What happened with the criminal case against Holenweger ? Not enough evidence, according to the judge. A blow to prosecutors in this high profile case. Details on the Alstom case will follow as they pop up.

http://bit.ly/gigJp3

http://bit.ly/fWoHEB

http://bit.ly/dfiQqA

http://bit.ly/fn1TD3

http://financialcrimeonline.com/archives/875

http://bit.ly/dfiQqA

According to the court document, Hertz and co-conspirators engaged in a bid-rigging conspiracy from at least as early as October 2001 until at least November 2006.   As a part of the bid-rigging conspiracy, Hertz and co-conspirators designated in advance which co-conspirator provider, either his employer or another financial institution, would be the winning bidder for certain investment agreements or other municipal finance contracts.   Hertz and co-conspirators also agreed to submit intentionally losing bids for investment agreements or other municipal finance contracts that were steered to other financial institutions, giving the false appearance that these deals had been bid competitively in accordance with relevant U.S. Treasury regulations, or the requirements of the municipality.

According to the court documents, Hertz also participated in a fraud conspiracy with a broker located in Minnesota from as early as 1998 until at least November 2006.   As part of this conspiracy, the broker gave Hertz information about the prices, price levels or conditions in competitors’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations.   On some occasions, the broker signaled Hertz to change his bids to specific numbers so that his employer could make more money.   Hertz and co-conspirators also submitted intentionally losing bids to the broker for certain investment agreements to make it appear that his employer had competed for those agreement or contracts, when in fact, it had not.   As a result of the bid manipulation, Hertz’s employer won investment agreements and other municipal finance contracts at artificially determined price levels, which deprived municipal issuers of money and property.

We have seen quite a lot of bid rigging and price fixing (“gentlemen’s”) agreements in construction and infrastructure projects, cargo shipping and manufacturing.

In the Netherlands, the antitrust authority (NMa) is looking into possible price rigging in the mortgage market. Profit margins on Dutch mortgages are unusually high in Europe, according to a report by the Netherlands Competition Authority (NMa). The mortgage market is in the hands of a few big banks (sounds familiar?). Since July 2009, the interest rate margin, which is the difference between a bank’s borrowing costs and lending rate to consumers, has risen between 30 to 100 basis points, NMa said. “Since mid-2009 the margin in the Netherlands for mortgages with a fixed interest rate period between five to 10 years has been on a high level, both historically as well as compared with Belgium, Germany and France”. The Dutch banking association NVB said it was confident about the outcome of the NMa’s investigation, which will be completed in the spring of next year. NMa invited banks and other parties to react to the findings.

We will bring you updates and new interesting news as it comes along..

http://www.justice.gov/atr/cases/f264700/264760.htm

http://blogs.forbes.com/billsinger/2010/12/01/hertz-bid-rigging-plea/

http://www.justice.gov/opa/pr/2010/November/10-at-1366.html

http://www.rnw.nl/africa/bulletin/profits-dutch-mortgages-%E2%80%9Csuspiciously%E2%80%9D-high

http://www.reuters.com/article/idUKLDE6A012620101101

This week the Miami Herald reported that Wachovia is being sued for $68 million by investors in a Ponzi scheme run by Theodule. He banked with Wells Fargo (now part of Wachovia). The lawyer of the victims claims that the bank did not take any precautions when it onboarded the client. The fraudster switched from Wamu to Wachovia. At that time, according to the lawyer, a simple phone call to Wamu would have revealed that the transactions on the account did not make any business sense. In its client due diligence, the bank did not found out that Theodule wasn’t registered as a broker with the Financial Industry Regulatory Authority and wasn’t licensed in any way at all, said lawyer Perlman, who was appointed by the court to manage Theodule’s companies and try to collect funds to repay victims.

Within a month of Theodule opening several accounts at Wachovia, 36 investment clubs opened accounts at Wachovia, too, Perlman said, injecting some $2.2 million into those accounts. “How much came in just from those investment accounts — that should have set off every bell and whistle,” he said. Transactions between those accounts and Theodule’s should have been another red flag for Wachovia, he said. “The transactions show no investing at all. The money just circulates around,” Perlman said. In addition, Theodule took out large cash withdrawals, spending the money on jewelry and travel, he said. Wachovia even made special arrangements for one of Theodule’s employees to collect bags of cash through a bank drive-through, Perlman said. All together, Theodule withdrew more than $1 million in cash and more than $700,000 for personal expenses, the suit says.

“Why would a bank allow an investment advisor to take it out in cash? Anybody sitting there would instantaneously say `This is suspicious. We need answers. Not only answers, but documentation. This could be money laundering’,” Perlman said. “Whatever it is, it’s not a business that’s consistent with any business I’m familiar with, or the business he purported to be.”

In the Madoff case, victims follow the same route and sued HSBC, UBS, Santander and RBS for billions to recoup their losses. According to their lawyers, HSBC helped funnel more than 8.9 billion US dollars to Madoff through a dozen so-called feeder funds based in Europe, the Caribbean and Central America and ignored warnings from its own accountants that his phenomenal investment record was suspect. In the case of UBS, investors (now?) claim that the name of UBS in the prospectus made them decide to invest with Madoff:

“Without UBS’s serving as promoter, custodian and administrator, “Madoff’s fraud would have been diminished in both scope and duration”

JP Morgan won a similar suit.According to the US District judge:

“While it might have been possible for defendants to determine that Madoff was committing fraud from the ‘red flags’ that plaintiff points out, plaintiff alleges no facts to demonstrate that defendants actually did make such a discovery..”

In their legal battles, victims also zoom in on accountants (PWC Canada) and regulators (SEC). The main question in all these suits is: what can you reasonably expect from accountants, banks and regulators? That question has already been answered by the victims: we want our money back, no matter what and we don’t really care who writes the check. Plenty of business for now..

http://www.miamiherald.com/2010/12/30/1993428/bank-accused-of-overlooking-fraud.html

http://www.breakingnews.ie/business/madoff-victims-sue-bank-484511.html

http://www.ft.com/cms/s/0/6d4e8386-ec73-11dd-a534-0000779fd2ac.html#axzz19lXpjkZK

http://www.cbc.ca/money/story/2010/11/24/madoff-ubs-lawsuit.html

http://www.newsdaily.com/stories/tre6ba1ce-us-madoff-abnamro/

http://financialcrimeonline.com/archives/644

http://www.businessweek.com/news/2010-07-15/jpmorgan-wins-dismissal-of-madoff-victim-s-lawsuit.html

http://www.krone.at/Nachrichten/Banker_zweigte_in_Eisenstadt_mehr_als_8_Millionen_Euro_ab-2_Jahre_unbemerkt-Story-238189

http://kurier.at/nachrichten/burgenland/2059748.php

During 2007, RBS processed the largest volume of foreign payments of any UK financial institution, the FSA said. But between 15 December 2007 and the end of 2008 the bank’s brands – RBS, NatWest, Ulster Bank and Coutts – failed to adequately screen their customers and the payments they made and received, against a government list of proscribed individuals. The list of those involved in financing terrorism was first drawn up in 2001 after the 9/11 terror attacks in the US and last year included 500 organisations, a dozen of which were based in Britain, and 1,400 people, about 50 of whom were UK residents. The lack of controls at RBS resulted in an unacceptable risk that the bank could have facilitated transactions including terrorist financing, the FSA said. It added that RBS’s failings were particularly serious because of the risk they posed to the integrity of the UK financial services sector.

RBS, which qualified for a 30 percent reduction in the fine because it agreed to settle at an early stage of the FSA investigation, said that it accepted the findings of the FSA investigation and had taken steps to remedy the sitation. ”It confirmed the deficiencies we had identified and brought to their attention, in our policies, procedures and controls … though the FSA noted that it did not consider this misconduct deliberate or reckless,” said Nathan Bostock, RBS’ head of restructuring and risk.

http://www.businessweek.com/ap/financialnews/D9HBUN500.htm

http://www.guardian.co.uk/business/2010/aug/03/royal-bank-of-scotland-fsa-biggest-fine

“These 17 companies fixed prices for baths, sinks, taps and other bathroom fittings for 12 years in six countries covering 240 million people. The cartel will have harmed businesses such as builders and plumbers and, ultimately, a large number of families. However, as the objective of anti-cartel enforcement is not to precipitate the fall of companies in financial difficulties, the Commission reduced the fines on five companies to a level they could afford. Companies should be in no doubt that the Commission will continue its fight on cartels and the level of fines will continue to be such that it should dissuade them from engaging in illegal behaviour in the first place,” said Joaquín Almunia, Commission Vice President and Competition Commissioner.

Ideal Standard, owned by U.S. private equity company Bain Capital LLC, received the single biggest fine of 326 million euros. Villeroy & Boch was fined 71 million euros.

Back in 2004, the EU raided the offices of Grohe, American Standard and other bathroom-products makers in five European countries and in March 2007 sent official objections to a number of the companies, including Grohe and American Standard.

According to the EU, the coordination took place during meetings of national trade associations in Germany (over 100 meetings), Austria (over 80), Italy (65), and also Belgium, France and The Netherlands, and in bilateral contacts. It consisted of fixing price increases, minimum prices, and rebates, and exchanging sensitive business information.

How did all of this came to light? US firm Masco, whose main subsidiaries are Hansgrohe and Hüppe, got full immunity under the Leniency Program as it was the first to provide information about the cartel to the European Commission.

Financial problems of related companies made the EU decide to lower the fines for these specific companies. The size of the fines “shouldn’t push the companies off the cliff,” Almunia said. “We wouldn’t want a company to go bankrupt because of a fine.”

The fine against Villeroy & Boch is “not justified” according to the company and it announced it will take legal measures to respond. Ideal Standard’s fine was cut by 30 percent reduction because it cooperated with the investigation. Still the penalty is claimed to be “ excessive” and the company sees “strong grounds to appeal.”

Villeroy & Boch shares Villeroy & Boch fell 1.24 euros, or 24 percent, to 3.883 euros in Frankfurt trading, the biggest drop since October 1998. Would this be the time to finally do some home improvement? Will we actually see a drop in bathroom furniture prices now the price rigging is behind us?

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/790&format=HTML&aged=0&language=EN&guiLanguage=en

http://www.businessweek.com/news/2010-06-23/ideal-standard-villeroy-fined-on-eu-bathroom-cartel.html

From a ‘fraud triangle’ point of view, we have 2 out of 3 covered already; rationalization (the pay cut) and opportunity (inadequate internal controls). Who knows what caused the (financial or psychological) pressure to finalize the triangle?

http://www.justice.gov/opa/pr/2010/June/10-crm-637.html

http://www.bankinfosecurity.com/articles.php?art_id=2602

Sources claim the the investigation started when a drug trafficker informed the police about the banker’s role in a money laundering scheme. Based on the suspicions, investigators infiltrated a drug network and sought help from the banker to launder money that the police spy pretended came from trafficking, the government office said in a statement. The banker took the bait. Based on the suspicions, investigators infiltrated a drug network and sought help from the banker to launder money that the police spy pretended came from trafficking, the government office said in a statement. The Swiss government alleges that Holenweger made false representations to banks in the process, while the money from the offshore accounts was used by industrial giant Alstom to bribe officials to win projects and increase market share in foreign countries.

In March 2003 the UK Serious Fraud Office (SFO) arrested three Alstom executives in a corruption probe. UK sources claim that Alstom used money on an offshore account to bribe officials abroad for approx $65 million to secure contracts. According to Swisster, bribes – commonly labeled as “commissions” – were long seen as a way for European businesses to secure business in overseas markets but France outlawed such practices in 2000 after the OECD called for states to stop approving them. Alstom updated its code of ethics this year and maintains it now has “rules and control procedures at the best international standards”.

Banker’s taking customer service to the next (illegal) level; a blast from the past or still common practice? Some things really change.

http://www.swisster.ch/news/business/zurich-banker-charged-alstom-fraud-case.htm

http://www.businessweek.com/ap/financialnews/D9FHECQ80.htm

The New York investigation has prompted several other states to examine how their pension funds solicit investments, and firms including the Carlyle Group have settled related cases.

“This case has started a national investigation of public pension funds all across the nation,” attorney general Mr. Cuomo said in a conference call with reporters on Thursday. “A significant amount of this country’s wealth is in these public pension funds and I fear — seeing what we’ve seen in New York — that it’s going to be a serious problem for the nation.”

http://www.nytimes.com/2010/04/16/business/16pension.html?src=me&ref=business

http://www.businessweek.com/news/2010-04-15/quadrangle-settles-with-cuomo-in-state-pension-probe-update1-.html

The SEC alleges that one of the world’s largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.  At the heart of the fraud claim is the allegation that Goldman sold the mortgage securities to other investors commenting that the portfolio was selected by an independent third party specialized in credit risk, while in fact Paulson & Co had a big influence on the selection. Goldman allegedly did not disclose that side of the deal to its clients, who would possible have made a different decision if they would have that information. ‘Regular’ investors, including giant like AIG, lost billions on the portfolio. Paulson & Co filled its pockets to the max; it is a zero sum game after all (not taking Goldman’s fees into account).

The SEC allegations are part of a civil suit, not a criminal one. It is one of the first cases against behavior in US financial institutions that caused the housing/financial crisis. More to follow…

http://www.nytimes.com/2010/04/17/business/17goldman.html?hp

http://www.sec.gov/news/press/2010/2010-59.htm

http://www.nytimes.com/2009/12/24/business/24trading.html?_r=1&src=me&ref=business

http://www.nytimes.com/2010/04/17/business/17nocera.html?hp

http://financialcrimeonline.com/archives/24

http://financialcrimeonline.com/archives/780