Monday, September 2, 2013

Global Impact: Three Former Direct Access Partners Brokers Plead Guilty to Violations Under FCPA

According to The Latin American Tribune, three Former Direct Access Partners (DAP) brokers have pleaded guilty in a federal Manhattan district court for bribery of banking officials in Venezuela stemming from a number of charges arising from violations of the Foreign Corrupt Practices Act. 

Ernesto Lujan, 50, José Alejandro Hurtado, 38, and Tomás Alberto Clarke Bethancourt, 43, have all pleaded guilty to  conspiring to violate the FCPA, as well as money laundering and other related offenses. 

The charges relate to a scheme to bribe María de los Angeles González de Hernández (“Gonzalez”) at Banco de Desarrollo Económico y Social de Venezuela (“BANDES”), a state economic development bank in Venezuela, in exchange for services authorized by BANDES.

Lujan, Hurtado and Clarke also pleaded guilty to an additional charge of conspiring to violate the FCPA in connection with a similar scheme to bribe a foreign official employed by Banfoandes (the “Banfoandes Foreign Official”), another state economic development bank in Venezuela, and to conspiring to obstruct an examination by the US Securities and Exchange Commission (“SEC”) of the New York-based broker-dealer (Direct Access Partners LLC) where all three defendants had worked, to conceal the true facts of DAP’s relationshiwith BANDES.

COMMENT: As you will see in the below discussion, the conspiracy that Lujan, Clarke and Hurtado engaged in with the cooperation and facilitation of González was high-risk, particularly given the fact that in recent years Venezuelan financial transactions have been highly suspect and subjected to major oversight by USDOJ.

Lujan, Clarke and Hurtado worked for Direct AccessPartners LLC (DAP), a New York City-based broker-dealer, principally through its Miami offices. In 2008, DAP established a group called the Global Markets Group, which included Lujan, Clarke and Hurtado, and which offered fixed income trading services to institutional clients. Lujan was a managing partner and Clarke was a senior vice president at DAP at the time.

One of the DAP’s clients was BANDES, a Venezuelan-state controlled bank in which Venezuela provided it with substantial funding. González was an official at BANDES and oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through DAP in which most of the trades involved fixed income investments for which DAP charged BANDES a mark-up on purchases and a mark-down on sales.

DAP also conducted business with Banfoandes, another state development bank in Venezuela that, along with its 2009 successor, Banco Bicentenario, operated under the direction of the Venezuelan Ministry of Finance. Banfoandes acted as a financial agent of the Venezuelan government in order to promote economic and social development by, among other things, offering credit to low-income Venezuelans. The unnamed "Banfoandes Foreign Official" was responsible for some of Banfoandes’s foreign investments.

From early 2009 through 2012, Lujan, Clarke, and Hurtado participated in a bribery scheme in which González directed trading business she controlled at BANDES to DAP, and in return, the three split the revenue DAP generated from this trading business with González. 

During 2009-2012, DAP generated over $60 million in mark-ups and mark-downs from trades with BANDES. Lujan, Clarke and Hurtado devised a split with González of the commissions paid by BANDES to DAP. Emails, account records, and other documents collected from the Broker-Dealer and other sources reveal that González received a substantial share of the revenue generated by the Broker-Dealer for BANDES-related trades. As a result, González received millions in kickback payments.

The kickbacks to González were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For instance, Lujan, Clarke, and Hurtado used accounts they controlled in Switzerland to transfer funds to an account González controlled in Switzerland. 

Additionally, Hurtado and his spouse received substantial compensation from DAP, portions of which Hurtado transferred to an account held by González in Miami and to an account held by an associate of González in Switzerland. Hurtado even got reimbursements from González for the US income taxes he had paid on money that he used to make kickback payments to González. Lujan and Clarke also derived substantial profit from their roles in the bribery scheme.

Beginning about November 2010, the SEC commenced a periodic examination of Direct Access Partners, and from November 2010 through March 2011 the SEC’s examination staff made several visits to DAP’s offices in Manhattan. In early 2011, Lujan, Clarke, and Hurtado discussed their concern that the SEC was examining DAP’s relationship with BANDES and asking questions regarding certain emails and other information that the SEC examination staff had discovered. 

Lujan, Clarke, and Hurtado agreed to conceal the true facts of DAP’s relationship with BANDES and began deleting emails. As part of this effort to obstruct the SEC examination, Clarke lied to SEC examination staff in response to an interview question about his relationship to an individual who had received purported foreign associate payments relating to BANDES.

From 2008 through mid-2009, Lujan, Clarke, and Hurtado paid similar bribes to the unnamed "Banfoandes Foreign Official," who, in exchange, directed Banfoandes trading business to DAP.

Lujan, 50, Clarke, 43, and Hurtado, 38, each pleaded guilty to the same offenses. Sentencing for Lujan and Clarke is scheduled for February 11, 2014, before US District Judge Paul G. Gardephe. Hurtado is scheduled for sentencing before US District Judge Harold Baer, Jr. on March 6, 2014.

Lujan and Clarke each face as many 20 years in prison on the most serious count of money laundering. They've signed cooperation agreements with the US government in hopes of leniency. Lujan was being held without bail, but was released after the plea deal on a $1.5 million bond secured by two Florida properties. Clarke was allowed to remain free pending sentencing.

González was charged in a criminal complaint and arrested on May 3, 2013, in connection with the BANDES bribery scheme. The charges against González are merely accusations and she is presumed innocent unless and until proven guilty.

DAP ceased operations in May after the criminal charges and a related SEC suit were filed. It was forced into bankruptcy by creditors on May 30, 2013.

One of the most effective ways that global companies can ensure that they are not compromised in any way is through the retention of outside counsel to put into place all written policies, procedures and protocols relative to FCPA compliance and reporting.

In this way, there is less likelihood for senior executives to be in a position of overriding policies, procedures and protocols established by outside counsel.
Although the SEC may be viewed as nothing more than bureaucrats, nothing could be further from the truth.