A Quick Look At How The FBI Turns Insider Traders Into Informants

January 20, 2012
FBI
Wikimedia Commons

Business Insider on January 19, 2012 released the following:

“Yesterday, three people were arrested and seven people were charged in a hedge fund insider trading scandal that prosecutors are calling, “the circle of friends.”

At the press conference U.S. Attorney General Preet Bharara showed an infographic depicting the circle of four guys in New York, Boston, and San Francisco sharing information about Dell, and then passing that knowledge up to their supervisors at hedge funds Diamondback Capital and Level Global.

It was a “tight knit circle of greed,” said Bharara, where these men got an “illegal inside edge over law abiding investors.”

Okay, tight knit. But if it’s so tight knit, what does the FBI do to get inside?

Business Insider spoke to attorney Jeffrey Smith, a partner at DeCotiis, FitzPatrick & Cole. A former assistant U.S. Attorney, Smith is now in private practice specializing in the defense of individuals in cases against the Department of Justice, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

In short, white collar crime.

“The government’s got a good run here,” said Smith. In this case, “they probably have cooperating witnesses, tapes…” all a defense lawyer can do is go through discovery and try to find the holes in the government’s evidence.”

It’s a tough job that becomes a lot tougher if the FBI has flipped someone on the inside. That’s what happened in this case, as two analysts from the hedge funds (Spyridon “Sam” Adondakis and Jesse Tortora), and the man who was passing them information from Dell (Sandeep Goyal) were/are cooperating with authorities.

Smith explained how that might happen.

“A pair of agents might show up at your house really early in the morning or late at night when no one is around,” he said. “They’ll use a combination of threats and inducements… They’ll say there’s overwhelming evidence against you. Overwhelming force is their first technique.”

Basically, the agents will say, we have such and such information on you, but if you’re willing to help us out we can help you. They may also say they have information on a friend of family member’s insider trading activity, though that’s less common.

Smith also said that the fact that prosecutors are revealing the identities of informants means that the government has probably gotten all the useful information they can out of them.

On the other hand that doesn’t mean that all the information connected to this case is out. There could be more informants who remain unknown because they still have information to share. Specifically, in this case, we still don’t know who was passing Goyal information from inside of Dell — that could be nothing, but its an example of a big, important question that remains unanswered here. When reporters asked about that at the press conference, Bharara just said he wasn’t sharing any information beyond what could be found in the complaint.

“There’s every indication that the government has more in the pipeline,” said Smith. “Things have changed a lot. Five or ten years ago it (insider trading) was little prosecuted, sentences were like tax offenses. I don’t think they (insider traders) have illusions about that anymore.””

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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 Crimes Watch 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 and OFAC SDN Sanctions Removal.

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


Feds investigating possible fraud at GE’s former subprime unit

January 20, 2012
GE
“General Electric CEO Jeff Immelt, right, waits for the start of the company’s annual shareholders meeting. Tony Dejak/AP file”

iWatch News on January 20, 2012 released the following:

“By Michael Hudson and E. Scott Reckard

Federal authorities are investigating possible fraud at General Electric Co.’s former subprime mortgage arm amid increased public pressure to hold Wall Street accountable for its role in the financial crisis.

The FBI and the U.S. Justice Department are looking into potentially criminal business practices at Burbank, Calif.-based WMC Mortgage Corp. during the home-loan boom, according to four people with knowledge of the investigation. They declined to be identified because of the sensitivity of the investigation.

The government is asking whether WMC used falsified paperwork, overstated borrowers’ income and other tactics to push through questionable loans, two of the people said. They said the probe appears to be focusing on whether senior managers condoned improper practices that enabled fraudulent loans to be sold to investors.

“It’s mostly about: Did they knowingly sell mortgages into the secondary market that they knew were fraudulent?” said one person with direct knowledge of the investigation.

A spokesman for the FBI declined to comment, and the Justice Department did not return telephone calls.

Russell Wilkerson, a spokesman for GE, said the company “as a matter of practice” cooperates with law enforcement on inquiries but does not comment on specific investigations. However, he said any allegation that WMC sold large numbers of fraudulent loans to investors was false.

GE acquired WMC near the height of the mortgage boom in 2004, giving it a major presence in the growing subprime lending market. But by 2007 the California lender was hemorrhaging money and slicing into the conglomerate’s earnings.

The unit was shut down as the housing market buckled. Since then, investors have launched a string of civil lawsuits, and federal authorities began a criminal inquiry.

The FBI’s San Francisco office indicated that it has been looking into WMC’s business practices for nearly two years, according to one of the people who has knowledge of the investigation. The bureau has examined individual WMC loan files and has begun contacting former employees about how the lender handled the sale of mortgages to investors, this person said.

WMC recorded the second-highest number of foreclosures on higher-risk mortgages in America’s 10 hardest-hit real estate zones, according to the U.S. Treasury Department. The company was second only to now-defunct subprime lender New Century Financial Corp. of Irvine, Calif.

For instance, the Treasury report said WMC’s foreclosure rate topped 40 percent in hard-hit California areas such as Merced, Modesto and Stockton.

The FBI and Justice Department had little success in prosecuting mortgage executives after launching investigations in 2008. But there has been increasing pressure, from groups including labor unions and Occupy Wall Street, to find culprits for the devastating housing crash that triggered the financial crisis.

Subprime lenders have long been in the cross hairs.

They issued hundreds of billions of dollars in mortgages to people with shaky credit, then bundled the loans for sale to investors as highly rated securities. When the borrowers couldn’t pay their mortgages, the investments collapsed — leaving investors and lenders saddled with toxic debt.

Lawsuits in state and federal courts have charged that WMC and GE misled investors and other parties in the sale of mortgages and mortgage-backed securities.

An investor lawsuit in federal court, for example, said that a $550-million pool of mortgages originated by WMC and another subprime lender, EquiFirst Corp., included numerous examples of fraud. The lawsuit said a review found inflated borrower incomes and other “material breaches” in 75 percent of the loan files sampled.

GE said it would “vigorously defend” itself, adding that the complaint is “based upon a flawed statistical sampling of a small number of loans.”

“WMC had in place processes to detect and report fraudulent activity,” Wilkerson, the GE spokesman, said. “When any allegations of misconduct at WMC were raised to GE, they were investigated and given an appropriate response by WMC, including the termination of employees.”

WMC was a wholesale lender that issued loans through a network of independent mortgage brokers, making it a less-familiar name than giant retailers such as Ameriquest Mortgage Co. and Countrywide Financial Corp. Still, in 3½ years under GE’s ownership, WMC issued roughly $110 billion in risky home loans.

Federal prosecutors in Los Angeles have said they investigated three prominent high-risk home lenders in Southern California that melted down — Countrywide, New Century and IndyMac Bancorp — without finding clear evidence that top executives intended to defraud anyone. No criminal charges were filed.

Some settlements have been reached. Countrywide co-founder Angelo R. Mozilo paid $67.5 million — much of it covered by insurance — to resolve an SEC case.

Other executives are contesting the suits. Former IndyMac Chairman Michael W. Perry has even created a blog, nottoobigtofail.org, on which he argues he has been scapegoated with false accusations.

The Justice Department has been successful in only two major criminal investigations into the mortgage crisis. Both ended in guilty pleas to egregious fraud. One, at Taylor, Bean & Whitaker Mortgage Corp. in Florida, included the creation of fictitious loans. The other, at U.S. Mortgage Co. in New Jersey, involved selling the same loans twice — once to credit unions and then to home finance giant Fannie Mae.

Some former WMC employees say sales staffers at the lender used fraudulent practices to push through loans borrowers couldn’t afford.

Eight former employees told iWatch News that WMC managers ignored them when they flagged loans supported by misrepresentations such as fake bank statements and pay stubs.

“They didn’t want to hear what you found,” Gail Roman, who worked as a loan auditor at a WMC office in New York, said. “Even if you had enough documentation to show that there was fraud or questionable activity.”

Some ex-employees claim GE officials did too little to root out fraud at WMC, despite warnings from whistleblowers who worked inside the lender. GE disputes those allegations.

White-collar crime experts say the WMC criminal probe is unusual at this late date — more than four years after subprime lenders began to collapse.

“In that area I haven’t heard boo these days,” said Orange County defense attorney David Wiechert, a former federal prosecutor.

This story was the result of a reporting partnership between iWatch News and the Los Angeles Times. Michael Hudson is a staff writer with iWatch News and E. Scott Reckard is staff writer with the Times.”

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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 Crimes Watch 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 and OFAC SDN Sanctions Removal.

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


Enron case was much bigger than FBI agent first thought

November 28, 2011
Enron - Houston FBI Investigation

The Houston Chronicle on November 27, 2011 released the following:

“By TOM FOWLER, HOUSTON CHRONICLE

When Mike Anderson launched the FBI’s investigation of Enron’s collapse in early December 2001, he thought assigning a couple of agents to the case would be a good start.

“I knew it was going to be a big case,” said Anderson, assistant special agent in charge of the white-collar crime group in Houston. “But I think I was a little naïve about how big.”

Within a few weeks, the investigation had exploded into a national task force with dozens of agents, prosecutors and other specialists working on it from coast to coast.

“It was the biggest FBI investigation at the time and remains one of the most complex in the history of the bureau,” Anderson said.

The investigation started off looking at three areas: the LJM partnerships that Enron Chief Financial Officer Andrew Fastow created to help Enron move assets off the balance sheet; the way the energy trading business’s reserves were used to cover losses in other units; and possible insider trading.

‘No smoking gun’

Over time, new areas of interest popped up as investigators dug deeper and more witnesses came forward to talk, Anderson said. But it was never simple.

“There was no smoking gun in this case,” Anderson said. “It was more subtle. They didn’t get in a room and say, ‘You do this, you do that, and this is how we’ll cook the books.’ ”

There were many twists and turns in the investigation, but Anderson remembers particularly potent testimony came from Ben Glisan – the former treasurer who pleaded guilty to a single charge and later testified in the trial of top executives Ken Lay and Jeff Skilling – and David Delainey, the former Enron Energy Services executive.

Anderson boils down the problems at Enron to four issues: overly aggressive accounting that reported financial results Enron had not achieved; a corporate culture that gave too much leeway to youth over experience; leadership failures; and a flawed business model that believed Enron could enter any market it wanted to and become the dominant player.

The company’s accounting techniques generally weren’t illegal, Anderson said, but they were aggressive.

“When you use the techniques to report results you really didn’t achieve, that’s when it becomes fraud,” Anderson said. “When the financial statements so grossly diverge from the true economic condition of the company, that’s fraud.”

In time, criminal intent

Most of the people who worked at Enron were hardworking people who were doing the right thing, Anderson said.

“Of the people that were convicted, I think none of them went to work thinking they were going to commit fraud. But did they eventually have criminal intent? Yes.”

The FBI continues to make corporate crime a priority, Anderson said. The fiscal year that ended in September saw the most indictments and convictions in the history of the bureau’s corporate fraud section.

“I’m hopeful that we demonstrated to Wall Street and business executives that we will hold people accountable for their actions,” Anderson said.”

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To find additional federal criminal news, please read Federal Crimes Watch 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 and OFAC SDN Sanctions Removal.

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


2011 National Gang Threat Assessment Issued

October 21, 2011

The Federal Bureau of Investigation (FBI) on October 21, 2011 released the following:

“According to the 2011 National Gang Threat Assessment released by the National Gang Intelligence Center (NGIC), approximately 1.4 million gang members belonging to more than 33,000 gangs were criminally active in the U.S. as of April, 2011. The assessment was developed through analysis of available federal, state, local, and tribal law enforcement and corrections agency information; 2010 NDIC National Drug Threat Survey (NDTS) data; and verified open source information.

“Gangs continue to expand, evolve, and become more violent. The FBI, along with its federal, state, local, and tribal law enforcement partners, strives to disrupt and prevent their criminal activities and seek justice for innocent victims of their crimes,” said Assistant Director Kevin Perkins, FBI Criminal Investigative Division.

Other key findings are as follows:

  • Gangs are responsible for an average of 48 percent of violent crime in most jurisdictions and up to 90 percent in several others, according to NGIC analysis.
  • Gangs are increasingly engaging in non-traditional gang-related crime such as alien smuggling, human trafficking, and prostitution. Gangs are also engaging in white-collar crime such as counterfeiting, identity theft, and mortgage fraud.
  • Gangs are becoming increasingly adaptable and sophisticated, employing new and advanced technology to facilitate criminal activity discreetly, enhance their criminal operations, and connect with other gang members, criminal organizations, and potential recruits nationwide and even worldwide.

The following agencies contributed to the assessment: U.S. Department of Defense; Naval Criminal Investigative Service; U.S. Army, Fort Dix Criminal Investigative Division; Directorate Emergency Services USAG-HI; U.S. Department of Homeland Security; U.S. Citizenship and Immigration Services; U.S. Customs and Border Protection; U.S. Border Patrol; U.S. Homeland Security Investigations; U.S. Department of the Interior; Bureau of Land Management; U.S. Department of Justice; Bureau of Alcohol, Tobacco, Firearms, and Explosives; Drug Enforcement Administration; Federal Bureau of Investigation; Federal Bureau of Prisons; Immigration and Customs Enforcement; National Drug Intelligence Center; National Gang Center; National Gang Intelligence Center; U.S. Marshals Service; U.S. Probation and Parole; U.S. Department of State; and numerous state, local, regional, and tribal law enforcement agencies.”

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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 Crimes Watch 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 and OFAC SDN Sanctions Removal.

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


Teresa Carlson Named Special Agent in Charge of the Milwaukee Division

October 19, 2011

The Federal Bureau of Investigation (FBI) on October 19, 2011 released the following:

“Director Robert S. Mueller, III named Teresa L. Carlson special agent in charge of the FBI’s Milwaukee Division. Ms. Carlson most recently served as section chief in the Directorate of Intelligence, which is responsible for collecting, producing, and disseminating actionable intelligence that enables the FBI to identify and counter current and emerging threats.

Ms. Carlson is a 19-year veteran of the FBI. She entered on duty as a special agent and was first assigned to the Chicago Division, where she investigated violent crimes and public corruption matters. Ms. Carlson was a case agent for Operation Silver Shovel, an undercover investigation that involved bribery, drug trafficking, and organized crime activity. It resulted in more than 20 convictions, including elected officials.

She was later promoted to the Inspection Division at FBI Headquarters. Ms. Carlson then transferred to the Birmingham Division, where she served as a supervisor in the white-collar crime program.

After serving in the Birmingham Division, Ms. Carlson was appointed assistant special agent in charge (ASAC) of the white-collar crime and cyber programs in the New York Division. While in this role, she oversaw high-profile investigations and subsequently was in charge of the intelligence program for the division.

She returned to FBI Headquarters after working as ASAC in the New York Division. Ms. Carlson worked in the FBI’s National Security Branch, which is responsible for national security matters, including budget matters and liaison with the Office of the Director of National Intelligence, Congress, and the White House.

Ms. Carlson is from Grand Rapids, Michigan and graduated from Michigan State University. Prior to her career in the FBI, she did legal research for the Michigan Legislature.”

To find additional federal criminal news, please read Federal Crimes Watch 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 and OFAC SDN Sanctions Removal.

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


Timothy J. Delaney Named Special Agent in Charge of the Criminal Division at the Los Angeles Field Office

September 1, 2011

The Federal Bureau of Investigation (FBI) on August 31, 2011 released the following:

“Director Robert S. Mueller, III named Timothy J. Delaney special agent in charge of the FBI’s Criminal Division at the Los Angeles Field Office. Mr. Delaney most recently served as section chief for the New Agent’s Training Program Section in the FBI’s Training Division. In this role, he was responsible for the development and delivery of training programs for new special agents.

Mr. Delaney completed new agent training in Quantico, Virginia in 1991. He worked in the New York Field Office for nine years, where was assigned to the Manhattan office and investigated a variety of white-collar crime matters.

After serving in New York, Mr. Delaney was promoted to unit chief at FBI Headquarters in the Criminal Investigative Division’s Health Care Fraud Unit from July 2000 to December 2004. He oversaw the efforts of more than 400 investigators and managed a budget of more than $114 million. In this role, he was also a frequent lecturer on health care fraud at major conferences and training sessions.

From January 2005 to June 2008, Mr. Delaney served as assistant special agent in charge in the Miami Field Office. He managed division’s white-collar crime, cyber, and civil rights programs. In addition to this, he oversaw the efforts of special agents and intelligence analysts. While in Miami, the division dismantled criminal enterprises resulting in convictions of Washington, D.C. lobbyist Jack Abramoff, several county commissioners, and three police corruption rings.

Mr. Delaney is a native of Queens, New York. Prior to the start of his FBI career in 1991, he graduated from Sienna College in Albany, New York with a degree in accounting. He worked in investment banking at Banque Paribas in New York City and served five years in the U.S. Army Reserves, leaving as a first lieutenant. Mr. Delaney is married and has three children.”

To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

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

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9th Circuit Court of Appeals To Hear Appeal Over Medicating Jared Lee Loughner

August 30, 2011

The Associated Press (AP) on August 30, 2011 released the following:

“SAN FRANCISCO (AP) — A federal appeals court will hear arguments Tuesday over a request to permanently ban prison officials from forcibly medicating the Tucson shooting rampage suspect with psychotropic drugs.

At issue in Jared Lee Loughner’s appeal before the 9th Circuit Court of Appeal is whether prison officials or a judge should decide whether a mentally ill person who poses a danger in prison should be forcibly medicated.

Prosecutors say the decision is for prison officials to make, while Loughner’s lawyers say it’s up to a judge.

Loughner has pleaded not guilty to 49 charges in the Jan. 8 shooting that killed six people and wounded 13 others, including Rep. Gabrielle Giffords.

He has been at a federal prison facility in Springfield, Mo., since late May after mental health experts determined he suffers from schizophrenia and a judge ruled him mentally unfit to stand trial. He was sent to the facility in a bid to restore his mental competency so he can assist in his legal defense.

Loughner was forcibly medicated from June 21 to July 1 after prison doctors concluded that he was a danger. His attorneys appealed U.S. District Judge Larry Burns’ ruling that said Loughner could be forcibly medicated in prison.

After the appeals court temporarily stopped Loughner’s forced medication, the prison put Loughner under round-the-clock suicide watch in mid-July after he asked a prison psychologist to kill him. Prison staff said Loughner’s psychological condition was deteriorating, noting that he had been pacing in circles near his cell door, screaming loudly and crying for hours at a time.

Loughner was given twice daily dose of an oral solution of Risperidone, a drug used for people with schizophrenia, bipolar disorder and severe behavior problems.

Loughner’s attorneys have questioned whether prison officials violated the appeals court’s order by medicating him again.

Eventually, the appeals court denied a request by Loughner’s attorneys to prevent the prison from continuing to medicate him. The court never said whether prison officials had violated its earlier order that temporarily prevented them from forcibly medicating Loughner.

Loughner’s attorneys continue to contest the forced medication in both the district and appeal courts.

Defense lawyers argued that the decision to forcibly medicate their client solely on the basis of an administrative hearing held by prison officials had violated Loughner’s due-process rights. For instance, they said, Loughner was denied the chance to call a witness at a hearing.

Prosecutors said the appeal is without merit because defense attorneys are asking the district court judge to substitute his judgment on whether Loughner poses a danger while in prison with the conclusions of mental health professionals.

They also said Loughner received all necessary due-process protections and noted that the witness he requested was his lawyer and that he didn’t have a right to have a lawyer at the administrative hearing at the prison.”

To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

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

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