CEO, MANAGING DIRECTOR OF BROKER-DEALER GIVEN PRISON SENTENCE FOR ROLES IN BRIBERY CASE

FROM:  U.S. JUSTICE DEPARTMENT
Friday, March 27, 2015
CEO and Managing Director Of US Broker-Dealer Sentenced for International Bribery Scheme

The former chief executive officer and former managing director of a U.S. broker-dealer (the Broker-Dealer), were sentenced to prison today for their roles in a scheme to pay bribes to a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (Bandes), in return for trading business that generated more than $60 million in commissions.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Preet Bharara of the Southern District of New York made the announcement.  The sentences were imposed by U.S. District Judge Denise L. Cote of the Southern District of New York.

Benito Chinea, 48, of Manalapan, New Jersey, and Joseph DeMeneses, 45, of Fairfield, Connecticut, were each sentenced to four years in prison.  They were also ordered to pay $3,636,432 and $2,670,612 in forfeiture, respectively, which amounts represent their earnings from the bribery scheme.  On Dec. 17, 2014, both defendants pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act and the Travel Act.

“These Wall Street executives orchestrated a massive bribery scheme with a corrupt official in Venezuela to illegally secure tens of millions of dollars in business for their firm,” said Assistant Attorney General Caldwell.  “The convictions and prison sentences of the CEO and Managing Director of a sophisticated Wall Street broker-dealer demonstrate that the Department of Justice will hold individuals accountable for violations of the FCPA and will pursue executives no matter where they are on the corporate ladder.”

“Benito Chinea and Joseph DeMeneses paid bribes to an officer of a state-run development bank in exchange for lucrative business she steered to their firm,” said U.S. Attorney Bharara.  “Chinea and DeMeneses profited for a time from the corrupt arrangement, but that profit has turned into prison and now they must forfeit their millions of dollars in ill-gotten gains as well as their liberty.”

Chinea, the chief executive officer, and DeMeneses, a managing director in the Broker-Dealer, admitted that they worked with others, to arrange bribe payments to the Bandes official, Maria De Los Angeles Gonzalez, in exchange for her directing Bandes’s financial trading business to the Broker-Dealer.  Previously, Gonzalez, along with two employees of the Broker-Dealer, Tomas Alberto Clarke Bethancourt (Clarke) and Jose Alejandro Hurtado (Hurtado), pleaded guilty for their involvement in this bribery scheme.  A managing director of the Broker-Dealer, Ernesto Lujan, also pleaded guilty for his role in the scheme.

Background on the Broker-Dealer and Bandes

According to court documents, and as admitted by Chinea and DeMeneses at their guilty pleas, the Broker-Dealer, which was headquartered in New York City and had offices in Miami, established a group called the Global Markets Group in 2008, which included DeMeneses, Lujan and Clarke, 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 was an official at Bandes and 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 Bandes a mark-up on purchases and a mark-down on sales.

The Bribery Scheme

In pleading guilty, Chinea and DeMeneses admitted that, together with three Miami-based Broker-Dealer employees, Lujan, Clarke and Hurtado, they participated in a bribery scheme running from late 2008 through 2012, in which Gonzalez directed trading business to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer 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 commissions from trades with Bandes.

Chinea and DeMeneses also admitted that in order to conceal their conduct, they and their co-conspirators routed the payments to Gonzalez, frequently in six-figure amounts, through third-parties posing as “foreign finders” and into offshore bank accounts.  In several instances, Chinea personally signed checks worth millions of dollars that were made payable to one of these purported “foreign finders” and later deposited in a Swiss bank account.  Chinea and DeMeneses also admitted that they agreed to use Broker-Dealer funds to reimburse DeMeneses and Clarke for the approximately $1.5 million from their personal funds they used to bribe Gonzalez.  To conceal their true nature, Chinea and DeMeneses agreed to hide these reimbursements in the Broker-Dealer’s books as sham loans from the Broker-Dealer to corporate entities associated with DeMeneses and Clarke.

This case is being investigated by the FBI, and prosecuted by Senior Deputy Chief James Koukios and Trial Attorney Kevin R. Gingras 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.  Assistant U.S. Attorney Carolina Fornos of the Southern District of New York is responsible for the forfeiture aspects of the case.  The U.S. Securities and Exchange Commission also assisted with this investigation.

OFFICIAL AT VENEZUELAN STATE DEVELOPMENT BANK PLEADS GUILTY FOR ROLE IN BRIBERY SCHEME

FROM:  U.S. JUSTICE DEPARTMENT 
Monday, November 18, 2013
High-Ranking Bank Official at Venezuelan State Development Bank Pleads Guilty to Participating in Bribery Scheme

A senior official in Venezuela’s state economic development bank has pleaded guilty in New York federal court to accepting bribes from agents and employees of a New York-based broker-dealer (Broker-Dealer) in exchange for directing her bank’s security-trading business to the Broker-Dealer.

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

Maria De Los Angeles Gonzalez De Hernandez, 55, pleaded guilty today before U.S. District Judge Paul A. Engelmayer in the Southern District of New York to conspiring to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.  Sentencing for Gonzalez is scheduled for Aug. 15, 2014, before Judge Engelmayer.
     
At all times relevant to the charges, Banco de Desarrollo Económico y Social de Venezuela (BANDES) was a state-run economic development bank in Venezuela.  The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding.

According to court records, Gonzalez was an official at BANDES and 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 early 2009 through 2012, Gonzalez participated in a bribery scheme in which she directed trading business she controlled at BANDES to the Broker-Dealer and, in return, agents and employees of the Broker-Dealer shared 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 devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.  Emails, account records, and other documents collected from the Broker-Dealer and other sources reveal that Gonzalez received a substantial share of the revenue generated by the Broker-Dealer for BANDES-related trades.  Specifically, Gonzalez received millions in bribe payments from Broker-Dealer agents and employees.

Additionally, Gonzalez paid a portion of the bribe payments she received to another BANDES employee who was also involved in the scheme.

To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that Gonzalez and others held in Switzerland, among other places.

Previously, three former employees of the Broker-Dealer – Ernesto Lujan, Jose Alejandro Hurtado, and Tomas Alberto Clarke Bethancourt – each pleaded guilty in New York federal court to conspiring to violate the Foreign Corrupt Practices Act (FCPA), to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses, relating, among other things, to the scheme involving bribe payments to Gonzalez.  Sentencing for Lujan and Clarke is scheduled for Feb. 11, 2014, before U.S. District Judge Paul G. Gardephe.  Hurtado is scheduled for sentencing before U.S. District Judge Harold Baer Jr. on March 6, 2014.

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 United States 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.  Assistant United States Attorney Carolina Fornos is also responsible for the forfeiture aspects of the case

SEC CHARGES TWO BROKERS WITH TRADING ON NONPUBLIC INFORMATION REGARDING THE ACQUISITION OF SPSS INC., BY IBM CORPORATION

 

Photo:  NYSE.  Credit:  Wikimedia.

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Nov. 29, 2012 — The Securities and Exchange Commission today charged two retail brokers who formerly worked at a Connecticut-based broker-dealer with insider trading on nonpublic information ahead of IBM Corporation’s acquisition of SPSS Inc.

The SEC alleges that Thomas C. Conradt learned confidential details about the merger from his roommate, a research analyst who got the information from an attorney working on the transaction who discussed it in confidence. Conradt purchased SPSS securities and subsequently tipped his friend and fellow broker David J. Weishaus, who also traded. The insider trading yielded more than $1 million in illicit profits. The SEC’s investigation uncovered instant messages between Conradt and Weishaus where they openly discussed their illegal activity. The SEC’s investigation is continuing.

"When licensed professionals who are privileged to work in the securities industry violate legal duties and enrich themselves at investors’ expense, it undermines public confidence in the integrity of the markets," said Daniel M. Hawke, Director of the SEC’s Philadelphia Regional Office. "As industry professionals, Conradt and Weishaus clearly understood that what they were doing was wrong, but did so anyway while knowing the consequences they would face if caught."

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Conradt and Weishaus, who live in Denver and Baltimore respectively.

According to the SEC’s complaint filed in federal court in Manhattan, the scheme occurred in 2009. Conradt revealed in instant messages that he received the information from the research analyst and warned Weishaus that they needed to "keep this in the family." Weishaus agreed, typing "i don't want to go to jail." They went on to discuss other people who have been prosecuted for insider trading. In another series of instant messages, Conradt bragged that he was "makin everyone rich" by sharing the nonpublic information. Weishaus later noted, "this is gonna be sweet."

The SEC alleges that the research analyst’s attorney friend sought moral support, reassurance, and advice when he privately told the research analyst about his new assignment at work on the SPSS acquisition by IBM. In describing the magnitude of the assignment, the lawyer disclosed material, nonpublic information about the proposed transaction, including the anticipated transaction price and the identities of the acquiring and target companies. The associate expected the research analyst to maintain this information in confidence and refrain from trading on this information or disclosing it to others.

The SEC alleges that Conradt, Weishaus, and other downstream tippees purchased common stock and call options in SPSS. A call option is a security that derives its value from the underlying common stock of the issuer and gives the purchaser the right to buy the underlying stock at a specific price within a specified period of time. Typically, investors will purchase call options when they believe the stock of the underlying securities is going up. Conradt, Weishaus, and other downstream tippees invested so heavily in SPSS securities that the investments accounted for 76 percent to 100 percent of their various brokerage accounts. Conradt and Weishaus both hold law degrees. Conradt is admitted to practice law in Maryland, and he passed the Colorado bar examination administered in February 2012.

The SEC alleges that Conradt and Weishaus violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest and financial penalties, and a permanent injunction against the brokers.

The SEC’s investigation is being conducted by Mary P. Hansen, A. Kristina Littman and John S. Rymas, in the SEC’s Philadelphia Regional Office. G. Jeffrey Boujoukos and Catherine E. Pappas in the Philadelphia office are handling the litigation. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.