Fraud charges centered on a kickback scheme that generated more over $60 million trading Venezuelan bonds which was executed by employees of a New York broker and an official of a Venezuelan state owned bank were brought by the Manhattan U.S. Attorney’s Office and the SEC. U.S. v. Clarke, 13-mag-0683 (S.D.N.Y. May 7, 2013); SEC v. Clarke, Civil Action No. 13 CV 3070 (S.D.N.Y. Filed May 7, 2013). The criminal case names as defendants Tomas Alberto Clarke Bethancourt known as Thomas Clarke and Jose Alejandro Hurtado, both employees of broker dealer Direct Access Partners, LLC or DAP, along with Maria Gonzalez, a vice president of finance at Banco de Desarrolo Economico y Social de Venezuela, known as BANDES. The SEC’s action names as defendants Messrs. Clarke and Hurtado along with Haydee Leticia Pabon, a director for international sales of for a Venezuelan company, and Iuri Rodolfo Bethancourt, who purports to be President of a Panama corporation controlled by Defendant Clarke. The U.S. Attorney’s Office also filed a related civil forfeiture action.
DAP is a New York based brokerage firm. Prior to 2008 the firm provided executions for institutional clients. In 2008 it reported revenue of $27 million, up from the $15 million a year earlier.
By 2009 DAP’s revenue and business picture changed significantly. That year revenue shot up to $75 million. The increase traces to the initiation by Mr. Clarke and two unidentified executives of DAP Global’s business of providing customers with fixed income trade execution services. The broker agreed to pay DAP Global 60% of the net profits generated by the new line of business which was allocated 20% to Mr. Clarke with the remainder being paid to the two unidentified executives. The 60% was net of certain expenses which included payments to Messrs. Bethancourt, Hurtado and Pabon.
Over an eighteen month period beginning in January 2009 DAP Global generated revenues of about $74 million. Most of that revenue came from riskless principal trades executed by DAP in Venezuelan sovereign or state-sponsored bonds for BANDES. Those transactions were brought to DAP Global by Mr. Hurtado.
In return for the business, Mr. Hurtado and Ms. Gonzalez received kickbacks. About half of the revenue generated from the transactions was paid as expenses. That was paid in the form of sham compensation to Messrs. Hurtado and Bethancourt with the understanding that portions of the payments would ultimately be transmitted to Ms. Gonzales. She was paid approximately $9 million. At the same time Mr. Bethancourt is alleged to have acted as a front for Mr. Clarke so he could collect additional cash. Essentially the kickback scheme worked as follows:
Step 1: DAP Global charged mark ups on BANDES bond trades;
Step 2: DAP paid part of the markups to either Defendant Pabon or Hurtado;
Step 3: DAP paid part of the markups to an entity nominally controlled by Defendant Bethancourt but which was directed by Mr. Clarke; and
Step 4: Funds from Steps 2 and 3 were remitted to Ms. Gonzalez.
At times, however, Messrs. Clarke and Hurtado defrauded Ms. Gonzalez, according to the SEC. Specifically, they are alleged to have deceived her as to the amount of the markups/markdowns to increase their own take from the scheme.
The criminal complaint alleges conspiracy and violations of the Travel Act. The SEC complaint alleges violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Sections 10(b) and 15(c)(1)(A). Both cases are in litigation. The SEC’s investigation is continuing.
ABA Seminar: Fifth Annual FCPA Update: Protecting Your Business in the Future: Lessons from the New DOJ-SEC FCPA Guide, June 19, 2013 from 1:00 -2:30 p.m. EST. The discussion will focus on building effective compliance systems and conducting M&A due diligence. Co-moderators: Thomas Gorman and Frank Razzano. Panel: John Buretta, Principal Deputy to the Assistant AG, DOJ; Charles Cain, Assistant Director, FCPA Unit, SEC Division of Enforcement; Catherine Razzano, Assistant General Counsel, General Dynamics Corporation; Steve Siegal, Senior Counsel, Northrop Grumman Corporation; Ryan Ong, President, U.S. China Business Counsel. Live in Washington, D.C at 600 14th St. N.W., Penthouse (no charge for ASECA members attending live in Washington who pre-register by sending an e-mail to firstname.lastname@example.org). Webcast Nationally by the ABA. For further information here.