Stockbrokers punished for fraud world over

LAHORE: Every year, dozens of stock brokers are apprehended and sent behind bars throughout the world for committing innumerable financial frauds such as insider trading, for preparing fabricated/ false trading reports, for manipulation, speculation, harmful rumour-mongering and for fleecing investors etc.

Interestingly, in a case pertaining to the preparation of a misleading trading report, former non-executive chairman of the NASDAQ stock market and a top-ranking broker at America’s Wall Street, Bernard Madoff, was sentenced to 150 years in prison on June 29, 2009 for defrauding and hoodwinking thousands of investors. This was the maximum punishment allowed.

Madoff had hence committed one of the largest financial frauds in American history. He was arrested in 2008 for robbing between $20 billion and $36 billion from investors. The renowned Wall Street stock broker and investment advisor, through his firm Messrs Bernard L. Madoff Investment Securities LLC, was involved in cheating investors who had reposed trust in it to invest their money in stocks and other hedge funds.

Two of his office workers had testified before the court that they used to create false trading reports based on the returns that Madoff ordered for each customer. For example, once Madoff had determined a customer's return, one of the back office workers would enter a false trade from a previous date and then enter a false closing trade in the amount of the required profit.

Through a computer programme specially designed to backdate trades and manipulate account statements, Madoff’s staffers had also inflicted massive losses to various Jewish federations and hospitals, forcing some organisations to close operations.

Madoff, a Jew himself, had later apologised to his victims, saying, "I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren. This is something I will live in for the rest of my life. I'm sorry. I know that doesn't help you."

The affluent Madoff and his wife had contributed about $240,000 since 1991 to federal candidates, parties and committees, including $25,000 a year from 2005 through 2008 to the Democratic Senatorial Campaign Committee.

Madoff had also employed his brother Peter and his children Shana, Andrew and Mark at his firm. After Peter was sentenced to 10 years in prison, one of his sons Mark had committed suicide by hanging, while his second son Andrew had died of a disease in 2014.

Now, let us examine a few similar cases related to India, China, France, Canada and the United Kingdom etc. In India, a leading stock broker, Harshad Mehta, was charged with numerous financial crimes like manipulation. Of the 27 criminal charges brought against him, he was only convicted of four, before his death at the age of 47 in 2001.

It was alleged that Mehta was engaged in a massive $470 million stock manipulation scheme financed by worthless bank receipts, which his firm had brokered in "ready forward" transactions between banks.

He was convicted by the Bombay High Court and the Indian Supreme Court. Mehta was tried for nine years; until he had breathed his last very young in 2001. In October 2015, the Indian Central Crime Branch police had arrested a 44-year-old stock broker in Chennai for allegedly defrauding the share portfolio of a physicist and his mother.

"The Indian Express" had reported: "The 50-year-old professor, who wished to remain anonymous, is the son of a former professor at the Indian Institute of Technology in Madras. He had inherited the shares of his father after the latter’s death a few years ago. In 2011, on the advice of a family friend, he solicited the services of Rajagopalan to convert the shares inherited as well as those owned by his aged mother."

The newspaper had added: "According to the professor, broker Rajagopalan had made them sign some forms without giving time to read the contents and clandestinely transferred the ownership of those shares into his personal account. Police said signatures and writings were forged by the accused for this purpose."

The accused and his wife, a co-accused, were charged under Sections 406, 420 and 465 of the Indian Penal Code. Rajagopalan was hence arrested and remanded to judicial custody.

In March 2015, the Securities Exchange Board of India (SEBI), the country’s Capital market regulator, had slapped a fine of Rs2.5 million on Messrs Crosseas Capital Services for fraudulent trading activities as a stock broker in shares of Ess Dee Aluminum Ltd (EAL).

The probe had found that Messrs Crosseas Capital Services had executed self-trades on its own account, leading to false and misleading appearance of trading of the scrip of Messrs EAL between September 1, 2012 and June 30, 2013.

In April 2015, the Securities Exchange Board of India had imposed a fine of Rs11 million on Messrs Todi Securities for allegedly indulging in fraudulent trade.

In April 2015, a British financial trader was also arrested over 2010 global markets ‘flash crash.’

Navinder Singh Sarao had allegedly ‘spoofed’ global financial markets by placing £134 million of false trades from his London home.

‘The Guardian’ had reported: "A financial trader who played the world’s futures markets from a small suburban house in Hounslow, west London, has been arrested and faces extradition to the US after supposedly making $40m (£27million) for his alleged role in the so-called "flash crash" of 2010. The US Department of Justice said that it was seeking the extradition of Navinder Singh Sarao, 37, who it claims ‘spoofed’ financial markets using commercially available trading software to place $200million of false trades from his home in Hounslow. The US agency added that Sarao’s supposed manipulation contributed to the flash crash on 6 May 2010, when the Dow Jones industrial average plunged 600 points in five minutes and created havoc on Wall Street."

A top French stock broker, Jerome Kerviel, was convicted in the 2008 "Societe Generale Scam" for forgery and unauthorised use of the bank's computers, resulting in losses valued at 4.9 billion Euros.

The French police had stated they lacked evidence to charge Jerome with fraud and had instead charged him with breach of trust and illegally accessing computers.

Jerome had contended that his actions were known to his superiors and that the losses were caused due to panic selling by the bank.

The Societe Generale Bank of France had claimed the broker had worked without its authorisation.

In August 2002, a famous Canadian stock broker, Mark Valentine, was arrested in Germany after a two-year FBI sting operation into stock fraud and money laundering.

The massive undercover operation, code named Bermuda Short, had resulted in charges against Valentine, who was the former chairman of Toronto brokerage firm Thomson Kernaghan & Co, and dozens of others.

In November 2015, one of China’s most prominent private equity investors was arrested on suspicion of insider trading, the state-run news agency Xinhua had said.

Broker Xu Xiang ran "Shanghai Zexi Investment" and was considered something of a legend in the market, the prestigious ‘Fortune’ magazine had maintained.

After Chinese capital market had crashed by about 27 percent between July and August 2015, one of Xu Xiang’s firms had gained 357 percent while his second company had registered a profit of 187 percent, thereby alerting the market regulators. There were reports that the Chinese broker had made more than $300 million over the past decade.

‘The Fortune’ had further revealed: "His arrest is the latest in a string of cases targeting traders involved in the summer meltdown in Chinese stocks that some analysts said was caused by leveraged traders bailing out of the market at the first hint of panic. Earlier this year, Citadel, the massive hedge fund and quantitative trading company controlled by Ken Griffin, had one of its accounts that was managed by a Chinese firm suspended from trading by Chinese regulators. In August, the authorities had also detained Li Yifei, the local head of London-based fund managers Man Group Plc. At the same time, police in Shanghai had said a three-month investigation had led to the arrests of three suspects in a case of stock futures price manipulation of almost $2 billion."

The premier American media house had held: "What appears clear is that Chinese regulators are trying to apportion blame for the summer’s stock crash that wiped out $5 trillion in shareholder value and dominated headlines around the world. Since then, it has arrested executives at China’s largest brokerage Citic Securities, an employee of the China Securities Regulatory Commission, a reporter at the business magazine Caijing, and others under the hazy description of insider trading and market manipulation."

Earlier in August 2015, the Chinese government had apprehended almost 200 people - from journalists to brokers and regulators in a campaign against those who spread rumours and undermined faith in the country’s stock market.

Those arrested were paraded in public too.