Wells Fargo & Co. agreed to settle a U.S. Securities and Exchange Commission fraud lawsuit related to a $75 million bond offering for 38 Studios Inc., a now-bankrupt video game company founded by former All-Star major league baseball pitcher Curt Schilling, Reuters reported. The settlement in principle with the bank’s Wells Fargo Securities unit was disclosed in a Jan. 10 filing with the federal court in Providence, Rhode Island. Terms were not disclosed. Wells Fargo and the SEC said that the partial federal government shutdown is delaying a final settlement, and asked a federal judge to put the case on hold. Wells Fargo was accused of concealing from investors that 38 Studios would face a $25 million shortfall even after the October 2010 bond offering from Rhode Island Commerce Corp., a state economic development agency. The SEC said 38 Studios received only $50 million from the offering, with most of the rest set aside for interest and other payments, after claiming to need $75 million to develop a video game code-named Copernicus. Wells Fargo was also accused of concealing its overall fees related to 38 Studios from investors.
The SEC and state regulators have brought more than 90 crypto cases over the past two years, as bitcoin and other cryptocurrencies swung from highs to recent lows. So far, the regulators have only managed to claw back about $36 million for duped investors, according to an analysis by The Wall Street Journal. One of the attractions of digital currency is its anonymity. That feature, compounded in some cases by front companies and fake owners, can also make it hard for investigators to trace funds. SEC Chairman Jay Clayton warned a year ago that his agency “may not be able to effectively pursue bad actors or recover funds” invested in digital tokens, in part because the proceeds often end up overseas. Most of the federal and state cases were designed to close the more clearly illegal digital-coin offerings, as officials fought to tame a market they said was rife with fraud, including Ponzi schemes and pump and dumps, a review by the Journal found. But regulators filed few cases at the height of crypto frenzy, when scores of new companies were offering digital coin investments and bitcoin was soaring in late 2017. The SEC produced more results in recent months as the market fell. The commission filed five cases in November, compared with four in all of 2017.
Malaysian authorities on Monday filed criminal charges against Goldman Sachs Group Inc. units and a former partner of the bank in connection with the 1MDB financial scandal, the country’s attorney general said, the Wall Street Journal reported. Goldman Sachs International and two Asian subsidiaries of the Wall Street bank were charged under securities laws for the omission of material information and publishing of untrue statements in offering documents in 2012 and 2013 for the sale of international bonds by state investment fund 1Malaysia Development Bhd., or 1MDB. “We believe these charges are misdirected, will vigorously defend them and look forward to the opportunity to present our case. The firm continues to cooperate with all authorities investigating these matters,” Goldman said. Malaysia’s attorney general also filed charges against Tim Leissner, a former Goldman partner, under securities laws. Leissner pleaded guilty in criminal charges made public by the U.S. Justice Department in November to misappropriating 1MDB money and bribing officials in Malaysia and Abu Dhabi. His sentencing is expected early next year.
One of the first startups sued by U.S. regulators over its initial coin offering will pay $2.3 million after being accused of scamming investors through claims such as building a cryptocurrency bank, the Wall Street Journal reported. AriseBank and its founders, Jared Rice and Stanley Ford, sold their virtual coin at the height of the cryptocurrency bubble in late 2017 and early 2018. The Dallas-based company claimed to have raised $600 million and touted a celebrity endorsement from former boxing champion Evander Holyfield. The company vowed to set up over 1,000 ATMs that would let users tap into their cryptocurrency accounts, a claim that attracted scrutiny from legitimate crypto entrepreneurs who doubted its claims and informed regulators. AriseBank instead took in about $4.25 million from hundreds of investors, according to a criminal indictment of Mr. Rice that was unsealed on Nov. 28. A receiver and a cybersecurity consultant appointed to trace AriseBank’s assets eventually found cryptocurrencies worth about $1.1 million, according to a court summary from August. Other funds couldn’t be located and were presumed to have been spent.
Bankruptcy lawyers unwinding the Woodbridge Group of Cos. Ponzi scheme say it will take until the first quarter of 2019 to get the first checks in the mail to burned investors, WSJ Pro Bankruptcy reported. The California company filed for chapter 11 protection about a year ago, with the Securities and Exchange Commission in hot pursuit. Weeks after the bankruptcy filing, Woodbridge and its founder, Robert Shapiro, were accused of civil fraud. Both eventually settled with the SEC, but the securities fraud accusations ended Shapiro’s influence in the bankruptcy case. Bankruptcy and real-estate professionals took over and are shutting down the company while collecting cash to pay off thousands of people, many of them elderly. Woodbridge investors were expecting to collect the first round of checks before the end of this year, partial repayment on hundreds of millions of dollars they plunged into what they were assured was a safe investment.
A decade after Bernard Madoff was arrested for running the world’s biggest Ponzi scheme, the bitter fight to recoup investors’ lost billions has astounded experts and victims alike, Bloomberg News reported. While no one will ever collect the phantom profits Madoff pretended he was earning, the cash deposits by his clients have been the primary objective for Irving Picard, a New York lawyer overseeing liquidation of Madoff’s firm in bankruptcy court. So far he’s recovered $13.3 billion — about 70 percent of approved claims — by suing those who profited from the scheme, knowingly or not. And Picard has billions more in his sights. “That kind of recovery is extraordinary and atypical,” said Kathy Bazoian Phelps, a bankruptcy lawyer at Diamond McCarthy LLP in Los Angeles who isn’t involved in the case. Recoveries in Ponzi schemes range from 5 percent to 30 percent, and many victims don’t get anything, Phelps said. The scam by Madoff wiped out $19 billion that wealthy investors, charities and celebrities had entrusted to him starting as long ago as the 1970s, based on approved claims so far. For years, he doctored client accounts with phony trades and $45 billion in fake profits, until the 2008 financial crisis exposed the fraud and led to the collapse of his investment advisory firm. 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.
