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Mishcon Fraud Watch - October 2012

Welcome to the October edition of Mishcon Fraud Watch. Its aim is to provide businesses and their advisors with a snapshot of what has been happening in the world of fraud in the last month.

We make no judgment whatsoever as to the morality, legality or appropriateness of the conduct which forms the subject matter of this bulletin. We simply aim to bring these matters to the attention of those involved in the prevention, detection and investigation of fraud.

UNITED KINGDOM

Legislation

Following research that showed law enforcement agencies are failing to disrupt 94% of organised crime in Britain, the government is reported to be planning a "conspiracy" offence to target gangland bosses who profit from the £40 billion-a-year organised crime business but escape prosecution because they control their criminal networks from a distance.
David Leppard
Sunday Times, 16 September 2012

United states of AMERICA

Securities and Exchange Commission (SEC)

The SEC has charged Tyco International Ltd. with violating the Foreign Corrupt Practices Act when subsidiaries allegedly arranged illicit payments to foreign officials in more than a dozen countries.
SEC press release 2012-196, 24 September 2012

The SEC has announced an asset freeze against Western Financial Planning Corporation and its owner Louis V. Schooler over allegations of running a real estate investment fraud that raised approximately $50 million.
SEC press release 2012-183, 7 September 2012

The SEC has charged attorney James C. Howard III, Louis N. Gallo III and Michael R. Casey for their alleged roles in a $27.5 million investment scheme fraud.
SEC press release 2012-178, 5 September 2012

The SEC charged China Sky One Medical Inc. and its CEO Yan-qing Liu with fraud for recording fake sales of its product in order to inflate revenues. According to the SEC, the company falsely reported that it entered into a strategic distribution with Takasima Industries that would create $1 million a month in sales. However, in actuality the company created $19.8 million in phony sales that were recorded as revenue.
SEC press release, 4 September 2012

The SEC charged Worldwide Energy and Manufacturing USA Inc. (WEMU) and three of its former executives with defrauding investors by concealing the transfer of 49% of the ownership stake in the company's Chinese subsidiary to three individuals in China. The three individuals, Jimmy Wang, Mindy Wang, and Jeffrey Watson, purportedly raised nearly $9 million from investors to expand WEMU's Chinese subsidiary. However, the Wangs and Mr. Watson did not disclose that the Chinese subsidiary was going to transfer 49% of its equity to its top three managers.
SEC press release, 6 September 2012

The SEC charged Goldman, Sachs & Co. and Neil M.M. Morrison, a former vice president in Goldman's Boston office, with participating in a 'pay-to-play' scheme involving then Massachusetts state treasurer Timothy P. Cahill. According to the SEC, Mr. Morrison used Goldman's offices and resources to help Mr. Cahill's campaign for governor. Although this activity should have disqualified Goldman from participating in municipal underwriting for two years after the contributions, Goldman participated in 30 underwritings and earned more than $7.5 million in fees.
SEC press release, 27 September 2012

The SEC obtained an emergency court order freezing the assets of Joseph Hilton, his firm Pacific Northwestern Energy LLC, and Rock Castle Drilling Fund LP and Rock Castle Drilling Fund II LP. The SEC alleges that Hilton, who changed his name from Joseph Yurkin following a prior SEC enforcement action, made false representations to investors concerning oil drilling projects, enabling him to raise $789,000.
SEC press release, 3 October 2012

The SEC charged  Hausmann-Alain Banet and his firm, Lion Capital Management, with stealing more than half a million dollars from a retired school teacher who thought she was investing her savings in a hedge fund. Mr. Banet is also facing a parallel criminal action by the U.S. Attorney's Office for the Northern District of California. The SEC also charged Norman Goldstein and Laurie Gatherum, and their firm GEI Financial Services with siphoning at least $147,000 in fees and withdrawals from a fund they managed. These two cases represent the latest in the SEC's targeting of hedge fund malfeasance; since 2010, the SEC has filed more than 100 cases targeting such improper actions.
SEC press release, 3 October 2012

Department of Justice

The Department of Justice announced that Homy Hong-Ming Hsu, the vice-chairman and second-highest ranking officer of Eagle Eyes Traffic Industrial Co. Ltd. pleaded guilty to participating in an international conspiracy to fix the prices of aftermarket auto lights. Eagle Eyes, its U.S. subsidiary E-Lite Automotive Inc., and its highest ranking officer, Chairman Yu-Chu Lin (a/k/a David Lin), have also been indicted for participating in the conspiracy.
U.S. Department of Justice press release, 25 September 2012

Hedge Funds

Former SAC Sigma Capital Management analyst Jon Horvath has pleaded guilty to conspiracy and securities fraud and admitted trading on confidential information as part of an alleged scheme that netted hedge funds more than $60 million in profits.
Kara Scannell
Financial Times, 29 September 2012

WESTERN EUROPE

Government

Renata Polverini, the governor of the Italian region of Lazio, has resigned amid a scandal over the alleged embezzlement of public funds, which were reportedly used to buy cars, holidays and expensive dinners.
Tom Kington
The Guardian, 25 September 2012

ASIA

Companies

In Japan three former Olympus executives, Tsuyoshi Kikukawa, Hisashi Mori and Hideo Yamada, have pleaded guilty to filing false financial reports in connection with a $1.7 billion accounting fraud designed to hide lossmaking investments.
Jonathan Soble
Financial Times, 26 September 2012

AFRICA

Energy

Former Elf chief executive Loik Le Floch-Prigent has been charged with being an accessory to fraud in Togo following a complaint from Abbas al-Yousef, a businessman from the United Arab Emirates, who alleged that he was victim of a £30 million fraud.
BBC, 24 September 2012

Government

Julius Malema, former youth leader of South Africa's ruling African National Congress, has been charged with money laundering and faces allegations of receiving the proceeds of unlawful activities. Mr Malema denies the charges and allegations.
Andrew England
Financial Times, 27 September 2012
 
 

Mishcon de Reya

Mishcon's Fraud Watch is published by the Dispute Resolution Department of Mishcon de Reya. Widely recognised as the leader in the field of fraud investigations, the Department has pioneered the use of financial fraud techniques in numerous fields, including the rapidly growing areas of theft of confidential information and counterfeiting. The Department founded and run both the Fraud Network, made up of international legal fraud specialists and the Financial Risk Group, for risk and compliance officers.