Jeff, I am looking forward to your report. Here is an account from today's Miami Herald that includes some detail from yesterday's press conference:
miami.com
Traders charged in fund scheme
Money laundering and kickbacks alleged
BY GREGG FIELDS
gfields@herald.com
For the corps of alleged corrupt stock traders working mostly in Boca Raton, it was a can't-lose proposition.
Best of all, it was simple. Thanks to a crooked mutual fund employee, they would sell little-known penny stocks to the fund for inflated prices, earning a tidy profit. And to keep the crooked deals flowing, they would give the mutual fund employee kickbacks from their profits.
Just one problem: That mutual fund was fictitious. The employee was an FBI agent. He was part of a multiagency, international team fighting white-collar crime in South Florida.
Code name: Operation Bermuda Short. For the clothing item, not the island.
The result: 58 individuals wearing handcuffs.
Predominantly operating in South Florida, they have been indicted on charges of conspiracy, securities fraud, wire fraud and other crimes. The charges include money laundering, since in a few instances the stock traders agreed to help an undercover agent wash $1.4 million in money represented as proceeds from a big cocaine deal.
''These individuals are nothing less than corporate terrorists,'' said Hector Pesquera, the FBI's special agent in charge.
Marcos Daniel Jiménez, U.S. Attorney for South Florida, noted that the undercover transactions were structured in such a way that no private investors lost money in the crooked deals.
How? The deals never actually came off. Although a number of small transactions occurred -- partly to build faith and also to test whether the conspiracies would work -- they had no impact on market prices, investigators say. The stocks themselves are not on major exchanges and rarely trade.
At a Thursday press conference, Jiménez said the need to protect investors was the underlying reason Operation Bermuda Short was needed, alluding to the debilitating impact that recent corporate scandals have had on public trust.
''The cornerstone of the federal securities law is to protect the investing public by requiring transparency and full disclosure by publicly traded companies,'' Jiménez said.
Operation Bermuda Short began two years ago. In a typical transaction, the FBI undercover agent would offer to boost a laggard stock's price by buying it for inflated prices for a fictitious mutual fund in Great Britain.
The securities in question were for real companies, although they tended to be obscure and in some cases appear to have had few actual operations.
By pumping up the price with the fraudulent purchases, the brokers would earn a profit and theoretically establish a higher price for selling to the next investors.
In one case, the indictments allege, two men named Greg Balk and Chris Sagnelli controlled a large number of shares of SeaEscape Entertainment .
The undercover agent agreed to get his mutual fund, which he said was represented by an Atlanta firm named Connelly & Williams Associates, to purchase $8 million of SeaEscape stock, paying $1.50 per share rather than the market price of 20 cents.
Of the $8 million paid, $3.2 million would come back to the agent as a kickback. Balk and Sagnelli also bribed two cooperating witnesses, who were posing as due diligence officers for the fund, the indictment says.
In other cases, officers of the little-known companies were involved in the fraud themselves, the indictments contend.
For instance, David Rich was CEO of a Boca company called Integrated Homes, whose business was purportedly wiring new homes with broadband communications capability.
The indictment says Rich, along with other investors, agreed to sell the fund two million shares of Integrated Homes for $4 each, even though they were trading at the time for just 65 cents.
The kickbacks in that scheme were set at $4 million.
To cover their tracks, the investors would sometimes use an elaborate international route of transactions, using corporate entities in Canada, the Caribbean and Europe to shield their manipulation from public view. Some kickbacks, for instance, were to be wired to a Swiss entity called Southern Star Shipping.
The scheme's international reach resulted in bringing in foreign investigators, including the Royal Canadian Mounted Police. Many of the questionable stocks were of Vancouver-based companies.
''Organized crime doesn't respect sovereign states, and only through international alliances can we be successful'' in fighting it, said Garry Clement, an RCMP superintendent.
While the bust may reinforce Boca Raton's image as a hub of securities fraud, the city's police chief, Andrew Scott, said he hopes it also carries the clear message that the city is aggressively attacking the problem.
''The endeavors of local agencies sometimes is overwhelmed by sophisticated operations such as these,'' Scott said. ''This is just one of several schemes we've been able to uncover and prosecute in collaboration'' with the FBI and other agencies. |
