Securities Industry Commentator by Bill Singer Esq

August 2, 2018

Wells Fargo Agrees to Pay $2.09 Billion Penalty for Allegedly Misrepresenting Quality of Loans Used in Residential Mortgage-Backed Securities (DOJ Press Release)
Without admitting liability, Wells Fargo Bank, N.A. and several of its affiliates (Wells Fargo) entered into a settlement with DOJ and agreed to pay a civil penalty of $2.09 billion under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) based on the bank's alleged origination and sale of residential mortgage loans that it knew contained misstated income information and did not meet the quality that Wells Fargo represented. Investors, including federally insured financial institutions, purportedly suffered billions of dollars in losses from investing in residential mortgage-backed securities (RMBS) containing loans originated by Wells Fargo. In part, DOJ alleged that in 2005, Wells Fargo began an initiative to double its production of subprime and Alt-A loans. As part of that initiative, Wells Fargo loosened its requirements for originating stated income loans - loans where a borrower simply states his or her income without providing any supporting income documentation.  Despite Wells Fargo's alleged knowledge that a substantial portion of its stated income loans contained misstated income, Wells Fargo failed to disclose this information, and instead reported to investors false debt-to-income ratios in connection with the loans it sold. Further, Wells Fargo sold at least 73,539 stated income loans that were included in RMBS between 2005 to 2007, and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors.  READ the FULL TEXT Settlement Agreement

GUEST BLOG: That Long Strange Trip from SunTrust to Wells Fargo ( Blog, by Aegis J. Frumento, Partner, Stern Tannenbaum & Bell)
Most lawyers brag about the cases they won and hope no one notices the others.  But the life of a law practice takes many odd turns.  I had just started packing up the files of one case that got away when I heard that Wells Fargo had agreed to pay over $2 billion to settle a mortgage fraud case dating back to 2007. "Wells Fargo Agrees to Pay $2.09 Billion Penalty for Allegedly Misrepresenting Quality of Loans Used in Residential Mortgage-Backed Securities" (DOJ Press Release) My case heading to the warehouse involved the same thing by SunTrust Bank, and I could not help thinking, as I read about Wells Fargo and thought about other cases that came before it, that our work on SunTrust had not entirely gone to waste. Sure, I'd rather have had a piece of a billion-dollar settlement.  But this is still a tale worth the telling.

The Scientist and the Former Corporate Officer: Two Companion Pieces of an SEC Insider Trading Settlement

SEC Charges Scientist for Insider Trading (SEC Litigation Release No. 24221)
In a Complaint filed in the United States District Court for the Western District of Washington, the SEC alleged that Anup Madan, a principal scientist with  Laboratory Corporation of America Holding's Covance Genomics Laboratory, purchased 9,300 shares of Sequenom stock after learning of LabCorp's proposed acquisition of that company. Madan sold his shares for a profit of over $14,000. Without admitting or denying the allegations, Madan agreed to the entry of a final judgment permanently enjoining him from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. Madan will disgorge his ill-gotten gains and pay a penalty of $14,023, which is equal to the disgorgement amount.READ the FULL TEXT Complaint
Without admitting or denying the allegations, Robert Lozuk, former Senior Vice President at Sequenom, Inc. greed to the entry of a final judgment permanently enjoining him from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, and to a five-year bar prohibiting him from acting as an officer or director of a public company. Lozuk will pay a penalty of $26,643. Individual A, who provided timely and valuable assistance to the SEC's investigation, entered into a deferred prosecution agreement wherein he agreed to disgorge his ill-gotten gains of $26,643, and among other things, agreed not to violate the federal securities laws for the deferred period of two years.
SEC Complaint 
Deferred Prosecution Agreement

On a somewhat lighter note, was someone at the SEC in a rush to go on vacation or leave early for a summer Friday when tasked with coming up with a headline for Madan press release? I mean, seriously, "SEC Charges Scientist . . ."? What's next? SEC charges florist? SEC charges doctor? And let's not pretend that you didn't laugh and wonder whether the SEC was charging a "mad" scientist. After all, who the hell knows what they're really doing at that Covance Genomics lab and what nefarious man-shark genetically engineered humanoid was Madan's main project. You didn't really think that Sharknado was fiction, did you? And did Madan put Hans Delbruck's brain into the monster or did he and Lozuk surreptitiously substitute Abbie Normal's when no one was watching them?

Indictments filed in the United States District Court for the Western District of Washington, charge t Ukrainian nationals Dmytro Fedorov, Fedir Hladyr, and Andrii Kopakov each with 26 felony counts alleging conspiracy, wire fraud, computer hacking, access device fraud, and aggravated identity theft. The Indictment alleges that the three are members of a hacking group widely known as FIN7 (a/k/a the Carbanak Group, the Navigator Group, and others), and that these hackers engaged in a malware attack of over 100 U.S. companies, predominantly in the restaurant, gaming, and hospitality industries, and targeting such firms as Chipotle Mexican Grill, Chili's, Arby's,  and Red Robin.  
READ the FULL TEXT Superseding and initial Indictments for:
Federov Superseding Indictment
Hladyr Superseding Indictment
Kolpakov Indictment
Fact Sheet How Fin7 Attacked and Stole Data

Former Law Firm Office Manager Sentenced to Prison, Ordered to Pay Restitution for Bank Fraud Scheme (DOJ Press Release)
Former law firm office manager Anthony Calaiaro was sentenced in the United States District Court for the Western District of Pennsylvania to 21 months imprisonment, three years of supervised release, and ordered to pay $827,020.39 in restitution on his conviction of one count of bank fraud. Apparently, the former manager wrote some $827,020.39 in checks to himself, forged a law partner's signature on the checks, cashed the forged checks , and used the money for his personal needs. Just thinking out loud here but, mmmmm, was there something that he could have done or not done which if he had or hadn't done could have prevented the detection of his scam? Not that I personally would ever think of doing something like that but there is this lovely beachfront property that's just a bit beyond my financial reach and, gee, I'm not writing anything that I'm thinking about am I?

Man Sentenced for Craigslist Classic Car Fraud Scheme (DOJ Press Release)
Shakir McNeal was sentenced in the United States District Court for the Eastern District of Virginia to 63 months in prison for engaging in a fraud conspiracy to defraud purchasers of classic cars and muscle cars on Craigslist and other Internet websites. As accurate as the aforementioned is, it truly doesn't do justice to the conspiracy among McNeal and Anthony V. Newton, Shaquana K. Taylor, Dewrel L. Burleson, and others. As set forth in part in the Press Release, they would

post for sale listings on various Internet websites such as Craigslist, offering to sell 1960s and 1970s classic cars and muscle cars that they never intended to deliver to the buyers. The conspirators posted on Craigslist websites for Minneapolis, Albuquerque, Chattanooga, Los Angeles, Omaha, Peoria, and Atlanta. They would also use multiple telephones, telephone numbers, and email accounts to communicate with interested buyers, and would later abandon such telephone numbers and email accounts after successfully obtaining buyers' monies.

The conspirators performed various roles, such as communicating with interested buyers, recruiting other conspirators to receive deposits and wire transfers from persons seeking to buy the vehicles, and opening new bank accounts or allowing their existing accounts to be used to receive deposits and transfers for the vehicles. These monies were then shared among the conspirators. McNeal and his co-conspirators stole $143,675 from 14 of his victims.

McNeal pleaded guilty in November 2017 and was originally scheduled to be sentenced in February 2018. After being placed on bond so that he could to return to Los Angeles to be with his ailing mother, McNeal failed appear for his sentencing, and the court issued an arrest warrant for McNeal. 

On June 12, law enforcement again arrested McNeal and returned him to Norfolk for sentencing.