Yet More for your Capitalist Corruption file: Wall St Bank FRAUD

Chris Brady cdbrady at
Thu Nov 20 22:33:03 MST 2003

[Only a biopsy]:

Currency Fraud Ran Deep, Officials Say

 New York Times, November 20, 2003

 What began with an undercover F.B.I. agent’s “posing as a bad guy with
money” led to the discovery of rigged currency trading by traders at
some of Wall Street’s biggest banks, federal prosecutors said yesterday.

An 18-month investigation led to charges being filed against 47 people
yesterday, a day after F.B.I. agents swooped into offices in downtown
Manhattan to make arrests. Civil fraud charges were also filed against
nearly half of the 47 by the Commodity Futures Trading Commission and
one was charged by the Securities and Exchange Commission.

Although the amounts of money were small by Wall Street standards,
federal officials said yesterday that they had uncovered a pattern of
deep-rooted and apparently long-running fraud within the foreign
exchange industry. The five big banks, which included J. P. Morgan and
UBS, were the victims of rigged currency trades made by some of their
own foreign exchange traders, who pocketed kickbacks, according to the
indictment. The transactions also involved traders at some interbank
brokers, including the Harlow subsidiary of Garban Intercapital and
Tullett Liberty, which facilitate foreign currency trades between banks.

Over a six-month period, federal officials said the five banks involved
lost more than $650,000, of which $270,000 went to the traders at the
banks and the interbank brokers who were involved.

In a second incident detailed yesterday, prosecutors said that many
unwitting small investors were swindled by “boiler room” operators who
would call them posing as legitimate brokers and offering sure-fire
investments in the foreign-exchange market.

In some cases the people charged with those crimes are also accused of
being involved in the fraudulent bank trades.

“Today’s charges run the gamut of fraud,” the United States attorney in
Manhattan, James Comey, said. “With more than 1,000 victims from small
investors to large banks, the losses are in the millions.”

“When the F.B.I. placed an undercover in the foreign exchange world,
posing as a bad guy with money looking for bad things to do,” Mr. Comey
added, “he had more criminal schemes thrown at him than he could

The charges are the newest round of scandal to hit Wall Street in recent
years and come as federal and state investigators are uncovering new
evidence almost daily of improper trading in mutual funds. But in this
case, the activities under question did not involve top financial
executives but lower-level employees whose relative anonymity may have
helped them engaged in fraudulent activities for years. Mr. Comey said
that the big banks themselves were not under suspicion.

A troubling fact for the banks, investors and regulators is that the
investigation showed, Mr. Comey said, that similar rigged trading
involving bank traders has been defrauding banks for as long as 20
years. That history and the fact that so many individuals could
apparently pull off the rigged trading and get caught only after an
F.B.I. agent became involved may serve as warning: the largely
unregulated foreign exchange market, with trading volume of $1 trillion
a day, is vulnerable, and banks’ internal controls may not be strict

“What is astounding is that you have so many people involved,” David
Gilmore, a partner at Foreign Exchange Analytics, said. “That is a lot
of ducks to line up to commit fraud.”

According to the F.B.I., some of the people charged had bragged to the
undercover agent that law enforcement would never be able to get close
enough to stop them.

In addition, the documents indicate that several important players in
the rigged trading had been involved in earlier corrupt activities or
had run similar schemes with other participants.

According to the indictment, one firm accused of involvement in the
boiler-room scams of retail investors, Madison Deane, was started by
people who had earlier run two other firms, Hamilton Sterling and
Montgomery Sterling, which federal officials say were also involved in
boiler-room activities.

UBS and J. P. Morgan said there was no material financial impact on the
banks. Two other banks that were defrauded, Dresdner Kleinwort
Wasserstein and Société Générale, declined to comment.

Executives of the fifth bank, Israel Discount Bank could not be reached
for comment.

ICAP, the owner of Garban Intercapital, where some of the interbank
traders worked, said there was no suggestion that any ICAP business was
being investigated. Other firms involved had no comment or could not be

The government said that the currency traders made transactions that
appeared to have been designed to escape detection by senior bank

In each case, the bank would lose only relatively small amounts of money
in a trade with another bank, where a trader would also be involved.
That second bank would then lose those profits in trades with another
series of trades, all involving conspirators. The trades would all be at
prices that appeared to be reasonable within the range of trading that
day, but were set to assure that the profits would flow in the
predetermined direction.

In the middle of these trades were the interbank brokers. At the end of
the chain, the indictment said, was an account at a firm called
Itradecurrency that would collect the profits, and then split them with
the various people involved. The F.B.I. undercover agent owned that
account, which gave the government full knowledge of what was going on.

The investigation, code-named Wooden Nickel, began in May 2002 when a
witness told F.B.I. agents that people at Madison Deane, one of the
boiler-room firms, were cheating small investors, an official said.

The tip by the witness, who had earlier been arrested for a white-collar
crime, led the F.B.I. to open an investigation that later uncovered the
rigged foreign exchange trades at the big banks.

Early in the investigation, the F.B.I. undercover agent was introduced
to the group at Madison Deane, according to documents and the law
enforcement official. The F.B.I. agent posed as manager of a hedge fund,
called Centurion Consulting, with money to play with. The agent, who
came to be known as the Prince by executives at Itradecurrency, also
told the conspirators that he was interested in learning about how to
conduct rigged foreign exchange trading, which in the industry’s shadowy
corners is known as “points for cash.”

The undercover agent ended up working from an office near the Madison
Deane traders in 2 World Financial Center. “He definitely fit the part,”
the official said. “These are primarily young guys. He dressed nicely,
he was convincing enough that they would interact with him socially.” In
fact, at least one trader invited him to his weekend home, the official
said, but “he tried to avoid the invitations.”

Two principals of Itradecurrency, Steven E. Moore and Anthony Iannuzzi,
were charged by the federal prosecutor and the Commodity Futures Trading

Mr. Moore used to work for an interbank dealer called Lasser Marshall
and served in the late 1980’s on the foreign exchange committee that
advises the Federal Reserve Bank of New York on foreign-exchange trading

The Commodity Futures Trading Commission charged separately that
Itradecurrency ran a boiler room that raised and misused $1.6 million
from investors. A women answering the phone at Itradecurrency said there
would be no comment.

Another of those arrested, Albert Guglielmo, was convicted in June in
federal court in Brooklyn of cheating customers of Evergreen
International Spot Trading out of $105 million in a foreign currency
trading scam. That firm is defunct, but the federal indictment charges
Mr. Guglielmo with being involved in the scheme that defrauded the five

“It is downright depressing,” Mr. Comey, the federal prosecutor said,
“how much criminal activity they found just from being there posing as a
bad guy.”

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