KPMG India Fraud Survey – Patterns of Crime – Comments by Business Ethics and Fraud Prevention Expert Chuck Gallagher

December 9, 2012
KPMG India

White Collar Crime up?  Is that any surprise considering the vast changes in the world economy over the past four years?  With high profile cases like Bernie Madoff and a host of others, I have been asked multiple times if we reached a point where “White Collar Crime” may be on the decline.  My response is “heaven’s no!”  In fact, there are three components of an ethical lapse and the proliferation of “White Collar Crime” and NEED is at the top of the list!

When the Economy stinks NEED IS HIGH…

To my left is a graph from a KPMG India Fraud Survey – the entire report is found HERE.    In their report KPMG states that “White-collar crime in corporate India has witnessed a ‘substantial increase’ over the last two years.”

The graph shows the areas where respondents indicated that fraud had taken place.  Interestingly enough, according to the report the incidents of fraud had increased by 10% from 2010 to the same survey in 2012.

According to the KPMG Survey:

Cracking down on fraud is critical for a country that needs investment.

“India is a fast-growing economy. The problem is a level of low confidence in international investors, which stems from corruption,” Rohit Mahajan, partner and co-head, forensic services, KPMG India, said at a press briefing in New Delhi. “Besides international investors, this has also impacted entrepreneurial spirit in India.”

The infringements are of various kinds, with bribery and corruption making up 83% of cases. A large part of the frauds also relate to cyber crime (71%) and diversion of assets (65%). The sectors most affected are financial services (33%) and information and entertainment (17%), according to the survey.

Most frauds (85%) are investigated internally and very little of the money is actually recovered, the survey said. The most effective methods for detecting frauds are whistleblowers, internal audits and data analytics.

The challenge represented by this report is not limited to India.  Other data suggests that similar patterns of fraud and white collar crime exist in all developed economies especially those whose development has been spurned by rapid economic growth.  India and China for example.  The challenge becomes how to stop the proliferation of white collar crime?  Policies alone will not be the most significant deterrent. We must stem the gap between ethical policies and practical behavior.

Often misconduct either never gets reported or when reported is somehow never escalated beyond direct managers.  This silo of data prohibits effective solutions when combating white collar crime.  For purposes of this post however the primary value is to observe the patterns of white collar crime so organizations will have an intelligent methodology to target abuse and curb unethical and potentially illegal practices.

YOUR COMMENTS ARE WELCOME!

As the founder of the Ethics Resource Group, I work with Companies, Associations and Universities bring awareness of Ethical Choices and how to help Employee and Members stay within the ethical boundaries.  For more information contact me at chuck@chuckgallagher.com or visit chuckgallagher.com


Michael Van Gilder, Insurance Executive indicted for Insider Trading – Van Gilder responds with profession of Innocence.

October 30, 2012

If your buddy or close friend shares information about what’s going on with their company, visit in your head (www.zipit.com – made up website) and keep your mouth shut.  You can’t know something that someone else does not know, act on it for personal gain, and expect to remain free.  Van Gilder, a young man, now faces substantial time in federal prison – something that is life changing.

Notice how simply his alleged crime started and how it mushroomed.  There is a lesson here for others to learn!

NEWS RELEASE

Insurance executive Michael Van Gilder, age 45, of Denver, was indicted by a federal grand jury in Denver on five counts of insider trading.  The U.S. Securities and Exchange Commission, which today filed a complaint charging Van Gilder with civil insider trading violations, conducted a parallel civil investigation and substantially contributed to the criminal investigation of the case as well. The defendant allegedly traded based on inside information regarding a Denver oil and natural gas company called Delta Petroleum Corp.

According to the indictment, Van Gilder was the chief executive officer and a member of the board of directors of Van Gilder Insurance Company, an insurance business owned by the defendant’s family. Van Gilder was a close personal friend of an executive at Delta Petroleum. Delta Petroleum was a Denver-based oil and gas exploration and development company whose core area of operations was in the Gulf Coast and Rocky Mountain regions. The company’s stock was traded on NASDAQ under the ticker symbol “DPTR.” Van Gilder at times arranged for and provided insurance policies covering certain of Delta’s business operations.

From November 5, 2007 and continuing until at least January 9, 2008, Van Gilder allegedly committed securities fraud by trading in securities based on material, non-public information.

Specifically, on November 8, 2007, Delta publicly announced and filed with the U.S. Securities and Exchange Commission (SEC) a quarterly report disclosing its operational performance, revenues, earnings and other financial performance for its quarterly period which ended September 30, 2007. Three days prior to the disclosure, the financial publication Barron’s disseminated an article entitled “Day of Reckoning” focusing on Delta, expressing pessimism about the company and its stock. Following the publication of the article, the price of Delta’s common stock dropped $1.49 per share. Van Gilder was, at the time, a shareholder of Delta and held shares of its common stock and long-term call options to purchase Delta common stock in a brokerage account with Merrill Lynch and Company.

The Barron’s article was brought to Van Gilder’s attention. Based on the article, the defendant called his stockbroker and asked whether he should sell his shares of Delta. Later that day, Van Gilder spoke with a Delta executive. According to the indictment’s allegations, the executive conveyed to the defendant that Delta planned on announcing figures in its third quarter financial report that would not miss its third quarter forecasts and projections for its financial and operational performance, a first in a number of quarters that Delta would meet its projected numbers. At the time Van Gilder received this information, the financial and operational performance had not yet been publicly released and was not generally known to the investing public.

Based on this confidential material, Van Gilder decided not to sell his Delta investment but instead instructed his stockbroker to buy more Delta common stock on his behalf. As a result, the stockbroker purchased an additional 1,250 shares of Delta common stock at $15.55 per share. Several hours after he purchased the additional stock, Van Gilder emailed two friends and told them that the Barron’s article was “bogus” and that they should buy Delta stock because Delta “will hit their numbers.” In the November 8, 2007 third quarter results Delta disclosed earnings and other financial figures that were in line with or exceeding previous forecasts and predictions of its performance for the quarter.

In late November 2007, discussions also began for Delta to get a large cash infusion from a privately held investment company called Tracinda, owned by California resident Kirk Kerkorian, through a large equity investment by Tracinda in the oil and gas company. The indictment alleges that the Delta executive shared confidential information about the possible investment with defendant Van Gilder, and that, on November 26, 2007, following a series of calls and other communications, Van Gilder contacted his stockbroker and purchased an additional 1,750 shares of Delta common stock at $13.87 and $13.88 per share.

As the indictment further relates, the Delta Executive continued to share information about the confidential discussions about the contemplated Tracinda equity investment in Delta with defendant Van Gilder, as the confidential discussions progressed over the course of early December 2007. As result, according to the indictment, on December 8, 2007, Van Gilder, in turn, emailed his stockbroker to advise him that he “wanted to purchase as much Delta stock as possible” and two days later arranged through the stockbroker to purchase an additional 4,000 shares of Delta common stock at $17.64 per share. Within minutes of execution of these purchases, Van Gilder spoke by phone with a family member, who, several minutes later, instructed his own stockbroker to purchase Delta common stock.

On December 17, 2007, the Delta executive advised its board of directors of his discussions with Tracinda. The board authorized the executive to proceed with negotiations with Tracinda. That evening, the executive exchanged a series of text messages with the defendant regarding the board’s decision. Several hours later Van Gilder directed that $40,000 be wire transferred from a bank account to his Merrill Lynch brokerage account.

On December 19, 2007, a representative of Tracinda contacted the Delta Executive and made an offer for Tracinda to purchase a one-third interest in Delta through a purchase of Delta’s common stock at $17 per share. At the time, Delta’s stock was trading at approximately $14.65 per share. Tracinda’s overture remained confidential. Van Gilder, knowing about the overture, purchased 200 call options, entitling him to purchase up to 20,000 shares of Delta common stock at $20 per share. Delta continued negotiations with Tracinda, and on December 22, 2007, Tracinda agreed to increase its stock purchase to $19 per share. The indictment alleges that in a series of calls Van Gilder was informed of the progress of the confidential negotiations. Immediately following one of these conversations between Van Gilder and the Delta executive, Van Gilder sent an email to two of his family members, with the subject line entitled “Xmas present.” In the email, he advised the family members to purchase Delta stock because “something significant will happen in the next 2-4 weeks.”

On December 24, 2007, Van Gilder, through his stockbroker, purchased 3,000 more shares of Delta common stock at prices ranging between $15.63 and $15.65 per share, and 90 more call options to purchase up to 9,000 additional shares at $20 per share. On December 28, 2007, during the course of working to finalize the Tracinda stock purchase, the Delta executive exchanged a series of cell phone text messages with Van Gilder. As a result, the defendant caused $272,212 from a bank account to be wire transferred into his Merrill Lynch brokerage account. The following day Van Gilder emailed his stockbroker, requesting the broker to “get it on Delta asap.”

On December 29, 2007, Delta’s board of directors approved a finalized stock purchase agreement for Tracinda to purchase approximately 35% of Delta’s common stock for $19 per share. On Monday, December 31, 2007, before the commencement of NASDAQ’s regular trading hours, Delta and Tracinda issued a press release announcing the stock purchase agreement. Within an hour of the commencement of regular trading hours that day, Van Gilder’s stockbroker purchased an additional 4,000 shares of Delta common stock at prices ranging from $19.28 to $19.33 per share, and 114 additional call options. By the close of regular hours trading that day, Delta’s common stock price had risen $3.34 from its previous close of $15.51. Over the course of the next three trading days, Delta’s stock price continued to rise, closing at $22.82 per share by January 4, 2008. On January 9, 2008, Van Gilder sold the 290 call options that he had purchased between December 19 and December 24, 2007, realizing a profit of approximately $86,100 on the transaction.

The indictment charges Van Gilder with five counts of securities fraud, reflecting five transactions between November 6, 2007 and December 24, 2007 where Van Gilder purchased Delta common stock based on confidential insider information. If convicted on all counts, the defendant faces up to 100 years in federal prison, and up to $25 million in fines.

“Trading on inside information undercuts the fairness and transparency of our financial markets,” said U.S. Attorney John Walsh. “This case demonstrates that in the highly networked world we now live in, insider trading knows no geographic boundaries. This office, and U.S. Attorney’s Offices around the country, will continue to target insider trading wherever it may occur. Thanks to the hard work of this office, the U.S. Attorney’s Office in the Southern District of New York, the SEC, and the FBI, a Denver insurance executive has been charged for profiting using confidential information.”

WORDS FROM MICHAEL VAN GILDER:

Saturday greetings,

If you are getting this e-mail you are a family member or a friend of mine. There is a massive amount of gossip and press as a result of my having been charged yesterday in an indictment, so I feel compelled and have wanted to reach out to you so you hear directly from me.

Yesterday was nothing short of a tough and bizarre day. Emotions included anger, humiliation, depression and gratitude. The last emotion was created by the outpouring support from family, friends and truly amazing employees at Van Gilder Insurance. For this, I am extremely humbled and thank each and every one of you for your love, friendship and support.

I never in my wildest dreams imagined I would be the cause of my employees fighting for our company and reputation. For this there is no end to my agony.

For starters please recognize that for legal reasons I cannot give you details regarding the assertions made in the indictment. I simply ask that you have faith in me, you know me, my character, and my family. This will be a grind but I’m confident you will see my side unfold as I strive to be exonerated.

I’m 45 years old, I’ve spent these years striving to build a sterling personal and business reputation, wow, did it hurt seeing what is in the press. . . . 100 years in prison and a $25,000,000 fine! Apparently reported by someone who has no clue about the federal sentencing process. While I feel I won’t spend one day in jail, “if,” I were guilty of these “allegations,” then it would be months of possible confinement, not years.

As you know, I have worked very hard to become C.E.O. of Van Gilder Insurance, an amazing 107 year old company started by my great-grandfather, Hal Van Gilder. During my more than 20 years with the company, our employees have become a family to me. As a leader it’s critical to recognize when change is needed. Knowing this legal situation was heating up it was critical that I separate what is personal from what is business, therefore I stepped down this past week as C.E.O. This indictment has nothing to do with Van Gilder Insurance; it is not named in the indictment because the company had absolutely nothing to do with any of the allegations contained in that document. This is strictly personal. I feel extremely fortunate to have a deep and talented leadership team and mature group of employees. Many of you know Don Woods, there could not be a better man to take the reins of Van Gilder. Of course my father Dell Van Gilder is our Chairman and remains highly active in the operations of our business.

By the way, I’m still working for our company and will continue to work to maintain its leadership status in our industry.

So what’s an indictment? As explained to me, an indictment is purely the vehicle in which accusations are brought against an individual in federal court. An indictment is just that, it is merely an accusation. It has absolutely no evidentiary value and is not considered evidence of any charge alleged in the indictment.

An indictment is returned after a limited and selected amount of information is presented by the government attorney to a grand jury, which consists of up to 23 citizens. The grand jury meets in secret, and the government prosecutor exclusively decides who he will call as a witness in order to obtain an indictment. No judge presides over this limited presentation of evidence and no attorneys for any witness or targeted accused can be present during the grand jury proceedings. Thus, my attorney was not permitted to attend these proceedings and cross examine any witness who testified. Finally, it takes only 12 of the 23 grand jury members to agree to the returning of an indictment.

In order for me to better understand the nature and quality of evidence needed to obtain an indictment versus unanimously convicting 12 jurors at trial beyond a reasonable doubt, this is what has been explained to me. It may take the relatively low weight of a 10 – pounds of selected evidence to convince 12 out of 23 grand jurors to return an indictment, but it will require the much heavier weight of a 100 – pounds of legally admissible evidence to convince each and every one of the 12 trial jurors to render a finding of guilt.

Until the 100 – pounds of evidence convinces 12 jurors unanimously of my guilt, I am presumed innocent of each and every charge in the indictment. This constitutional presumption of innocence is one of our bedrock constitutional rights. No one in the world, except the 23 grand jurors, has even heard the 10 pounds of selected evidence presented by the government, which is why I am hopeful that no one will prejudge me on the mere basis of an indictment but instead allow the judicial processes to unfold so I can have the right to my day in court. It goes without saying that I will defend this vigorously and fully expect to be exonerated.

I’ve been dealing with my situation for months now, I’d like to share with you how I’ve made a massive mental shift in the way I look at adversity.

No great man, woman, or company has achieved greatness without going through massive adversity.

Two examples:

Nelson Mandela spent 27 years in prison before becoming president, leading the people. During that time in prison a white man taught him the white man’s language. Because of this, when he was released he was able to speak to all the people, thus allowing him the ability to be elected president. When asked don’t you wish you could have become President w/out the 27 years in prison? His response: NO! I needed every day to enable me to become president!

Steve Jobs founded Apple in his basement, later he was FIRED as C.E.O.! What did he do? He founded Pixar Entertainment. In the meantime Apple was spiraling down when he was asked to come back. You know the rest, Steve Jobs built the greatest company our planet has ever seen.

Through adversity comes growth, strength and determination!

Regardless of what happens to me, I am going to grow, get stronger, be smarter. I will become a better son, brother, father, friend, and leader.

You might think I’m going to stay home and hide, stay invisible? Wrong, I plan to be as visible as ever, I won’t let this beat me down.

Your outpouring of support has been nothing short of amazing, I am truly blessed.

Warm Regards and Love,

Michael

COMMENTS:  I have been to federal prison and served time with people who have been accused and convicted of doing less.  That said, I respect Van Gilder’s comments above and know first hand the emotional trauma that he’s experiencing (even as I write this article).

Now comes the hard part: (1) Generally the US Attorney wins their case.  Rarely do they bring an indictment that they do not win.  Their job is to win and they pride themselves on their winning percentage.  So with that said, while Van Gilder professes his innocence, all it takes is one of the allegations listed above to be found accurate and Van Gilder will be found guilty.  (2) Based on years of experience, negotiate a settlement!  If you fight for your innocence, know in advance that is a losing battle.  The statistics are not in your favor.  And, frankly, if you make the Fed’s spend money trying the case, they will work hard (very hard) to make your life a living hell and your prison time (if found guilty) substantial.

I believe in our system of justice and the fact that you are innocent till found guilty.  Likewise, I know from experience that they don’t indict unless they are fairly confident they will win.  Keep in mind, two things: (1) Martha Stewart did not go to prison for insider trading (and likely she had less info that Van Gilder had).  (2) Martha did go to prison for lying.  So now is the time to be squeaky clean.  Be careful what you say and make sure if you say it that it is the provable truth.  When the feds are out for you…they often win.  Just ask Wesley Snipes.

YOUR COMMENTS ARE WELCOME!


Business Ethics as a Core Course in Business Schools? What a novel idea…or do you prefer an Orange Jumpsuit and Handcuffs?

July 18, 2012

What a novel idea is right…  It seems that what is OBVIOUS sometimes is missed by the masses.  Honesty, integrity, and ethics are – or should be – the core foundation for which we operate in life.  Yet, as Luigi Zingales points out in his article: “Business School should count ethics as a core course” it appears that all to often those who are at the top of the business food chain seem to forget the core of business fundamentals.

Zingales, in his article, states: “Recent scandals at Barclays, JPMorgan Chase, Goldman Sachs and other banks might give the impression that the financial sector has some serious morality problems. Unfortunately, it’s worse than that: We are dealing with a drop in ethical standards throughout the business world, and our graduate schools are partly to blame.”

The problem – at one level – is academics seem to be more concerned with theory than practical application.  Again, Zingales shares the following:

Most business schools do offer ethics classes. Yet these classes are generally divided into two categories. Some simply illustrate ethical dilemmas without taking a position on how people are expected to act. It is as if students were presented with the pros and cons of racial segregation, leaving them to decide which side they wanted to take.

Others hide behind the concept of corporate social responsibility, suggesting that social obligations rest on firms, not on individuals. I say “hide” because a firm is nothing but an organized group of individuals. So before we talk about corporate social responsibility, we need to talk about individual social responsibility. If we do not recognize the latter, we cannot talk about the former.

I agree!  Ethics theory – while valuable – doesn’t go far enough to teach those who will face practical application what to do and when to do it when faced with pressure and temptation.  Theories are wonderful, but how many of us think about theory when faced with real life challenges in real time.

As a business ethics speaker, I was set up as the keynote speaker at a university in Canada.  My background was hidden from the faculty as the Dean of the Business School…wanted my presentation to impact both the student attendees as well as the faculty guests.  To that end, as we prepared to share dinner together before the presentation, one of the professors asked me a simple question – “What theory of ethics do you follow?”

That question caught me a bit off guard as my mind raced to formulate an appropriate answer.  Then it hit me…  The answer just flowed from my mouth – “The theory that keeps you out of federal prison!”

“Oh” responded the professor, and quickly he found company somewhere else.  Discomfort created by my response is just what needs to take place when teaching ethics.  We, all too often, make ethics some luke warm course to fill a curriculum and fail to teach the real world application of what happens when ethics fail.  Zingales says:

The way to teach these ethics is not to set up a separate class in which a typically low-ranking professor preaches to students who would rather be somewhere else. This approach, common at business schools, serves only to perpetuate the idea that ethics are only for those students who aren’t smart enough to avoid getting caught.

Rather, ethics should become an integral part of the so-called core classes – such as accounting, corporate finance, macroeconomics and microeconomics – that tend to be taught by the most respected professors. These teachers should make their students aware of the reputational (and often legal) costs of violating ethical norms in real business settings, as well as the broader social downsides of acting solely in one’s individual best interest.

So here’s the deal…if your business school isn’t committed to teaching practical ethics then you can’t expect graduates to apply ethics in practical day-to-day applications.  What is practical ethics – perhaps it’s ethics applied in such a manner that it keeps you out of an orange jumpsuit and handcuffs.

Your comments are welcome


Mortgage Fraud scheme by former SunTrust Mortgage leads to guilty plea by Javier Siveroni

August 10, 2011

ALEXANDRIA, Va. – Javier Siveroni, 48, of Springfield, Va., pleaded guilty today to using his position as a loan officer to help carry out a multi-million dollar mortgage fraud scheme involving more than 15 homes in Northern Virginia.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia, and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office, made the announcement after the plea was accepted by United States District Judge Liam O’Grady.

Siveroni pleaded guilty to one count of an indictment charging him with conspiracy to commit wire fraud.  Siveroni faces a maximum penalty of 20 years in prison when he is sentenced on Nov. 4, 2011.

According to court documents, Siveroni, a former loan officer at the Falls Church branch of SunTrust Mortgage, prepared and submitted false, fraudulent, and misleading mortgage loan applications for unqualified buyers – individuals who lacked the finances, credit rating, or legal status to obtain a certain loan amount.  The fraudulent mortgage loan applications contained false information regarding applicants’ employment, income, assets, immigration status, and intent to live in the property as a primary residence.  As part of the fraud scheme, Siveroni created, and taught his co-conspirators how to create, fake documents in order to corroborate false information contained in the loan applications.  The total amount of mortgage loans approved through the conspiracy exceeded $6.5 million.  The total loss attributable directly to Siveroni is over $2.5 million.

In related matters, three loan officers have pled guilty for their roles in the alleged conspiracy: Preston Cherouny, 45, of Washington, D.C.; John Leone, 44, of Vienna, Va.; Alejandro Alquinta, 35, of Springfield, Va. Maria Teresa Sanchez, 44, of Burke, Va., and Yolanda Salazar Camacho, 35, of Alexandria, Va., also pled guilty for their roles as loan officer assistants in the conspiracy.

This ongoing investigation was conducted by the FBI’s Washington Field Office.  Assistant United States Attorney Uzo Asonye prosecuted the case on behalf of the United States.


$30 Million FOREX investment fraud – David R. Lewalski pleads guilty – prison likely to follow…

August 5, 2011

From time to time I wonder what motivates someone to perpetrate such a significant fraud?  Having been there, I understand that once the illusion is created it’s difficult to escape from the lack of reality that sets in, but still – what motivated it to start with?

David R. Lewalski, formerly of Gainesville, Fla., pleaded guilty today to mail fraud in connection with his operation of a $30 million investment fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Robert E. O’Neill of the Middle District of Florida.

Lewalski, 47, pleaded guilty before U.S. Magistrate Judge Mark A. Pizzo in the Middle District of Florida and faces a maximum penalty of 20 years in prison.

According to court documents, the defendant, who operated a company called Botfly LLC, willfully engineered and executed a scheme to defraud by promising victim investors that he could generate returns of up to 10 percent per month, compounded monthly, through his trading in the foreign currency (forex) market.  In fact, the defendant operated an investment fraud scheme.  The defendant and others working at his direction raised approximately $29,851,598 from victim investors, but the defendant used only a small percentage of those funds for forex trading (approximately $2.6 million), the vast majority of which he lost.

Lewalski admitted that instead of trading in the foreign currency market as he promised, he used the bulk of victim investor funds to make payments to other investors in order to perpetuate the scheme and make it appear as if he was generating the promised returns.  Lewalski paid investors $14,339,887 in “returns” that he led them to believe were generated by his forex trading when, in reality, he was merely paying them with other victim investors’ funds.  Lewalski also spent millions of dollars of victim investor funds on personal expenses, including high end real estate, private jet travel, luxury automobiles, computer equipment and jewelry.

YOUR COMMENTS WELCOME!


Financial Fraud earns Edward Louis Molz, III – aka Frank Sullivan 96 months in federal prison!

August 4, 2011

ETHICS AND WHITE COLLAR CRIME NEWS RELEASE:

Edward Louis Molz, III, aka “Frank Sullivan,” 29, of Plano, Texas, was sentenced by U.S. District Judge Sam A. Lindsay to 96 months in federal prison and ordered to pay $1,074,725 in restitution following his guilty plea in January to one count of wire fraud in connection with a fraudulent advance fee scheme he ran.

In addition, according to the plea agreement, Molz will be ordered to forfeit property that was derived from proceeds traceable to his offense, including funds seized on September 7, 2010, from the 3rd Street Financial LLC account at JPMorgan Chase, as well as a 2007 BMW 650, a 2005 Maserati and real estate located on Cartwright Street in Irving, Texas.

Molz was arrested in September 2010 at his home by FBI agents on wire fraud and mail fraud charges outlined in a federal criminal complaint, and was released on a personal recognizance bond. A federal grand jury returned a six-count indictment the following month charging Molz with four counts of wire fraud and two counts of mail fraud. In March 2011, Molz’s bond was revoked.

According to the factual resume filed in the case, from November 2009 through May 2010, Molz ran a scheme in which he induced small business owners, who were seeking alternative means of financing, to pay a fee to purchase an “aged” corporations. These “aged” corporations purportedly had access to lines of credit that were available to the purchaser.

To carry out his scheme, Molz established 3rd Street Financial, LLC, and, using the assumed name of “Frank Sullivan,” held himself out as its chief financial officer. He marketed 3rd Street Financial through a website and a loose association of financial brokers. He represented to potential purchasers that he had established and maintained a number of “aged” corporations which had been in existence for four to five years and had access to lines of credit between $250,000 and $400,000. For a $3250 acquisition fee, a purchaser could acquire a “Tier 1″ corporation with a minimum line of credit of $150,000. However, for a $6500 acquisition fee, a purchaser could acquire a “Tier 2″ corporation with a $250,000 minimum line of credit.

Molz represented that upon payment of the fees, he could deliver the aged corporation to a purchaser within nine to 12 weeks. He also represented that each “aged” corporation had additional benefits, including established “business trade lines,” a complete financial and business plan, a Dun & Bradstreet listing and three years of valid tax returns. He furnished potential purchasers with false and fictitious documents, including service agreements, testimonials from satisfied purchasers and letters from financial institutions confirming the issuance of lines of credit.

During the time frame mentioned above, approximately 247 individuals mailed or wired money to Molz and he deposited those funds into JPMorgan Chase and Compass Bank accounts. Molz did not deliver any “aged” corporations as promised. Instead, he used the money almost exclusively for his personal benefit, including the acquisition of personal assets and real estate.

YOUR COMMENTS ARE WELCOME


Russell E. Mackert, Brent Oncale, David White, Eric M. Kruz, and Tomme Bromseth sentenced to significant prison sentences for $100 million fraud scheme!

August 1, 2011

Five employees for A&O Resource Management Ltd. and various related entities – including two executives – were sentenced recently for their roles in a $100 million fraud scheme with more than 800 victims across the United States and Canada.

The sentences were announced by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division.

The five individuals were sentenced by U.S. District Judge Robert E. Payne.  Russell E. Mackert, 52, general counsel for A&O, was sentenced to 188 months in prison; Brent Oncale, 36, former owner and founder of A&O, was sentenced to 120 months in prison; David White, 41, the former president of A&O, was sentenced to 60 months in prison; Eric M. Kurz, 47, a wholesaler of A&O investment products, was sentenced to 60 months in prison; and Tomme Bromseth, 69, an A&O sales agent in the Richmond area, was sentenced to 36 months in prison.

“The impact of this massive fraud on many of A&O’s investor victims has been disastrous,” said U.S. Attorney MacBride.  “Hundreds of elderly investors invested their life savings with A&O and saw it all vanish in an instant.  These investors were not looking for quick cash, just a safe alternative to invest their retirement funds.  The safety, security, and no-risk nature of the investment was critical to the sales pitch, and it was all a big fat lie.”

“Brent Oncale and his co-conspirators operated a sham investment company that turned fraud and deceit into a business model,” said Assistant Attorney General Breuer.  “They stole millions from hundreds of unsuspecting investors, pocketing huge sums for themselves. Today’s sentences reflect the severity of these cowardly and costly crimes.”

All five men pleaded guilty in the fall of 2010 and early 2011 for their roles in the fraud scheme at A&O, which falsely marketed life settlement products to investors, many of whom were elderly.  The conspirators at A&O defrauded investors by making misrepresentations about A&O’s prior success, its size and office locations, its number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds.

When state regulators began to scrutinize A&O’s investment products, conspirators manufactured a sham sales transaction to “sell” A&O to an offshore shell corporate entity named Blue Dymond and later to another offshore shell corporate entity named Physician’s Trust.  However, A&O and Physician’s Trust was still secretly controlled by A&O principals and their conspirators.

It was a bold scheme that saw Mackert, 52, create sham companies, make up the name “R.J. Stephenson” as a fictional representative, hire an actor who pretended to do due diligence on a sale, and slip $10 million in cashier’s checks past customs in Fort Lauderdale to deposit in a secret trust account in Nevis.

On June 6, 2011, the hedge fund manager of A&O, Adley H. Abdulwahab, 35, of Houston, was convicted by a jury in Richmond, Va., of one count of conspiracy to commit mail fraud, five counts of mail fraud, one count of conspiracy to commit money laundering, five counts of money laundering and three counts of securities fraud.   A founder of A&O, Christian Allmendinger, 39, was convicted by a jury on March 23, 2011, of one count of conspiracy to commit mail fraud, two counts of mail fraud, one count of conspiracy to commit money laundering, two counts of money laundering and one count of securities fraud.  Abdulwahab is scheduled to be sentenced on Sept. 28, 2011, and Allmendinger is scheduled to be sentenced on Aug. 14, 2011.  They face up to 20 years in prison on each count except the securities fraud counts, on which they face up to five years in prison.

YOUR COMMENTS ARE WELCOME!


Follow

Get every new post delivered to your Inbox.

Join 21,968 other followers