DOJ Announces Charges Against Two Florida Men for Operating Underground Bitcoin Exchange

On July 21, U.S. Attorney for the Southern District of New York Preet Bharara, along with the Assistant Director-in-Charge of the New York Field Office of the FBI and the Special Agent-in-Charge of the New York Field Office of the United States Secret Service, announced the unsealing of criminal complaints filed against Anthony R. Murgio and Yuri Lebedev. According to the complaints, since at least late 2013, the two men and their co-conspirators illegally ran a money-transfer operation called Coin.mx, which allowed customers to exchange cash for Bitcoins for a fee. Murgio and Lebedev’s allegedly illegal money-transfer operation involved exchanging cash for people whom they believed may be engaging in criminal activity, as well as allowing victims of “ransomware” attacks to trade cash for bitcoins. During these “ransomware” attacks, cybercriminals would “electronically block access to a victim’s computer system until a sum of ‘ransom’ money, typically in Bitcoins, [was] paid to them.” In an attempt to evade detection, Murgio, Lebedev, and their co-conspirators operated through “Collectables Club,” a fake front-company. Also in an attempt to avoid detection, Murgio obtained beneficial control of a New Jersey-based federal credit union, then placed Lebedev and others on the Board of Directors so that Coin.mx’s operations could be transferred to the credit union. The individuals used the credit union as a “captive bank for their unlawful business,” until at least early 2015, at which point, the NCUA discovered the illegal activity and forced the credit union to “cease engaging in such activity,” but Murgio “thereafter found new, overseas payment processing channels for his unlawful business.” Murgio and Lebedev are each being charged with one count of conspiracy to operate an unlicensed money transmitting business, and one count of operating an unlicensed money transmitting business. Each of these charges carries a maximum prison sentence of five years. Murgio also was charged with one count of money laundering and one count of willful failure to file a suspicious activity report. These additional charges carry maximum prison sentences of 20 years and 5 years, respectively‎.

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CFPB and DOJ Reach $24 Million Settlement with Indirect Auto Lender to Resolve Discriminatory Pricing Allegations

On July 14, the CFPB and DOJ announced a $24 million settlement with an indirect auto lender to resolve allegations that the lender offered higher interest rates to minority borrowers compared to white borrowers with a similar credit risk profile. Specifically, both agencies contended that the lender allowed their partnering dealers excessive discretion to increase the lender’s base interest rate with a “dealer markup” on auto loan contracts, which resulted in discriminatory pricing. Under terms of the settlement, the lender agreed to, among other things, (i) pay $24 million in restitution to affected borrowers, (ii) impose dealer markup rate caps on auto loans, and (iii) improve its policies and procedures related to auto loan pricing and compensation program. Notably, the Bureau did not impose a civil money penalty due to the lender’s responsible conduct. The Bureau filed its consent order in an administrative enforcement action. In a separate announcement, the DOJ filed its complaint and consent order in federal court, which will require judicial approval.  The lender was represented in the matter by BuckleySandler.

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FIFA Investigation Update: First FIFA Official Extradited to United States

On July 15, after 50 days of detention, a high-ranking FIFA official widely reported to be former FIFA Vice President Jeffrey Webb was extradited from Switzerland to the United States. Webb ultimately agreed to be extradited despite initially contesting his extradition at a hearing following his arrest. Six other FIFA officials arrested in connection with DOJ’S corruption investigation are continuing to fight extradition. The Swiss Federal Office of Justice is overseeing the extradition proceedings.

All seven officials were formally indicted by the DOJ on May 27.

Previous BuckleySandler coverage of this investigation can be found here

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LBI Enters Into DPA and Former Executives Plead Guilty to Resolve DOJ FCPA Investigation

On July 17, the DOJ announced that Louis Berger International Inc. (“LBI”) had agreed to enter into a Deferred Prosecution Agreement to resolve the DOJ’s FCPA investigation into the New Jersey-based construction management company’s operations in India, Indonesia, Vietnam, and Kuwait.  LBI also agreed to pay a $17.1 criminal penalty.  LBI admitted that it bribed foreign officials to secure government construction management contracts around the world.  According to the company’s admissions regarding a conspiracy to violate the anti-bribery provisions of the FCPA, from 1998 to 2010, LBI concealed $3.9 million in corrupt payments through various methods, including (i) using inflated and fictitious invoices that were used for the payments of bribes through intermediaries, and (ii) paying fictitious “commitment fees,” “counterpart per diems,” “marketing fees,” and “field operation expenses.”

Under the terms of the DPA, the DOJ will defer criminal prosecution of LBI for a period of three years and the company will retain an independent compliance monitor for three years.  In addition, Richard Hirsch of the Philippines and James McClung of the United Arab Emirates, both former executives of LBI, each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA.  They are scheduled to be sentenced on Nov. 5, 2015. Continuing its recent trend, the DOJ emphasized the company’s self-disclosure and cooperation, as well as remediation efforts.

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Mortgage Company Owner and Others Plead Guilty to Mortgage Fraud Scheme Involving FHA-Insured Loans

On July 14, the DOJ, in coordination with HUD’s Office of Inspector General and  the U.S. Attorney’s Office for the Southern District of Florida, announced that a Miami-area real estate developer and mortgage company owner, his business partner, and a senior underwriter with the mortgage company each pleaded guilty to a mortgage fraud scheme that resulted in $64 million in losses to the FHA. According to the August 2014 indictment, the three defendants knowingly participated in a scheme to alter important information contained in potential borrowers’ loan applications so that they appeared qualified for FHA-insured loans when, in reality, they were not qualified. According to the DOJ, the developer/owner and his business partner “admitted to pressuring their employees to approve and close loans using earnings statements and verification of employment forms that made it appear as if the borrowers had higher incomes and more favorable work histories than they actually did, and documents falsely improving or explaining borrowers’ credit histories.” The senior underwriter admitted to providing false information to her co-workers and endorsing borrowers’ applications when she knew that they did not qualify for the loans. Eventually, many of the loans went into foreclosure and HUD was obligated to pay the outstanding loan balances to the financial institution investors. To date, 25 individuals have pleaded guilty to offenses related to this mortgage fraud scheme.

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DOJ Deputy Assistant AG Delivers Testimony at Senate Subcommittee Hearing Regarding Cyber Crime

On July 8, the DOJ’s Deputy Assistant AG, David Bitkower, delivered his testimony before the Senate Judiciary Subcommittee on Crime and Terrorism’s hearing entitled, “Cyber Crime: Modernizing Our Legal Framework for the Information Age.” Bitkower’s testimony focused on two of President Obama’s earlier 2015 legislative proposals regarding the security of online privacy for American citizens and businesses. The first proposal, with an emphasis on the “insider threat,” seeks to amend a provision of the Computer Fraud and Abuse Act (CFAA) – the primary statute the DOJ uses to charge computer crime cases – to ensure that corrupt employees using their authority to access sensitive data for personal gain are not immune from federal punishment. Bitkower noted that recent judicial decisions have impeded the government’s ability to prosecute cases where “serious violations and invasions of privacy” were prevalent. The second legislative proposal would enhance the DOJ’s ability to combat botnets, the networks of computers that are infected with malware and used by criminals to steal personal information, evade detection, and hold computers and computer systems for ransom. The proposed legislation would broaden the categories of crimes committed with botnets that can be enjoined by courts, which, under the current law, are mostly limited financial crimes.

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DOJ Sentences Real Estate Developers to Prison for Involvement in Alleged Mortgage Fraud Scheme

On July 8, the DOJ announced the prison sentences of three real estate developers for their roles in an alleged mortgage fraud scheme that resulted in over $27 million dollars in losses. Convicted in November 2014 of wire fraud, bank fraud, and conspiracy, the three individuals “engaged in a scheme in which they facilitated payments to straw buyers as well as the submission of false loan applications on behalf of the straw buyers to secure mortgages to purchase units” in the condominium developments they controlled or managed. Post-sale, the individuals retained profits from the sales and control over the units. According to trial evidence, two of the individuals funneled some of the loan proceeds to shell companies to pay the buyers’ closing cash obligations and mortgage payments. Shell companies were also used to divert over $2 million in fraudulent funds to bank accounts in Switzerland and Liechtenstein. Because the defendants and their co-conspirators were eventually unable to make mortgage payments, dozens of condominium units entered into foreclosure, causing the FHA, Freddie Mac, Fannie Mae, and other private lenders a combined loss of $27.8 million. In addition to the varying prison sentences, U.S. District Judge Seitz ordered each defendant to forfeit over $35 million in fraudulent proceeds and to pay over $21 million in restitution.

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DOJ Seeks Civil Forfeiture of $34 Million in Bribe Payments Made to Chadian Diplomats by Griffiths Energy

On June 30, the DOJ filed a Complaint to forfeit shares of Griffiths Energy International, a Canadian energy company accused of bribing various Republic of Chad diplomats to receive oil development rights in Chad.  The diplomats include the former Chadian Ambassador to the United States and Canada, and Chad’s Deputy Chief of Mission to the United States.  The assets at issue are currently frozen in the U.K.

The DOJ is seeking roughly $34 million in Griffiths Energy shares, as the cash value amount “traceable to, and involved in the laundering of, bribe payments made to the Chadian diplomats” for the rights to develop oil blocks in Chad. According to the Complaint, the former Ambassador, serving from 2004 to 2012, and the Deputy Chief of Mission, serving from approximately 2007 through the end of 2014, used their official positions to assist Griffiths Energy in securing development rights to oil blocks in Chad. The bribes were allegedly paid in several ways, including through issuance of company shares and payments to companies nominally owned by the wives and associates of the diplomats.  The Complaint highlighted that before the company pursued the shell company avenue, legal counsel had warned the company that a planned consulting agreement directly with the Ambassador was illegal.  This Complaint follows a separate suit by the DOJ in 2014, with sought a “civil forfeiture of over $100,000 in allegedly laundered funds traceable to the $2 million bribe payments.”

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Special Alert: Disparate Impact Under the Equal Credit Opportunity Act After Inclusive Communities

On June 25, the Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. held that disparate-impact claims are cognizable under the Fair Housing Act (FHA). The Court, in a 5-4 decision, concluded that the FHA permits disparate-impact claims based on its interpretation of the FHA’s language, the amendment history of the FHA, and the purpose of the FHA.

Applicability to ECOA

When certiorari was granted in Inclusive Communities, senior officials from the CFPB and DOJ made clear that they would continue to enforce the disparate impact theory under the Equal Credit Opportunity Act (ECOA) even if the Supreme Court held that disparate-impact claims were not cognizable under the FHA. It is reasonable to expect that the Court’s decision will embolden the agencies, as well as private litigants, to assert even more aggressively the disparate impact theory under ECOA. Read more…

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DOJ Assistant AG Caldwell Delivers Remarks at the ABA’s National Institute on Bitcoin and Other Digital Currencies

Today, Assistant Attorney General Leslie Caldwell delivered remarks at the ABA’s National Institute on Bitcoin and Other Digital Currencies. Speaking on the DOJ Criminal Division’s approach to the developing landscape of virtual currency, Caldwell acknowledged the legitimate uses of virtual currencies, such as having the ability to lower costs for brick and mortar businesses and its potential to promote a more efficient online marketplace, while also addressing the Department’s concern for the criminal activity surrounding  virtual currencies, noting, “virtual currency facilitates a wide range of traditional criminal activities as well as sophisticated cybercrime schemes.” Citing recent actions against various individuals and groups involved in criminal activities that “sought to exploit decentralized systems such as Bitcoin” – specifically, Silk Road and Ross Ulbricht; and Carl Force and Shaun Bridges, both involved in the Baltimore Silk Road Task Force – Caldwell stressed that there are “many exchanges that don’t concern themselves with following the law.” She explained that the primary legal bases for enforcement are money services business, money transmission, and anti-money laundering statutes, as well as state money transmitter licensing laws and, in some states like New York, virtual-currency specific licensing requirements. Caldwell also noted the Department’s partnership with FinCEN, summarizing its involvement in the Ripple Labs resolution to show that “compliance and remediation can lead to a more favorable resolution of criminal investigations.”  Further, Caldwell observed that while there is no “one-size-fits-all” compliance program, the adherence to regulations and state licensing laws by those involved in virtual currency businesses will reduce liability and complying with anti-money laundering guidelines will allow “the legitimate use of virtual currency to grow and be responsive to infiltration and abuse by criminal elements.”

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Alleged Ringleader of Global Cybercrimes Extradited to United States to Face Charges

Today, the DOJ unsealed an eighteen-count indictment in Brooklyn, New York charging a Turkish citizen (Defendant) with organizing worldwide cyberattacks against at least three U.S. payment processors’ computer networks. The Defendant’s organization allegedly used “sophisticated intrusion techniques” to hack the computer systems, stealing prepaid debit card data and subsequently using the stolen data to make ATM withdrawals in which standard withdrawal limits were manipulated to allow for greater withdrawals. According to the indictment, the Defendant managed a group of co-conspirators responsible for distributing the stolen card information to “cashing crews” around the world, who then used the information to conduct tens of thousands of fraudulent ATM withdrawals and fraudulent purchases. Within two days – February 27 and 28, 2011 – the DOJ alleges that the “cashing crews withdrew approximately $10 million through approximately 15,000 fraudulent ATM withdrawals in at least 18 countries.” The remaining two operations, occurring in late 2012 and early 2013, resulted in ATM withdrawals of roughly $5 million and $40 million, respectively. The Defendant, along with other high-ranking members of the conspiracy, received the funds from the fraudulent operations via wire transfer, electronic currency, and personal delivery of U.S. and foreign currency. The Defendant was arrested in Germany on December 18, 2013, and was extradited to the United States on June 23, 2015. The charges against the Defendant follow previous charges against members of the conspiracy, including the arrest of a member of the New York cashing crew.

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FIFA Investigation Updates: Plea Agreement with American FIFA Official Unsealed

On June 15, the U.S. District Court for the Southern District of New York unsealed a 2013 plea agreement under which American FIFA Executive Committee Member Chuck Blazer secretly pleaded guilty to ten charges related to corruption in the soccer organization. Mr. Blazer agreed to forfeit more than $1.9 million, and to pay back-taxes and penalties on more than $11 million in unreported income.

According to the plea agreement, Mr. Blazer began cooperating with the DOJ’s investigation in December of 2011, even agreeing to work undercover making secret recordings. The unsealing of the plea agreement is the latest development in the ongoing fallout from the racketeering, wire fraud, and money laundering indictments announced three weeks ago by the DOJ against soccer executives at FIFA and others tied to the organization. Mr. Blazer’s testimony at his plea hearing in November 2013 was unsealed two weeks ago.

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DOJ Reaches Agreement with Government Contracting Company and Former VP over Alleged Bribery

On June 16, the DOJ entered into a non-prosecution agreement with a Florida-based defense and government contracting company to resolve allegations that it conspired to bribe Kuwaiti officials for the purpose of securing a government contract. In connection with his alleged involvement in the bribery scheme, the company’s former vice president (VP) also pleaded guilty to one count of conspiracy to violate anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). In 2004, Kuwait’s Ministry of the Interior initiated the Kuwait Security Program, a homeland security project intended to “provide nationwide surveillance for several Kuwaiti government agencies, primarily through the use of closed-circuit television cameras.” The program was divided into two phases: (i) the planning and feasibility period; and (ii) the installment of equipment, methods, and programs suggested during the first phase. According to the non-prosecution agreement, the company and its former VP schemed to ensure that the company won both the Phase I and II contracts. Specifically, the company, its former VP, and other senior employees established a shell company to bid on Phase I, giving the company an advantage in the Phase II bidding, which contained the more lucrative revenues. The shell company secured the Phase I contract for approximately $4 million, and half of those funds were allegedly diverted to a consultant who bribed Kuwaiti officials to assist the government contracting company in obtaining the Phase II contract. Admitting to the DOJ Criminal Division’s charges and cooperating with the federal investigation, the company has agreed to (i) pay a $7.1 million penalty; (ii) conduct a review of its current internal controls, policies, and procedures, and make any necessary changes to ensure that its record keeping and anti-corruption compliance program are sufficient; and (iii) report annually to the Criminal Division and the U.S. Attorney’s Office of the Eastern District of Virginia on the remediation and implementation of its compliance program and internal controls, policies, and procedures.

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Net 1 Announces Closure of SEC FCPA Investigation

On June 8, Net 1 UEPS Technologies, Inc., a South Africa-based mobile payments company incorporated in Florida, announced that the SEC had closed a FCPA investigation arising out of a contract with the South African Social Security Agency. The SEC and the DOJ opened parallel investigations in November 2012, and the DOJ investigation remains ongoing. Net 1 has asserted that the investigation was instigated by one of the losing bidders on the contract.

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POSTED IN: Miscellany, Payments

U.S. House Passes Amendment To Ban DOJ’s Use of Disparate Impact Claims

On June 3, the U.S. House of Representatives passed an amendment to H.R. 2578, the Fiscal Year 2016 Commerce, Justice, and Science Appropriations Act. The amendment, passed in a 232-196 vote, would prohibit the DOJ from using funds to prosecute and obtain legal settlements from lenders, landlords, and insurers in discrimination suits based on the disparate impact legal theory. This legislative development comes as the U.S. Supreme Court is expected to rule later this summer in Texas Dept. of Housing v. Inclusive Communities Project, which challenges the disparate impact theory in mortgage lending under the Fair Housing Act

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