Securities Industry Commentator by Bill Singer Esq

March 22, 2019

I Gave Him 108 Months Because You Can Dance To It and It's Groovy
Damonte Withers, 30, was convicted in the United States District Court for the Western District of North Carolina for bank fraud conspiracy, wire fraud conspiracy, and aggravated identity theft charges in connection to a bank and identity theft scheme. Withers was sentenced to 108 months in prison plus two years of court supervision and ordered to pay $1,068,511.87 in restitution. As set forth in part in the DOJ Release:

[W]ithers, also known as "Tony da Boss" on social media, and his co-conspirators, were members of a local hip-hop group known as the "FreeBandz Gang" or "FBG." 

According to court documents, from February 2014 through January 2016, Withers conspired with others to commit bank fraud by engaging in what is commonly known as a "card-cracking" scheme.  As part of the scheme, Withers and his co-conspirators recruited individuals to hand over their bank account ATM/debit cards and PINs in exchange for the promise of an easy pay-day.  Withers and other members of FBG would then deposit fraudulent or stolen checks into the bank accounts using the corresponding ATMs or mobile banking applications, triggering a credit to the account.  Court records show that Withers and his co-conspirators would then quickly withdraw cash from the accounts, before the banks could determine the deposited checks were worthless.

In addition to the card-cracking scheme, in October 2016, Withers and several members of FBG also executed wire fraud conspiracy in which they used victims' stolen identities to fraudulently acquire cellular phones, tablets and other goods so they could resell them for profit.  Withers and other members of the conspiracy obtained victims' names, Social Security Numbers, dates of birth, and other personal identifying information, using an Internet-based database and used that information to manufacture fake IDs, which they then used to open phone lines and complete fraudulent credit applications in the identity theft victims' names.  Over the course of the investigation, law enforcement found Withers to be in possession of several items used to manufacture the fictitious identification cards, and of the personal identifying information of at least 18 individuals.  Withers' fraudulent conduct continued at least until he was charged in December 2017.  Withers previously admitted to causing between $550,000 and $1.5 million in losses as a result of his fraud.

Withers' co-defendants were previously sentenced as follows: Nemiah Davis was sentenced to 70 months in prison and three years of supervised release; Quadarius Thomas was sentenced to 65 months in prison and two years of supervised release; Jeffrey Monteith was sentenced to 58 months in prison and three years of supervised release; Deandre Howze was sentenced to 57 months in prison and three years of supervised release; Laerek Williams was sentenced to 54 months in prison and two years of supervised release; and James Willingham was sentenced to 52 months in prison and three years of supervised release.

California Man Sentenced to 50 Months for Fraudulent Bank Accounts (DOJ Release)
Eduardo Fernando Villanueva Aranguena pled guilty in the United States District Court for the Northern District of Alabama to aggravated identity theft and access device fraud, and he was sentenced to 50 months in prison and ordered to pay $89,447.31 in restitution. The DOJ Release states in part that after Aranguena obtained access to online accounts of at least 10 individuals, he:

reset account passwords, added email addresses to the accounts and changed call-forwarding options.  Aranguena used the information obtained from these compromised accounts to then compromise numerous individuals' email accounts, where he obtained personally identifiable information.  Using this information, Aranguena opened an account or accounts in those individuals' names.  Aranguena used the fraudulently established accounts to transfer money, set up electronic bill pay, as well as to make purchases, apply for credit cards, and make hotel reservations. 

Following a four-week jury trial in the United States District Court for the Eastern District of New York, Vitaly ormer hedge fund manager Vitaly Korchevsky and securities trader Vladislay Khalupsky were convicted in July 2018 on conspiracy to commit wire fraud, conspiracy to commit securities fraud and computer intrusion, conspiracy to commit money laundering and two counts of securities fraud.  Korchevsky was sentenced to 60 months in prison and ordered to pay $14.4 million in forfeiture and a $250,000 fine.  Khalupsky was previously sentenced to 48 months' in prison. As alleged in part in the DOJ Release:   

Between February 2010 and August 2015, computer hackers based in the Ukraine gained unauthorized access into the computer networks of Marketwired L.P., PR Newswire Association LLC and Business Wire, through a series of sophisticated cyberattacks.  The hackers moved through the computer networks and stole press releases about upcoming announcements by public companies concerning earnings, revenues and other material non-public information. 

In order to monetize that information, the hackers shared the stolen press releases with a network of traders, including Korchevsky and Khalupsky, through overseas computer servers controlled by the hackers, and/or through secure email accounts.  Korchevsky and Khalupsky then generally traded ahead of the public distribution of the stolen releases, executing trades in extremely short windows of time, usually shortly after the close of the markets.  As a result, the trading data often showed a flurry of trading activity around a stolen press release just prior to its public release.  Korchevsky, Khalupsky and their co-conspirators traded on stolen press releases concerning hundreds of publicly traded companies.

The illegal trading by the criminal network resulted in gains of more than $30 million, much of which was routed back to the hackers.  Korchevsky traded on the stolen press releases both in brokerage accounts that benefitted the criminal network, as well as in his personal brokerage accounts, and ultimately netted approximately $15 million in profits over the course of the scheme.  Khalupsky primarily traded in accounts that benefited the criminal network, and received a percentage of the multi-million dollars in profits he generated by trading on the stolen press releases.  He directed that payments received for the illegal profits he generated for the criminal network be made to offshore shell companies.

Two Men Found Guilty in International Cyber-Fraud Scheme Involving Online Dating and Business Email Compromises (DOJ Release)
After a seven-day trial in the United States District Court for the Western District of Tennessee, Olufolajimi Abegunde and Javier Luis Ramos-Alonso were convicted for their roles in a criminal organization that "spoofed" emails and created fake profiles on dating websites in order to fool victims into sending money to bogus bank accounts. As set forth in part in the DOJ Release:

Abegunde, who received an MBA from Texas A&M University in College Station, Texas, engaged in black-market currency exchanges over the life of the conspiracy. Purporting to hold himself out as a legitimate businessman, the proof at trial showed that Abegunde claimed association with a business entity that was not yet operational in late 2017, so for his primary source of income he relied on his off-the-book currency exchanges. Through this network, Abegeunde played a key role, along with Ramos-Alonso, in laundering fraud funds from an Oct. 3, 2016, business email compromise (BEC) of a land title company located in Bellingham, Washington. The proceeds of another BEC perpetrated in July 2016 upon a real estate company in Memphis, Tennessee, also moved through parts of the same criminal organization.

Abegunde, who faced numerous account closures from banks in the United States, used a complicated network of third-party bank accounts to disguise his illicit activity. The proof at trial established that Abegunde told people that he could not receive payments into accounts that could be "tracked," and that he preferred to engage in cash transactions because they were easier to clean and "eliminated the risk."

In July 2014, Ramos-Alonso met Tammy Dolan through an online dating site. Ramos-Alonso engaged in a three-year romantic relationship with Dolan, who claimed to be an Australian American living in Africa, despite never meeting or speaking with Dolan. Shortly after meeting Dolan, Ramos-Alonso began sending money to her through an intricate network of strangers based in Africa and the United States, and he continued to do so despite receiving multiple warnings from businesses and individuals that he was facilitating criminal conduct. The evidence at trial established that Dolan was actually a front for individuals connected to the money-laundering scheme who were directing Ramos-Alonso to move funds. The evidence at trial established that, by the time of the first BEC in July 2016, Ramos-Alonso had "graduated" to a position of trust within the criminal organization, as he received and disbursed a large portion of a $154,000 wire transfer before the victim bank could freeze the funds. In October 2016, Ramos-Alonso received and dispersed approximately $60,000 associated with the Oct. 3, 2016 BEC in Washington, a portion of which he deposited (or attempted to deposit) into accounts controlled by Abegunde. Ramos-Alonso funneled hundreds of thousands of dollars in fraud funds on behalf of the criminal organization.

In addition to his financial activities, Abegunde also engaged in a conspiracy to commit marriage fraud. Abegunde was married during his studies at Texas A&M, but divorced his wife in 2016 to marry a U.S. service member through whom he could obtain immigration and health care benefits and also open new bank accounts. He continued to live with his first wife in Atlanta while his U.S. service member wife was deployed to South Korea. While incarcerated and awaiting trial in the Western District of Tennessee, Abegunde continued his conspiratorial activities, trying to convince his fake spouse, who has since filed for divorce, to refuse to testify against him. Abegunde is contesting the divorce from his fake spouse. Abegunde also engaged in witness tampering by sending a self-written Motion to Dismiss bearing his former attorney's name and professional attestation. The evidence at trial established that Abegunde drafted and sent the motion, which his attorney expressly did not authorize, to his faux spouse in an effort to deceive her into not testifying against him.
Kimberly Kitts pled guilty in the United States District Court for the District of Massachusetts to one count of investment adviser fraud, four counts of wire fraud and one count of aggravated identity theft; and she was sentenced to 87 months in prison and three years of supervised release. As set forth in part in the DOJ Release:

Beginning in 2011, Kitts engaged in various schemes to misappropriate her clients' assets in order to pay her personal expenses. In one scheme, she directed client assets to a bank account for Marquis Consulting, an entity she controlled. In another scheme, Kitts used her position as an investment adviser to divert her clients' funds to her own account and then took the funds for her own personal use. This included cashing her clients' annuities, transferring funds out of her clients' brokerage accounts and directing distributions from her clients' Individual Retirement Accounts. In total, Kitts misappropriated approximately $3,085,939 from her clients.

Hedge Fund Manager Sentenced for Operating Multi-Million Dollar Ponzi Scheme (DOJ Release)
After pleading guilty to 
three counts of wire fraud, five counts of mail fraud, and two counts of conducting an unlawful monetary transaction in the United States District Court for the District of Massachusetts, former hedge fund manager Raymond K. Montoya was sentenced to 75 months in prison plus three years of supervised release and ordered to pay an amount of restitution to be determined. As set forth in part in the DOJ Release: 

Between 2009 and June 2017, Montoya ran a pooled investment hedge fund in Boston called RMA Strategic Opportunity Fund, LLC. Montoya falsely told his investors-including his family, friends, and acquaintances who resided in Massachusetts, Ohio, and California-that the fund was earning substantial returns, when in fact, by 2014, the RMA Fund was sustaining substantial losses. The investors transferred millions of dollars of their personal savings and 401(k) retirement plans to Montoya and the RMA Fund. Montoya told the investors that he would invest their money in stocks and bonds, but he actually invested only a portion of their money, while diverting the rest-totaling millions of dollars-to business and personal bank accounts. Montoya used the diverted money for personal expenses such as luxury vehicles and the mortgage on his son's residence. 

Amherst Man Sentenced For Wire Fraud And Money Laundering In Scheme That Bilked Three Victims Out Of More Than $800,000 (DOJ Release)
Raymond Clark pled guilty in the United States District Court for the Western District of New York to wire fraud and money laundering and was sentenced to 27 months in prison. Clark had induced three victims to send him $870,000 for supposed investments, including investments in hedge funds and publicly traded companies; however, he spent the funds on personal expenses such as payments to his country club and expensive vacations. Pursuant to his plea, Clark will pay full restitution.
In today's featured FINRA Arbitration we are presented with a case in which the parties are not public customers, they're not FINRA member firms, and, no, they're not even associated persons of FINRA member firms. How did these parties wind up before a FINRA Arbitration Panel? 

Waddell & Reed Wins Refund of Rep's Unearned Commissions In the Matter of the Arbitration Between Waddell & Reed, Inc., Claimant, v.  Keir Dane Harner, Respondent (FINRA Arbitration Decision 18-03123)
In a FINRA Arbitration Statement of Claim filed in September 2018, FINRA member firm Claimant Waddell & Reed asserted breach of contract arising from associated person Respondent Harner's alleged failure to repay unearned advance commissions he received as required by the Professional Career Agreement entered into between Claimant and Respondent. Claimant sought $14,967.69 and interest. Respondent did not appear. The sole FINRA Arbitrator found Respondent liable for and ordered him to pay to Claimant t $14,967.69 and $1,050.00 in reimubrsed FINRA filing fee.