Investment Scam Plea, IRS Suit, N.Y. Surplus: Compliance

An ex-Massachusetts Institute of Technology professor and his son agreed to plead guilty to charges stemming from a scheme to lure investors to their hedge fund with false promises about investment strategies, according to federal prosecutors.

Gabriel Bitran, a former professor and associate dean of MIT’s Sloan School of Management, and his son, Marco Bitran, lied to investors in GMB Capital Management LLC who provided more than $500 million to the fund, prosecutors in Boston said. The Bitrans’ funds incurred losses of more than $140 million of investor money while they paid themselves millions of dollars in management fees, prosecutors said.

In 2009, U.S. regulators began probing Bitran’s claims that their funds had average annual returns of 16 percent to 23 percent, according to prosecutors.

In April 2012, the Bitrans agreed to pay $4.8 million to settle U.S. Securities and Exchange Commission claims that they lured customers with a fabricated track record before investing with other funds, including Bernard L. Madoff’s.

Each will plead guilty to one count of conspiracy to commit securities fraud, wire fraud and falsify documents and faces a maximum sentence of five years in prison, according to agreements with prosecutors.

“Professor Bitran accepts responsibility and is pleased there will be a resolution of this matter,” his lawyer, Nicholas Theodorou, said yesterday in a phone interview.

Marco Bitran also “looks forward to resolving this matter and putting it behind him,” said his lawyer, Mark Pearlstein.

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IRS Says It Couldn’t Save Data on Computer in Tea Party Dispute

The U.S. Internal Revenue Service told a judge on Aug. 11 that its technicians made repeated futile efforts to save data on a malfunctioning computer hard drive used by Lois Lerner, the former official at the center of a dispute between Congress and the Obama administration over scrutiny of Tea Party groups.

In a series of sworn statements submitted by the IRS in its effort to fend off a lawsuit by the activist group Judicial Watch, government technicians described the step-by-step processes they followed to try to recover the data.

Judicial Watch sued the IRS in October, seeking Lerner’s e-mail and other communications concerning the processing of applications for tax-exempt status. The litigation and congressional investigation were triggered by Lerner’s statement in May 2013 that the IRS singled out for extra scrutiny the applications of groups with “tea party” or “patriot” in their names.

U.S. District Judge Emmet Sullivan in Washington, who is overseeing the case, on July 10 ordered the IRS to “explain the facts and circumstances surrounding the crash” of Lerner’s hard drive in 2011, including information about efforts to repair the device and recover data.

The case is Judicial Watch v. IRS, 13-cv-01559, U.S. District Court, District of Columbia (Washington).

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Wall Street Settlements Bring New York State Record Surplus

New York state is poised for a record surplus fed by legal settlements with Wall Street banks, creating a buffer against a $1.3 billion Medicaid bill from the U.S. government.

The state, which has its highest credit rating in four decades, won $3.6 billion in a June deal with BNP Paribas SA after the French bank admitted to evading U.S. sanctions against Sudan, Cuba and Iran. It’s the biggest chunk of a $4.2 billion windfall that New York is counting on as a budget cushion after closing more than $12 billion in deficits since Governor Andrew Cuomo took office in 2011.

It’s more than enough to offset the $1.3 billion that the Centers for Medicare and Medicaid Services said the state owes after it overbilled for services for the disabled in fiscal 2011.

The surplus includes the cash from BNP, $715 million from Credit Suisse Group AG for helping clients conceal assets offshore to avoid U.S. taxes and $92 million from Citigroup Inc., part of a $7 billion federal settlement over claims the bank misled investors about the quality of some mortgage backed-bonds, according to a budget update released last week.

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Petrobras-Linked Money Laundering Probe Spreads to Banks

A $4.4 billion money-laundering probe linked to state-run Petroleo Brasileiro SA is spreading to financial institutions as prosecutors investigate whether they met compliance requirements.

Court documents cite units of banks including New York-based Citigroup Inc., Madrid-based Banco Santander SA and London-based HSBC Holdings Plc, as well as Sao Paulo-based Itau Unibanco Holding SA and Osasco, Brazil-based Banco Bradesco SA as holding accounts or executing operations linked to the alleged laundering of 10 billion reais. The banks either declined to comment or said they meet compliance requirements.

Prosecutors are reviewing bank documents provided by police and the central bank, said Prosecutor Carlos Fernando Lima, the spokesman for a group of six prosecutors assigned to the case. He declined to name the banks because the group hasn’t started a formal prosecution and it’s not yet clear if any wrongdoing occurred.

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Compliance Departments

Banks Woo Treasury Sanctions Pros to Navigate Complex U.S. Rules

The Obama administration unit central to enforcing economic sanctions on the regimes of Vladimir Putin and Bashar al-Assad has to contend with a nuisance closer to home: large banks poaching its staff.

Companies including HSBC Holdings Plc and Deloitte Touche Tohmatsu Ltd. are beefing up compliance departments to ensure they don’t violate the set of programs the Treasury Department has more than doubled to 37 over the past decade. At least eight people of a staff of about 200 have left the Treasury’s Office of Foreign Assets Control in the past year, including no fewer than six in 2014, Bloomberg News reports.

As sanctions become the key weapon of economic pressure, the U.S. is using to achieve its security and foreign policy goals, companies are rushing to hire employees versed in the intricacies of the Treasury’s rules. For banks, investment firms and the consulting companies helping them steer clear of violations, the stakes are higher because fines are getting bigger and the list of banned individuals and businesses has swelled to about 5,800.

“The demand for expertise in this space has skyrocketed due to the increasing visibility of enforcement cases,” said Chip Poncy, former director of the office of strategic policy for terrorist financing and financial crimes at the Treasury. “Management understands that they need to strengthen their compliance programs.”

Poncy left Treasury in 2013 and later became a founding partner of Financial Integrity Network, a consulting company assisting in combating and protecting against illicit finance.

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