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Panama Intermediaries Each Sentenced to 36 Months in Prison for International Bribery and Money Laundering Scheme

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Two brothers, each a dual-citizen of Panama and Italy, were each sentenced to 36 months in prison for laundering $28 million in a bribery and money laundering scheme involving Odebrecht S.A. (Odebrecht), a Brazil-based global construction conglomerate. The defendants were also ordered to forfeit more than $18.8 million, pay a $250,000 fine and serve two years’ supervised release.

Luis Enrique Martinelli Linares, 40, and Ricardo Enrique Martinelli Linares, 42, each pleaded guilty to conspiracy to commit money laundering and admitted to agreeing with others to establish offshore bank accounts in the names of shell companies to receive and disguise over $28 million in bribe proceeds from Odebrecht for the benefit of a close relative, a high-ranking public official in Panama. According to court documents, approximately $19 million of the bribes were transferred through U.S. banks. Luis Martinelli Linares also used some of the proceeds of the scheme to purchase a $1.7 million yacht and a $1.3 million condominium in the United States, and Ricardo Martinelli Linares spent hundreds of thousands of dollars in proceeds to pay personal expenses.

On Dec. 21, 2016, Odebrecht pleaded guilty in the Eastern District of New York to a criminal information charging it with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) for its involvement in the bribery and money laundering scheme. According to court documents, the scheme involved the payment of more than $700 million in bribes to government officials, public servants, political parties, and others in Panama and other countries around the world to obtain and retain business for the company.

The defendants were initially charged by criminal complaint on June 27, 2020. Pursuant to a provisional arrest request from the United States, they were arrested at el Aeropuerto Internacional la Aurora in Guatemala on July 6, 2020, as they were attempting to depart Guatemala on a private plane, and later held on extradition requests from the United States. Both defendants filed multiple challenges and appeals opposing the extradition request in Guatemalan courts before ultimately being extradited to the United States, Luis Martinelli Linares on Nov. 15, 2021, and Ricardo Martinelli Linares on Dec. 10, 2021.

On Feb. 4, 2021, Luis Martinelli Linares and Ricardo Martinelli Linares were charged with conspiracy and money laundering charges by an indictment filed in federal court in Brooklyn.

“Ricardo and Luis Martinelli Linares directed millions of dollars in bribes through U.S. banks to their own Swiss accounts in order to help Odebrecht gain corrupt influence at the highest levels of the Panamanian government,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “Today’s sentences show that the Department of Justice remains committed to prosecuting individuals who enable and profit from laundering corrupt payments to foreign officials through the U.S. financial system, as well as those who attempt to spend the proceeds of corruption in the United States.”

“The Martinelli brothers used American banks to commit their selfish, greedy fraud – and now it is the American legal system serving justice with today’s sentencing, especially for the people of Panama,” said U.S. Attorney Peace. “Together, the Department of Justice, this office and our law enforcement partners stand firm against international corruption and will use all tools at our disposal to root it out.”

“The defendants laundered millions of dollars in bribes through the U.S. financial system to benefit a close relative and maintain their luxury lifestyles,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “Today’s sentencing shows that the FBI and our law enforcement partners are committed to bringing to justice anyone who enables the corruption of public officials for personal gain.”

The FBI’s International Corruption Unit in New York is investigating this case, with the support of FBI Legal Attaché Panama. The Justice Department’s Office of International Affairs provided significant assistance in securing their arrest and extradition from Guatemala.

Trial Attorney Michael Culhane Harper of the Criminal Division’s Fraud Section, Trial Attorneys Barbara Levy and Michael Redmann of the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS), and Assistant U.S. Attorney Alixandra E. Smith of the U.S. Attorney’s Office for the Eastern District of New York are prosecuting the case. Assistant U.S. Attorney Laura Mantell of U.S. Attorney’s Office for the Eastern District of New York’s Civil Division is handling forfeiture matters.

Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

The Kleptocracy Asset Recovery Initiative in MLARS was formed to prosecute money launderers and forfeit the proceeds of foreign official corruption and, where appropriate, to use those recovered assets to benefit the people harmed by the corruption and abuse of office. Individuals with information about possible proceeds of foreign corruption located in or laundered through the United States should contact federal law enforcement or send an email to kleptocracy@usdoj.gov.

Press release distributed by the DOJ.

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SEC Charges Wells Fargo Advisors With Anti-Money Laundering Related Violations

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Washington D.C. — The Securities and Exchange Commission today announced charges against Wells Fargo Advisors for failing to file at least 34 Suspicious Activity Reports (SARs) in a timely manner between April 2017 and October 2021. Wells Fargo Advisors, the St. Louis-based broker-dealer, has agreed to pay $7 million to settle the charges.

According to the SEC’s order, due to Wells Fargo Advisors’ deficient implementation and failure to test a new version of its internal anti-money laundering (AML) transaction monitoring and alert system adopted in January 2019, the system failed to reconcile the different country codes used to monitor foreign wire transfers. As a result, Wells Fargo Advisors did not timely file at least 25 SARs related to suspicious transactions in its customers’ brokerage accounts involving wire transfers to or from foreign countries that it determined to be at a high or moderate risk for money laundering, terrorist financing, or other illegal money movements. The order also found that, beginning in April 2017, Wells Fargo Advisors failed to timely file at least nine additional SARs due to a failure to appropriately process wire transfer data into its AML transaction monitoring system in certain other situations.

“When SEC registrants like Wells Fargo Advisors fail to comply with their AML obligations, they put the investing public at risk because they deprive regulators of timely information about possible money laundering, terrorist financing, or other illegal money movements,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Through this enforcement action, we are not only holding Wells Fargo Advisors accountable, but also sending a loud and clear message to other registrants that AML obligations are sacrosanct.”

Broker-dealers are required by the Bank Secrecy Act and regulations promulgated by the U.S. Treasury Department’s Financial Crimes Enforcement Network to file SARs for transactions they suspect involve fraud or a lack of an apparent lawful business purpose. This is the second Bank Secrecy Act action against Wells Fargo Advisors in the last five years. In November 2017, the SEC issued a settled order against Wells Fargo Advisors for failing to timely file at least 50 SARs.

The SEC’s order finds that Wells Fargo Advisors, which is the trade name used by Wells Fargo Clearing Services, LLC, a registered broker-dealer and investment adviser subsidiary of Wells Fargo & Company, violated Section 17(a) of the Securities Exchange Act and Rule 17a-8. In addition to the $7 million penalty, Wells Fargo Advisors, without admitting or denying the SEC’s findings, agreed to a censure and a cease and desist order.

The SEC’s investigation was conducted by Richard Stoltz of the SEC’s Chicago Regional Office and was supervised by Kathryn A. Pyszka and Anne C. McKinley, with assistance from Daniel J. Goldberg, Damon Reed, David Cohen and Andrae S. Eccles of the SEC’s Bank Secrecy Act Review Group. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

Press release distributed by the SEC.

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Allianz Global Investors Agrees to Pay More Than $1 Billion to Resolve SEC Charges

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SEC Charges Allianz Global Investors and Three Former Senior Portfolio Managers with Multibillion Dollar Securities Fraud

Washington D.C. — The Securities and Exchange Commission (SEC) this week charged Allianz Global Investors U.S. LLC (AGI US) and three former senior portfolio managers with a massive fraudulent scheme that concealed the immense downside risks of a complex options trading strategy they called “Structured Alpha.” AGI US marketed and sold the strategy to approximately 114 institutional investors, including pension funds for teachers, clergy, bus drivers, engineers, and other individuals.  After the COVID-19 market crash of March 2020 exposed the fraudulent scheme, the strategy lost billions of dollars as a result of AGI US and the portfolio managers’ misconduct.  AGI US has agreed to pay billions of dollars as part of an integrated, global resolution, including more than $1 billion to settle SEC charges and together with its parent, Allianz SE, over $5 billion in restitution to victims.

“Allianz Global Investors admitted to defrauding investors over multiple years, concealing losses and downside risks of a complex strategy, and failing to implement key risk controls,” said SEC Chair Gary Gensler. “The victims of this misconduct include teachers, clergy, bus drivers, and engineers, whose pensions are invested in institutional funds to support their retirement. This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing. Unfortunately, we’ve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors. The Commission stands ready to use all appropriate tools to protect investors, including upholding prohibitions against certain activities by the guilty parties. I’d like to thank and commend our staff for their excellent forensic work that uncovered this fraud and held the wrongdoers accountable.”

The SEC’s complaint, filed in the federal district court in Manhattan, alleges that Structured Alpha’s Lead Portfolio Manager, Gregoire P. Tournant, orchestrated the multi-year scheme to mislead investors who invested approximately $11 billion in Structured Alpha, and paid the defendants over $550 million in fees. It further alleges that, with assistance from Co-Lead Portfolio Manager, Trevor L. Taylor, and Portfolio Manager, Stephen G. Bond-Nelson, Tournant manipulated numerous financial reports and other information provided to investors to conceal the magnitude of Structured Alpha’s true risk and the funds’ actual performance.

Defendants reduced losses under a market crash scenario in one risk report sent to investors from negative 42.1505489755747% to negative 4.1505489755747% — by simply dropping the single digit 2.  In another example, defendants “smoothed” performance data sent to investors by reducing losses on one day from negative 18.2607085709004% to negative 9.2607085709004% — this time by cutting the number 18 in half.

When the 2020 COVID-related market volatility revealed that AGI US and the defendants had misled investors about the fund’s level of risk, the fund suffered catastrophic losses and investors lost billions; the defendants all the while profited from their deception. The complaint further alleges that Tournant, Taylor, and Bond-Nelson then made multiple, ultimately unsuccessful, efforts to conceal their misconduct from the SEC, including false testimony and meetings in vacant construction sites to discuss sending their assets overseas.

“From at least January 2016 through March 2020, the defendants lied about nearly every aspect of a highly complex investment strategy they marketed to institutional investors, including pension funds managing the retirement savings of everyday Americans. While they were able to solicit over $11 billion in investments by the end of 2019 and earn over $550 million in fees as a result of their lies, they lost over $5 billion in investor funds when the market volatility of March 2020 exposed the true risk of their products,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Following the crash of the Structured Alpha Funds, the defendants continued their pattern of deceit by lying to SEC staff and their fraud would have gone undetected if it weren’t for the persistence of SEC lawyers who pieced together the full scope of the massive fraud.”

AGI US admitted that its conduct violated the federal securities laws and agreed to a cease-and-desist order, a censure and payment of $315.2 million in disgorgement, $34 million in prejudgment interest, and a $675 million civil penalty, a portion of which will be distributed to certain investors, with the amount of disgorgement and prejudgment interest deemed satisfied by amounts it paid to the U.S. Department of Justice as part of an integrated, global resolution. In a parallel criminal proceeding, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges for similar conduct against AGI US, Tournant, Taylor, and Bond-Nelson.  As part of the parallel criminal proceeding, AGI US, Taylor and Bond-Nelson have agreed to guilty pleas.

The SEC’s complaint seeks permanent injunctions, disgorgement plus interest, and penalties against Tournant, Taylor, and Bond-Nelson. In addition, the complaint seeks an officer and director bar against Tournant. Taylor and Bond-Nelson have agreed to the entry of partial judgments against them in which they consent to injunctive relief with monetary relief to be determined by the court in the future. These settlements are subject to court approval. Taylor and Bond-Nelson also agreed to associational and penny stock bars.

As a consequence of the guilty plea, AGI US is automatically and immediately disqualified from providing advisory services to US registered investment funds for the next ten years, and will exit the business of conducting these fund services.  To avoid disruptions to these funds and for the protection of the fund investors, the SEC will allow a brief transition period solely to transition these services to another investment adviser.  The transition period will be ten weeks for the US mutual funds that AGI US sub-advises and four months for the US closed-end funds that AGI US advises.

The SEC’s investigation was conducted by Jonathan C. Shapiro and James F. Murtha, and supervised by Reid A. Muoio of the Complex Financial Instruments Unit. The litigation will be led by Timothy K. Halloran under the supervision of Melissa J. Armstrong. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the U.S. Postal Inspection Service.

Press release distributed by the SEC.

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Doctor Charged With Falsifying COVID-19 Vaccination Cards

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Los Angeles County District Attorney George Gascón announced that his office today charged a Tujunga doctor for issuing fake COVID vaccination cards and injecting some of his patients with blood plasma he received from donors.

“It is disturbing that people, especially medical professionals, continue to use the pandemic as an opportunity to deceive the public,” District Attorney Gascón said. “Fake COVID vaccination cards are illegal and endanger our collective health and well-being. We will continue to work with our local, state and federal law enforcement partners to protect consumers and stop medical fraud.”

Donald Plance (dob 12/9/53) was charged in case BA505464 with 10 felony counts of making a forged government seal and 10 misdemeanor counts of making a false medical record and one misdemeanor count each of making a drug without a license and possession of a contaminated medical device. Arraignment will be scheduled for a later date.

Between August and November of last year, Plance is accused of making his own vaccination cards and giving them to his patients. The cards appeared to be genuine, bearing the Center for Disease Control and Health and Human Services seals.

Plance also allegedly injected his patients with blood plasma from donors who purportedly previously had COVID-19, claiming that the procedure would protect his patients from contracting the virus. Blood plasma injections are not a federally approved vaccination. It is recommended that patients seek guidance from a licensed medical provider.

The case remains under investigation by the California Department of Consumer Affairs Division of Investigation, the U.S. Food and Drug Administration and the U.S. Department of Health and Human Services-Office of Inspector General.

Press release distributed by the LA County District Attorney’s District.

SEC Obtains Emergency Relief to Halt Pre-IPO Stock Fraud Scheme by Unregistered Broker-Dealer

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Defendants, including persons barred from the brokerage industry, allegedly sold shares they didn’t own, and pocketed more than $75 million

Washington D.C. — The Securities and Exchange Commission announced this week that it obtained asset freezes and other emergency relief against StraightPath Venture Partners LLC, StraightPath Management LLC, Brian K. Martinsen, Michael A. Castillero, Francine A. Lanaia, and Eric D. Lachow (collectively, the defendants) to halt ongoing securities violations, including allegedly selling pre-initial public offering (IPO) shares they did not own, pocketing undisclosed fees, and commingling investor funds, resulting in Ponzi scheme-like payments. The relief arose from fraud and registration charges filed by the SEC.

The SEC alleges that the defendants, running an unregistered broker-dealer with a vast network of sales agents, raised at least $410 million from more than 2,200 investors from November 2017 through February 2022.  The SEC also alleges that the defendants repeatedly told investors that each investment would be kept separate and that they were charging no upfront fees, but the defendants freely commingled investor funds, paid themselves more than $75 million, and paid their sales agents nearly $48 million from illegal, undisclosed markups on the pre-IPO shares that were, in some cases, as high as 100 percent.  The SEC alleges that a share deficit exists of at least $14 million across the funds.  The defendants also allegedly concealed from investors that two of the three founders, Castillero and Lanaia, ran the funds despite being barred from the brokerage industry.  When SEC staff sought copies of the emails sent by the defendants’ sales agents during its investigation, rather than producing them, Castillero and Martinsen allegedly deleted them from their servers and texted that “an a***hole regulator would have a field day” with a particular e-mail.

“We allege that the defendants deceived investors about the pre-IPO shares they held, how much they were charging in fees, and who was controlling the business—all while paying themselves more than $75 million,” said Lara S. Mehraban, Acting Director of the New York Regional Office.  “We filed this emergency action to stop the ongoing fraud and to preserve assets for investors.”

The SEC’s complaint, filed in federal district court in Manhattan, charges the defendants with violating antifraud and other provisions of the federal securities laws.  The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties.  The SEC obtained a court order to freeze the assets of Martinsen, Castillero, Lanaia, StraightPath Venture Partners, and StraightPath Management.  The order further temporarily enjoins the defendants from violating these provisions of the federal securities laws and orders them not to destroy any additional relevant documents.  A hearing on the SEC’s application, which also seeks the appointment of a receiver, will be held on May 26, 2022.

The SEC’s ongoing investigation is being conducted by Megan R. Genet, Tian Wen, Douglas Smith, Debbie Chan, Lee A. Greenwood, Patricia Schrage, Alistaire Bambach, and Steven G. Rawlings of the New York Regional Office, with assistance from Suman Beros.  It is being supervised by Sheldon L. Pollock.  The litigation will be led by Mr. Greenwood and Philip A. Fortino.  The SEC appreciates the assistance of Ronald Krietzman, Michael McAuliffe, and Stephen DeBella of the NYRO Broker-Dealer and Exchange Program (BDX), the Financial Industry Regulatory Authority (FINRA), the Office of the Montana State Auditor, Commissioner of Securities and Insurance, and the New Jersey Bureau of Securities.

Investors can learn more about the risks involved with investing in unregistered offerings by reading such SEC investor bulletins as 10 Red Flags That An Unregistered Offering May Be A Scam.

Press release distributed by the SEC.

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SEC Extends Comment Period for Proposed Rules on Climate-Related Disclosures, Reopens Comment Periods for Proposed Rules Regarding Private Fund Advisers and Regulation ATS

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Washington D.C. — The Securities and Exchange Commission this week announced that it has extended the public comment period on the proposed rulemaking to enhance and standardize climate-related disclosures for investors until June 17, 2022. The SEC also announced that it will reopen the comment periods on the proposed rulemaking to enhance private fund investor protection and on the proposed rulemaking to include significant Treasury markets platforms within Regulation ATS for 30 days.

“Today, the Commission acted to provide the public with additional time to comment on three proposed rulemakings that have drawn significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders,” said SEC Chair Gary Gensler. “The SEC benefits greatly from hearing from the public on proposed regulatory changes. Commenters with diverse views have noted that they would benefit from additional time to review these three proposals, and I’m pleased that the public will have additional time to provide thoughtful feedback.”

The public comment period for the proposed rulemaking “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” Release Nos. 33-11042, 34-94478 (March 21, 2022) will now end on June 17, 2022. The scope and comment process for this release remains as stated in the original Federal Register notice of April 11, 2022.

The public comment periods for the proposed rulemakings “Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews,” Release Nos. IA-5955 (Feb. 9, 2022) and “Amendments Regarding the Definition of ‘Exchange’ and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities,” Release No. 34-94062 (Jan. 26, 2022) will be reopened for 30 days following publication of the reopening release in the Federal Register. The scope and comment process for both releases will remain as stated in the original Federal Register notices of March 24, 2022, and March 18, 2022.

Press release distributed by the SEC.

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Woman Convicted of Laundering Over $750,000 from Health Care Fraud Scheme

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A federal jury convicted a Florida woman Friday for laundering approximately $786,000 in money stolen from Medicare, Medicaid, and private health insurers as part of a sprawling health care fraud scheme in Miami.

According to court documents and evidence presented at trial, Jesmina Ramirez, 50, of Miami Gardens, laundered hundreds of thousands of dollars in fraud proceeds by cashing checks written from five fraudulent medical supply companies and returning that cash, minus a fee, to her co-conspirators. The five fraudulent medical supply companies for whom she laundered money – BF Distributors Corp.; Timely Medical Services Corp.; Ortho-Med Solution Inc.; Expedited Medical Supplies Corp.; and Prime Orthopedic Solutions Corp. – billed Medicare, Medicaid, and private insurers more than $48 million for medical equipment the companies never actually purchased and never provided to any patients. Ramirez laundered the stolen money by cashing more than 120 checks from the fraudulent companies over more than two years.

Ramirez was convicted of one count of conspiracy to commit money laundering and one count of money laundering. She faces up to 20 years in prison on each count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors. Sentencing is scheduled for July 13.

Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division; U.S. Attorney Juan Antonio Gonzalez for the Southern District of Florida; Special Agent in Charge Omar Pérez Aybar of the Department of Health and Human Services, Office of the Inspector General (HHS-OIG), Miami Regional Office; Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division; Special Agent in Charge George L. Piro of the FBI Miami Field Office; Special Agent in Charge Kyle A. Myles of the Federal Deposit Insurance Corporation, Office of Inspector General (FDIC-OIG), Atlanta Regional Office; and Florida Attorney General Ashley Moody made the announcement.

The FBI, HHS-OIG, FDIC-OIG, and Florida’s Medicaid Fraud Control Unit are investigating the case.

Trial Attorneys Alexander Thor Pogozelski and Emily Gurskis of the Criminal Division’s Fraud Section are prosecuting the case.

Press release distributed by the DOJ.

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Two Men Sentenced for COVID-19 Relief Fraud Scheme

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Two Florida men were sentenced Friday for leading a nationwide scheme to defraud the Paycheck Protection Program (PPP) for millions of dollars in loans guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The U.S. District Court for the Northern District of Ohio sentenced Phillip J. Augustin, 53, of Coral Springs, to 78 months in prison, and James Stote, 56, of Hollywood, to 120 months in prison. Stote and Augustin each pleaded guilty to conspiracy to commit wire fraud on Dec. 14, 2021.

According to court documents, Augustin and Stote obtained a fraudulent PPP loan for Augustin’s company, Clear Vision Music Group LLC, using falsified documents. After submitting that application, Stote and Augustin immediately began trying to illicitly obtain larger PPP loans for themselves and their associates. Stote and Augustin recruited additional PPP loan applicants and prepared and submitted fraudulent loan applications for them in exchange for a share of the loan proceeds. Augustin used his network of business contacts as a manager for professional football players to recruit loan applicants. The applications they submitted for these loans relied on fake payroll numbers, falsified IRS forms, and phony bank statements. Stote submitted or facilitated at least 79 fraudulent loan applications worth at least $35 million. Among those loans, Augustin was responsible for at least 34 fraudulent loan applications worth at least $15 million.

In addition to his prison sentence, Stote was ordered to serve three years of supervised released and pay more than $10.1 million in restitution and more than $1.1 million in forfeiture. Augustin was ordered to serve three years of supervised released and pay more than $5.9 million in restitution and more than $272,000 in forfeiture.

In total, 25 people have been charged for their participation in this scheme in the Northern District of Ohio, Southern District of Florida, and Middle District of North Carolina.

Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division; Acting U.S. Attorney Michelle M. Baeppler for the Northern District of Ohio; Special Agent in Charge Bryant Jackson of the IRS-Criminal Investigation (IRS-CI) Cincinnati Field Office; Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division; Interim Special Agent in Charge Philip E Frigm Jr. of the FBI’s Cleveland Field Office; and Special Agent in Charge Sharon Johnson of the SBA’s Office of Inspector General (SBA-OIG) Central Region made the announcement.

The IRS-CI, FBI, and SBA-OIG are investigating the cases.

Trial Attorney Philip Trout of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Elliot Morrison for the Northern District of Ohio prosecuted this case.

Since the inception of the CARES Act, the Fraud Section has prosecuted over 150 defendants in more than 95 criminal cases and has seized over $75 million in cash proceeds derived from fraudulently obtained PPP funds, as well as numerous real estate properties and luxury items purchased with such proceeds. More information can be found at https://www.justice.gov/criminal-fraud/ppp-fraud.

On May 17, 2021, the Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts. For more information on the department’s response to the pandemic, please visit https://www.justice.gov/coronavirus.

Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud (NCDF) Hotline via the NCDF Web Complaint Form at https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.

Press release distributed by the DOJ.

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Founders of cryptomining scheme accused of using investments to fund lavish lifestyle

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SEC Halts Fraudulent Cryptomining and Trading Scheme

Washington D.C. — The Securities and Exchange Commission this week announced fraud charges against MCC International Corp. (MCC), which does business as Mining Capital Coin Corp., its founders Luiz Carlos Capuci, Jr. (aka Junior Caputti or Capuci) and Emerson Souza Pires (Pires), and two other entities controlled by Capuci, CPTLCoin Corp. (CPTLCoin) and Bitchain Exchanges (Bitchain), in connection with the unregistered offerings and fraudulent sales of investment plans called mining packages to thousands of investors. According to the SEC’s complaint, Defendants MCC, Capuci, and Pires allegedly netted at least $8.1 million from the sale of the mining packages and $3.2 million in initiation fees. On April 21, 2022, the United States District Court for the Southern District of Florida issued a temporary restraining order against all of the defendants and an order freezing defendants’ assets, among other relief.

According to the SEC’s complaint, since at least January 2018, MCC, Capuci, and Pires sold mining packages to 65,535 investors worldwide and promised daily returns of 1 percent, paid weekly, for a period of up to 52 weeks. MCC also allegedly represented that the weekly profits were a result of “profit sharing” and that MCC earned profits from its operations involving cryptocurrency mining, trading stocks and foreign exchange, and trading cryptocurrency on digital asset trading platforms through the use of arbitrage trading and semi-automatic robotic trading. The complaint also alleges that, in its early days, MCC investors were promised returns in Bitcoin, but later, defendants required investors to withdraw their investments in tokens called Capital Coin (CPTL), which was MCC’s own token. In addition, the complaint alleges that MCC investors were required to redeem their CPTL on Bitchain, a fake crypto asset trading platform Capuci created and managed. However, when investors tried to liquidate their CPTL on Bitchain before their one-year memberships expired, they encountered purported errors that stymied their efforts and were required to either buy another mining package or forfeit their investments.

“As the complaint alleges, Capuci and Pires took every opportunity to extract more money from unsuspecting investors on false promises of outlandish returns and used investor funds raised from this fraudulent scheme to fund a lavish lifestyle, including purchasing Lamborghinis, yachts, and real estate,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “The restraining order and asset freeze helps preserve investor assets and puts a stop to the defendants’ alleged ongoing fraudulent enterprise.”

The SEC’s complaint charges the defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 (Exchange Act), and Capuci and Pires with control person liability on behalf of MCC under the Exchange Act. The SEC’s complaint seeks injunctions against future securities law violations, disgorgement of the defendants’ ill-gotten gains, civil penalties, and officer and director bars against Capuci and Pires.

The SEC’s ongoing investigation is being conducted by Christine B. Jeon of the Cyber Unit, with the assistance of Devlin N. Su, Larry Brannon, and Steven Tremaglio of the Chicago Regional Office. Amy Flaherty Hartman and Ms. Littman are supervising the case. The SEC’s litigation will be led by Jonathan Polish.

Press release distributed by the SEC.

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SEC Charges Archegos and its Founder with Massive Market Manipulation Scheme

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Multiple Archegos Executives Charged with Misleading Counterparties

Washington D.C. — The Securities and Exchange Commission has charged Sung Kook (Bill) Hwang, the owner of family office Archegos Capital Management, LP (Archegos), with orchestrating a fraudulent scheme that resulted in billions of dollars in losses. The SEC also charged Archegos’s Chief Financial Officer, Patrick Halligan; head trader, William Tomita; and Chief Risk Officer, Scott Becker for their roles in the fraudulent scheme.

The SEC’s complaint alleges that, from at least March 2020 to March 2021, Hwang purchased on margin billions of dollars of total return swaps. These security-based swaps allow investors to take on huge positions in equity securities of companies by posting limited funds up front. As alleged, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the various companies’ securities, which induced other investors to purchase those securities at inflated prices. As a result of Hwang’s trading, Archegos allegedly underwent a period of rapid growth, increasing in value from approximately $1.5 billion with $10 billion in exposure in March 2020 to a value of more than $36 billion with $160 billion in exposure at its peak in March 2021.

The complaint also alleges that, as part of the scheme, Archegos repeatedly and deliberately misled many of Archegos’s counterparties about Archegos’s exposure, concentration and liquidity, in order to get increased trading capacity so that Archegos could continue buying swaps in its most concentrated positions, thereby driving up the price of those stocks.  Ultimately in March 2021, price declines in Archegos’s most concentrated positions allegedly triggered significant margin calls that Archegos was unable to meet, and Archegos’s subsequent default and collapse resulted in billions of dollars in credit losses among Archegos’s counterparties.

“Today, we charged Archegos Capital Management and affiliated individuals with committing fraud and manipulating stock prices using total return swaps. The collapse of Archegos last spring demonstrated how activities by one firm can have far-reaching implications for investors and market participants. I thank the SEC staff for taking swift action to hold these actors responsible for their alleged misconduct, which hurt investors across our capital markets,” said SEC Chair Gary Gensler. “The failure of Archegos underscores the importance of our ongoing work to update the security-based swaps market to enhance the investor protections, integrity, and transparency of this market. Further, I encourage prime brokers and other market participants to remain vigilant to the risks presented by counterparty relationships.”

“We allege that Hwang and Archegos propped up a $36 billion house of cards by engaging in a constant cycle of manipulative trading, lying to banks to obtain additional capacity, and then using that capacity to engage in still more manipulative trading,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “But the house of cards could only be sustained if that cycle of deceptive trading, lies and buying power continued uninterrupted, and once Archegos’s buying power was exhausted and stock prices fell, the entire structure collapsed, allegedly leaving Archegos’s counterparties billions in trading losses.”

The SEC’s complaint, filed in federal district court in Manhattan, charges Hwang and the other defendants with violating antifraud and other provisions of the federal securities laws. The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC also seeks to bar individual defendants from serving as a public company officer and director.

In parallel actions, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges for similar conduct, and the Commodity Futures Trading Commission (CFTC) announced civil charges.

The SEC’s ongoing investigation is being conducted by David Zetlin-Jones and Brian Fitzpatrick of the Asset Management Unit and Joshua Brodsky of the Complex Financial Instruments Unit, with assistance from Stephen Johnson of the New York Regional Office. It is being supervised by Andrew Dean and Dabney O’Riordan of the Asset Management Unit and Osman Nawaz of the Complex Financial Instruments Unit. The litigation will be led by Mr. Zetlin-Jones and Jack Kaufman. Additional assistance to the investigation was provided by Dennis Hamilton and Adam Yonce of the SEC’s Division of Economic and Risk Analysis. The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office for the Southern District of New York, the FBI, and the CFTC.

Press release distributed by the SEC.

Featured image: by David Blaikie is marked with CC BY 2.0.

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