Securities Industry Commentator by Bill Singer Esq

Responding to recent and widespread consumer abuses and other compliance breakdowns by Wells Fargo, the Federal Reserve Board on Friday announced that it would restrict the growth of the firm until it sufficiently improves its governance and controls. Concurrently with the Board's action, Wells Fargo will replace three current board members by April and a fourth board member by the end of the year.

In addition to the growth restriction, the Board's consent cease and desist order with Wells Fargo requires the firm to improve its governance and risk management processes, including strengthening the effectiveness of oversight by its board of directors. Until the firm makes sufficient improvements, it will be restricted from growing any larger than its total asset size as of the end of 2017. The Board required each current director to sign the cease and desist order. . .

Order to Cease and Desist Issued Upon Consent Pursuant to the Federal Deposit Insurance Act, as Amended 

https://www.federalreserve.gov/newsevents/pressreleases/files/enf20180202a1.pdf

February 2, 2018, Letter to the Board of Directors of Well Fargo from the Federal Reserve 

https://www.federalreserve.gov/newsevents/pressreleases/files/enf20180202a2.pdf

February 2, 2018, Letter to Stephen Sanger, Lead Independent Director of Wells Fargo & Company Board of Directors from the Federal Reserve 

https://www.federalreserve.gov/newsevents/pressreleases/files/enf20180202a3.pdf

February 2, 2018, Letter to John Stumpf, Chair of Wells Fargo & Company Board of Directors from the Federal Reserve  

https://www.federalreserve.gov/newsevents/pressreleases/files/enf20180202a4.pdf

[G]enovese: falsely stated that he managed $4 billion of the Genovese Drug Store family's assets; falsely stated that his hedge fund's investment adviser had $30-39 billion of assets under management, when, in reality, it appears to have had less than $10 million in assets under management; falsely stated that his advisory firm had between 42 and 60 employees, when, in reality, it had less than 10 employees; and falsely stated that his hedge fund had investment gains of 30-40 percent per year, when, in reality, it sustained losses. In addition, in furtherance of his scheme, Genovese lied about his education and prior work experience, and concealed his criminal past from investors.

As alleged in an eight count-indictment, a "botnet" is a network of computers infected with a malicious software that allows a third party to control the entire computer network without the knowledge or consent of the computer owners. Levashov allegedly controlled and operated the Kelihos botnet to, among other things, harvest personal information and means of identification (including email addresses, usernames and logins, and passwords) from infected computers. To further the scheme, Levashov allegedly disseminated spam and distributed other malware - such as banking Trojans and ransomware, and advertised the Kelihos botnet spam and malware services to others for purchase in order to enrich himself.

The indictment further alleges that during any 24-hour period, the Kelihos botnet was used to generate and distribute more than 2,500 unsolicited spam e-mails that advertised various criminal schemes, including deceptively promoting stocks in order to fraudulently increase their price (so-called "pump-and-dump" stock fraud schemes).

On April 10, 2017, the Justice Department announced that it had taken action to dismantle the Kelihos botnet.

On April 20, 2017, a grand jury in Bridgeport returned an indictment charging Levashov with one count of causing intentional damage to a protected computer, one count of conspiracy, one count of accessing protected computers in furtherance of fraud, one count of wire fraud, one count of threatening to damage a protected computer, two counts of fraud in connection with email and one count of aggravated identity theft.

[F]rom at least March 2013 to February 2017, Ho engaged in a large-scale money laundering scheme that resulted in millions of dollars being moved through bank accounts (some of which were attorney trust accounts) that Ho or his co-conspirators controlled.  Specifically, between July and November 2014, Ho participated in a conspiracy in which co-conspirators sent emails from compromised or imitation accounts that duped victims into transferring money to accounts controlled by Ho and others.  Ho then laundered these stolen funds, moving them through and to accounts located in the United States and abroad.  Ho, who recruited others to aid his laundering activities, laundered over $2 million in unlawfully obtained funds. 

Ho engaged in his money laundering business despite multiple instances of banks closing his accounts due to fraud and inquires by law enforcement.  Eventually, in November 2015, HSI initiated an operation in which undercover HSI agents sought Ho's assistance in moving the proceeds of human smuggling and firearms trafficking between bank accounts located in the United States and overseas.  Ho engaged in four such transactions between December 2015 and June 2016, involving over $175,000 that he believed were the proceeds of the illegal smuggling and firearms trafficking activity.

• Securities Industry Commentator
• Bill Singer