Securities Industry Commentator by Bill Singer Esq

March 30, 2018

Barclays Agrees to Pay $2 Billion in Civil Penalties to Resolve Claims for Fraud in the Sale of Residential Mortgage-Backed Securities /Two Former Barclays Executives Agree to Pay $2 Million to Resolve Claims Brought Against Them Individually (DOJ Press Release)

In the United States v. Barclays Capital Inc.(Amended Complaint, United States District Court for the Eastern District of New York,16-CV-7057, May 11, 2017) the Department of Justice alleged that Barclays caused billions of dollars in losses to investors through fraudulent sales of 36 residential mortgage-backed securities ("RMBS") in which over $31 billion worth of subprime and Alt-A mortgage loans were securitized and more than half of which defaulted. DOJ alleged that Barclays misled investors about the quality of the mortgage loans backing those deals.
READ the FULL TEXT Amended Complaint
DOJ reached a settlement agreement with Barclays Capital, Inc. and several of its affiliates by which Barclays will pay $2,000,000,000 in civil penalties in exchange for dismissal of the Amended Complaint. In exchange for dismissal of the claims against Paul K. Menefee, who served as Barclays' head banker on its subprime RMBS securitizations, and John T. Carroll, who served as Barclays' head trader for subprime loan acquisitions, the two individuals will them pay a combined $2,000,000 in civil penalties. 
READ the FULL TEXT Agreement for Compromise Settlement and Release

Arizona-Based Peer-To-Peer Bitcoin Trader Convicted of Money Laundering (DOJ Press Release)
Thomas Mario Costanzo, a.k.a. Morpheus Titania, was found guilty of five counts of money laundering by a federal jury. As set forth in part in the DOJ Press Release:

The evidence at trial showed that federal agents initiated an investigation of Costanzo in 2014, after identifying an advertisement he posted on a peer-to-peer bitcoin exchange website. In the advertisement, Costanzo advertised that he was willing to engage in cash transactions up to $50,000.  When undercover federal agents approached Costanzo and told him that they were drug dealers, Costanzo provided them with bitcoin and told them it was a great way to limit their exposure to law enforcement. The jury found that over a two-year period, Costanzo took $164,700 in cash from the agents (whom he believed to be heroin and cocaine traffickers) and exchanged it for bitcoin in order to conceal and disguise the nature, location, source, ownership, and control of the drug proceeds. The evidence at trial also showed that Costanzo used bitcoin to purchase drugs from others and that he provided bitcoin to individuals who were buying drugs via the internet.

The evidence at trial also showed how bitcoin operates. Bitcoin is a decentralized form of electronic currency. Bitcoin may be used for legitimate purposes, and anyone can obtain bitcoin from a commercial on-line exchange by paying about 1.5% as a commission and providing identity information to the exchange. In contrast, Costanzo charged between 7% and 10% in his peer-to-peer transactions and did not learn his customers' identities.

Wells Fargo Whistleblower Yesenia Guitron Wins James Madison Freedom Of Information Award ( Blog)
Yesenia Guitron worked at Wells Fargo's St. Helena, California Branch from 2008 to 2010. She refused to open fake bank accounts. She complained about what she felt were fraudulent practices. Wells Fargo fired her. Although Guitron filed federal whistleblower claims against Wells Fargo, the federal courts dismissed her claims based upon findings that Wells Fargo had presented clear and convincing evidence that Guitron could have otherwise been terminated for failing to meet sales goals, insubordination, and refusing to return to work after being placed on administrative leave. Essentially, the courts believed that notwithstanding her allegations of employer misconduct, Wells Fargo had demonstrated that they had other legitimate grounds on which to have otherwise fired the employee. Notwithstanding. Otherwise. Sometimes ya gotta love how blind (or blinded) Justice can be. Sadly, there are times when she's stumbling around in the dark.

Federal grand jury indicts Shreveport financial planner, Houston pastor for defrauding investors out of more than $1 million (DOJ Press Release)
A federal grand jury returned a 13-count indictment charging financial planner Gregory Alan Smith and church pastor Kirbyjon H. Caldwell with one count of conspiracy to commit wire fraud, six counts of wire fraud, one count of conspiracy to commit money laundering and three counts of money laundering. Additionally, Smith and Caldwell are charged in two separate counts of money laundering. As set forth in part in the DOJ Press Release:

[S]mith used his influence and status as the operator and manager of Smith Financial Group LLC in Shreveport, and Caldwell used his influence and status as pastor at a prominent Houston church to lure investors to pay more than $1 million to invest in Historical Chinese bonds. These bonds were issued by the former Republic of China prior to losing power to the communist government in 1949. They are not recognized by China's current government and have no investment value. Smith and Caldwell promised high rates of return, sometimes three to 15 times the value of the investments. Instead of investing the funds, the defendants used them to pay personal loans, credit card balances, mortgages, vehicle purchases and other personal expenses.