Securities Industry Commentator by Bill Singer Esq

February 11, 2020

Former Suburban Insurance Agent Charged With Fraud for Allegedly Swindling Money From Elderly Client (DOJ Release)

Wu Zhiyong, Wang Qian, Xu Ke, and Liu Lei (alleged members of the  Chinese People's Liberation Army's ("PLA's") 54th Research Institute) were charged in Indictment filed in the United States District court for the Northern District of Georgia. Each Defendant was charged with:
  • conspiracy to commit computer fraud; 
  • conspiracy to commit economic espionage; 
  • conspiracy to commit wire fraud;
  • economic espionage;
  • unauthorized access;
  • intentional damage; and
  • three counts of wire fraud.  
As alleged in part in the DOJ Release:

[T]he defendants exploited a vulnerability in the Apache Struts Web Framework software used by Equifax's online dispute portal.  They used this access to conduct reconnaissance of Equifax's online dispute portal and to obtain login credentials that could be used to further navigate Equifax's network.  The defendants spent several weeks running queries to identify Equifax's database structure and searching for sensitive, personally identifiable information within Equifax's system.  Once they accessed files of interest, the conspirators then stored the stolen information in temporary output files, compressed and divided the files, and ultimately were able to download and exfiltrate the data from Equifax's network to computers outside the United States. In total, the attackers ran approximately 9,000 queries on Equifax's system, obtaining names, birth dates and social security numbers for nearly half of all American citizens.

The indictment also charges the defendants with stealing trade secret information, namely Equifax's data compilations and database designs.  "In short, this was an organized and remarkably brazen criminal heist of sensitive information of nearly half of all Americans, as well as the hard work and intellectual property of an American company, by a unit of the Chinese military," said Barr.

The defendants took steps to evade detection throughout the intrusion, as alleged in the indictment.  They routed traffic through approximately 34 servers located in nearly 20 countries to obfuscate their true location, used encrypted communication channels within Equifax's network to blend in with normal network activity, and deleted compressed files and wiped log files on a daily basis in an effort to eliminate records of their activity.
Former insurance agent Diane Lazar was indicted in the United States District Court for the Northern District of Illinois on two counts of wire fraud, one count of bank fraud, and one count of making a false statement to a financial institution. As alleged in part in the DOJ Release:

[B]eginning in 2008 and continuing until 2014, Lazar submitted applications for an elderly client in his 80s to purchase several annuities and a life insurance policy from the companies Lazar represented, according to an indictment returned in U.S. District Court in Chicago.  Upon approval of the applications, the client paid hundreds of thousands of dollars in premiums and Lazar received commissions from the companies, the indictment states.  In some instances, Lazar designated her daughter as the beneficiary of the annuities, falsely claiming that her daughter was the client's grandchild or great grandchild, the indictment states. 

Upon the client's death in 2014, Lazar attempted to fraudulently collect some of the client's annuity and insurance proceeds, the indictment alleges.  She also submitted a phony power of attorney to the client's bank to fraudulently withdraw approximately $100,000 from his checking account, the indictment states.
Submitted for your consideration is the case of a convicted felon, who was sentenced to over three years in federal prison and ordered to pay over $1 million in assorted fines, disgorgement, interest, and costs for his role in conspiring to commit securities fraud. Without over-thinking it too much, you would likely agree that this fellow would be barred from employment on Wall Street, right? Well, go figure, but the SEC is wrestling with that very issue. Our publisher, Bill Singer, is befuddled by the SEC's delay in imposing a Bar, but he is similarly impressed by the SEC's desire to ensure consistency with its decisions to bar industry participants. It's nice that the SEC is in no rush to get something right. As former Supreme Court Justice Potter Stewart opined, "swift justice demands more than swiftness." On the other hand, Bill remains angered by the many Whistleblower cases that are languishing at the SEC without timely payment of awards, but, hey, bureaucrats got their priorities, swift or otherwise. And then there's the fact that Bill is by nature a dyspeptic fellow.
Without admitting or denying the allegations of in the SEC Complaint, former Cardinal Energy Group, Inc. Chief Executive Officer Tiomothy W. Crawford consented to the entry of a judgment in the United States District Court for the Southern District of Ohio permanently enjoining him from violating the antifraud provisions of Section 17(a) of the Securities Act and Sections 10(b) of the Securities Exchange Act and Rule 10b-5 and the beneficial ownership reporting and certification provisions of Sections 13(d)(1) and 16(a) of the Exchange Act and Rules 13a-14, 13d-1, and 16a-3 thereunder; and from aiding and abetting violations of the reporting provisions of Sections 13(a) and 14(c) of the Exchange Act and Rules 12b-20, 13a-13, and 14c-6 thereunder. Crawford agreed to $5,478 disgorgement plus $487 interest and a $50,000 civil penalty; further, he agreed to a five-year officer-and-director bar, and a permanent penny stock bar. As alleged in part in the SEC Release:

[C]ardinal, an oil-and-gas penny stock company based in Dallas, Texas, lost control of its interest in two oil-and-gas leases in mid-2017 that accounted for nearly all of the company's revenue. Following the bad news, the complaint alleges that Cardinal and Crawford filed quarterly reports with the SEC that misrepresented to investors that the company still expected the leases to be part of its future business plans. While concealing the setback to the business, Cardinal and Crawford allegedly raised additional money from investors and misreported Crawford's stock ownership.