Articles of Interest

Tuesday, July 28, 2009

Articles of Interest 098 - "I am one of the largest investors..."

Paul Greenwood and Stephen Walsh were arrested in the United States on February 29th, 2009, accused of running a fraudulent commodities trading and investment advisory scheme. On July 24th, 2009, they were charged with a six-counts, including money laundering.

Greenwood and Walsh informed clients – some of whom were “sophisticated” endowment funds and institutional investors – that their “conservative” enhanced stock indexing investment program beat the S&P 500 Index over a ten year period. Given the fact that the two issued USD554-million in promissory notes to cover investment losses and outright theft from the corporate entity that fronted their misdeeds, their claims to have uncovered financial alchemy would appear to be unfounded.

Bernard L. Madoff refused to accept clients employed in the financial services industry. Harry Markopolos, a whisteblower who complained repeatedly to the United States Securities and Exchange Commission (SEC), testified to the United States House of Representatives Committee on Financial Services on February 4th, 2009.

Markopolos dissected Madoff’s alleged “split-strike conversion strategy” into its component parts and revealed that Madoff’s alleged investment returns were numerically impossible. Third-party feeder funds and other financial institutions who shovelled money at Madoff – including Fairfield Greenwich Group of New York and Spain’s Banco Santander – could not perform the same calculations, costing them billions.

If professional investors don’t take the time to find out what’s behind the fancy and complex names of various investment products or “strategies”, how can they cry foul if all crumbles about them?

At what point does caveat emptor compel regulators and the judiciary to ignore the pleas of “wronged” professional investors who didn’t do their math homework and inject a little realpolitik into the global financial system? At what point do investment professionals actually take responsibility for their actions (or lack thereof)?

“I am one of the largest investors in America. I know these things.”

- Robert Citron, former Treasurer, Orange County, California, and convicted felon, to Merrill Lynch in 1993 about warnings from Merrill that Orange County’s derivatives positions faced catastrophe if interest rates rose. Interest rates subsequently rose. Orange County lost USD1.7-billion and declared Chapter 9 bankrupcy on December 6, 1994.

You can view a historical archive of Articles of Interest at http://manchestercf.blogspot.com

Tuesday, July 21, 2009

Articles of Interest 097 - Bulgarian Bentleys

According to the CIA, Bulgaria’s GDP per head is USD12,900. A short while ago, Bulgaria’s tax authorities decided to investigate the 105 Bentley owners - http://www.bentleymotors.com/models/model_overview/default.aspx – to determine their sources of income. At an average price of USD270,000 in Bulgaria, that’s many years’ salary for the average car driver.

The Bulgarians are now chasing after a Bulgarian-born alleged fraudster linked to the sale of auction-rate securities, a sector of the investment market where TD Ameritrade refunded customers to the tune of USD456-million.

Perhaps Tzolov drove a Bentley in Sofia?

“I spent a lot of money on booze, birds and fast cars. The rest I just squandered..”

- George Best, Football club manager

You can view a historical archive of Articles of Interest at http://manchestercf.blogspot.com

http://www.novinite.com/newsletter/print.php?id=105974

Bulgaria Launches Money Laundering Probe against Fugitive NY Broker

2009-07-20 16:03:14

Bulgaria's State Agency for National Security (DANS) has been ordered the collection of information about the activities, property and assets in Bulgaria owned by former Credit Suisse Group broker Julian Tzolov.

Bulgaria-born Tzolov was declared a fugitive by US federal prosecutors in June pursuing alleged fraud involving auction-rate securities.

The probe is to check allegations of money laundering against Bulgarian Julian Tzolov and his colleague Eric Butler, both formerly of Credit Suisse Securities (USA) LLC, who have been accused of engaging in an alleged fraudulent scheme.

The two are believed to have obtained higher commissions by selling clients higher-risk auction-rate securities backed by mortgages, when those clients wanted to buy lower-risk securities backed by student loans.

Julian Tzolov was caught by Spanish authorities in the middle of July with the assistance of the Federal Bureau of Investigation, after fleeing jurisdiction.

Tzolov and Eric Butler, both formerly of Credit Suisse Securities (USA) LLC, have been charged with conspiracy, securities fraud and multiple counts of wire fraud.

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You are permitted to use any of the articles in this message only if you kindly quote the source - Sofia News Agency (novinite.com).

Monday, July 20, 2009

Articles of Interest 096 - Ruthless

Another ruthless @#$% shaking down his community and his own family. Yet it would appear that nobody checked to see if he was indeed a qualified and registered investment advisor.

“Cowards die many times before their deaths;
The valiant never taste of death but once.”

- William Shakespeare (1564 - 1616), "Julius Caesar", Act II Scene 2

You can view a historical archive of Articles of Interest at http://manchestercf.blogspot.com

http://www.theglobeandmail.com/news/national/family-of-earl-jones-call-on-the-investment-broker-to-come-forward/article1224071/

Family of Earl Jones call on the investment broker to come forward

'We want to express our profound regret for the pain and suffering he has caused and state our own sense of deception,' statement says

Montreal — The Canadian Press Last updated on Monday, Jul. 20, 2009 08:37AM EDT

The wife and daughters of a financial planner who allegedly bilked clients out of millions of dollars say they are devastated.

In a statement released to the media Sunday through a media relations firm, wife Kimberly and daughter
Kristine of Montreal investment broker Earl Jones say they too have experienced anger, despair and
disillusionment.

“We want to express our profound regret for the pain and suffering he has caused and state our own sense of deception,” they say in the statement.

“The Earl Jones we knew was a loving husband, devoted father and grandfather and a respected member of the community. The Earl Jones who has been revealed in recent days is a man we can scarcely believe exists.”

His daughter says she fears she will never recover the funds she entrusted to her father and that the family was unaware of his business activities and will co-operate fully with authorities.

“We are anxious for Earl to come forward and provide and explanation,” they write. Quebec's securities regulator alleges between $30-million and $50-million is missing from accounts run by Jones.

Jones, who has been missing since last week, has not been charged and there is no warrant out for his arrest. Some of the alleged victims are now turning to food banks.

Thursday, July 16, 2009

Articles of Interest 095 - Lowering the bar?

Miguel Martinez was, until very recently, a member of the New York City Council. Now he has pled guilty to three charges, one of which was money laundering. It would be interesting to determine whether such “small fry” are considered “Politically Exposed Persons” (PEPs) by financial institutions and supervisory agencies.

Will his bank face sanction for potentially not delving down to the municipal level? Will this lower the bar even further in the classification of those deemed PEPs? Small town mayors? Student council representatives?

“It has been said that democracy is the worst form of government except all the others that have been tried.”

- Sir Winston Churchill, (1874 – 1965)

You can view a historical archive of Articles of Interest at http://manchestercf.blogspot.com

Tuesday, June 30, 2009

Articles of Interest 094 - Bonus as proceeds of crime

Hernan E. Arbizu was a private banker at two prominent international private banks who earned a base salary of USD300,000 at one bank in 2003 for managing 13 accounts with USD200m in assets. He is now accused of fraud in shuffling around client money in order to meet the expectations of clients who were promised by him outlandish returns.

Modern banking types are well aware that the base salary of a private banker is just the starting point in determining his or her complete compensation package. His bonus – while not mentioned in the attached article – would have been substantial, especially if he was cooking the books and showing off impressive numbers to his superiors.

If the predicate offense was a Ponzi scheme fraud of the Madoff variety, can one consider his bonus as the proceeds of crime? His superiors would not have been impressed that they had rewarded him under false pretences. If he moved his bonus out of his personal accounts at the financial institution that employed him (perhaps to one of the countries on the recently revised FATF “Naughty List”), can it be considered money laundering?

His previous employers seem willing to brush the whole incident under the carpet and pay the associated FINRA penalties. I wonder if a young United States Attorney is willing to make his name on prosecuting Mr. Arbizu’s bonus payment under American money laundering laws?

“Consequences, shmonsequences! So long as I'm rich!”

- Daffy Duck

A historlcal archive of the Articles of Interest series is available on http://manchestercf.blogspot.com

Monday, June 29, 2009

Articles of Interest 093 - Silence says it all

The Japanese Financial Services Agency (“FSA”) has imposed a one month ban on Citibank Japan’s retail banking marketing activities. Citibank Japan’s private banking business incurred a similar wrath from Japanese regulators in 2005, leading to the closing of a business that contributed almost USD100m to the group’s bottom line.

The main problem cited by the FSA was an “...(i)nadequate system for accurate execution of the obligation to make notification of suspicious transactions including money laundering”

Even more interesting is the following quote from the FSA’s assessment: “...moreover, it is found that procedures to control any dealing with anti-social forces have not been developed.”

In some societies, loud confrontation keeps rule-breakers in line. In other societies, an apology, “business improvement plan” self-examination confession and silence condemns the violator to an even harsher punishment.

“In the end, we will remember not the words of our enemies, but the silence of our friends..”

- Martin Luther King Jr. (1929 - 1968)

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http://www.citibank.co.jp/en/customernotices/customernoticesindex/customernoticepages/cust_062609_01.html

Citibank Japan Receives Administrative Action From the Financial Services Agency

June 26, 2009

Tokyo June 26, 2009 - Citibank Japan Ltd. ("Citibank Japan") received an administrative action from the Financial Services Agency ("FSA") based on Article 26 of the Banking Act. This action relates to the compliance framework and governance framework of Citibank Japan. The administrative action issued by the FSA today is referenced below.

In accordance with this action, Citibank Japan will suspend sales activities (including advertising, sales campaigns and solicitation) of all products that are handled by its Retail Banking Division from July 15 to August 14. This suspension does not restrict any activities with customers who wish to enter into a transaction with Citibank Japan.

Citibank Japan takes this administrative action very seriously and would like to express our sincere apology to our customers and other parties concerned. Citibank Japan is committed to implement all necessary measures to prevent any future occurrence of the problems identified.

The FSA cited problems relating to Citibank Japan's insufficient governance, compliance and internal control framework to fulfill its filing obligations for suspicious transactions. Since an initial incident was first identified and reported voluntarily to the FSA, Citibank Japan has subsequently been cooperating with the FSA and has already begun to take actions to address issues raised.

In response to the administrative action, Citibank Japan will submit a business improvement plan to enhance its governance and compliance framework to the FSA by July 31, 2009. In addition, Citibank Japan will clarify responsibility for this matter and take appropriate disciplinary action. Citibank Japan will announce the summary of the business improvement plan and disciplinary action promptly after submission to the FSA, and the improvement plan will cover the following:

Enhancement of the governance and internal control framework.
Enhancement of the compliance environment and re-training of all employees on applicable laws and regulations.
Enhancement of the framework to file suspicious transaction reports adequately, including the management, monitoring and cancellation of such transactions, and specifically as related to handling of anti-social forces.
Enhancement of internal audit review function.
Citibank Japan reiterates that it takes this administrative action very seriously and is deeply apologetic for the issues insufficiently resolved, including as part of its 2004 Business Improvement Order. Citibank Japan is committed to focus all necessary resources to implement every necessary measure to prevent future occurrence.

The administrative action does not affect Citibank Japan's ability to serve its Corporate Banking Division clients.

Citibank Japan Ltd.

Administrative Actions against Citibank Japan Ltd.

The Financial Services Agency (FSA) issued today the following administrative actions against Citibank Japan Ltd.;

I.　Description of the Administrative Actions

Orders based on Article 26(1) of the Banking Act

1.　Suspend all sales operations (including advertisement, sales campaign and publicity and solicitation) pertaining to all products that are handled by Retail Banking Division during the period from July 15, 2009 to August 14, 2009; provided however, that this shall not preclude sales operations (including the explanation of products) in cases where there are any voluntary manifestations of intention by customers and where such manifestations of intention can be objectively found.

2.　In order to ensure appropriate and sound business operation, fundamentally review and restructure the current governance, internal control and business management system (including adequate staffing and the construction of a proper organization and structure) of the Citibank Japan Ltd. [hereinafter referred to as the "CJL"] from the following perspectives:

(1)　clarify the business attitude of the board of directors and management committee towards the establishment and enhancement of governance and internal control systems;

(2)　develop and enhance a system for accurate execution of the obligation to make notification of suspicious transactions including money laundering; and establish a system for the control, monitoring, cancellation, etc. of transactions, etc. subject to notification;

(3)　ensure a thorough understanding of and compliance to laws and regulations and other rules by officers and employees and foster and improve awareness of compliance with laws and regulations;

(4)　restructure the system necessary for ensuring the effectiveness of internal control functions, review methods, the frequency, etc. of audits, and conduct follow-ups after the audits; and

(5)　investigate the causes why the improvement plan that was submitted to the FSA in response to the FSA's previous order on September 17, 2004 to improve business operations was not implemented appropriately and clarify where the responsibility lies, including with management.

3.　Submit business improvement plans (including clarification of the assignment of responsibilities for the development and establishment of a governance system to implement the improvement plan steadily and to ensure the effectiveness of the improvement plan) pertaining to matters stated in 2. above and the report order by July 31, 2009 and execute the plan immediately.

4.　Report the progress, implementation status, and improvement status of said business improvement plan every three months on the fifteenth of the following month from the end of September 2009 until the business improvement plan is completed.

II.　Reasons for the Administrative Actions

According to voluntary reporting submitted by CJL, a report collected by FSA pursuant to the provisions of Article 24(1) of the Banking Act, and subsequent on-site inspection (notification made on April 3, 2009), it is found that there are fundamental problems with CJL's compliance and governance system from the perspectives of sound and appropriate business management stated below.

1.　Problems with Compliance System

(1)Inadequate system for accurate execution of the obligation to make notification of suspicious transactions including money laundering

Control systems necessary for the detection, monitoring, and follow-up of suspicious transactions have not been developed, such as the following: with regard to CJL's system to make notification of suspicious transactions including money laundering, despite the fact that it mainly relies on screening based on the database, input data is extremely limited; in addition, the database has not been updated since 2004; under these conditions, the screening has been performed, therefore, prior screening at the opening of an account or ex-post verification has become meaningless; moreover, it is found that procedures to control any dealing with anti-social forces have not been developed.

As mentioned above, CJL is in a condition where systems for accurate execution of the obligation to make notification of suspicious transactions, pursuant to Article 54 of the Act on the Punishment of Organized Crimes and Control of Crime Proceeds prior to the revision and Article 9 of the Act on the Prevention of Transfer of Criminal Proceeds after the revision, have not been developed.

(2)Violation of a business improvement order pursuant to Article 26(1) of the Banking Act

In response to the result of our on-site inspection, in September 2004, CJL (Citibank, N.A. Japan Branch then) received a revocation order of Marunouch branch et al., pursuant to Article 27 of the Banking Act and other regulations, and a business improvement order regarding fundamental review pertaining to the compliance and governance of Citibank, N.A. Japan Branch, pursuant to Article 26(1) of the Banking Act and other regulations.

In spite of the business improvement order, as mentioned in (1) above, with regard to the establishment of an operation and management system for the accurate execution of the obligation to make notification of suspicious transactions, the fact is found that the improvements on the plan that Citibank, N.A. Japan Branch has established have not yet been implemented.

2.　Problems with governance and internal control systems

Despite the fact that the board of directors and management committee of CJL (including the CEO and management committee of Citibank, N.A. Japan Branch) were responsible for the execution of the business improvement order, they lack an understanding of the rules applied in Japan, such as laws and regulations, and an awareness of improvement. Therefore, the board of directors and management committee do not have systems to consider, discuss, or inspect important matters of management across the board and have no way to control or check business departments, since the board of directors and management committee failed to confirm and inspect a system necessary for execution of the obligation to make notification of suspicious transactions, including money laundering; they overlooked the fact that the responsible department, such as the Anti Money Laundering Department of the Compliance Division, lacks engagement in the business improvement plan, etc.

3.　Internal audit

CJL has established an internal audit department in order to establish a system to engage in identifying problems by checking, following up, etc. the implementation status of the business improvement plan, in addition to auditing normal operations; however, CJL has not accurately identified a series of problems that were recently found during the implementation of the improvement plan up until today and the effectiveness of the internal audit has not been ensured.

Tuesday, June 23, 2009

Articles of Interest 092

Mathematical Difficulties

The Daily Telegraph has performed a rudimentary analysis on the United Kingdom’s Serious Organised Crime Agency’s (SOCA) figures:

Amount of money received by SOCA from Her Majesty’s taxpayers since inception in 2006 = GBP1.2b
Amount of money recovered from criminals = GBP78m

One is tempted not to insert a third line with the word “priceless”, however SOCA – like most other financial intelligence units – should not be designed as a profit centre. One cannot measure the contribution of an FIU on the basis of money recovered only, as it ignores prevention, deterrence, national security, education and so many other benefits.

The modern press has had a difficult time sorting the nonsense from the truth amidst the current financial crisis (best name to date = “The Great Recession”). Given the target-rich environment, hammering away at the local domestic financial intelligence is a poor decision in these troubled times.

“Do not worry about your difficulties in Mathematics. I can assure you mine are still greater.”

- Albert Einstein (1879 – 1955)

===========

http://www.telegraph.co.uk/news/newstopics/politics/lawandorder/5612151/Britains-FBI-Soca-spending-15-for-every-1-it-recovers.html

Britain's 'FBI' Soca spending £15 for every £1 it recovers

The Serious Organised Crime Agency (Soca) - Britain's "FBI" - is spending £15 of public money for

every £1 it seizes from criminal gangs but its chairman has still marked it eight out of ten for effort.

By Tom Whitehead, Home Affairs Editor

Published: 2:28PM BST 23 Jun 2009

Soca has received around £1.2bn since it began in 2006 but has so far only recovered £78 million from criminals, MPs were told. Sir Stephen Lander, it's outgoing chairman, also admitted the organisation had underestimated the scale of crimelords and gangs it had to tackle.

He said there are now an estimated 4,000 individuals involved in serious criminal gangs.

"The scale of the problem is larger than people have anticipated," he told the Commons Home Affairs Select Committee. He added later: "It was always going to take some time to get going. To be honest, I think I underestimated some of the organisational difficulties we would experience in the beginning. Sir Stephen said the actual money seized did not include assets and cash that have been restrained and that overall criminals had been stopped from using some £460 million.

Asked how well he thought the organisation had performed he gave it eight out of ten.

Challenged on whether others would agree, he added: "I have the advantage of knowing the facts."

Bill Hughes, director general of Soca, said only around a third of cocaine is stopped from entering the UK and warned it is being cut with inappropriate substances such as worm powder.

Soca recently claimed cocaine traffickers are in retreat following a series of operations against them which has forced the price up. But drugs campaigners Release said the price had gone up because of the poor exchange rate between sterling and US dollar.

Tuesday, July 28, 2009

Articles of Interest 098 - "I am one of the largest investors..."

Tuesday, July 21, 2009

Articles of Interest 097 - Bulgarian Bentleys

Monday, July 20, 2009

Articles of Interest 096 - Ruthless

Thursday, July 16, 2009

Articles of Interest 095 - Lowering the bar?

Tuesday, June 30, 2009

Articles of Interest 094 - Bonus as proceeds of crime

Monday, June 29, 2009

Articles of Interest 093 - Silence says it all

Tuesday, June 23, 2009

Articles of Interest 092

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Tuesday, July 28, 2009

Articles of Interest 098 - "I am one of the largest investors..."

Tuesday, July 21, 2009

Articles of Interest 097 - Bulgarian Bentleys

Monday, July 20, 2009

Articles of Interest 096 - Ruthless

Thursday, July 16, 2009

Articles of Interest 095 - Lowering the bar?

Tuesday, June 30, 2009

Articles of Interest 094 - Bonus as proceeds of crime

Monday, June 29, 2009

Articles of Interest 093 - Silence says it all

Tuesday, June 23, 2009

Articles of Interest 092

Articles of Interest

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