Uion Securities Accused of Money Laundering for Mafia; $54 Mil missing from escrow
by Brent Mudry
An indicted Ohio death insurance promoter is the latest mob-related fraudster
to be revealed as a client of jailed Vancouver stockbroker Trevor Koenig of
Union Securities, who faces sentencing Friday in New York in an apparently
unconnected Mafia-related case. New court filings show James A. Capwill used
the Howe Street brokerage as a money-laundering conduit for millions of
dollars, plus penny stock shares, stemming from the $160-million Liberte
Capital Group LLC fraud. (All figures are in U.S. dollars.)According to court documents, Mr. Capwill was serviced by Union brokers Mr.
Koenig, currently in jail in New York in an unrelated Mafia-connected case,
and Marty Brown, whose reputation remains unblemished by any regulatory or law
enforcement troubles. Mr. Koenig, in jail for the past 8-1/2 months since his
arrest crossing the border south of Vancouver on the Labour Day weekend,
awaits sentencing Friday after pleading guilty Feb. 22 in the Southern
District of New York to two counts of securities fraud. He faces a maximum
potential sentence of 15 years.The downfall of Mr. Koenig, who ran a satellite Union branch in the border
town of White Rock specializing in garbage OTC Bulletin Board stocks, came
when he was named, along with client Roger DeTrano, a New York penny stock
promoter, in a sealed complaint outlining their alleged roles in the
fraudulent promotion of WAMEX Holdings Inc., a Mafia-linked penny stock play.
The pair were snared in an FBI sting after WAMEX promoter Mr. Durante, a
career fraudster and Mafia associate, turned key state witness and active
undercover informant, luring several penny stock associates into FBI-scripted
stock manipulation schemes.Although there are no apparent links between the Durante and Capwill cases,
both reportedly featured Mafia connections. "A reputed Mafia enforcer, Eugene
'The Animal' Ciasullo, would show up at Mr. Capwill's Cleveland-area office in
dark glasses and a jogging outfit. In tow would be purported businessmen
seeking loans or investments in their companies," states Crain's Investment
News reporter Rick Miller in an award-nominated Oct. 16, 2000, feature
article. "In one instance, Mr. Ciasullo flashed photos of heavy construction
machinery as collateral and walked out with cash in a paper bag."Mr. Ciasullo, an independent mob enforcer, earned his nickname in a notable
barroom brawl in which he was severely injured when a nail-packed bomb
exploded. "According to court testimony, Mr. Capwill would brag about his mob
friend and show off a book to his employees titled, 'To Kill the Irishman,' an
account of the Cleveland mob's war with a local Irish gang," states Mr.
Miller.Left unexplained is how two mob-connected but apparently unrelated U.S.
fraudsters, Mr. Durante and Mr. Capwill, independently stumbled upon not just
the same small Vancouver brokerage, Union Securities, but sought out its tiny
White Rock office, headed by Mr. Koenig. Evidently, Mr. Koenig's reputation
extends far beyond Howe Street, the centre of dealings for the former
Vancouver Stock Exchange, dubbed the Scam Capital of the World a decade ago by
writer Joe Queenan in Forbes magazine.Ironically, revelations of Union's latest money-laundering situation come as
Canada's Department of Finance released revisions Tuesday to the country's new
money-laundering legislation, to come into effect June 12. While Canada is
finally anxious to clean up its long-standing reputation as an international
laundromat, criminal defence lawyers won an exemption in a continuing court
challenge, and banks and brokerage firms this week won some leniency.The Globe and Mail reported Wednesday that Canadian brokerages won an
exemption to rules governing identification of foreign clients. The move came
after heavy lobbying by the Investment Dealers Association of Canadian, which
doubles as a trade lobby and an industry regulator, complained the previously
proposed rules would have put Canadian brokerages at a disadvantage with their
counterparts in other countries.There is no suggestion, of course, that anyone at Union or the IDA had the
faintest clue that the Vancouver brokerage has been repeatedly used as a
money-laundering conduit by mob-related clients in recent years, like its
much-bigger local counterpart Pacific International Securities, which serviced
Phil Abramo, Phil Gurian, Eric Wynn and other reputed Mafia associates.While the Capwill case has been building for several years in the U.S., the
Canadian money-laundering connections were extensively revealed in recent
court filings in Vancouver. In a petition filed May 9 in the Supreme Court of
British Columbia, Victor Javitch, the court-appointed receiver for Liberte
Capital, extended a formal invitation to Union Securities to hand over all
relevant documents on at least five Capwill-connected accounts and chat on the
record about its dealings with indicted client Mr. Capwill and his associates.The petition, filed by Vancouver lawyer Doug Lahay of Clark Wilson, names as
respondents Union Securities Ltd., Union Securities (1987) Ltd. and Union
Securities Financial Services Ltd. While Mr. Lahay estimates a court hearing
will take two hours, no date has yet been set.In the civil subpoena application, receiver Mr. Javitch seeks court orders for
specific Union accounts, including No. 22-642U-0, No. 02-57915, No. 14-062U-8,
and two accounts which dealt in shares of 2Dobiz.com: No. 015-246U-4, in the
name of Jim Capwill, and No. 018-745U-4, in the name of International Investor
Relations Group. The B.C. action is supported by a request for judicial
assistance, or letter rogatory, issued March 20 by Mr. Justice A. Katz of
United States District Court for the Northern District of Ohio.Mr. Javitch also seeks full records of all other Union accounts maintained by
or for the benefit of Mr. Capwill and associates Thomas A. (Tony) Sandelier
III and Vincent (Vince) Norman, and by entities affiliated with Mr. Capwill
and his affairs, including AJ Management LLC, Alpha Capital Group LLC, Capwill
and Company, Capital Fund Leasing LLC, CWN Group Inc., EJT Management, Liberte
Capital Group LLC, NoahCap Ventures LLC, R.J. Management, Rainbow Properties
LLC, Satellite Funds LLC and Viatical Escrow Services LLC. In addition, the
receiver seeks full records of all Union accounts held by or related to Mr.
Sandelier and his affairs, including Go-Be-A-Toy Co. Inc., International
Investor Relations Inc., International Investor Relations Group Inc., Red
Iguana Trading Co. Inc. and The Red Iguana Trading Co.U.S. lawyers and judges have heard Union's name mentioned in various Capwill
probes, and they are now anxious to hear much more. "Mr. Vince Norman has
admitted at deposition that he was involved in various transactions involving
Capwill and Sandelier that took place through Union Securities," states
Vancouver lawyer Mr. Lahay in the petition."The U.S. government has indicted Capwill on various counts of wire fraud,
mail fraud and tax evasion. This criminal case is pending and no judgment has
been reached in this matter." Court filings note that while Mr. Capwill's
guilt or innocence is still an open question, "the indictment underscores the
relevance of information pertaining to all of Mr. Capwill's financial
transactions, including his direct and/or indirect dealings with Union
Securities."Receiver Mr. Javitch is especially interested in two accounts, No. 22-642U-0,
which features Mr. Norman as a nominee, and No. 14-062U-8. "Norman testified
that Capwill and Sandelier placed funds in Norman's name in various accounts
including USD $750,000 placed into this specific Union Securities account (the
former.) Wire transfer documents show that this money originated from Capital
Fund Leasing," states the petition. Court-exhibited wiring instructions, dated
Aug. 27, 1998 and signed by Mr. Capwill, indicate this $750,000 transfer was
from Star Bank N.A. in Solon, Ohio, to Union.So far, less is known about the latter account. "The receiver found documents
indicating that a numbered account with no name that was apparently funded
with another USD $750,000 originated with Capital Fund Leasing," states Mr.
Lahay in a court filing.The Vancouver petition also specifies that the receiver in interested in Mr.
Capwill and Mr. Sandelier's transactions relating to 2DoBiz shares. "Capwill
took 2DoBiz stock out of his name and put it into Sandelier's name and Union
Securities was the transfer agent in connection with these transfers. The
evidence held by Union Securities is relevant to this transaction and the
questions of who owns the 2DoBiz stock and why title was switched. Likewise,
Union Securities' evidence is relevant to similar issues regarding any
accounts or property that may be administered by Union Securities for the
nominal benefit of the other persons enumerated," states Mr. Lahay.Mr. Capwill's Liberte Capital Group was one of the biggest frauds in the
controversial viatical, or death insurance, industry. In legitimate viatical
deals, an investor or promoter buys the life insurance policies of AIDS
patients, or other terminally ill people, giving them a small fraction of the
face value in cash, and pocketing the difference once the policy matures at
the patient's death. Promoters can then sell shares or entitlements to
portfolios of such viatical policies to investors, which is sometimes fully
legal.The viatical industry, however, is rife with abuse, with unscrupulous
promoters, using dirty finders, recruiting AIDS or otherwise terminal
patients, getting them to sign up for numerous life insurance policies with
different insurers, without disclosing their terminal condition, flipping
these policies for pennies on the dollar, then ripping off both big insurers
and small investors. Insurers are defrauded through a form of
"clean-sheeting," as policies below a certain cap, often $150,000, fly under
the radar by requiring no comprehensive medical exams or other verification to
ensure applicants are not terminally ill.Mr. Capwill's Liberte Capital scheme began unravelling in mid-1999, and Ohio
Judge David Dowd Jr. officially appointed Frederick M. Luper as Liberte
Capital's receiver on July 15, 1999, following an emergency appointment two
weeks earlier. Mr. Javitch later replaced Mr. Luper by court order dated June
15, 2000. The receiver's Liberte suit against Mr. Capwill initially alleged he
misappropriated at least $17-million of funds he had been given to hold in
escrow.A court-appointed receiver's accountant, Heinz Ickert, subsequently alleged,
after an initial forensic investigation, that Mr. Capwill had converted more
than $50-million of escrow funds to his own personal benefit, to associated
business entities, and to his associates and relatives. In addition, Mr.
Capwill allegedly wrongfully diverted six rescission cheques on viatical
policies, for a total of $496,000, which should have been sent to the
receiver.While it is unclear what, if any, due diligence Union Securities' compliance
department and its management did on Mr. Capwill, things got worse for its
fine client.In a rush ex parte action on Feb. 10, 2000, the receiver applied for a
temporary restraining order to freeze all of Mr. Capwill's assets. The judge,
however, granted a freeze only on the accounts to deposit the diverted
cheques, and ordered a full hearing for arguments on a broader freeze."After extensive hearings in the months of March, April and May (2000),
Magistrate Judge (James) Gallas issued a Report and Recommendation ('R&R')
advising that a preliminary injunction should issue to enjoin Capwill from
directing the activity of certain businesses in which he has an interest, to
turn those businesses over to the Receivership, and to require Capwill to
provide a comprehensive monthly reporting of his financial activities," states
an Aug. 1, 2000, judgment of Judge Dowd. In his report, Judge Gallas also
recommended Mr. Capwill be paid a maximum of $5,000 a month for living
expenses only after he demonstrated he no longer had access to funds
rightfully belonging to Liberte Capital and an affiliate, Alpha.This decision of Judge Dowd, in response to the Capwill group's court
challenge of numerous interim findings by Judge Gallas, soundly rejected most
of Mr. Capwill's grounds of appeal.Judge Gallas's finding of fact No. 1 asserted that in the spring of 1997,
while Mr. Capwill's Liberte operation was starting up, his accounting practice
was "marginal, and his financial position was precarious." Judge Gallas cited
several factors, including Mr. Capwill's negligible personal net worth, his
status as a defendant in numerous lawsuits for non-payment of taxes and other
obligations, and his eviction from an office he was running."There is more than enough evidence in the record to support the Magistrate's
finding that Capwill was in dire financial straits in the Spring of 1997.
(Office manager Virginia) Hale's paychecks bounced; business was conducted in
a warehouse and was operated primarily on a barter system; few checks were
coming in; and Capwill's mother was paying the office bills ... Capwill
admitted to financial problems prior to his entry into the viatical business
but claimed he could not recall what he owned at that time," stated Judge
Dowd. The judge noted Mr. Capwill still owed student loans even though he had
graduated from college in 1986.Mr. Capwill also unsuccessfully challenged Judge Gallas's finding of fact No.
4, relating to his abusive use of shell companies. "To the contrary, there is
abundant evidence that Capwill created shell companies to divert funds ...
Capwill created numerous companies, such as Rainbow Properties and CFL
(Capital Fund Leasing, which wired funds to Union Securities for laundering),
that had no employees; that opened accounts with negligible initial deposits;
and for which Capwill or he and his brother was the only signatory on the
account," stated Judge Dowd.Mr. Capwill also lost a challenge of finding of fact No. 10, in which Judge
Gallas found that, beginning from the receiver launching suit in July, 1999,
he had continued to hide and dissipate assets. Judge Dowd ruled this was
supported by the simple fact that to date, Mr. Capwill had neither accounted
for nor returned the $54-million which was missing from his escrow accounts.
"Ickert and Hale testified that Capwill used this money to invest in a variety
of 'shell' companies, issue personal loans to friends, associates and
relatives, construct an expensive house that was to include a helicopter port,
and go on European vacations," stated Judge Dowd.Judge Dowd also threw out most of Mr. Capwill's other challenges to Judge
Gallas's numerous other unflattering findings of fact, and declined to
overturn the broad asset freeze.Despite the collapse of Mr. Capwill's Liberte Capital viatical promotion and
the disturbing unravelling of his dubious financial affairs, it was apparently
still business as usual at Union Securities, where Mr. Koenig, assisted by Mr.
Brown, kept doing business with him. There are no allegations of wrongdoing by
either of the Union brokers.(c) Copyright 2002 Canjex Publishing Ltd. stockwatch.com------------------- |
