Mishcon Fraud Watch - September 2012

Welcome to the September 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.


Financial Services

Lloyds' Bank former head of fraud and security for digital banking Jessica Harper has pleaded guilty to defrauding the bank of £2.5m through fake invoicing.
Caroline Binham
Financial Times, 8 August 2012

United States of America

Securities and Exchange Commission (SEC)

The SEC has charged two former brokers, Fabrizio Neves and Jose Luna, with fraud for overcharging customers approximately $36m by using hidden markup fees on structured notes transactions.
SEC press release 2012-168, 29 August 2012

The SEC has announced fraud charges and an emergency asset freeze against Paul Burks and his company Rex Venture Group to halt a $600m Ponzi scheme.
SEC press release 2012-160, 17 August 2012

The SEC has charged former college football coach Jim Donnan and business partner Gregory Crabtree with conducting an $80m Ponzi scheme.
SEC press release 2012-157, 16 August 2012

The SEC charged Wells Fargo Brokerage Services LLC, the brokerage arm of Wells Fargo, and Shawn McMurtry, a former Vice President with the company, with violating securities laws for failing to fully understand the complexity of the asset-backed commercial paper ("ABCP") they sold, and for failing to disclose the risks of the ABCPs to investors. Wells Fargo agreed to pay more than $6.5 million to settle the SEC's charges; Mr. McMurtry agreed to pay a fine of $25,000 and a suspension of six months from the securities industry.
SEC press release, 14 August 2012

The SEC charged Edward Bronson and his New York-based firm, E-Lionheart Associates LLC d/b/a Fairhills Capital, with operating an illegal penny stock scheme. The scheme involved the purchase of billions of shares of stock from small companies at deep discounts and then the sale of those shares on the public market. The scheme purportedly netted more than $10m in illegal profits.
SEC press release, 22 August 2012

Department of Justice

The Department of Justice announced that Japan-based Nippon Seiki Co. Ltd. agreed to plead guilty to participating in a conspiracy to fix prices of instrument panel clusters, known as meters, that are sold in cars in the U.S. The company agreed to pay a fine of $1 million. The Department's action against Nippon Seiki is part of a larger investigation into price fixing and bid rigging in the auto parts industry; thus far the Department of Justice has charged seven other companies and eleven executives as well.
Department of Justice press release, 28 August 2012

The Department of Justice announced the conviction of three former UBS Executives for participation in frauds relating to the bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts. According to the evidence presented at trial, the three men, Peter Ghavami, Gary Heinz, and Michael Welty, corrupted the bidding process for more than a dozen investment agreements in order to increase the number and profitability of the agreements awarded to UBS.
Department of Justice press release, 31 August 2012


Online poker company PokerStars, has agreed to pay $731m to US authorities to settle allegations of money laundering and bank fraud. PokerStars did not admit to any wrongdoing as part of the agreement.
Richard Blackden
The Daily Telegraph, 1 August 2012


Financial Services

Polish financial institution Amber Gold and its founder Marcin Plichta have been accused of operating an alleged pyramid scheme fraud in which investors lost approximately £38m.
The Independent, 28 August 2012



Kim Seung-youn, chairman of Hanwha Corp, one of South Korea's largest conglomerates, has been sentenced to four years in prison and fined $4.5m for embezzlement.
Simon Mundy
Financial Times, 16 August 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.