Business Crimes Hotline

FLORIDA

Antitrust Division Charges Two in Connection with Stanford Financial Group Investigations

On Sept. 10, 2009, the U.S. Department of Justice Antitrust Division's New York Field Office announced the indictment of Thomas Raffanello, a former global director of security in the Fort Lauderdale office of Stanford Financial Group. Raffanello is charged in a three-count superseding indictment with conspiracy to obstruct an SEC proceeding and to destroy documents in a federal investigation, obstructing an SEC proceeding, and destroying documents in a federal investigation. The superseding indictment also charged Bruce Perraud, a former global security specialist in the same office, with conspiracy and obstructing an SEC proceeding. An original indictment, unsealed on June 19, 2009, had charged Perraud with one count of destroying records in a federal investigation. The charges relate to an SEC investigation into Stanford Financial Group and its subsidiary, Stanford International Bank Ltd. The SEC has alleged in a complaint filed in the U.S. District Court for the Northern District of Texas that Stanford entities orchestrated a “massive, ongoing fraud.”

NEW JERSEY

DOJ Antitrust Division Charges Three in Connection with Superfund Site

The U.S. Department of Justice Antitrust Division's New York Field Office announced a 12-count indictment of three individuals on Sept. 11, 2009, in connection with their alleged participation in fraud and kickback conspiracies related to contracts at an EPA Superfund site in Manville, NJ. The indictment charged Gordon D. McDonald, John A. Bennett, and James E. Haas, Jr., with rigging bids for the award of subcontracts to remove contaminated soil at the Federal Creosite Superfund Site. Each faces one or more counts, including charges of conspiracy to defraud the United States, conspiracy, fraud, bid rigging, kickbacks, obstruction of justice, tax violations, and international money laundering.

NEW YORK

Judge Rakoff Rejects Bank of America, SEC Settlement

Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York issued an order on Sept. 14, 2009, that rejected the proposed settlement agreement between Bank of America and the SEC related to Bank of America's acquisition of Merrill Lynch. Bank of America would have paid $33 million to settle charges that it concealed in communications to shareholders an agreement to pay up to $5.8 billion in bonuses to Merrill Lynch executives.

In his order, Judge Rakoff rejected the settlement because it did not “comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank's alleged misconduct now pay the penalty for that misconduct,” and questioned why Bank of America would agree to pay $33 million while maintaining that it was innocent. Judge Rakoff also criticized lawyers for Bank of America, who allegedly wrote the misleading shareholder communications, and asked why the SEC had not sought to penalize the attorneys.

Several weeks after Judge Rakoff issued his order, Bank of America's Board of Directors agreed to produce documents related to the legal advice it received during its purchase of Merrill Lynch, reversing a position that the bank had maintained for several months. Trial is scheduled to begin on Feb. 1, 2010.

U.S. Attorney Charges Six with Insider Trading

On Oct. 16, 2009, the U.S. Attorney for the Southern District of New York charged and arrested six individuals for insider trading in what the U.S. Attorney's Office called the “largest hedge fund insider trading case in history.” According to the U.S. Attorney's Office, the defendants allegedly realized more than $20 million in illegal profits by trading in the shares of Intel Corp., IBM, McKinsey & Co., Moody's Investors Services, Inc., Market Street Partners, Akamai Technologies, Inc., and Polycom, Inc. The defendants are Raj Rajaratnam, the Managing Member of Galleon Management, LLC; Danielle Chiesi, an employee of New Castle Funds, LLC; Mark Kurland, an executive at New Castle; Rajiv Goel, a Director in Strategic Investments at Intel Capital, the investment arm of Intel Corp.; Anil Kumar, a Director at McKinsey & Co.; and Robert Moffat, Senior Vice President and Group Executive at IBM. The defendants face as many as 13 counts of conspiracy to commit securities fraud and securities fraud. The U.S. Attorney's Office stated that these charges followed the government's first use of wiretaps to target significant insider trading on Wall Street.

In a related case, the SEC filed a complaint in the U.S. District Court for the Southern District of New York against the six individual defendants and Galleon Management LP and New Castle Funds, LLC. The SEC's complaint alleges that all of the defendants violated section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5, and that some of the defendants violated section 17(a) of the Securities Act of 1933.

Former KPMG Partner Pleads Guilty in Tax Scheme

The U.S. Attorney for the Southern District of New York announced on Sept. 23, 2009, that Robert Pfaff, a former partner with KPMG, pleaded guilty to participating in a conspiracy to defraud the IRS by concealing from the IRS and Saipan tax authorities millions of dollars of income received from tax-shelter transactions. Pfaff also pleaded guilty to conspiring to defraud a Saipan company of its right to the honest services of its employees by sharing tax-shelter income with officers of the company, who failed to disclose the income to the company's board of directors. According to the plea agreement and related records, Pfaff realized more than $3.75 million in fee income from the tax shelters. Pfaff will be sentenced on Nov. 16, 2009. The U.S. Attorney already has forfeited $1.84 million through a civil forfeiture proceeding. Pfaff currently is serving a 97-month sentence that was imposed after his conviction in United States v. Stein.

FLORIDA

Antitrust Division Charges Two in Connection with Stanford Financial Group Investigations

On Sept. 10, 2009, the U.S. Department of Justice Antitrust Division's New York Field Office announced the indictment of Thomas Raffanello, a former global director of security in the Fort Lauderdale office of Stanford Financial Group. Raffanello is charged in a three-count superseding indictment with conspiracy to obstruct an SEC proceeding and to destroy documents in a federal investigation, obstructing an SEC proceeding, and destroying documents in a federal investigation. The superseding indictment also charged Bruce Perraud, a former global security specialist in the same office, with conspiracy and obstructing an SEC proceeding. An original indictment, unsealed on June 19, 2009, had charged Perraud with one count of destroying records in a federal investigation. The charges relate to an SEC investigation into Stanford Financial Group and its subsidiary, Stanford International Bank Ltd. The SEC has alleged in a complaint filed in the U.S. District Court for the Northern District of Texas that Stanford entities orchestrated a “massive, ongoing fraud.”

NEW JERSEY

DOJ Antitrust Division Charges Three in Connection with Superfund Site

The U.S. Department of Justice Antitrust Division's New York Field Office announced a 12-count indictment of three individuals on Sept. 11, 2009, in connection with their alleged participation in fraud and kickback conspiracies related to contracts at an EPA Superfund site in Manville, NJ. The indictment charged Gordon D. McDonald, John A. Bennett, and James E. Haas, Jr., with rigging bids for the award of subcontracts to remove contaminated soil at the Federal Creosite Superfund Site. Each faces one or more counts, including charges of conspiracy to defraud the United States, conspiracy, fraud, bid rigging, kickbacks, obstruction of justice, tax violations, and international money laundering.

NEW YORK

Judge Rakoff Rejects Bank of America, SEC Settlement

Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York issued an order on Sept. 14, 2009, that rejected the proposed settlement agreement between Bank of America and the SEC related to Bank of America's acquisition of Merrill Lynch. Bank of America would have paid $33 million to settle charges that it concealed in communications to shareholders an agreement to pay up to $5.8 billion in bonuses to Merrill Lynch executives.

In his order, Judge Rakoff rejected the settlement because it did not “comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank's alleged misconduct now pay the penalty for that misconduct,” and questioned why Bank of America would agree to pay $33 million while maintaining that it was innocent. Judge Rakoff also criticized lawyers for Bank of America, who allegedly wrote the misleading shareholder communications, and asked why the SEC had not sought to penalize the attorneys.

Several weeks after Judge Rakoff issued his order, Bank of America's Board of Directors agreed to produce documents related to the legal advice it received during its purchase of Merrill Lynch, reversing a position that the bank had maintained for several months. Trial is scheduled to begin on Feb. 1, 2010.

U.S. Attorney Charges Six with Insider Trading

On Oct. 16, 2009, the U.S. Attorney for the Southern District of New York charged and arrested six individuals for insider trading in what the U.S. Attorney's Office called the “largest hedge fund insider trading case in history.” According to the U.S. Attorney's Office, the defendants allegedly realized more than $20 million in illegal profits by trading in the shares of Intel Corp., IBM, McKinsey & Co., Moody's Investors Services, Inc., Market Street Partners, Akamai Technologies, Inc., and Polycom, Inc. The defendants are Raj Rajaratnam, the Managing Member of Galleon Management, LLC; Danielle Chiesi, an employee of New Castle Funds, LLC; Mark Kurland, an executive at New Castle; Rajiv Goel, a Director in Strategic Investments at Intel Capital, the investment arm of Intel Corp.; Anil Kumar, a Director at McKinsey & Co.; and Robert Moffat, Senior Vice President and Group Executive at IBM. The defendants face as many as 13 counts of conspiracy to commit securities fraud and securities fraud. The U.S. Attorney's Office stated that these charges followed the government's first use of wiretaps to target significant insider trading on Wall Street.

In a related case, the SEC filed a complaint in the U.S. District Court for the Southern District of New York against the six individual defendants and Galleon Management LP and New Castle Funds, LLC. The SEC's complaint alleges that all of the defendants violated section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5, and that some of the defendants violated section 17(a) of the Securities Act of 1933.

Former KPMG Partner Pleads Guilty in Tax Scheme

The U.S. Attorney for the Southern District of New York announced on Sept. 23, 2009, that Robert Pfaff, a former partner with KPMG, pleaded guilty to participating in a conspiracy to defraud the IRS by concealing from the IRS and Saipan tax authorities millions of dollars of income received from tax-shelter transactions. Pfaff also pleaded guilty to conspiring to defraud a Saipan company of its right to the honest services of its employees by sharing tax-shelter income with officers of the company, who failed to disclose the income to the company's board of directors. According to the plea agreement and related records, Pfaff realized more than $3.75 million in fee income from the tax shelters. Pfaff will be sentenced on Nov. 16, 2009. The U.S. Attorney already has forfeited $1.84 million through a civil forfeiture proceeding. Pfaff currently is serving a 97-month sentence that was imposed after his conviction in United States v. Stein.