FINANCIAL CRIME NEWS
COMMODITIES and DERIVATIVES NEWS STORIES
By Stephanie Ayres
18 November 2016
Tampa, Florida
The Department of Justice (DOJ) announced on November 8 that two Florida residents, Thomas Davanzo and Robert Fedyna, were sentenced n US District Court for the Middle District of Florida to 121 months and 135 months in federal prison, respectively. Their sentences also call for forfeiture of assets includng $46 million of cash, gold coins, horses, vehicles, and real estate.
Davanzo and Fedyna had been accused of carrying out a scheme to fraudulently claim millions of dollars in renewable energy credits called RINs and related tax credits for which they did not qualify.
The RIN renewable fuels credits grew out of the requirement that gasoline refineries need to include ethanol or other biofuels into their gasoline products. The US Environmental Protection Agency adopted a policy of allowing refineries to buy credits (the RINs) from other companies to meet the biofuel requirement in lieu of blending the biofuels in their own operations.
Davanzo and Fedyna set up front companies to buy renewable fuel on which RIN and tax credits had already been claimed on fuels produced by associates at Gen-X Energy Group in Washington and its affiliate, Southern Resources and Commodities, in Georgia. Davanzo and Fedyna then transformed biofuels back to regular feedstock and sold it back to Gen-X and Southern Resources, allowing the group to falsely claim the RIN and tax credits again on the same fuel. The group then repeated this process numerous times in carousel fashion.
The sham transactions were supported by forged paperwork, such as false invoices or bills of lading to make it appear that each shipment was unique. More shell companies were set up to receive the payments from this activity. According to the US Attorney’s November 8 statement, the group created some 60 million RINS for bogus fuel and took in $42 million from the sale of the RINs to thirid parties.
Scott Johnson, the principal of Gen-X, was charged in November 2015 in Washington federal court with two counts of conspiracy to commit wire fraud and conspiracy to defraud the United States. Local media reported that he was expected to plead guilty.
By Stephanie Ayres
28 August 2016
Indianapolis, Indiana
The US Department of Justice (DOJ) announced on October 12 that Fred Witmer and Gary Jury, the owners of biofuel company Triton Energy LLC, pleaded guilty in federal court in Indiana to charges of conspiracy, wire fraud, and making false statements for their roles in a scheme to fraudulently claim federal tax and renewable fuels credits called RINs.
The RIN renewable fuels credit grew out of the requirement that gasoline refineries need to include ethanol or other biofuels into their gasoline products. The US Environmental Protection Agency adopted a policy of allowing refineries to buy credits (the RINs) from other companies to meet the biofuel requirement in lieu of blending the biofuels in their own operations.
According to the DOJ’s October 12 statement, Triton Energy and another company owned by Witmer and Jury, Gen2 Renewable Diesel LLC in claiming RIN credits, falsely stated that the biofuel they had produced had been sold to refineries or others to use in blended fuels when instead they had sold the fuel for other purposes which didn’t qualify for the credit, such as fire starter logs, asphalt, and power generators. The DOJ statement said that these activities allowed Witmer and Jury to generate some $60 million of fuel tax and RIN credits to which they were not entitled.
By Stephanie Ayres
31 July 2016
New York, New York
A criminal case filed in US District Court in Manhattan in July 2016 accused Mark Johnson and Stuart Scott, both former currency traders for HSBC, of conspiracy to commit wire fraud for their alleged actions in trying to manipulate the exchange rate between the British pound and US dollar just before executing an exchange transaction on behalf of a client, in order for the bank to register a profit by buying at the market price, then selling at the manipulated higher price which was then used for the client’s transaction, a practice known as front-running.
Johnson and Scott had been informed of the client’s planned transaction which included exchanging $3.5 billion of proceeds from a sale into the equivalent amount of dollars on a particular date. Armed with this information, the pair allegedly bought British pounds for HSBC’s account to push the exchange rate up before executing the conversion for the client at the higher exchange rate and selling the HSBC position at a profit.
The HSBC client whose US dollar – British pound exchange was carried out at the manipulated higher rate was identified in press reports as Cairn Energy Plc. HSBC reportedly obtained a profit of $8 million at this client’s expense, according to a statement from the US Department of Justice on July 20.
By Stephanie Ayres
10 June 2016
New York, New York
The US Attorney’s office in Manhattan announced on June 2 the indictment of two former traders for Deutsche Bank AG – one based in New York, the other in London – over a scheme to manipulate the USD Libor rate setting to give an advantage to their trading on behalf of the bank.
Named in the indictment were Matthew Connolly of Basking Ridge, New Jersey and Gavin Campbell Black of London, England. They were charged with one count of conspiracy to commit wire fraud and bank fraud and nine counts of wire fraud.
According to the US Attorney’s June 2 statement, both Connolly and Black supervised traders who actively worked with USD Libor-based financial products in their respective offices. They were accused of instructing traders they supervised to submit inaccurate Libor data to the British Bankers Association, which determined the periodic Libor rates at that time.
Another Deutsche Bank trader in its London office involved in derivatives trades tied to Libor, Michael Curtler, pleaded guilty in October 2015 to one count conspiracy to commit wire fraud and bank fraud for his role in the same type of conduct alleged against Connolly and Black.
Deutsche Bank Group Services (UK) Ltd. entered into a deferred prosecution agreement (DPA) with the US Department of Justice in April 2015. The company pleaded guilty to one count of wire fraud and agreed to pay a $775 million fine over alleged Libor-related and other misconduct.
By Stephanie Ayres
5 March 2016
Atlanta, Georgia
Operators of a company called Sterling Online Processing Service LLC allegedly touted the profit potential of investing in the Iraqi dinar and several other so-called “exotic currencies” in websites, blogs, chat rooms, conferences, and other outlets, predicting in the style of penny stock touts that the dinar’s value would be increasing due to a currency revaluation, which they claimed to have knowledge of due to contacts with US government officials, international organizations, and banks.
The fount of this supposedly official information was defendant Terrence Keller, who was accused of telling investors he wouldn’t personally profit from the planned revaluation, and failing to disclose his arrangement with the owners of Sterling Online to receive distributions from the company’s dinar sales.
The owners of Sterling Online – Tyson Rhame and James Shaw – took in some $600 million from the sale of the dinars and other exotics between 2010 and 2015. As for Keller, he reportedly received some $460,000 in payments from Sterling for his actions in pumping the revaluation theme to investors.
Rhame, Shaw, Keller, and Sterling COO Frank Bell were charged in US District Court in Atlanta with conspiracy to commit mail fraud and wire fraud, multiple counts of mail fraud and wire fraud. Shaw and Rhame were also charged with conspiracy to commit money laundering and twelve counts of money laundering.
The Department of Justice also filed several forfeiture actions seeking control of real estate, currencies, aircraft, autos, and other assets obtained through the scheme or with the proceeds of the alleged fraud.
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