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Fraud Updates 2011
12 June
Latest developments in high profile US fraud investigations
A US district judge has rejected a request from the former Goldman Sachs vice president Fabrice Tourre to dismiss U.S. Securities and Exchange Commission (SEC) claims accusing him of violating a federal law designed to stop the fraudulent sale of securities. It was decided that the top securities watchdog and regulator may pursue its high-profile civil fraud lawsuit against the securities trader following accusations that he misled investors in relation to the Abacus collateralised debt obligation.
After reaching a $550 million settlement with Goldman Sachs, who did not admit responsibility, the SEC launched claims against the London-based trader in April 2010, saying he defrauded investors by not disclosing that hedge fund Paulson & Co. had helped pick the underlying securities for Abacus and then planned to take positions against them.
However, some of the claims brought by the SEC were thrown out. Citing last year's U.S. Supreme Court ruling in Morrison v. National Australia Bank, in which it was decided that US securities laws do not protect foreign investors who buy securities on overseas exchanges, the judge dismissed claims involving Duesseldorf, Germany-based IKB Deutsche Industriebank AG, which allegedly lost almost all of its $150 million investment, and ABN Amro Bank NV, which assumed the credit risk associated with a portion of Abacus.
Tourre remains confident that he will successfully defend those claims that remain.
In another high profile fraud investigation, Bernard Madoff's payroll manager, Eric Lipkin, has pleaded guilty before a court in New York admitting the part he played in deceiving and defrauding investors and regulators in the multi-million dollar Ponzi scheme which was discovered in 2008. It comes as the latest development in the line of criminal investigations into the investment frauds masterminded by the Wall Street trader who is currently serving a 150 year sentence in a North Carolina prison. So far eight others have been arrested and charged with various financial crimes in relation to the scheme.
It is understood that Lipkin's guilty plea was given as part of a deal to co-operate with the prosecuting authorities in the US. He has admitted to doctoring documents, adding fake employees to the payroll and giving false information in order to obtain a loan, all as part of his efforts "to deceive auditors."
He also helped Madoff deceive regulators by preparing fake Depository Trust Clearing Corporation reports showing sham investments for clients.
Mr. Lipkin received annual bonuses from the firm, including for his work to mislead auditors and examiners, and he received $720,000 from Madoff to purchase a house which he never paid back.
Lipkin has been told by a US district judge that he faces up to 75 years in jail. He has been released on a $2.5 million bail. A separate complaint was filed on 6 June by the SEC. If the complaint is upheld, he could be required to disgorge any ill-gotten gains and pay a fine to be determined by the court.
30 June
The role of civil recovery in assisting criminal investigations
Two recent cases in England have highlighted the role that civil recovery can play in assisting in criminal investigations.
In the first case, sentences of 7 and 13 years were handed down to Ian McGarry, a surveyor and Saghir Afzal, a property developer by the Southwark Crown Court on 14 June 2011 for their role in mortgage frauds worth a total of £49m. The scheme involved six counts of fraudulently obtaining mortgages from high profile financial institutions.
Six other individuals, including practicing solicitors, were implicated and charged in relation to the conspiracy but were acquitted after the prosecution decided to focus its investigations on McGarry and Afzal.
In the second case, police have arrested a man on suspicion of fraud of a man. The man claimed to have raised £500,000 for the well-known servicemen's charity Help for Heroes. However, the charity said he had failed to donate this money.
Aside a criminal conviction, the key issue is fraud cases is the recovery of stolen monies. The civil courts in England (and many other countries) have developed a series of remedies to enable victims of fraud to recover losses not only from the alleged fraudster but also those who have dishonestly assisted the fraudster or received the proceeds of the fraud. The remedies include the use of freezing and search orders. There is a lower burden of proof in English civil proceedings than in English criminal proceedings which means these remedies can be used as an alternative or in addition to criminal proceedings. Even where criminal prosecutions in fraud matters fail, there may be other options available to the victim of a fraudulent scheme.
| November 2011 | May 2011 |