Financial Mines

News and notes from the business reporters for the Connecticut Media Group.

Archive for the ‘Fraud’ Category

Stamford, Bridgeport, Norwalk and SHU get UBS checks

Thursday, March 28, 2013 by:Rob Varnon

UBS AG has issued $541,000 in restitution checks to 10 Connecticut bond issuers who were affected by an alleged bid rigging scheme, according to Attorney General George Jepsen.

UBS settled the allegations it steered clients into bad contracts for municipal bond derivatives with 24 states, agreeing to pay $90.8 million in restitution and fines.

The Swiss bank, which has operations in Stamford, was either a broker or holder of the contracts executed between 2001 and 2004.

Here’s the amounts being returned to area entities:

Stamford $165,104

Bridgeport $26,677

Sacred Heart University $18,485

Norwalk, $8,926.

“Connecticut government and not-for-profit entities are receiving rightful compensation for their losses arising from the wrongful conduct,” Attorney General Jepsen said. “A large amount of the funds entrusted to UBS AG was taxpayer money, which UBS steered into rigged or tainted municipal derivatives contracts.”

Raj Rajaratnam’s little brother charged with insider trading

Thursday, March 21, 2013 by:Rob Varnon

With his brother Raj Rajaratnam already sitting in a federal penitentiary for insider trading, his little brother Rengan Rajaratnam is now facing similar charges.

The U.S. Securities and Exchange Commission announced Thursday it is bringing charges against the younger Rajaratnam, who regulators say was tipped off by his brother, a one-time Greenwich resident and the founder of Galleon, to insider information.

“Our complaint against Rengan Rajaratnam tells a sad tale of a man who followed his brother down an illegal path of greed to its inevitable conclusion,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “Rengan Rajaratnam profited handsomely from his brother’s insider trading activities, and he may have believed he wouldn’t have to pay a price for his involvement. But now he is learning the true cost of his participation in the most expansive insider trading scheme ever perpetrated.”

The SEC says Rengan Rajaratnam and his brother made $3 million in profits trading on the insider information for themselves and the hedge funds they managed.

The U.S. Attorney for the Southern District of New York is also bringing a criminal action

Entrenched in underground economy, man goes to jail

Tuesday, March 19, 2013 by:Rob Varnon

This item from Justice came out Monday. It’s another example of the law unearthing underground economic activity.
One of the contributing factors to the decline in the state’s labor force in the last year is that people working for cash to avoid taxes are not counted in the monthly jobs report. As a result the numbers look worse than they are.
Other contributing factors are retirement, discouraged workers and people moving out of state.
Anyway, Justice says it found a concrete firm owner who went to some lengths to avoid taxes while working jobs.

OWNER OF CONCRETE COMPANY SENTENCED
TO PRISON FOR $3.7 MILLION TAX EVASION SCHEME

David B. Fein, United States Attorney for the District of Connecticut, announced that DOUGLAS CARTELLI, also known as “Douglas Martin,” 42, of Killingworth, was sentenced today by Chief United States District Judge Alvin W. Thompson in Hartford to 40 months of imprisonment, followed by three years of supervised release, for engaging in an extensive tax evasion scheme.
According to court documents and statements made in court, since 1992, CARTELLI has owned and operated several Connecticut-based concrete companies including DMC Concrete Corp., Commercial Concrete Construction LLC, Commercial Concrete NE LLC and Commercial High Rise Concrete LLC. As part of a scheme to avoid withholding and paying employee taxes, CARTELLI routinely characterized his employees as “independent contractors.” After the U.S. Department of Labor and Internal Revenue Service began an investigation of DMC Concrete, CARTELLI continued to misclassify employees as independent contractors and took steps to make it more difficult for the Department of Labor and the IRS to monitor his companies’ payroll. CARTELLI used a convenience store in Middletown that provided him with cash so he, in turn, could pay his employees in cash, and the store owner was reimbursed by checks from CARTELLI’s business checking accounts. Between July 2004 and February 2008, the store owner received checks from CARTELLI totaling more than $1.15 million.
CARTELLI also convinced the owner of a Middletown liquor store to cash payroll checks for his employees. Each Friday from July 2005 to March 2006, Commercial Concrete NE wired payroll funds into the store’s business checking account. CARTELLI’s employees would go to the store, provide their payroll checks to the store owner and receive cash. The store owner would then return the payroll checks to CARTELLI. During this time period, the store owner withdrew more than $1.266 million in cash that CARTELLI had wired to the liquor store’s bank account.
Over the course of several years, CARTELLI attempted to thwart investigators and evade paying taxes and penalties by twice changing the name of his business and falsely representing to the IRS that he no longer owned the businesses, by writing business checks to his wife or to cash, and by using business checks to pay for numerous personal expenses, including credit card bills, personal real estate taxes and high-end renovations of his home.
The IRS has determined that CARTELLI’s under-reporting of employee wages and payroll taxes, his failure to withhold employment taxes and his failure to pay penalties related to this conduct has resulted in loss to the IRS of more than $3.45 million.
CARTELLI also failed to file personal income tax returns for the 2004 through 2007 tax years, during which he had total taxable income of approximately $959,936.25, resulting in loss to the IRS of $275,275.
Judge Thompson ordered CARTELLI to cooperate with IRS to resolve his outstanding tax liability.
On March 21, 2011, CARTELLI waived his right to indictment and pleaded guilty to three counts of tax evasion.

Car breakdown leads to 41 months in jail for hedge fund CFO

Thursday, March 14, 2013 by:Rob Varnon

Darrin Foster formerly of the Bronx, spent six years using a Westport hedge fund as his personal piggy bank and two years on the lamb from law enforcement, will head to jail to serve 41 months for embezzlement.

Foster, a former CFO of a Westport hege fund, was sentenced Thursday by U.S. District Judge Janet Bond Atherton in New Haven for embezzling $1 million from his employer over a six year period.

The government said Foster ran up personal charges on his corporate American Express card and then tapped the hedge fund’s bank accounts to pay them between September of 2004 and July of 2010.

His crime is just now being punished as he evaded law enforcement for two years after leaving his job until his car broke down in New York in May of 2012. A New York State Policeman saw him and stopped to help and that’s pretty much where his run ended.

According to police, Foster tried to provide a fake name to the helpful officer, who eventually discovered who he was and that he was wanted.

Foster pleaded guilty in October to wire fraud. He will also serve three years of probation after prison.

State snatching tax refunds from ‘unemployed’ chiselers

Friday, March 1, 2013 by:Rob Varnon

State Labor Department won't 'bear' unemployment benefit cheating. AP file photo

The Connecticut Labor Department said this week a new program aimed at recovering money from people who were cashing unemployment benefits checks while employed has intercepted $2.66 million in federal tax refunds.

Overall, the Department said it recovered $4.6 million in fraudulently cashed unemployment checks from 5,000 people in February.

“No one wants to see individuals or employers taking advantage of our unemployment system,” said State Labor Commissioner Sharon M. Palmer. “Nationally, Connecticut has one of the best performance records when it comes to minimizing the number of unemployment insurance overpayments, but we are making it a top priority to implement new tools and technology to improve upon our successes.”

According to Palmer, the funds, amounting to $4,622,902, were recovered through the Treasury Offset Program and a State Income Tax Intercept program that was upgraded in 2012.

Of the $4.6 million recovered in the past month, $2.66 million was the result of the new TOP initiative, a partnership with the Internal Revenue Service and the federal Labor Department. This program intercepts federal tax refunds when individuals have not responded to requests to repay unemployment insurance benefits that they were not entitled to collect.

For all of 2011, the state said it recovered $4 million in unemployment payments and expects to recover $8 million this year.

Unemployment benefits are paid for by employers. The money goes into a trust fund and right now Connecticut’s trust fund is deficient by about $670 million.

Nancy Steffens, a labor department spokeswoman, said the department is able to catch some people by cross referencing their names with IRS tax filings to find people who were basically double dipping. In some cases, people have made honest mistakes and filed for UI benefits after being hired but before receiving their first paycheck. She said in most of those cases, the people pay back their benefits immediately.

But Steffens said the department has found people collecting benefits and working under fake names and social security numbers. It’s also had cases where an employer hires his family members and lays them off so the family can collect the unemployment checks. And the department has seen employers create fake employees and lay them off, as well.

The number of cases have gone up in recent years as the number of people collecting has increased, Steffens said, but as a percentage remains fairly small.

During a conference on business development in Fairfield a few years ago, several restaurant owners reported having difficulty hiring people who would work on the books, meaning they would only take cash payments and didn’t wan their names to appear on any employment rosters. One such restaurateur said he was told by several applicants that they were collecting unemployment and didn’t want to lose the benefit.

Some people who have lost high paying jobs justify the continued collection of benefits because their new job doesn’t pay as much and the family would find it hard to cover its expenses.

Whatever the reasons, the state is going after cheats, so look out.“Our efforts are dedicated toward chasing cheaters because ultimately, this benefits the taxpayers of Connecticut and our overall economic health.”

Ridgefield-based hedge fund executives indicted

Tuesday, February 26, 2013 by:Rob Varnon

David B. Fein, United States Attorney for the District of Connecticut, and Kimberly K. Mertz, Special Agent in Charge of the New Haven Division of the Federal Bureau of Investigation, announced Tuesday a federal grand jury sitting in New Haven returned a 19-count indictment charging three executives of New Stream Capital, LLC, a Ridgefield-based hedge fund, with conspiracy, securities fraud and wire fraud offenses.

The SEC has also filed a civil complaint against the men.

The feds say that New Stream Cap Managing Partners David Bryson, 44 of Ridgefield and Bart Gutekunst, 61 of Weston, with New Stream CFO Richard Pereira, 40 of Ridgefield, surrendered in the morning to the FBI in New Haven.
The defendants appeared before U.S. Magistrate Judge Donna F. Martinez in Hartford and pleaded not guilty to the charges.

The trio is charged with lying to investors about the status of its offshore funds.

Bryson and Gutekunst were released on $5 million bonds and Pereira on a $300,000 bond.

“As alleged, fearing the loss of their fund’s largest investor, these defendants orchestrated a scheme to deceive investors in order to obtain and maintain investments,” stated U.S. Attorney Fein. “The U.S. Attorney’s Office and our many partners on the Connecticut Securities, Commodities and Investor Fraud Task Force are committed to protecting investors and the integrity of American capital markets.”

“It goes without saying that investing carries certain risks,” stated FBI Special Agent in Charge Mertz. “Those risks, however, should not include any chance that hedge fund managers or other investment professionals are lying to or deceiving their investors about the current state of investments. Investors have a right to full disclosure. Today’s arrests underscore the FBI’s continuing commitment to investigate those who provide material misrepresentations to investors.”

According to the indictment and statements made in court, in November 2007, New Stream launched new feeder funds, one based in the United States and a series of funds based in the Cayman Islands. New Stream also announced that its existing Bermuda Fund would be closing, and all foreign investors would have to move their investments into the Cayman Fund. Rather than transfer into the new structure, New Stream’s largest investor placed a redemption on its whole investment in the Bermuda Fund in March 2008.

At risk of losing their largest investor, it is alleged the three men set in motion a scheme to secretly keep the Bermuda Fund open and give priority to Bermuda Fund investors in an effort to reverse the redemption. As part of the scheme, New Stream staff secretly reorganize the fund structure so as to effectuate the priority change.

The indictment further alleges that New Stream failed to inform investors who had transferred from the Bermuda Fund into the Cayman Fund that the Bermuda Fund was remaining open or that it was being given priority over the Cayman Fund. Moreover, New Stream continued to market New Stream to investors by concealing from them the magnitude of the actual pending redemptions and by using deceptive marketing materials that failed to disclose the existence of New Stream’s Bermuda Fund.

Each of the defendants is charged with one count of conspiracy, 10 counts of securities fraud and eight counts of wire fraud. The conspiracy charge carries a maximum term of imprisonment of five years, and the securities fraud and wire fraud charges carry a maximum term of imprisonment of 20 years on each count.

This matter is being investigated by the Federal Bureau of Investigation and the U.S. Department of Labor, Office of Inspector General, with the assistance of the Securities and Exchange Commission. The case is being prosecuted by Assistant United States Attorneys Liam Brennan and Michael S. McGarry.

Newtown man cops to $2.5 million “friends and family” fraud

Thursday, February 14, 2013 by:Rob Varnon

The U.S. Attorney for the District of Connecticut said Thursday Garrett L. Denniston, 62, formerly of Newtown and Maine, pleaded guilty in federal court to wire fraud related to a seven-year fraud that took 50 people for $2.5 million.

“This defendant operated an investment fraud scheme by representing to investors that he ran a successful investment business and could offer them a special ‘friends and family’ deal investing in companies for a guaranteed return of their investment plus a high rate of interest,” stated U.S. Attorney Fein. “I commend the FBI and the Greenwich Police Department for shutting down this scheme, and I urge the investing public to be extremely skeptical of any promises of risk-free investments and guaranteed returns.”

Denniston, according to court records ran a company called ConsensusOne and attracted investors from approximately 2005 to 2012, claiming to have special investment options on merging companies under a friends and family deal. But the stocks were non existent, the government said.

As in other cases, there were faked documents and money from one investor was used to pay others.

Denniston apparently blew much of the money on luxuries and having fun, using some of the money for gifts to family members, airfare, hotels, restaurants, country club memberships, golf and ski outings, mortgage and rent payments, cable and telephone bills, furniture, home renovation costs, and other personal living expenses, the government said.

The former Newtown resident is scheduled to be sentenced on June 11 and he faces a maximum prison term of 20 years.

SEC shuts down a different kind of green investment

Friday, February 8, 2013 by:Rob Varnon

The U.S. Securities and Exchange Commission brought charges and an asset freeze Friday against an Illinois man and two companies behind an an alleged fraudulent investment scheme targeting foreign investors seeking profitable returns and a legal path to U.S. residency through a federal visa program.

The SEC alleges that Anshoo R. Sethi created A Chicago Convention Center and Intercontinental Regional Center Trust of Chicago and fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors primarily from China.

Sethi and his companies duped investors into believing that by purchasing interests in ACCC, they would be financing construction of the “World’s First Zero Carbon Emission Platinum LEED certified” hotel and conference center near Chicago’s O’Hare Airport, the government claims. Investors were misled to believe their investments were simultaneously enhancing their prospects for U.S. citizenship through the EB-5 Immigrant Investor Pilot Program, which provides foreign investors an avenue to U.S. residency by investing in domestic projects that will create or preserve a minimum number of jobs for U.S. workers.

The SEC alleges that Sethi and his companies falsely boasted to investors that they had acquired all the necessary building permits and that several major hotel chains had signed onto the project. They also provided falsified documents to U.S. Citizenship and Immigration Services (USCIS) – the federal agency that administers the EB-5 program – in an attempt to secure the agency’s preliminary approval of the project and investors’ provisional visas. Meanwhile, Sethi and his companies have spent more than 90 percent of the administrative fees collected from investors despite their promise to return this money to investors if their visa applications are denied. More than $2.5 million of these funds were directed to Sethi’s personal bank account in Hong Kong.

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