According to PCMag.com, Rogelio Hackett, Jr., a Georgia resident, has entered guilty pleas in Federal court in Virginia to a nine-year scheme involving more than 675,000 stolen credit card numbers and more than $36 million in fraudulent charges. The 26 year-old Hackett also allegedly sold the credit card information to others. He will be sentenced in July and faces a maximum of 12 years imprisonment.
The Washington Examiner reports that Anjan Dutta-Gupta of Roswell, Georgia, and Ralph M. Mariano of Arlington, Virginia, have been charged in the U.S. District Court for the District of Rhode Island on bribery and kickback charges. Mariano was a senior engineer at the Washington Navy Yard. Gupta was the founder of Advanced Solutions for Tomorrow (AST), a Georgia technology company. The charges assert that Mariano and Gupta allegedly engaged in a scheme to defraud the U.S. Navy dating back to 1998 and resulting in approximately $10 million in losses in inflated costs to the Navy. During this time, AST gained 10 contracts with the Navy totalling $120 million. Gupta and AST allegedly paid kickbacks to Mariano, who allegedly distributed the gains to his father, brother, girlfriend and associates. Prosecutors claim to have recorded conversations in which Mariano describes the alleged scheme.
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Gupta also allegedly contributed to U.S. Democratic Senator Jack Reed, a member of the Senate Appropriations Committee. Senator Reed allegedly helped earmark military funding for ASFT. Senator Reed has pledged to donate the contributions from Gupta to charity.
The U.S. Attorney's Office for the Northern District of Ohio announced last week the sentencing of Vriginia resident Sean M. Daly to 41 months imprisonment after Daly pled guilty to one count of securities fraud. The government alleged that, from 2001 through 2007, Daly engaged in a "free-riding" scheme to purchase stocks. "Free-riding" occurs where a purchaser of stocks places an order for stocks but has insufficient funds to cover the purchase price and instead uses the proceeds from the sale of the stock to cover the purchase. Free-riding schemes attempt to profit from short term changes in prices.
Daly ordered millions worth of securities through the accounts, using the names of nonexistent clients or corporations. He would monitor the price of the stocks during a three-day waiting period, and would refuse delivery of any stocks which had decreased in value, falsely claiming that he was waiting on an overseas client to make payment. Daly also issued false press releases and financial analyses to promote certain stocks which he had placed orders for in order to artificially increase their prices.
The scheme involved accounts with seven broker-dealers: KeyBanc Capital Markets, Inc.(f.k.a. McDonald Investments, Inc.), Dain Rauscher, Inc. (n.k.a. RBC Dain Rauscher, Inc.), Ryan Beck & Co., Inc. (n.k.a. Stifel Nicolaus & Co.), Jesup & Lamont Securities Corp., Jeffries & Company, Inc., Raymond James & Associates, Inc., and Robert W. Baird & Co. Daly also used trading accounts in various company names at National Financial Services, Goldman Sachs Execution & Clearing, LP, Charles Schwab, and Lloyds of London Market Services.
Daly's scheme was discovered after he was unable to pay for 250,000 shares of stock in Decker Outdoor Corporation which he purchased through McDonald Investments, Inc., causing a loss to McDonald of $1,013,272.56 when it was forced to liquidate the stock.
The Court ordered Daly to pay $5.7 million in restitution.
The U.S. Department of Justice and the U.S. Securities and Exchange Commission have brought criminal charges and civil claims against Lee B. Farkas, former Chairman of Taylor, Bean and Whitaker Mortgage Corp. (“Taylor Bean”) for allegedly selling at least $1.5 billion in fictitious and impaired residential mortgage loans to Colonial Bank and its parent company, The Colonial BancGroup, Inc. (“CBG”), according to press releases by the Department of Justice and the SEC, and the SEC’s complaint. Mr. Farkas, a resident of Ocala, Florida, is also charged with attempting to defraud the U.S. Department of Treasury through its Troubled Asset Relief Program (“TARP”) by allegedly representing to CBG and the public that Taylor Bean had secured a $300 million equity investment in CBG which would allow CBG and Colonial Bank to qualify for $550 million in TARP funds. The government contends that the investment and prospective TARP grant was a sham.
Taylor Bean was the largest non-depository mortgage lender in the United States by 2008, originating more than $30 billion in mortgage loans. Taylor Bean engaged in the the origination, acquisition, sale and servicing of residential mortgages through a network of local banks and mortgage brokers. The company filed for Chapter 11 bankruptcy in August of 2009.
Colonial Bank, one of the fifty largest banks in the U.S., has had its own problems. In August of last year, the Alabama State Banking Department seized the bank and appointed the Federal Deposit Insurance Corp. as receiver. CBG subsequently filed for Chapter 11 bankruptcy and a financial holding company purchased Colonial Bank’s assets and assumed its deposits.
Taylor Bean had a financing arrangement with Colonial Bank to fund the mortgage loans which it originated. Under the agreement, Taylor Bean would represent that the loans were of a certain quality and that there was a commitment from a third-party investor to ultimately purchase the loan. When the investor purchased the loan, Colonial Bank would receive the proceeds to reimburse it for advancing the loan funds.
Colonial Bank and Taylor Bean also had another financing agreement, called an assignment of trade agreement, under which Colonial Bank would purchase a 99 percent interest in a bundled group of mortgage loans, or mortgage-backed securities, which Taylor Bean would issue, market and sell to third parties. Under the agreement, Taylor Bean was required to provide evidence of a binding commitment from a third party investor to purchase the securities.
The government alleges that Taylor Bean began experiencing liquidity problems in 2002. It alleges that Farkas and an unnamed officer of Colonial devised a pattern of “kiting” in which certain debits to Taylor Bean’s warehouse line of credit were not entered until after credits for the following day were entered. As a result of this kiting, Taylor Bean was supposedly overdrawing its accounts with Colonial Bank by approximately $150 million a day.
Farkas and the bank officer, in order to conceal the kiting activity, allegedly devised a scheme in which Taylor Bean would create and submit fictitious loan information to Colonial Bank. In December of 2003, Farkas allegedly directed Taylor Bean to submit approximately $150 million in non-existent loans, which Farkas allegedly referred to as “Plan B,” and impaired loans, which Farkas is alleged to have referred to as the “Crap,” to Colonial Bank for funding.
In 2004, as the loans began to age, in order to conceal them, Farkas and the officer allegedly bundled the loans in fictitious trades to Colonial Bank. Following the trades, Colonial Bank was unable to identify individual loans, or the age of the loans, within the trade. Farkas and the officer then caused information to be submitted to Colonial Bank which would reset the commitment dates on the loans and make the loans appear as if they had only recently been purchased. Farkas also caused Ocala Funding, L.L.C., a wholly-owned subsidiary of Taylor Bean, to divert funds which it received from Freddie Mac and other third parties for purchases of mortgages to Taylor Bean in order to pay down Taylor Bean’s debt to Colonial Bank.
By the close of 2007, Colonial Bank allegedly held $1 billion in impaired loans and $500 million in wholly fictitious, unsecured loans, as a result of Farkas’ and the officer’s conduct. The impaired and fictitious loans caused Colonial Bank to misstate its assets to the SEC and investors.
Finally, in November of 2008, Colonial Bank applied for TARP funds from the U.S. Treasury. The Department of Treasury approved Colonial Bank to receive $550 million in TARP funds on the condition that Colonial Bank increase its equity by $300 million. In 2009, Farkas allegedly approached Colonial Bank to raise the $300 million captial infusion through an investment group. Farkas falsely represented to Colonial Bank that it had found investors to participate in the capital infusion, and created a false stock purchase agreement. Farkas diverted $50 million in funds from an Ocala Investors Account to an escrow account in a move which he allegedly referred to as “Project Squirrel” in order to convince Colonial Bank that Taylor Bean had obtained investors. Colonial Bank entered the stock purchase agreement with Taylor Bean, however both companies subsequently terminated the agreement.
The indictment against Farkas in the U.S. District Court for the Eastern District of Virginia charges him with one count of conspiracy to commit bank, wire and securities fraud; six counts of bank fraud; six counts of wire fraud; and three counts of securities fraud. The SEC complaint alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
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