FBI Los Angeles: “$11 Million Boiler Room Mail and Wire Fraud Indictment Unsealed Today”

October 2, 2013

The Federal Bureau of Investigation on October 1, 2013 released the following:

Owner, Manager, and Salesperson at Fraudulent Investment Venture Taken into Custody for Mail and Wire Fraud in Connection with $11 Million Fraudulent Oil and Gas Well Investment Scheme.

LOS ANGELES—Two men were taken into custody today by special agents of the FBI for their alleged involvement in an Orange County boiler room operation that defrauded investors by falsely claiming high returns from oil and gas wells and by failing to disclose high sales commissions on investments, announced Bill L. Lewis, Assistant Director in Charge of the FBI’s Los Angeles Field Office and André Birotte Jr., United States Attorney for the Central District of California. A third defendant charged in this indictment is already in custody on unrelated charges.

Jerry Aubrey, 51, already in custody, his brother Timothy Aubrey, 53, of Moreno Valley, who self surrendered to the FBI’s Riverside Resident Agency, and Aaron Glasser, 30, of Mission Viejo, who was arrested without incident, are all in custody today after a federal grand jury indictment that charges them with mail and wire fraud was unsealed.

The indictment alleges Jerry Aubrey founded, managed, and operated the telemarketing investment scheme (also known as a “boiler room”) located in Costa Mesa, CA, doing business as Progressive Energy Partners, LLC (PEP). Timothy Aubrey worked as a PEP manager and salesperson, in addition to preparing, with Aaron Glasser, the sales scripts read to potential investors. Finally, Aaron Glasser was a PEP salesperson who worked as both a sales “fronter” and “closer,” making cold calls and closing deals. In his work as a salesperson, the indictment alleges Glasser raised around a quarter of the total amount of investments.

PEP allegedly employed salespersons called “fronters” and “closers” to raise over $11 million in five unregistered securities offerings for the purported purpose of developing and supporting oil and gas wells. In reality, most of the money was used to pay for the Aubrey brothers’ personal expenses, to pay up to 30% commissions to salespersons, and to make Ponzi-like payments to previous investors.

The defendants directed salespersons to cold call potential investors from purchased lead lists and solicit investments using scripts touting the profitability of investing in PEP. Fronters would pass the names of those who were potentially interested to closers, who could conclude the sale.

As alleged in the indictment, the defendants caused the salespersons to make material misrepresentations and conceal material facts when speaking to investors about, among other things, the percentage of investor money that would be spent on the development and operation of oil and gas wells, the anticipated amount and timing of returns to investors, and the payment of sales commissions to PEP salespersons, i.e., the fronters and closers.

Some of the false and deceptive statements indicated that investors would receive a greater than 50% annual rate of return on their investments; that almost half of the investor funds would be spent on oil and gas wells, and that the remainder of the investor funds would be spent on other business expenses; that salespersons would only receive a sales commission in the form of a share of the investment profits; and that PEP would use the assistance of an “independent CPA firm” to make distributions to investors.

The indictment alleges that, through the scheme, the defendants concealed from investors the material facts that approximately 30% of the investor funds would be spent on the Aubreys’ personal expenditures; that almost 20% of the investor funds would be used to make investor distributions and to return investor principal; that less than 10% of investor funds was spent on oil and gas wells; that investors would not, in fact, earn an annual rate of return of over 50%; and that defendant Jerry Aubrey, rather than an “independent CPA firm,” would determine the distributions to investors. The indictment alleges that by devising, executing, and participating in the above scheme, the defendants induced more than 200 investors to distribute to PEP over $11 million between 2005 and 2010.

In 2011, the Securities and Exchange Commission (SEC) obtained summary judgment against these defendants in connection with the PEP investment scheme. Additionally, Jerry Aubrey was charged in 1998 by the SEC with violating the broker-dealer registration provisions of the Securities Exchange Act of 1934 in connection with an offering fraud in which he sold securities in a fictitious cruise ship. The following year, he was permanently enjoined from future violations of Section 15(a)(1) of the Exchange Act (failure to register as a broker dealer), a permanent injunction he has violated through his alleged activities in PEP.

If convicted on all eight counts of Mail Fraud and two counts of Wire Fraud, the defendants face a maximum statutory penalty of 200 years in federal prison.

The criminal investigation was conducted by the FBI. The Securities and Exchange Commission conducted the civil investigation.

An indictment itself is not evidence that the defendants committed the crimes charged. Every defendant is presumed to be innocent until and unless proven guilty in court.”

More Information on Federal Mail Fraud Statutes, Jury Instructions, and Crimes
Federal Mail Fraud Crimes – 18 U.S.C. § 1341

Video on Federal Mail Fraud Crimes

More Information on Federal Wire Fraud Statutes, Jury Instructions, and Crimes
Federal Wire Fraud Crimes – 18 U.S.C. § 1343

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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.


“JPMorgan discloses federal criminal investigation over sale of mortgage-backed securities”

August 9, 2013

The Washington Post on August 8, 2013 released the following:

“By Associated Press,

NEW YORK — The U.S. Justice Department is investigating JPMorgan Chase over mortgage-backed investments the bank sold in the run-up to the financial crisis.

The New York-based bank said in a regulatory filing that it is responding to investigations by the civil and criminal divisions of the U.S. Attorney’s office for the Eastern District of California. In May, the civil division informed JPMorgan that it had “preliminarily concluded” that the bank had violated federal securities laws in connection with certain mortgage-backed investments it sold from 2005 to 2007.

A JPMorgan spokeswoman declined to comment.

The disclosure is just the latest in a swirl of mortgage-related lawsuits and investigations that have hammered big U.S. banks in the aftermath of the financial crisis. The banks have been accused of improperly foreclosing on homeowners, discriminating against others and knowingly making loans to people who couldn’t afford them. Other probes, including the one disclosed by JPMorgan, have focused on mortgage-backed securities, where the banks bundled together their mortgages and sold them in slivers to investors.

JPMorgan didn’t give details on what the Justice Department is investigating. But previous lawsuits and investigations, against both JPMorgan and other big banks, have said that the banks misled investors about the quality of the loans they were buying. When the real estate bubble burst, many of the mortgage-backed securities soured and the investors who bought them lost billions.

If the investigations result in criminal or civil action by the Justice Department against JPMorgan, it would be the most high-profile government move against the bank to date. JPMorgan, which came through the financial crisis stronger than most of its competitors and was lauded for wise risk-management practices, has lately faced a slew of sanctions by federal regulators.

In January, regulators ordered the bank to take steps to correct poor risk management that led to a surprise trading loss last year of more than $6 billion. The Federal Reserve and the U.S. Comptroller of the Currency also cited JPMorgan for lapses in oversight that could allow the bank to be used for money laundering. Last month, the bank agreed to pay $410 million to settle allegations by the Federal Energy Regulatory Commission that it manipulated electricity prices in California and the Midwest.

An investigation by the Securities and Exchange Commission of the trading loss is nearing final stages with civil charges possible, according to news reports Thursday. The SEC is seeking an admission of wrongdoing from JPMorgan in a settlement, The Wall Street Journal and The New York Times reported, citing unnamed people familiar with the case.

That would be a departure from the SEC’s traditional policy of allowing most companies and individuals agreeing to settlements to neither admit nor deny wrongdoing. It would be a major application of a new policy announced recently by SEC Chairman Mary Jo White that calls for requiring admissions of wrongful conduct in some significant cases.

SEC spokesman John Nester declined comment on the reports.

The newly disclosed Justice Department investigations are not JPMorgan’s first legal headaches over mortgage-backed securities. It has settled charges from the SEC over mortgage-backed investments it made in the run-up to the financial crisis. It’s also facing lawsuits from the New York Attorney General’s Office and the National Credit Union Administration over the securities.

JPMorgan is fighting the attorney general’s lawsuit, which focused on investments sold by Bear Stearns in 2006 and 2007. JPMorgan bought Bear Stearns in 2008.

JPMorgan made the disclosure about the Justice Department investigations in a quarterly regulatory filing late Wednesday. It came a day after the U.S. government accused Bank of America of civil fraud, saying the company failed to disclose risks and misled investors in its sale of $850 million of mortgage bonds during 2008. The government says that the bank failed to tell investors that more than 70 percent of the mortgages backing the investment were written by mortgage brokers outside the banks’ network.

Bank of America has disputed those allegations, saying the investors who bought the securities had “ample access” to data about the mortgages.

“We are not responsible for the housing market collapse that caused mortgage loans to default at unprecedented rates and these securities to lose value as a result,” the bank said in a statement this week.

Shares of JPMorgan Chase & Co. slipped 47 cents, to close Thursday trading at $54.83. The stock has traded between $36.40 and $56.93 in the past 52 weeks, and remains up 25 percent since the start of the year.”

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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.


Former Corporate Officers of China North East Petroleum Holdings Limited (CNEP) Charged with Alleged Fraud and False Statements

May 29, 2013

The Federal Bureau of Investigation (FBI) on May 28, 2013 released the following press release:

“WASHINGTON—The former president and CEO and the former vice president of corporate finance of China North East Petroleum Holdings Limited (CNEP), an oil and gas company whose stock is traded in the United States, have been charged with defrauding investors in connection with public offerings of stock.

Acting Assistant Attorney General Mythili Raman of the Criminal Division; U.S. Attorney for the District of Columbia Ronald C. Machen, Jr.; Assistant Director in Charge George Venizelos of the FBI’s New York Field Office; and Chief Richard Weber of the Internal Revenue Service’s Criminal Investigation (IRS-CI) made the announcement.

Wang Hongjun, 41, and Chao Jiang, 32, both Chinese citizens residing in California and New York, respectively, were indicted on May 23, 2013, with one count of conspiracy to commit wire and securities fraud and four counts of securities fraud, which each carry a maximum penalty of 25 years in prison. Jiang is also charged with two counts of false statements to the U.S. Securities and Exchange Commission (SEC) during sworn testimony, which each carry a maximum penalty of five years in prison. The indictment was made public today.

According to the indictment, Hongjun served as the president and CEO of CNEP from 2009 to 2010 and as the chairman of the Board of Directors beginning in 2010. Jiang served as the vice president of corporate finance and corporate secretary of CNEP from 2008 until approximately 2011. The charges allege that in June of 2009, CNEP registered a shelf offering with the SEC proposing to sell up to $40 million of CNEP common stock in the United States on the New York Stock Exchange. In September and December 2009, CNEP made two separate offerings pursuant to the June registration. In documents filed with the SEC related to the offerings, and in other public statements to investors, Hongjun and Jiang informed investors that CNEP intended to use the funds raised from the securities offerings for general corporate purposes and to repay a prior corporate debt.

The indictment alleges that, instead of using the offering proceeds as represented to CNEP’s investors, Hongjun and Jiang misappropriated approximately $1,265,000 of the proceeds by wiring the money to bank accounts in the name of their family members—approximately $965,000 to Jiang’s father and approximately $300,000 to Hongjun’s wife—which was used, in part, to purchase a home in California, jewelry, and a Mercedes-Benz.

In addition, the indictment alleges that Jiang testified falsely under oath to the SEC in Washington, D.C., about these transactions. In that testimony, Jiang stated that none of his family members had received anything of value over $500 from CNEP, despite having wired $965,000 from CNEP’s bank account to the account of his father. Jiang also testified falsely regarding the use of proceeds from the securities offerings.

An indictment is merely an accusation, and defendants are presumed innocent until proven guilty in a court of law.

In a related action, the SEC had previously filed a civil enforcement action against Hongjun, Jiang, and others in the Southern District of New York.

The case was investigated by the FBI’s New York Field Office and IRS-CI. The Department wishes to thank the SEC for its significant assistance in this case. The investigation is continuing.

This case is being prosecuted by Trial Attorneys Daniel Kahn and Kevin Muhlendorf of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David Johnson for the District of Columbia.”

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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.


“SAC Capital portfolio manager pleads not guilty in NYC insider trading case”

March 29, 2013

The Washington Post on March 29, 2013 released the following:

“By Associated Press

NEW YORK — A portfolio manager for the hedge fund operator SAC Capital Advisors has pleaded not guilty to federal charges in an insider trading probe.

The FBI arrested Michael Steinberg at 6 a.m. Friday at his home in New York City.

His attorney says in a statement that Steinberg “did absolutely nothing wrong.”

Attorney Barry H. Berke says Steinberg was “caught in the crossfire of aggressive investigations” into other people’s activities.

At least four other people associated with the Stamford, Conn.-based firm have been arrested over a period of about four years.

On March 15, the Securities and Exchange Commission said that two affiliates of SAC Capital Advisors would pay more than $614 million in what federal regulators called the largest insider trading settlement ever. The settlement is subject to court approval.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

A senior portfolio manager for one of the nation’s largest hedge funds was arrested Friday, accused of making $1.4 million illegally in a widening insider trading probe involving an investment company founded by billionaire businessman Steven A. Cohen.

Michael Steinberg, 41, was arrested at 6 a.m. at his Manhattan home on insider trading charges lodged in an indictment unsealed in U.S. District Court in New York City. A senior portfolio manager at SAC Capital Advisors, he was scheduled to appear in court Friday.

His attorney, Barry Berke, said in a statement that Steinberg “did absolutely nothing wrong.” He said Steinberg’s trading decisions were based on detailed analysis along with other information he properly obtained.

“Caught in the crossfire of aggressive investigations of others, there is no basis for even the slightest blemish on his spotless reputation,” he said.

In a statement, SAC Capital said Steinberg “has conducted himself professionally and ethically during his long tenure at the firm. We believe him to be a man of integrity.”

U.S. Attorney Preet Bharara said in a statement that Steinberg “was another Wall Street insider who fed off a corrupt grapevine of proprietary and confidential information cultivated by other professionals who made their own rules to make money. With lightning speed in at least one case, Mr. Steinberg seized on the opportunity to cash in and tried to keep his crime quiet, as charged in the indictment.”

George Venizelos, head of the FBI’s New York office, said the arrest was the latest in an FBI probe that has resulted in more than 70 arrests.

“Mr. Steinberg was at the center of an elite criminal club, where cheating and corruption were rewarded,” he said. “Research was nothing more than well-timed tips from an extensive network of well-sourced analysts.”

At least four other people associated with the Stamford, Conn.-based firm have been arrested over a period of about four years.

The arrest of Steinberg and the January arrest of a former hedge fund portfolio manager for an affiliate of Cohen’s firm has increased speculation that the government is taking a hard look at the practices of the billionaire hedge fund owner. In the January case, Cohen is repeatedly referenced as a “Hedge Fund Owner” in a criminal complaint. He has not been charged in the case and SAC spokesman Jonathan Gasthalter has said the company and Cohen are cooperating with the inquiry and “are confident that they have acted appropriately.”

In the latest case, Steinberg is charged with conspiracy to commit securities fraud and four counts of securities fraud, accused of using inside information as he made trades involving Dell Inc. and Nvidia Corp. securities. If convicted, he could face up to 85 years in prison.

Civil charges against Steinberg also were filed by the Securities and Exchange Commission.

On March 15, the SEC said that two affiliates of SAC Capital Advisors would pay more than $614 million in what federal regulators called the largest insider trading settlement ever. The settlement is subject to court approval.”

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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.


Former Calpers Chief Indicted Over Alleged Fraud

March 19, 2013

The New York Times on March 18, 2013 released the following:

“BY PETER LATTMAN

As head of the country’s largest pension fund, Federico R. Buenrostro wielded vast influence in the money management world.

From 2002 to 2008, Mr. Buenrostro served as chief executive of the California Public Employees’ Retirement System, or Calpers, which allocates more than $200 billion to investment firms across the globe.

Federal prosecutors say that Mr. Buenrostro abused that position. In an indictment filed in Federal District Court in San Francisco on Monday, the United States attorney charged Mr. Buenrostro and his friend, Alfred J. Villalobos, with defrauding the private equity firm Apollo Global Management.

The corruption charges against Mr. Buenrostro and Mr. Villalobos are connected to a nationwide pay-to-play scandal that erupted several years ago. Regulators from numerous states, including California and New Mexico, have cracked down on widespread influence peddling in how their state pension funds were invested.

The scandals focused on the role of middlemen, or placement agents, who charged lucrative fees to help money managers win business from state pension funds. In some cases, placement agents proved to be unlicensed fixers who received illegal kickbacks from pension officials. A number of pension officials and middlemen have served prison time, including Alan G. Hevesi, the former head of New York’s state pension fund.

The government claims that Mr. Buenrostro and Mr. Villalobos invented a crude scheme that tricked Apollo, one of the world’s largest private equity firms, into paying Mr. Villalobos at least $14 million in fees for his help in securing an investment from Calpers.

“We are extremely pleased that law enforcement authorities are moving to hold individuals accountable for activities which violate the public trust,” Rob Feckner, the board president of Calpers, said in a statement.

A lawyer for Mr. Buenrostro, William H. Kimball, declined to comment. Mr. Villalobos, who filed for personal bankruptcy in 2010, could not be reached for comment.

In the insular world of private equity, the charges struck many executives as unusual given Apollo and Calpers deep and lucrative ties. The California fund has invested at least $3 billion with Apollo, including a 2007 transaction in which it paid $600 million for a 9 percent stake in the firm.

For years, Apollo had retained Mr. Villalobos — a former Calpers board member — as a placement agent, agreeing to pay him for his help in securing investments from state pensions. Apollo paid at least $48 million in fees to Mr. Villalobos for his help in arranging for Calpers and other pensions to invest in its firm.

But to comply with securities laws and avoid perceived conflicts of interest, Apollo asked that Mr. Villalobos disclose to Calpers that he would receive payments related to the pension fund’s investments.

Prosecutors said that Mr. Buenrostro, 64, and Mr. Villalobos, 69, worked together, and fabricated letters from Calpers that purportedly signed off on the payments from Apollo to Mr. Villalobos.

“The allegations in the indictment unsealed today by the United States Department of Justice, if true, are troubling,” Charles V. Zehren, an Apollo spokesman, said Monday. “Apollo has always followed best practices in handling its placement agent relationships, and was not aware of any misconduct engaged in by Mr. Villalobos during the time that he worked with Apollo.”

The charges come after a civil lawsuit brought last year against Mr. Buenrostro and Mr. Villalobos by the Securities and Exchange Commission. And in 2011, a Calpers internal investigation concluded that Mr. Villalobos had turned Mr. Buenrostro into “a puppet” who directed Calpers investments to his clients. The firm’s report said that Mr. Villalobos lavished bribes on Mr. Buenrostro, including trips on private jets and gambling junkets at Nevada casinos.

When Mr. Buenrostro left Calpers in 2008, he took a job working with Mr. Villalobos as a placement agent.”

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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.


Appeal in Insider Trading Case Centers on Wiretap

October 24, 2012

The New York Times on October 23, 2012 released the following:

“BY PETER LATTMAN

In March 2008, the Justice Department made an extraordinary request: It asked a judge for permission to record secretly the phone conversations of Raj Rajaratnam, a billionaire hedge fund manager.

The request, which was granted, was the first time the government had asked for a wiretap to investigate insider trading. Federal agents eavesdropped on Mr. Rajaratnam for nine months, leading to his indictment — along with charges against 22 others — and the biggest insider trading case in a generation.

On Thursday, lawyers for Mr. Rajaratnam, who is serving an 11-year prison term after being found guilty at trial, will ask a federal appeals court to reverse his conviction. They contend that the government improperly obtained a wiretap in violation of Mr. Rajaratnam’s constitutional privacy rights and federal laws governing electronic surveillance.

Such a ruling is considered a long shot, but a reversal would have broad implications. Not only would it upend Mr. Rajaratnam’s conviction but also affect the prosecution of Rajat K. Gupta, the former Goldman Sachs director who was convicted of leaking boardroom secrets to Mr. Rajaratnam. Mr. Gupta is scheduled to be sentenced on Wednesday.

A decision curbing the use of wiretaps would also affect the government’s ability to police Wall Street trading floors, as insider trading cases and other securities fraud crimes are notoriously difficult to build without direct evidence like incriminating telephone conversations.

“Wiretaps traditionally have been used in narcotics and organized crime cases,” said Harlan J. Protass, a criminal defense lawyer in New York who is not involved in the Rajaratnam case. “Their use today in insider trading investigations indicates that the government thinks there may be no bounds to the types of white-collar cases in which they can be used.”

More broadly, Mr. Rajaratnam’s appeal is being closely watched for its effect on the privacy protections of defendants regarding wiretap use. Three parties have filed “friend-of-the-court” briefs siding with Mr. Rajaratnam. Eight former federal judges warned that allowing the court’s ruling to stand “would pose a grave threat to the integrity of the warrant process.” A group of defense lawyers said that upholding the use of wiretaps in this case would “eviscerate the integrity of the criminal justice system.”

To safeguard privacy protections, federal law permits the government’s use of wiretaps only under narrowly prescribed conditions. Among the conditions are that a judge, before authorizing a wiretap, must find that conventional investigative techniques have been tried and failed. Mr. Rajaratnam’s lawyers said the government misled the judge who authorized the wiretap, Gerard E. Lynch, in this regard.

They say that the government omitted that the Securities and Exchange Commission had already been building its case against Mr. Rajaratnam for more than a year using typical investigative means like interviewing witnesses and reviewing trading records. Had the judge known about the S.E.C.’s investigation, he would not have allowed the government to use a wiretap, Mr. Rajaratnam’s lawyers argue.

Before Mr. Rajaratnam’s trial, the presiding judge, Richard J. Holwell, held a four-day hearing on the legality of the wiretaps. Judge Holwell criticized the government, calling its decision to leave out information about its more conventional investigation a “glaring omission” that demonstrated “a reckless disregard for the truth.”

Nevertheless, Judge Holwell refused to suppress the wiretaps, in part, he said, because they were necessary to uncover Mr. Rajartanam’s insider trading scheme. “It appears that the S.E.C., and by inference the criminal authorities, had hit a wall of sorts,” Judge Holwell wrote.

On appeal, Mr. Rajaratnam lawyers argued that the government’s lack of candor should not be tolerated. They described the government’s wiretap application as full of “misleading assertions” and “outright falsity” that made it impossible for Judge Lynch to do his job.

“The government’s self-chosen reckless disregard of the truth and of the critical role of independent judicial review breached that trust and desolated the warrant’s basis,” wrote Mr. Rajaratnam’s lawyers at the law firm Akin Gump Strauss Hauer & Feld.

In their brief to the appeals court, federal prosecutors dispute that they acted with a “reckless disregard for the truth.” Instead, they argue that omitting details of the S.E.C.’s investigation was at most “an innocent mistake rising to the level of negligence.” In addition, they said that the S.E.C.’s inquiry failed to yield sufficient evidence for a criminal case, necessitating the use of a wiretap.

Once Judge Lynch signed off on the wiretap application, the government’s investigation into Mr. Rajaratnam accelerated. The wiretapping of Mr. Rajaratnam’s phone, along with the subsequent recording of his supposed accomplices, yielded about 2,400 conversations. In many of them, Mr. Rajaratnam could be heard exchanging confidential information about technology stocks like Google and Advanced Micro Devices.

Three years ago this month, federal authorities arrested Mr. Rajaratnam and charged him with orchestrating a seven-year insider trading conspiracy. The sprawling case has produced 23 arrests of traders and tipsters, many of them caught swapping secrets with Mr. Rajaratnam about publicly traded companies.

Among the thousands of calls were four that implicated Mr. Gupta, a former head of the consulting firm McKinsey & Company who served as a director at Goldman Sachs and Procter & Gamble. On one call in July 2008, the only wiretapped conversation between the two men, Mr. Gupta freely shared Goldman’s confidential board discussions with Mr. Rajaratnam. On another, Mr. Rajaratnam told a colleague at his hedge fund, the Galleon Group, “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.”

Those conversations set off an investigation of Mr. Gupta. He was arrested in October 2011 and charged with leaking boardroom secrets about Goldman and P.& G. to Mr. Rajaratnam. A jury convicted him in May after a monthlong trial.

On Wednesday at Federal District Court in Manhattan, Judge Jed S. Rakoff will sentence Mr. Gupta. Federal prosecutors are seeking a prison term of up to 10 years. Mr. Gupta’s lawyers have asked Judge Rakoff for a nonprison sentence of probation and community service. One proposal by the defense would have Mr. Gupta living in Rwanda and working on global health issues.

Regardless of his sentence, Mr. Gupta plans to appeal. And because prosecutors used wiretap evidence in his trial, Mr. Gupta would benefit from a reversal of Mr. Rajaratnam’s conviction.

Yet a reversal would not affect the convictions of the defendants in the conspiracy who have pleaded guilty. As part of their pleas, those defendants waived their rights to an appeal.”

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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

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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.


Former Corporate Chairman of Consulting Firm and Board of Director Rajat Gupta Found Guilty of Insider Trading in Manhattan Federal Court

June 15, 2012

The Federal Bureau of Investigation (FBI) on June 15, 2012 released the following:

“Gupta Convicted on Four Counts Arising from an Insider Trading Scheme in which He Provided Confidential Information About Goldman Sachs to His Business Partner and Friend, Raj Rajaratnam

Preet Bharara, the United States Attorney for the Southern District announced that Rajat K. Gupta, former corporate chairman of an international consulting firm and a member of the Boards of Directors of The Goldman Sachs Group Inc. (“Goldman Sachs”) and the Procter & Gamble Company (“P&G”), was found guilty today by a jury in Manhattan federal court of conspiracy and securities fraud crimes stemming from his involvement in an insider trading scheme with his business partner and friend, Raj Rajaratnam, the founder and former head of the Galleon Group.

Manhattan U.S. Attorney Preet Bharara stated, “Rajat Gupta once stood at the apex of the international business community. Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away. Having fallen from respected insider to convicted inside trader, Mr. Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell. Violating clear and sacrosanct duties of confidentiality, Mr. Gupta illegally provided a virtual open line into the board room for his benefactor and business partner, Raj Rajaratnam.

“Almost two years ago, we said that insider trading is rampant, and today’s conviction puts that claim into stark relief. It bears repeating that, in coordination with our extraordinary partners at the FBI, we will continue to pursue those who violate the securities laws, regardless of status, wealth, or influence. I thank the members of the jury for their time, attention, and service, and the dedicated career prosecutors from my office who so ably tried this case.”

According to the superseding indictment filed in Manhattan federal court, other court documents, statements made at trial, and court proceedings:

During all relevant times, Gupta and Rajaratnam maintained a close personal and business relationship. Among other things, Gupta described Rajaratnam as a close friend; Gupta invested his money in Galleon funds while he served as chairman of the international consulting firm; Gupta co-owned a fund of funds with Rajaratnam, which invested its money in Galleon funds; Gupta served as chairman of a $1.5 billion private equity firm called NSR in which Rajaratnam invested approximately $50 million and served on the investment committee; and Gupta was given the position of Chairman of Galleon International in 2008 and expected to receive 15 percent of that fund’s performance fees.

From 2007 through January 2009, Gupta repeatedly disclosed material, non-public information (“inside information”) that he acquired in his capacity as a member of the Board of Directors of Goldman Sachs, with the understanding that Rajaratnam would use the inside information to purchase and sell securities. Rajaratnam, in turn, caused the execution of transactions in the securities of Goldman Sachs on the basis of the inside information and shared the inside information with others at Galleon, thereby earning illegal profits, and illegally avoiding losses, of millions of dollars. On separate occasions that were proven at trial, Gupta gave Rajaratnam inside information that included highly sensitive and secret information. Illegal tips that were proven at trial include the following:

The September 23, 2008 Goldman Sachs Tip

The evidence at trial proved that, on September 23, 2008, within approximately 60 seconds after the conclusion of a Goldman Sachs telephonic board meeting in which the Board approved a $5 billion investment by Berkshire Hathaway, Gupta spoke with Rajaratnam. Immediately following the call, Rajaratnam directed two separate traders to purchase approximately $43 million of Goldman Sachs stock within minutes before the close of trading. During two court-authorized wiretapped conversations the following morning on September 24, 2008 between Rajaratnam and his principal trader and coconspirator, Ian Horowitz, Rajaratnam said that he received a call at 3:58 p.m. the day before telling him “something good’s gonna happen” at Goldman Sachs, that he directed the two traders to buy Goldman shares before the market closed, and that he could not yell this information out on Galleon’s trading floor. The evidence at trial showed that, based on Gupta’s illegal tip, Rajaratnam and co-conspirator Gary Rosenbach earned over $1 million in illegal profits.

The October 23, 2008 Goldman Sachs Tip

The evidence at trial proved that, on October 23, 2008, Gupta participated on a Goldman Sachs Board posting call during which he learned that Goldman Sachs was losing money for the quarter, which Goldman Sachs had never done since becoming a public company. Just 23 seconds after that call ended, Gupta called Rajaratnam. Following that call, at the first available opportunity after the stock market reopened, Rajaratnam started to sell his entire holdings in Goldman Sachs stock. Later that day, during a court-authorized wiretapped conversation, Rajaratnam explained to a senior portfolio manager at Galleon International that Rajaratnam had spoken with a member of the Board of Goldman Sachs and learned that Goldman Sachs was losing money during the quarter while Wall Street analysts expected the company to make money. The evidence at trial showed that, based on Gupta’s illegal tip, Rajaratnam was able to avoid losses of several million dollars.

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Gupta, 63, of Westport, Connecticut, was found guilty of one count of conspiracy to commit securities fraud and three counts of securities fraud. He was acquitted on two securities fraud counts. The conspiracy count carries a maximum sentence of five years in prison and a maximum fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million. Gupta will be sentenced on October 18, 2012.

Rajaratnam was convicted in a jury trial on May 11, 2011 of 14 counts of conspiracy and securities fraud. He was sentenced on October 13, 2011 to 11 years in prison and was ordered to pay forfeiture in the amount of $53,816,434 and a $10 million fine.

Mr. Bharara praised the outstanding efforts of the FBI. He also thanked the SEC for its assistance in the investigation.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney 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.

Assistant U.S. Attorneys Reed Brodsky and Richard C. Tarlowe are in charge of the prosecution.

– Statement by FBI New York Assistant Director in Charge Janice K. Fedarcyk on Gupta’s conviction”

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