the present, MANAFORT and GATES  engaged in a scheme to hide income from United States authorities, while enjoying the use of the money. During the first part of the scheme between approximately 2006 and 2015, MANAFORT, with GATES' assistance, failed to pay taxes on this income by disguising it as alleged "loans" from nominee offshore corporate entities and by making millions of dollars in unreported payments from foreign accounts to bank accounts they controlled and United States vendors. MANAFORT also used the offshore accounts to purchase United States real estate, and MANAFORT and GATES used the undisclosed income to make improvements to and refinance their United States properties.

3. In the second part of the scheme, between approximately 2015 and at least January 2017, when the Ukraine income dwindled after Yanukovych fled to Russia, MANAFORT, with the assistance of GATES, extracted money from MANAFORT's United States real estate by, among other things, using those properties as collateral to obtain loans from multiple financial institutions. MANAFORT and GATES fraudulently secured more than twenty million dollars in loans by falsely inflating MANAFORT's and his company's income and by failing to disclose existing debt in order to qualify for the loans.

4. In furtherance of the scheme, MANAFORT and GATES funneled millions of dollars in payments into numerous foreign nominee companies and bank accounts, opened by them and their accomplices in nominee names and in various foreign countries, including Cyprus, Saint Vincent & the Grenadines (Grenadines), and the Seychelles. MANAFORT and GATES hid the existence and ownership of the foreign companies and bank accounts, falsely and repeatedly reporting to their tax preparers and to the United States that they had no foreign bank accounts.

5. In furtherance of the scheme, MANAFORT used his hidden overseas wealth to enjoy a lavish lifestyle in the United States, without paying taxes on that income. MANAFORT, without reporting the income to his tax preparer or the United States, spent millions of dollars on luxury goods and services for himself and his extended family through payments wired from offshore nominee accounts to United States vendors. MANAFORT also used these offshore accounts to purchase multi-million dollar properties in the United States and to improve substantially another property owned by his family.

6. In furtherance of the scheme, GATES used millions of dollars from these offshore accounts to pay for his personal expenses, including his mortgage, children's tuition, and interior decorating and refinancing of his Virginia residence.

7. In total, more than $75,000,000 flowed through the offshore accounts. MANAFORT, with the assistance of GATES, laundered more than $30,000,000, income that he concealed from the United States Department of the Treasury (Treasury), the Department of Justice, and others. GATES obtained more than $3,000,000 from the offshore accounts, income that he too concealed from the Treasury, the Department of Justice, and others.

Federal prisoner sentenced for running a taxi service for escaped inmates (DOJ Press Release)
Okay, I gotta admit it. That headline grabbed me. In May 2013, Deldrick D. Jackson was convicted in federal court of conspiring to distribute cocaine and conspiring to launder money, and sentenced to 10 years, eight month sentence. From July 2016 to April 2017, he was incarcerated at the medium-security United States Penitentiary in Atlanta, Georgia, where he was visited by his fiancée Kelly M. Bass. Jackson pleaded guilty to conspiracy to escape from custody and to escape from custody and was sentenced to serve an additional one year, six months in prison. Bass pleaded guilty to conspiratorial and substantive escape charges and was sentenced to six months in prison followed by eight months of home confinement. So . . . what the hell was with the tax and contraband services and the whole custody thing? As set forth in part in the DOJ Press Release:

From approximately November 2016 to April 2017, Jackson and Bass provided escaped inmates with transportation from USP Atlanta to nearby restaurants, hotels, or residences. For example, on January 28, 2017, Bass picked up Jackson and other escaped inmates from outside USP Atlanta, drove them to a nearby hotel, and hours later, returned Jackson and the other inmates to USP Atlanta. During the course of the conspiracy, Jackson and Bass also smuggled contraband into USP Atlanta to be sold to other prison inmate.

Finally, on April 13, 2017, Bass drove Jackson from USP Atlanta to a local fast food restaurant. Shortly thereafter, law enforcement officers stopped Bass's vehicle and arrested Bass and Jackson.  Upon searching the SUV, officers recovered two cell phones, 83 packs of cigarettes, and eight bottles of whiskey. In total, Jackson and Bass provided escaped inmates with transportation from USP Atlanta and/or smuggled contraband into the prison on approximately 15 occasions.  Jackson and Bass received approximately $4,000 from the escaped inmates or their families in exchange for rides and from the purchase of contraband.

Scottrade Customer Margin Case Tossed During Discovery ( Blog)
In today's Blog, we come upon yet another FINRA arbitration involving a public customer who represented himself. The case involves what appears to be the familiar flashpoint of a customer's purported attempt to timely satisfy a margin call before a sell-out By the time the customer enters into the Discovery phase of his lawsuit against FINRA member firm Scottrade, you get the sense that he is a seething cauldron of rage. Enraged pro se litigants don't tend to do well.  This case proved to be no exception.

Hawaii Man Arrested For Decade-Long Scheme To Defraud Banks And Investment Firms / Lawrence H. Wolf, a/k/a "Larry," Allegedly Obtained and Spent More Than $12 Million in Victim Funds by Falsely Claiming Ownership Over Valuable Oil and Gas Assets (DOJ Press Release) 
Lawrence H. Wolf a/k/a "Larry" was charged in a federal Complaint with one count each of wire fraud affecting financial institutions and aggravated identity theft. READ the FULL TEXT Complaint. As set forth in part in the DOJ Press Release, Wolf:

In investigating the Oil Scheme, the FBI has identified at least five different banking or investment firms (Victim Firms 1 through 5, collectively, the "Victim Firms") that WOLF deceived as part of his scheme.  In connection with negotiations with the Victim Firms, WOLF repeatedly made false representations about his wealth or assets, and repeatedly transmitted to Victim Firms false and forged documents - ranging from bank account balance statements to tax filings to deed assignments - in furtherance of the Oil Scheme.  WOLF sought to avoid detection of the Oil Scheme by obtaining new funds to cover old liabilities.  Typically, as one loan approached maturity, WOLF approached another lender, expressed interest in moving his oil and gas business to a new bank, and negotiated another credit facility.

The Oil Scheme succeeded for years.  On or about June 5, 2008, WOLF executed a promissory note with Victim Firm-1 establishing an approximately $3.5 million credit facility. On or about March 27, 2014, WOLF executed a promissory note with Victim Firm-2 establishing an approximately $40 million line of credit.  On or about July 9, 2014, WOLF executed a credit agreement with Victim Firm-3 establishing an approximately $7 million credit facility.  On or about July 31, 2015, WOLF and Victim Firm-3 executed a revised credit agreement expanding the loan facility to $13 million.

Justice Department Coordinates Nationwide Elder Fraud Sweep of More Than 250 Defendants (DOJ Press Release)
DOJ and various law enforcement partners announced what is characterized as the "largest coordinated sweep of elder fraud cases in history.": As set forth in part in the DOJ Press Release:  

The cases involve more than two hundred and fifty defendants from around the globe who victimized more than a million Americans, most of whom were elderly.  The cases include criminal, civil, and forfeiture actions across more than 50 federal districts.  Of the defendants, 200 were charged criminally.  In each case, offenders engaged in financial schemes that targeted or largely affected seniors.  In total, the charged elder fraud schemes caused losses of more than half a billion dollars.  The Department coordinated its announcement with the FTC and state Attorneys General, who independently filed numerous cases targeting elder frauds within the sweep period.

. . .

The actions charged a variety of fraud schemes, ranging from mass mailing, telemarketing and investment frauds to individual incidences of identity theft and theft by guardians.  A number of cases involved transnational criminal organizations that defrauded hundreds of thousands of elderly victims, while others involved a single relative or fiduciary who took advantage of an individual victim.  The schemes charged in these cases caused losses to more than a million victims.

Atlanta businessmen convicted of market manipulation and investment fraud (DOJ Press Release)  
Federal prosecutors alleged that from July 2009 through September 2001,  Marc E. Bercoon, William A. Goldstein, and Peter P. Veugeler conspired to manipulate the market for shares of MedCareers Group, Inc., a publicly traded company, and carried out a second investment fraud scheme using a new business corporation that they organized as the bait for investors.  Bercoon and Goldstein were convicted on 12 counts of conspiracy, mail fraud, wire fraud, and securities fraud in connection with the two fraudulent schemes. Veugeler pleaded guilty to conspiracy to commit securities fraud and wire fraud and testified at trial. As set forth in part in the DOJ Press Release:

The conspiracy culminated in two "pump and dump" schemes carried out in March and May 2010.  To carry out these schemes, Bercoon and Goldstein arranged for MedCareers Group, Inc. to issue a series of misleading press releases and SEC filings, at the same time as co-conspirators sent out mass emails touting the stock.  While the price of MCGI and the demand for the stock were both artificially high because of these efforts, the defendants orchestrated a sell-off of their stock, coordinating activity in multiple "nominee" accounts, which were titled in the names of other people and entities to hide the defendants' involvement.

Around the same time, from May 2009 through June 2010, Bercoon and Goldstein also carried out a second investment fraud concerning a privately held company.  Specifically, Bercoon and Goldstein organized a private corporation, Acquisition, Inc., and then solicited investments from dozens of individuals.  Bercoon and Goldstein told investors, and induced brokers working for them to tell investors, that their funds would be used to develop an internet search engine named  Bercoon and Goldstein used the bulk of the over $1.5 million raised from investors for unrelated purposes, such as subsidizing their other business ventures and making payments to themselves and their family members.  In fact, over $550,000 of the $1.5 million invested in Acquisition, Inc. was simply withdrawn from the bank in cash shortly after being invested.