Fraud & Investigations

Feds go after financial criminals in creative ways

Posted on Tuesday, December 14, 2010

Joshua Konigsberg and Louis Fischler dreamed of pennies from heaven in what prosecutors say was a classic pump-and-dump stock scheme. Their timing couldn’t have been worse.
The U.S. attorney’s office last week used the duo from Palm Beach County as one example of its beefed-up war on financial fraud. In Washington and Miami, federal authorities flexed their muscles at dual news conferences, touting hundreds of securities convictions, indictments and sentencings since mid-August.
Konigsberg and Fischler were charged in a criminal information Dec. 6 with paying kickbacks to pension fund managers to manipulate penny stocks in four publicly traded companies. Court records list no legal representation for the men as yet.
The case might have gone unnoticed but was one of those featured to announce Operation Broken Trust, which involved actions against 343 criminal defendants involving more than $8.3 billion in frauds affecting 120,000 victims. In South Florida, the operation resulted in charges against 21 defendants, 18 guilty pleas, nine sentencings and one extradition.
The Justice Department wanted to get out the message to scam artists that federal authorities are no longer waiting for cheated investors to come to them or Scott Rothstein-style Ponzi schemes to implode in the headlines.
"Whenever we charged anyone here, we are really stopping future fraud in those particular incidences," said Miami-based U.S. Attorney Wifredo Ferrer, who attended the Washington news conference.
Not only are Ponzi schemes on the agenda, but the Konigsberg-Fischler case demonstrates classics like pump-and-dump stock scams as well as insider trading and faux business opportunities are being pursued.
Federal agencies have combined forces, with the Securities and Exchange Commission beefing up its criminal pursuits and undercover FBI agents targeting unscrupulous securities brokers.
Ferrer said he was establishing a multi-agency initiative to combat financial fraud in South Florida similar to one established to fight health care fraud. South Florida leads the nation in prosecuting criminals fleecing Medicare and Medicaid program, a crime that went unabated for decades.
Undercover Roles
Not everyone was impressed. The New York Times noted the Justice Department appeared to be satisfied taking down small-timers and had not brought any criminal cases against a big-time corporate official since the economy tanked two years ago.
But not all cases were nickel-and-dime. Luis Felipe Perez was cited repeatedly by Ferrer. He said the Hialeah man ran a Ponzi scheme soliciting investments for New York jewelry and pawn shops at a loss of $37 million. Perez was sentenced to 10 years in prison Dec. 2.
Other notable South Florida cases from Operation Broken Trust included:
? Stewart Kipness who pleaded guilty Wednesday to fleecing clients out of $18 million through a Palm Beach County business that sold virtual reality video game equipment. The victims were told by the "independent sales agent" that a $5,000 profit would return $50,000 in 90 days.
? Bruce Palmer, president of Nevada-based encryption technology developer AccessKey, was indicted Sept. 21. Prosecutors and the SEC said he bribed brokers to manipulate the company’s stock price and paid a 30-million share kickback to an undercover FBI agent posing as a corrupt stockbroker. Palmer allegedly planned part of the venture with an informant who served as a middleman at a Fort Lauderdale meeting.
? Antonio Garcia Adanez, a Standard Chartered Private Bank employee, was charged Nov. 16 with selling a customer a fake $2.7 million bond and using the money to make unapproved investments.
Willing Victims
One unique aspect of financial fraud is many cases involve a willing victim, but SEC efforts to warn potential victims have not stemmed the tide of affinity scams.
"Part of this initiative that is something that is new is that we are organizing ourselves to have regular meetings with regulators who are involved in this area," he said. "The goal is to have the regulators hear what the schemes are and how the investors were defrauded."
The financial fraudster is today’s cocaine cowboy, and authorities are using some of the same tools used in the war on drugs.
In one SEC complaint filed Oct. 10, the CEO of a Fort Lauderdale investment company allegedly paid a kickback to a pension fund trustee to buy 40 million shares in the company. The trustee turned out to be an undercover FBI agent.
Eric Bustillo, regional head of the SEC in Miami and a former federal prosecutor, said his agency aims to be more bullish about bringing criminal actions rather than seeking only civil remedies.
He said cases coming into the SEC are more criminal in nature lately and beyond the scope of a regulatory remedy. "Our goal is essentially to be more proactive," Bustillo said.
While some critics of the financial crisis are out for blood, Ferrer repeatedly referred to the victims of fraud at the news conference. Bernard Madoff and Scott Rothstein captured headlines for conning the wealthy, but it’s the smaller frauds that wipe out retirement savings and force seniors back to work or financially devastate immigrant families, he said.
"Some victims — the luckier ones — lose only thousands of dollars. Others lose their entire life’s savings," Ferrer said. "While the victims of fraud are financially ruined, the fraudsters live a life of luxury."
John Pacenti . DBR


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