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A federal jury yesterday found that the city of Miami and its former budget director had defrauded bond investors by failing to truthfully disclose the city’s deteriorating financial condition, the Wall Street Journal reported today. The verdict came in the first federal jury trial by the U.S. Securities and Exchange Commission against a municipality. The SEC last month settled other civil cases with 71 municipal issuers as part of an agency initiative to improve disclosure. “We will continue to hold municipalities and their officers accountable, including through trials, if they engage in financial fraud or other conduct that violates the federal securities laws,” Andrew Ceresney, director of the agency’s enforcement division, said Wednesday. The jury found that Miami had committed securities fraud while reporting on the city’s finances in 2007, 2008 and 2009. According to the SEC’s complaint, Miami transferred dollars earmarked for specific capital projects between funds, enabling the city to meet its own reserve-fund requirements.

Wells Fargo has received subpoenas from three different United States attorneys’ offices in the last week, escalating an investigation into how thousands of bank employees came to secretly issue more than a million sham accounts without customers’ consent, the New York Times reported today. Federal prosecutors in Manhattan and San Francisco sent the subpoenas seeking information on the misconduct, and prosecutors in North Carolina are also investigating. Wells Fargo, one of the nation’s largest banks, with headquarters in San Francisco, recently settled civil charges with regulators and the city and county of Los Angeles last week. The settlement, in which the bank did not admit or deny wrongdoing, included $185 million in fines and a requirement that the bank hire an independent consultant to review its sales practices. The subpoenas from federal prosecutors raise the prospect that the investigation, while in its early stages, could lead to criminal charges for the bank or its employees. Another option is for prosecutors to handle the investigation as a civil fraud matter, which would require a lower burden of proof. At least one of the subpoenas indicated that prosecutors were considering that route. Read more.

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

Wells Fargo & Co. has told some employees to stop cross-selling products to customers, while the Senate Banking Committee’s Republican majority said yesterday that it plans a hearing into the bank’s sales practices, the Wall Street Journal reported today. The committee intends to question Wells Fargo Chief Executive John Stumpf about the events that led the bank to pay a $185 million fine and enter into an enforcement action with two federal regulators and a local official. The committee has already informed Stumpf that his presence was requested for the Sept. 20 hearing, according to Torrie Matous, a spokeswoman for the banking committee’s majority, led by Sen. Richard Shelby (R-Ala.). Several Wells Fargo executives are scheduled to brief the banking committee today and regulators are expected to meet with them later this week.

U.S. securities regulators said yesterday that they want the executor of Charles Wyly's estate held in contempt for failing to pay the $101.2 million owed as a result of the late Texas businessman's fraud, Reuters reported. In a letter filed in Manhattan federal court, the U.S. Securities and Exchange Commission said that Donald Miller, Charles Wyly's son-in-law, had taken no steps in his role as executor to pay the sum after being ordered to do so in February 2015. The SEC said that the estate had failed to seek a stay of the judgment pending appeals by it and former billionaire Sam Wyly, Charles Wyly's brother, of a federal jury's verdict two years ago finding them liable for securities fraud. The commission asked U.S. District Judge Paul Oetken to order Miller to demonstrate why the estate could not pay the sum, and to hold him in contempt if he failed to do so. Read more. 

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

Between 2009 and 2013, financier Jho Low, a family friend of the Malaysian prime minister Najib Razak, and his associates helped embezzle at least $3.5 billion from 1Malaysia Development Bhd., a state investment fund created by Razak, the U.S. Justice Department alleged in a lawsuit filed in July, the Wall Street Journal reported today. It couldn’t have happened without the cooperation of a handful of bankers and the failure of a host of financial institutions and regulators to detect the alleged fraud, investigators believe. Low and his cohorts for years eluded detection or interference by at least eight banks, big accounting firms, a central bank and various government regulators, according to the Justice Department, investigative documents from other countries and people familiar with the affair. The banks included Goldman Sachs Group Inc. and Standard Chartered PLC. Read more. (Subscription required.)

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

Several dozen creditors of Providence Financial Investments attended a public hearing in Miami this week in the bankruptcy case, as pressure mounts internationally against the Miami-based investment company that allegedly took in millions of dollars from hundreds of investors from around the world before declaring itself insolvent, the Miami Herald reported today. The company filed for chapter 7 bankruptcy on July 28 in the U.S. Bankruptcy Court of the Southern District of Florida after the U.S. Securities and Exchange Commission moved to shut the company down in June, calling the investment scheme involving factoring in Brazil an “ongoing fraudulent and unregistered securities offering.” The securities that offered annual returns of 12 percent to 13 percent had not been registered with the SEC, and brokers selling them were unregistered, the agency said in its complaint seeking a jury trial. In addition, Providence hasn’t accounted for the money it has collected — about $64 million in U.S. investors’ money alone, the SEC alleges — and its poor financial condition wasn’t disclosed to its investors, while it continued to solicit the nest eggs of more than 400 investors around the country.

Investors in the high-end denim brand Imogene + Willie are trying to force the Nashville, Tenn., retailer into bankruptcy, accusing the founders of misspending company money on luxury clothing items, spa visits and home renovation projects, the Wall Street Journal reported today. In court papers, investors asked a bankruptcy judge to replace Imogene + Willie founders Matt and Carrie Eddmenson with new leadership, saying that the couple spent a $1.5 million cash investment “on themselves to support a lavish lifestyle of personal indulgence while failing to meet any of the critical deadlines for developing a wholesale business.” Founded in 2009, Imogene + Willie designs upscale jeans that quickly became popular with high-end boutiques across the country. The request for new leadership, filed on Tuesday in U.S. Bankruptcy Court in Denver, came from businessman Robert Lamey and his wife, Paige Heid, who invested in the jeans company in July 2013. They are also trying to force the company into chapter 11 protection by filing what is called an involuntary petition, an action that gives the company 20 days to respond. Read more. (Subscription required.) 

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

How do criminal or regulatory proceedings affect the estate’s pursuit of claims? Experts on Sept. 8 abiLIVE webinar to discuss. Register for free!