Managing Partner of U.S. Broker-Dealer Charged in Manhattan Federal Court with Allegedly Participating in a Massive International Bribery Scheme

June 12, 2013

The U.S. Department of Justice on June 12, 2013 released the following press release:

Defendant Allegedly Participated in Scheme That Generated Broker-dealer More Than $60 Million in Fees for Business Directed by a Senior Venezuelan Banking Official Who Was Allegedly Paid Over $5 Million in Kickback Payments

A managing partner of a U.S. broker-dealer was arrested today on felony charges arising from a conspiracy to pay bribes to a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (BANDES).

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara for the Southern District of New York, and Assistant Director-in-Charge George Venizelos of the FBI’s New York Office made the announcement.

Ernesto Lujan, 50, among others, allegedly arranged the bribe payments to Maria De Los Angeles Gonzalez De Hernandez at BANDES in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. Lujan was arrested this morning in Wellington, Fla., where he resides, and was presented in federal court in West Palm Beach, Fla.

“The huge bribes Mr. Lujan and others allegedly paid funneled millions to his firm and into his own pockets,” said Acting Assistant Attorney General Raman. “Bribery corrupts markets, and this arrest – just the latest in the Department’s recent series of anti-corruption charges in various districts – is yet another demonstration that, at the end of the day, the real dividends bribe payers reap are criminal charges.”

“From his perch as managing partner Ernesto Lujan allegedly engaged in a bribery scheme designed to drum up foreign trading business for his firm,” said U.S. Attorney Bharara. “Along with his alleged cohorts, three of whom were arrested last month, he pocketed millions from the alleged scheme which was executed through kickbacks to a Venezuelan government official and through money laundering.”

“As alleged, Lujan led a conspiracy to bribe a foreign government bank official to steer business to his firm,” said FBI Assistant Director-in-Charge Venizelos. “As previously alleged, much of this trading activity was conducted solely to generate fees for the firm. Lujan personally reaped millions in profits, and used Swiss bank accounts to conceal both the bribes and his own proceeds of the scheme.”

On May 3, 2013, Gonzalez, along with two employees of the Broker-Dealer, Tomas Alberto Clarke Bethancourt and Jose Alejandro Hurtado, were arrested on separate charges relating to this bribery scheme. On May 6, 2013, the government filed a civil forfeiture action in Manhattan federal court seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland, and the forfeiture of several properties in the Miami area related to Hurtado that were purchased with his proceeds from the scheme. That same day, the court also issued seizure warrants for multiple bank accounts and a restraining order relating to those Miami properties.

In a separate action, the U.S. Securities and Exchange Commission (SEC) announced civil charges against Lujan.

According to the allegations in the criminal complaint unsealed today, and other documents filed in Manhattan federal court, Lujan, a managing partner of the Broker-Dealer, which was headquartered in New York City, was the branch manager of its Miami offices. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included Lujan, Clarke and Hurtado, and which offered fixed income trading services to institutional clients. One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance. The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding. Gonzalez, a BANDES official, oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.

From December 2008 through October 2010, Lujan, along with Clarke, Hurtado and Gonzalez, allegedly participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer, including Lujan, split the revenue the Broker-Dealer generated from this trading business with Gonzalez. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including Lujan, Clarke and Hurtado, allegedly devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.

Court records allege that to further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For example, at least $9.5 million was transferred from the Broker-Dealer to a Swiss bank account controlled by Clarke, who in turn transferred at least $6.5 million to a Swiss bank account controlled by Lujan. Lujan then allegedly transferred at least $1.5 million of these proceeds to a Swiss bank account controlled by Gonzalez.

Lujan was charged with one count each of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), violation of the FCPA, conspiracy to violate the Travel Act and violation of the Travel Act, which each carry a maximum penalty of five years in prison. He is also charged with conspiracy to commit money laundering and money laundering, which each carry a maximum penalty of 20 years in prison.

This ongoing investigation is being conducted by the FBI, with assistance from the SEC and the Justice Department’s Office of International Affairs. Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Harry A. Chernoff and Jason H. Cowley of the Southern District of New York’s Securities and Commodities Fraud Task Force are in charge of the prosecution.

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

The charges contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Florida Husband and Wife Indicted by a Federal Grand Jury Alleging Federal Tax Crimes

May 16, 2013

The U.S. Department of Justice Office of Public Affairs on May 16, 2013 released the following:

Doctors Maintained Offshore Bank Accounts at UBS and Other Foreign Banks That Concealed Income and Assets from the IRS

Drs. David Leon Fredrick and Patricia Lynn Hough, of Englewood, Fla., were indicted by a federal grand jury in Fort Myers, Fla., for conspiring to defraud the Internal Revenue Service (IRS) by concealing millions of dollars in assets and income in offshore bank accounts at UBS and other foreign banks, the Department of Justice and IRS announced today.

According to the indictment, Fredrick and Hough, married doctors, served on the Board of Directors of two Caribbean-based medical schools – one located on Saba, Netherlands Antilles, and one located on Nevis, West Indies. Fredrick had an ownership interest in the medical school on Nevis until 2007, when both medical schools were sold.

The indictment alleges that Fredrick and Hough conspired with each other and with Beda Singenberger, a citizen and resident of Switzerland who is under indictment in the Southern District of New York, and a UBS banker to defraud the IRS. They carried out the conspiracy by creating and using nominee entities and undeclared bank accounts in their names and the names of the nominee entities at UBS and other foreign banks to conceal assets and income from the IRS, including the sale of real estate associated with the medical school on Saba and shares they owned in the medical school on Nevis. The real estate was sold for more than $33 million, all of which was deposited into one of their undeclared accounts in the name of a nominee entity.

It is further alleged in the indictment that Fredrick and Hough used emails, telephone and in-person meetings to instruct Swiss bankers and asset managers to make investments and transfer funds from their undeclared accounts at UBS. It is alleged that Fredrick and Hough caused funds from the medical schools’ undeclared accounts to be transferred to undeclared accounts in their individual names or in the names of nominee entities. Fredrick and Hough then used the funds in their undeclared accounts to purchase an airplane, two homes in North Carolina and a condominium in Sarasota, Fla. Fredrick also transferred more than $1 million to his relatives.

Fredrick and Hough were also charged with four counts of filing false tax returns for 2005, 2006, 2007 and 2008. The indictment alleges that Fredrick and Hough filed false tax returns which substantially understated their total income and failed, on Schedule B, Parts I and III, to report that they had an interest in or signature or other authority over bank, securities or other financial accounts located in foreign countries. U. S. citizens, resident aliens and legal permanent residents of the United States have an obligation to report to the IRS on the Schedule B of a U.S. Individual Income Tax Return, Form 1040, whether they had a financial interest in, or signature authority over, a financial account in a foreign country in a particular year by checking “Yes” or “No” in the appropriate box and identifying the country where the account was maintained. U. S. citizens and residents also have an obligation to report all income earned from foreign bank accounts on their tax returns.

A trial date has not been scheduled. An indictment is merely an accusation, and every defendant is presumed innocent unless and until proven guilty.

The conspiracy charge carries a maximum potential penalty of five years in prison and a $250,000 fine. The false return charges each carry a maximum potential penalty of three years in prison and a $250,000 fine.

This case is being prosecuted by Trial Attorney Caryn Finley of the Justice Department’s Tax Division and was investigated by IRS – Criminal Investigation.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Australian Citizen and Former Research Analyst Charged with Alleged Insider Trading

December 27, 2012

The Federal Bureau of Investigation (FBI) on December 26, 2012 released the following:

Australian Charged in Addition to Two Stockbrokers Already Arrested for Trading on Inside Information Relating to IBM’s Acquisition of SPSS in 2009

NEW YORK— Trent Martin, a citizen of Australia and a former research analyst at an international financial services firm, was charged today for his alleged involvement in an insider trading scheme with Thomas C. Conradt and David J. Weishaus, two stockbrokers who were arrested for the same offenses on November 29, 2012, announced U.S. Attorney for the Southern District of New York Preet Bharara and Assistant Director in Charge of the New York Field Office of the FBI George Venizelos. Martin, Conradt, Weishaus, and their co-conspirators allegedly traded on the basis of material, non-public information concerning IBM’s acquisition of a software company, SPSS Inc., in 2009, earning in the aggregate more than $1 million in profits. The case against Martin, Conradt, and Weishaus is assigned to U.S. District Judge Andrew L. Carter, Jr.

Martin was arrested on December 22, 2012 in Hong Kong following a request from the United States. Following their earlier arrests in the United States, Conradt and Weishaus pleaded not guilty on December 7, 2012 and are scheduled to appear next before Judge Carter on January 18, 2013 at 10:00 a.m.

The following allegations are based on the superseding indictment unsealed today in Manhattan federal court:

The inside information concerning IBM’s acquisition of SPSS allegedly originated from a corporate lawyer (Attorney-1) who was part of the legal team that represented IBM in the transaction in 2009. On May 31, 2009, Attorney-1 shared inside information concerning the transaction—including the names of the parties and the fact that IBM was going to acquire SPSS for a significant premium over SPSS’s market price—with his close friend, Trent Martin. The information was shared in confidence. Based on their longstanding history of sharing confidences, among other things, Attorney-1 expected that Martin would not share the information or use it to trade.

In June 2009, however, Martin bought SPSS common stock based on the inside information he was given by Attorney-1 and, in turn, shared the tip with his roommate, Conradt, who worked as a stockbroker at a securities trading firm (Securities Trading Firm-1). Conradt then bought SPSS common stock and tipped Weishaus, his co-worker at Securities Trading Firm-1. On June 24, 2009, Weishaus started buying call option contracts in SPSS. In addition, Conradt and Weishaus tipped their co-workers at Securities Trading Firm-1 (CC-1 and CC-2), who also bought SPSS call option contracts in June and July 2009 based on the inside information.

In instant messages exchanged in July 2009, Conradt and Weishaus discussed their insider trading scheme and the fact that their information came from Martin. For example, on July 1, 2009, Weishaus wrote to Conradt, “somebody is buying spss . . . we should get [CC-1] to buy a f***load [of SPSS shares] . . . .” Conradt responded, “jesus don’t tell anyone else . . . we gotta keep this in the family.” Weishaus answered, “dude, no way. i dont want to go to jail f*** that . . . martha stewart spent 5 months in the slammer . . . and they tried to f*** the mavericks owner.” Later that same day, Weishaus wrote to Conradt, “jesus, we need spss to run up i need that lexus.”

On July 10, 2009, Weishaus wrote to Conradt, “we need some turn around on spss.” Conradt responded, referring to Trent Martin by name: “[Y]eah i called trent, gonna get more details tonight he was at work, couldn’t talk[.]”

In another instant message exchange, on July 23, 2009, Conradt asked Weishaus to buy SPSS call options for Conradt, but Weishaus declined. In response, Conradt wrote, “wtf, i’m setting this deal up for everyone . . . makin everyone rich.” Weishaus responded, “[Another individual] is gonna put in 50k sept options.” Conradt then wrote, again referring to Trent Martin by name, “holy f*** . . . god trent told me not to tell anyone . . . big mistake.” Weishaus responded, “eh, we’ll get rich.”

That same day, Martin told Attorney-1 that he had purchased SPSS common stock and call options on the basis of the inside information that Attorney-1 had disclosed to Martin at their brunch on or about May 31, 2009.

When IBM announced its acquisition of SPSS on July 28, 2009, the share price of SPSS common stock rose by 41 percent in one day, from the prior day’s closing price of $35.09 per share to a closing price of $49.45 per share. Thereafter, Martin, Conradt, Weishaus, CC-1 and CC-2 sold their SPSS positions, yielding profits of $7,900, $2,538, $129,290, $629,954 and $254,360, respectively, for a total profit in excess of $1 million.

In the fall of 2010, after the SEC had begun investigating insider trading in SPSS, Martin told Attorney-1 that he had profited approximately $8,000 from the inside information concerning IBM’s acquisition of SPSS and had disclosed it to his roommate, Conradt, before the transaction was publicly announced. Martin also told Attorney-1 that Martin believed Conradt had taken a large position in SPSS before the announcement and had, in turn, shared the inside information with others. Martin further stated to Attorney-1 that he was returning to Australia in light of the U.S. Securities and Exchange Commission investigation, and that he knew that insider trading can result in jail sentences, referring to the criminal prosecution of Martha Stewart.

* * *

Martin, 33, has been charged with one count of conspiracy to commit securities fraud and one count of securities fraud. Count one, the conspiracy charge, carries a maximum potential penalty of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. Count two, the securities fraud charge, carries a maximum potential penalty of 20 years in prison and a maximum fine of $5 million.

U.S. Attorney Bharara praised the investigative work of the FBI and thanked authorities in Hong Kong who are providing assistance with this case. He also thanked the SEC and the U.S. Department of Justice’s Office of International Affairs. Mr. Bharara noted that the investigation is continuing.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John T. Zach and David B. Massey are in charge of the prosecution.

The charges contained in the indictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Rajat Gupta Gets Two-Year Sentence for Insider Trading

October 25, 2012

Bloomberg on October 24, 2012 released the following:

“By Patricia Hurtado, David Glovin and Bob Van Voris

Former Goldman Sachs Group Inc. (GS) director Rajat Gupta was sentenced to two years in prison for insider trading, marking the downfall of a man who rose to the top of corporate America after being orphaned as an 18-year-old in Kolkata.

Gupta, who ran McKinsey & Co. from 1994 to 2003, was sentenced today by U.S. District Judge Jed Rakoff in Manhattan for leaking stock tips to Galleon Group LLC co-founder Raj Rajaratnam. Gupta, 63, was convicted in June of securities fraud and conspiracy. He is set to report to prison on Jan. 8. He was also fined $5 million.

The evidence that Gupta passed illegal information about Goldman Sachs to Rajaratnam was “not only overwhelming, it was disgusting in its implications,” Rakoff said in court today before handing down the sentence.

Prosecutors had sought a prison term for Gupta of as long as 10 years. Gupta requested probation and community service, and his lawyer had proposed that he work with needy children in New York or the poor in Rwanda.

In his 17 years as a judge, Rakoff has sentenced at least nine defendants other than Gupta for insider trading, including seven who pleaded guilty and two whom he jailed after they were found guilty by juries. Rakoff has a track record of imposing sentences that are half what the government recommends.

Insider Probes

From Jan. 1, 2011 to July of this year, federal judges in Manhattan sent the average insider-trading violator to prison for more than 22 months, according to an analysis of sentencing data by Bloomberg News. That was a 20 percent increase from the average term of 18.4 months during the previous eight years.

Over the same 18-month period, the average sentence after trial was 58 months, compared with 22 months during the same time for 18 defendants who pleaded guilty. Of the dozen defendants who pleaded guilty and agreed to cooperate with the U.S. insider-trading probe during that time, 11 avoided prison altogether. One got six months.

“With today’s sentence, Rajat Gupta now must face the grave consequences of his crime — a term of imprisonment,” Manhattan U.S. Attorney Preet Bharara said in a statement. “His conduct has forever tarnished a once-sterling reputation that took years to cultivate.”

‘Innovative’ Proposal’

During today’s hearing, Rakoff said the Rwanda community service proposal was “very innovative.”

“I thought, ah, this was the Peace Corps for insider traders,” the judge said to Gupta’s lawyer, Gary Naftalis. “But I think if everything you told me about Mr. Gupta’s character is correct, and I think it is, he would be doing this regardless of a court order or not. So looking at it in a cynical kind of way, it is not punishment.”

Before he was sentenced, Gupta told the judge that “I lost my reputation that I built over a lifetime. The last 18 months have been the most challenging period of my life since my parents died when I was a teenager.”

Gupta served on the boards of Procter & Gamble Co. (PG) and AMR Corp. (AAMRQ) and won praise for his charity from Microsoft Corp. (MSFT) Chairman Bill Gates and former United Nations Secretary-General Kofi Annan. As McKinsey’s youngest managing director, he almost tripled the firm’s revenue.

Helped ‘Many’

Gupta’s life “has been an extraordinary one,” Naftalis said today in court. He said his client has made “extraordinary contributions that have tangibly helped many, many people on this planet.” His crimes are a “total aberration in an otherwise laudatory life.”

Gupta was convicted by a jury of leaking tips to Rajaratnam, his friend and business partner, about New York- based Goldman Sachs. Gupta leaked information including a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. (BRK/B) on Sept. 23, 2008, and a tip on a quarterly loss.

The jury acquitted Gupta of charges that he leaked information that Cincinnati-based P&G’s organic sales growth would fall below estimates and that he tipped Rajaratnam, 55, about Goldman Sachs’s earnings in the first quarter of 2007.

Unlike the Rajaratnam prosecution, which was based on dozens of wiretaps of his mobile-phone conversations, the case against Gupta was circumstantial and built on trading records, business relationships and comments by Rajaratnam or others about Galleon’s sources of information. The jury heard one wiretapped conversation between Gupta and Rajaratnam. Naftalis told the judge today that he would challenge Rakoff’s decision to admit the recording and other evidentiary rulings he made during the trial on appeal.

The case is U.S. v. Gupta, 11-cr-907, U.S. District Court, Southern District of New York (Manhattan).”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Appeal

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Gupta to Urge Probation From Judge Who Once Defended Insiders

October 22, 2012

San Francisco Chronicle on October 22, 2012 released the following:

“Patricia Hurtado and David Glovin, ©2012 Bloomberg News

Oct. 22 (Bloomberg) — As a lawyer, Jed Rakoff once persuaded a judge to give probation to a client convicted at an insider-trading trial alongside former Wall Street Journal reporter R. Foster Winans. Now a federal judge himself, Rakoff must weigh Rajat Gupta’s similar request to stay out of prison.

Gupta, a former Goldman Sachs Group Inc. director, will come before Rakoff in Manhattan federal court on Oct. 24 to be sentenced for leaking stock tips to Galleon Group LLC co-founder Raj Rajaratnam. Prosecutors say Gupta, convicted by a jury in June, deserves as long as 10 years in prison. Gupta seeks probation.

Gary Naftalis, a lawyer for Gupta, argued his client’s crime was an “aberrational” event in a “lifetime of good works” that merited a punishment for a man who has suffered an extraordinary fall from grace. He asked Rakoff to impose a term of community service, suggesting Gupta work with troubled youth in New York or with the poor in Rwanda.

“Good works help, but on their own they are rarely a ‘Get out of jail free card,’” said Gordon Mehler, a former federal prosecutor who’s now in private practice in New York. “So, it seems as if probation, even in Rwanda, is unlikely.”

Gupta, 63, is the most prominent of 70 people convicted since a nationwide insider-trading crackdown by U.S. prosecutors began four years ago. Gupta also served as managing partner of McKinsey & Co. from 1994 to 2003 and on the board of Procter & Gamble Co. from 2007 to March 2011, when he also resigned from the boards of Goldman Sachs, AMR Corp. and two other companies.

Buffett’s Berkshire

After a four-week trial in June, jurors found Gupta guilty of tipping Rajaratnam about dealings at New York-based Goldman Sachs, including a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. Rajaratnam, 55, is serving 11 years in prison for trading on tips from Gupta and others.

In his 17 years as a judge, Rakoff has sentenced at least nine defendants for insider trading, including seven who pleaded guilty and two whom he jailed after they were found guilty by juries. Rakoff has a track record of imposing a sentence that is half what the government recommends.

“If there is any judge who’s sensitive to the draconian impact of the sentencing guidelines with respect to white-collar offenders, it’s Judge Rakoff,” said J. Bruce Maffeo, a former federal prosecutor now in private practice. “That being said, he’s equally sensitive to the need to fashion a sentence that takes into account both the defendant’s personal background and the need to deter others in the financial world, where this kind of activity appears to be more prevalent than previously assumed.”

Winning Leniency

Rakoff, a former federal prosecutor in New York who headed the office’s securities-fraud unit, was a white-collar criminal- defense lawyer before taking the bench.

As a defense lawyer, Rakoff won leniency for a client convicted of insider trading who was also facing prison.

Rakofff’s client, David Carpenter, went on trial in 1985 with his lover, journalist R. Foster Winans, and broker Kenneth Felis. Prosecutors said Winans leaked tips to Felis about forthcoming market-moving articles in his “Heard on the Street” column, Felis traded on the news and Carpenter allowed Winans to place trades through his account. All were convicted. Carpenter died in 1991.

Wife, Husband

At the sentencing, Rakoff compared Carpenter’s relationship with Winans to that of wife-and-husband and said Carpenter merely acquiesced to Winans’ trades, according to Winans’s lawyer, Don Buchwald. Carpenter got probation while Winans was given an 18-month prison term.

“He was following Foster,” Buchwald said in a phone interview last week. “Carpenter was a very sympathetic figure.”

This week, Gupta will be seeking sympathy of a different sort from Rakoff. Gupta’s lawyer, Naftalis, said in a court filing that Gupta deserves probation because his crime was an aberration in a life “defined by helping others.”

Naftalis cited Gupta’s work as chairman of the Global Fund, an initiative to fight AIDS, tuberculosis and malaria, as well as his work with the United Nations to improve world health. Naftalis declined to comment on a comparison of the Gupta and Carpenter cases. The defense submitted more than 400 letters to the judge describing Gupta’s accomplishments.

In their pre-sentencing court filings, prosecutors gave a different portrait of Gupta and asked Rakoff to consider the personal relationship between Gupta and Rajaratnam.

‘Very Close Friend’

In asking for a term of 97 months to 121 months, which they say are called for by U.S. sentencing guidelines, prosecutors say Gupta violated confidences and breached his duty as a senior corporate official by leaking news to his “very close friend” and business partner.

“Gupta’s interests often were aligned with those of Rajaratnam and Galleon such that Gupta stood to benefit if Galleon was successful,” prosecutors wrote in a filing, citing Gupta’s investment in Galleon and their partnership in another investment fund.

Richard Holwell, the former federal judge who presided over Rajaratnam’s trial and sentenced the fund manager, said judges consider “general deterrence,” or whether the sentence they impose will deter others from committing similar crimes.

“The nature and circumstances of the crime weigh in the government’s favor, because insider trading is a serious white- collar crime that undermines the integrity of the markets” said Holwell, who is now in private practice.

Deterrence

“The government will lean on general deterrence because insider trading has to be eradicated and one way to do that is by taking highly visible cases and making examples of them,” Holwell said. “That will weigh heavily on Rakoff.”

Other criminal defense lawyers said Gupta’s fall from grace may work in his favor. Kevin O’Brien, a former federal prosecutor in New York, said the judge must weigh Gupta’s achievements against his crimes.

“There is human drama there,” O’Brien said. “You can make the argument that for a guy like this who was on top of the world to have fallen so low and to have been so humiliated and exposed by a lengthy public trial, that is punishment enough.”

“What is smart about the Rwanda option is that it makes vivid Gupta’s commitment to public service and brings out with some clarity his history of good deeds,” he said. “It’s a creative approach.”

‘Mirage’ Guidelines

Federal sentencing guidelines are advisory. Rakoff’s history has been one of imposing sentences well below the recommended federal guidelines, which he has called a “mirage of something that can be obtained with arithmetic certainty.”

Last year, he sentenced James Fleishman, a former executive at expert-networking firm Primary Global Research LLC, to 2 1/2 years in prison for passing tips to fund managers while the guidelines called for more than seven years. He also ordered Primary Global consultant Winifred Jiau to serve 48 months for selling information. Her guidelines suggested a term of 78 months to 97 months in prison.

Still, Rakoff has rarely been silent about the contempt he has for insider traders, often expressing his sentiments in open court. In Fleishman’s case, he said insider prosecutions over “the last 30 or 40 years” have not “done enough to deter this serious and sophisticated crime.”

With Jiau, whose scheme ran for two years, he said the leaks undermined “the integrity of the financial markets” and demanded a “meaningful sentence.”

Maffeo said he believes Rakoff will impose some term of incarceration upon Gupta.

Love Families

Rakoff has demanded prison in cases in which, unlike Gupta, the defendants have admitted trafficking in illicit information. He sentenced ex-SAC Capital Advisors LP manager Donald Longueuil to 30 months instead of the 46 months to 57 months urged by the guidelines. He ordered a former Taiwan Semiconductor Manufacturing Co. manager to spend 18 months behind bars.

“Why is it that defendants always remember how much they love their families after they’ve committed the crimes that place that relationship in jeopardy?” Rakoff said at the sentencing of former Galleon trader Adam Smith, who won probation largely because he cooperated with prosecutors and testified against Rajaratnam.

Rakoff imposed an 18-month prison term on Manosha Karunatilaka, a former Taiwan Semiconductor Manufacturing Co. manager who pleaded guilty to passing nonpublic information about his company’s orders to fund managers as part of an insider-trading scheme. Karunatilaka cooperated with the U.S. and accepted responsibility for his crimes.

Crying Infant

As Karunatilaka’s infant child cried in the courtroom, Rakoff rejected a bid by defense lawyer Brad Bailey to impose a term of six months’ in prison and six months of home confinement.

Gupta, after two days of deliberations by a jury, was found guilty of three counts of securities fraud and one count of conspiracy. The tips came in September and October 2008 and concerned Buffett’s $5 billion investment in Goldman Sachs and the bank’s losses in the fourth quarter of 2008.

Jurors acquitted Gupta of charges that he leaked information that Cincinnati-based P&G’s organic sales growth would fall below estimates and that he tipped Rajaratnam about Goldman Sachs’s earnings in the first quarter of 2007.

In his filing, Naftalis argued that Gupta deserves leniency because his crimes were limited to a two-month period in 2008.

Peter Henning, a professor at Wayne State University Law School in Detroit, said Rakoff will focus on the nature of the crime and Gupta’s background. Henning predicted that the former Goldman Sachs director will get a prison term of two years to three years.

“That’s not a deleterious prison term, but it is prison and it doesn’t mean he will get a free pass,” Henning said in a phone interview. “It has to be a term to get everyone’s attention, and by everyone, I mean Wall Street.”

The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


U.S. Attorney for the Southern District of New York Charges 11 Members of Alleged Poughkeepsie-Based Heroin Distribution Ring

September 28, 2012

The Federal Bureau of Investigation (FBI) on September 27, 2012 released the following:

Twelfth Defendant Also Charged in Separate Indictment with Distributing Heroin

Preet Bharara, the United States Attorney for the Southern District of New York; Mary Galligan, the Acting Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI); Ronald J. Knapp, the Chief of the City of Poughkeepsie Police Department, and Adrian H. Anderson, the Dutchess County Sheriff, announced today the unsealing of an indictment charging 11 defendants with conspiracy to distribute heroin in and around Poughkeepsie, New York. In a separate indictment, a 12th defendant was also charged with distributing heroin in Poughkeepsie. In a coordinated takedown yesterday and this morning, federal, state, and local law enforcement officers arrested seven of the charged defendants. The remaining five defendants were already in custody on state charges. All 12 of the defendants in custody will be presented and arraigned in White Plains federal court before U.S. Magistrate Judge George A. Yanthis this afternoon.

Manhattan U.S. Attorney Preet Bharara stated, “At first glance, the cell phone store from which these defendants were allegedly operating looked like any other commercial establishment, but in fact, it was the epicenter of their dangerous, destructive, and potentially lethal heroin operation. Thanks to the vigilance and tenacity of federal and local law enforcement, this alleged narcotics ring is out of business, and the streets of Poughkeepsie will no longer be infected with their poison. We remain as committed as ever to ensuring that the residents of Hudson Valley are safe and that their neighborhoods are crime free.”

FBI Acting Assistant Director in Charge Mary Galligan stated, “The FBI and our partners in the Hudson Valley will continue the effort to protect the safety and security of our neighborhoods. One important way to do this is by ridding the streets of dangerous drugs and the dangerous people who peddle them.”

Poughkeepsie Police Chief Ronald J. Knapp stated, “The city of Poughkeepsie Police Department is fortunate to be a member of this task force and work with these agencies to combat the illegal drug activities that these criminals engaged in. Our community benefits greatly from these joint investigations and the federal prosecution these individuals now face. Our intent is to send a clear message to criminals who engage in such activity that we are not limited to local resources but have the advantages of the combined efforts of the U.S. Attorney’s Office, the FBI, and the Dutchess County Sheriff’s office. We thank these partners for their commitment to our community and this successful operation.”

Dutchess County Sheriff Adrian H. Anderson stated, “The Sheriff’s Office is committed to working with our partners in federal law enforcement to seek out, arrest, and prosecute those allegedly involved in violent crime and narcotics distribution in Dutchess County. The Sheriff’s Office is deeply committed to this goal and has made substantial arrangements to achieve it, including the assignment of personnel and the use of numerous resources in conjunction with federal law enforcement. Today’s events show that law enforcement in Dutchess County, both local and federal, will do what’s needed to put an end to violent crime and drug distribution in our county.”

The following allegations are based on the indictments unsealed today in White Plains federal court:

From January 2011 through September 2012, a drug trafficking organization (the “Fisher Organization” or “the organization”) distributed heroin in and around Poughkeepsie, New York. During the conspiracy, leaders and members of the organization coordinated drug dealing activity at a cell phone store on Main Street in Poughkeepsie, where they concealed heroin, sold heroin to customers, and met with heroin customers to direct them to other locations for heroin transactions. Specifically, Shabari Fisher and Shateek Parker, who were leaders of the organization, obtained supplies of heroin and provided it to other members—including Garen Fisher, Shannon Walker, Tyrell Rudolph, Steven Williams, Rasheed Harrell, Carlos Reyes, Christian Parker, Vaugh McKinney, and Gary Sessoms—for further distribution to other drug dealers and drug users. Shabari Fisher and Shateek Parker also steered heroin customers to other members of the organization to conduct heroin transactions.

The Fisher Organization distributed heroin using, among other things, a succession of cell phones that individuals seeking heroin regularly called (the “dispatch phones”). Different members of the organization held the dispatch phones at different times, receiving calls from heroin customers and arranging to meet with them to conduct heroin transactions at locations in Poughkeepsie. The bags of heroin distributed by the Fisher Organization were often stamped with brand-like names, such as “True Religion,” “Gucci,” “Rated R,” “Red Bull,” “Coors Light,” “Scarface,” and “Bomb.”

In addition to the Fisher Organization defendants charged in the first Indictment, another defendant, Tony Jarrett, who is not a member of the organization, is also charged in a separate Indictment with distributing heroin in Poughkeepsie from July through September 2011.

* * *

Mr. Bharara praised the outstanding work of the FBI, the Poughkeepsie Police Department, the Dutchess County Sheriff’s Office, the Drug Enforcement Administration, the Bureau of Immigration and Customs Enforcement, the United States Marshals Service Fugitive Unit, the New York State Police-CNET, the Orange County Sheriff’s Office, the Newburgh Police Department, the Middletown Police Department, the Beacon Police Department, the Dutchess County Probation Office, the Dutchess County Jail, and the New York Department of Correctional Services. Mr. Bharara added that the investigation is ongoing.

The case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Benjamin Allee, Jeffrey Alberts, and Michael Gerber are in charge of the prosecution.

The defendants’ ages, residences, the offenses for which they are charged, and the maximum penalties they face upon conviction are listed in the below chart.

The charges contained in the Indictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

Name Age Residence Charged Offense Maximum Penalty
SHABARI FISHER 33 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
SHATEEK PARKER 28 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
GAREN FISHER 29 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
SHANNON WALKER 23 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
TYRELL RUDOLPH 24 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
STEVEN WILLIAMS 23 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
RASHEED HARRELL 25 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
CARLOS REYES 20 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
CHRISTIAN PARKER 21 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
VAUGHN MCKINNEY 35 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
GARY SESSOMS 51 Poughkeepsie, New York Conspiracy to distribute controlled substances Life in prison
TONY JARRETT 28 Poughkeepsie, New York Distribution of Controlled Substances 80 years inprison

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Douglas McNabb – McNabb Associates, P.C.’s

Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Detention Provision Is Blocked

June 7, 2012

The New York Times on June 6, 2012 released the following:

“By CHARLIE SAVAGE

WASHINGTON — The government may not rely on a disputed law enacted last year to hold people in indefinite military detention on suspicion that they “substantially supported” Al Qaeda or its allies — at least if they had no connection to the Sept. 11 terrorist attacks, a federal judge said on Wednesday.

In an eight-page memorandum opinion and order, Judge Katherine B. Forrest of the Southern District of New York clarified a preliminary injunction she issued on May 16 in a lawsuit brought by journalists and activists who challenged the statute — a provision of the National Defense Authorization Act of 2011 — and expressed fear that they could be detained.

The Obama administration had asked Judge Forrest to reconsider her ruling, saying that the plaintiffs lacked legal standing to challenge the law and that it was “extraordinary” for her to have restrained future military operations that might be ordered by the commander in chief during wartime.

As part of that request, the government said in a footnote that it was interpreting her injunction narrowly as applying only to the handful of people specifically named as plaintiffs in the lawsuit, including Chris Hedges, a journalist who interacts with terrorists as part of his reporting work, and several prominent supporters of WikiLeaks.

But on Wednesday, Judge Forrest said that her order still stood — and that, contrary to the government’s narrow interpretation of it, her injunction applied broadly and not just to the named plaintiffs.

“Put more bluntly, the May 16 order enjoined enforcement of Section 1021(b)(2) against anyone until further action by this, or a higher, court — or by Congress,” she wrote. “This order should eliminate any doubt as to the May 16 order’s scope.”

Ellen Davis, a spokeswoman for the United States attorney’s office in the Southern District of New York, declined to comment on the new order.

In section 1021, Congress laid out its interpretation of the extent of the military’s authority to hold people without trial, as detailed in its approval — a decade earlier — of military force shortly after the Sept. 11 attacks.

One provision of the statute, which Judge Forrest’s order did not block, said that authorization covered the detention of the perpetrators of the Sept. 11 attacks and those who assisted in them.

But another provision, which she did block, said it also covered people who were part of or substantially supported Al Qaeda, the Taliban or associated forces engaged in hostilities against the United States or its allies.

Enactment of the statute was controversial, in part, because it did not lay out what conduct could lead to someone’s being detained, and because it was silent about whether it extended to American citizens and others arrested on United States soil.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

Federal Crimes – Appeal

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


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