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Justice News

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Wednesday, July 13, 2016

Three Additional Defendants Charged In Manhattan Federal Court In Connection With Fraud Schemes Relating To Technology Start-Up Company Kit digital

Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced the unsealing of charges today against OMAR AMANAT, STEPHEN E. MAIDEN, and RIMA JAMEEL, a/k/a “Rima Jameel Al Fahl,” for their involvement in fraudulent schemes related to Kit digital (“KITD”), a publicly traded technology start-up company based in New York, and Prague, Czech Republic.

U.S. Attorney Preet Bharara said:  “As alleged, these three defendants defrauded investors of millions of dollars through years of lies and deceit.  Their fraudulent tactics allegedly included manipulating stock prices, hiding investment losses, and peddling falsehoods to investors.  This type of alleged manipulation and deception undermines the fairness and integrity of our markets, and it is something that this Office and our law enforcement partners will fight to root out.”

FBI Assistant Director-in-Charge Diego Rodriguez said:  “There are multiple charges announced today against Omar Amanat for his alleged roles in schemes to hide losses from investors, and to falsely inflate the share price and volume of a publicly traded company.  Ensuring that all investors have factual information and fair markets are exactly why the FBI continues to investigate and bring to justice those who perpetrate fraudulent investment schemes.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “What a tangled web Mr. Amanat tried to weave, when he allegedly conspired with others to devise a scheme to hide the significant losses and insolvency of the fund he controlled.  His web of deception was broken when law enforcement put an end to his criminal activity.”

According to the Indictments[1] unsealed today in Manhattan federal court:

AMANAT – an associate of Kaleil Isaza Tuzman (“Tuzman”), the former Chairman and CEO of KITD – was charged with conspiring to manipulate the market in KITD shares with Tuzman, MAIDEN, and others, and with conspiracy, wire fraud, and aiding and abetting investment adviser fraud for participating in a scheme, along with MAIDEN, to defraud investors in MAIDEN’s hedge fund regarding investments in Enable Invest Ltd., an investment fund affiliated with AMANAT.  AMANAT was arrested in New Jersey this morning and was presented today in Manhattan federal court before United States Magistrate Judge Frank Maas. 

MAIDEN previously pled guilty to charges relating to his own involvement in manipulating the market in KITD shares, defrauding KITD shareholders concerning KITD’s investment in MAIDEN’s hedge fund, and defrauding MAIDEN’s investors concerning the Enable investment.   MAIDEN is cooperating with the Government in this investigation.

JAMEEL, former outside counsel to KITD, was charged with conspiracy, securities fraud, and money laundering charges relating to an illegal scheme engaged in by JAMEEL, with others, including Tuzman and Robin Smyth (“Smyth”), KITD’s former CFO, to deceive KITD shareholders, members of the investing public, KITD’s independent auditors, and others concerning KITD’s true operating performance and financial results. 

JAMEEL was convicted in 2002 of various federal offenses in connection with her work as an attorney.  She subsequently fled the United States prior to sentencing and has remained a fugitive.            

Tuzman, who was arrested in Colombia in September 2015 on market manipulation and accounting fraud charges, is being held in Colombia pending extradition proceedings.            

Charges Against Amanat and Maiden

The Scheme to Defraud Maiden Capital Investors

MAIDEN was the managing member of Maiden Capital, an unregistered investment advisory firm that managed portfolios of securities.  Clients empowered Maiden Capital and MAIDEN to make investment decisions on their behalf.  MAIDEN, in turn, was obligated to make such decisions based on the best interests of his clients. 

Nonetheless, between in or about February 2009 and in or about June 2012, AMANAT, along with MAIDEN and others, devised and carried out a scheme to hide the fact that investments by Maiden Capital clients in Enable, an investment vehicle for which AMANAT raised money (based, in part, on false and misleading representations), had been lost.  To facilitate the scheme, MAIDEN, with the knowledge and approval of AMANAT, generated fictitious client account statements that failed to disclose the Enable losses.  In addition, AMANAT wired hundreds of thousands of dollars to a Maiden Capital bank account to support Maiden Capital, including to allow MAIDEN to repay investors whose redemption requests could not be forestalled and thus to continue to keep secret from Maiden Capital investors the Enable losses.

AMANAT aided and abetted MAIDEN’s fraud on Maiden Capital’s investment advisory clients.  Rather than disclose the Enable losses to investors in the Maiden Fund, as he was legally obligated to do, MAIDEN concealed the Enable losses, thereby acting in his own self-interest and the interests of AMANAT, his close associate, who did not want the Enable losses to be exposed.  By providing MAIDEN with capital contributions to meet redemption requests, among other things, knowing that MAIDEN’s investors had been lied to by MAIDEN about the Enable losses and the status of their investments, AMANAT assisted MAIDEN in carrying out his fraudulent scheme and helped MAIDEN to succeed in covering up the losses for over three years.

The Market Manipulation Scheme

Between in or about December 2008 and in or about September 2011, AMANAT, Tuzman, MAIDEN, and others, engaged in efforts to artificially inflate the share price and trading volume of KITD shares.  During this time period, during which KITD shares traded on the OTC Bulletin Board and on the NASDAQ, MAIDEN, at the behest of AMANAT and Tuzman, purchased and sold shares of KITD through the Maiden Fund, at times for the purpose of manipulating the stock price and at times for the purpose of creating the illusion of greater volume in the trading for KITD shares.  To facilitate the manipulation of KITD shares, AMANAT and Tuzman agreed to compensate MAIDEN in several ways, including by making investments in, and loaning money to, Maiden Capital, which agreement AMANAT and Tuzman partially fulfilled.

AMANAT, 43, is charged with one count of conspiracy to commit wire fraud, one count of wire fraud, one count of aiding and abetting investment adviser fraud, and one count of conspiracy to commit securities fraud.  Counts One and Two each carry a maximum sentence of 20 years in prison.  Count Three carries a maximum sentence of five years in prison.  Count Four carries a maximum sentence of five years in prison.  Counts One, Two, and Four carry a maximum fine of $250,000 or twice the gross gain or loss from the offense.  Count Three carries a maximum fine of $10,000 or twice the gross gain or loss from the offense.   

On July 1, 2016, MAIDEN, 43, pled guilty before Judge James L. Cott to one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud.  Count One carries a maximum sentence of five years in prison.  Count Two carries a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $250,000 or twice the gross gain or loss from the offense.

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Charges Against Rima Jameel

From at least in or about 2010 through in or about 2012, JAMEEL, with others, including Tuzman and Smyth, engaged in an illegal scheme to deceive KITD shareholders, members of the investing public, KITD’s independent auditors, and others concerning KITD’s true operating performance and financial results. 

JAMEEL, working with Tuzman and Smyth, among others, devised and executed a scheme to inflate KITD’s revenue falsely.  This scheme involved two principal methods: (a) the improper recognition of revenue from so-called “perpetual license” contracts for KITD software (contracts that gave the purchasing customer the right to use the licensed software indefinitely), and (b) the execution of fraudulent “round-trip” transactions which had the effect of using KITD’s own cash, rather than payments received from customers, to pay off bills, known as accounts receivable, that were due and owed to KITD, including those resulting from KITD’s improper revenue recognition practices, rather than disclose to KITD’s auditors and the investing public the fact that the bills were uncollectible or, in some cases, had resulted from fabricated contracts.  These fraudulent practices caused KITD to materially overstate its reported revenue, which had the effect of materially overstating KITD’s net income and earnings on its annual and quarterly financial reports issued from the fiscal quarter ending June 30, 2010, through the fiscal quarter ending March 31, 2012.  

JAMEEL was instrumental in furthering and concealing the illegal scheme.  For instance, JAMEEL, with others, created Jourdian Invest Ltd. (“Jourdian Invest”), a British Virgin Islands entity, for the purpose of using KITD’s money to make purported “loans” to KITD’s customers who were either unwilling or unable to pay the bills they purportedly owed to KITD.  Using Jourdian Invest in this manner allowed Tuzman, Smyth, and JAMEEL to fraudulently obscure their use of KITD’s own money to pay down these customers’ aging receivables on KITD’s books. 

Furthermore, JAMEEL, at Tuzman and Smyth’s request, maintained a U.A.E.-based escrow account (the “U.A.E. Escrow Account”) that, at various times, contained millions of dollars of KITD funds.  Instead of using the escrowed funds for legitimate corporate purposes, JAMEEL, at Tuzman and Smyth’s request, caused the escrowed funds to be used to pay down fictitious or uncollectible KITD receivables.  JAMEEL, working with Tuzman and Smyth, among others, sought to conceal the improper usage of the escrowed funds.  For instance, on or about March 13, 2012, in connection with KITD’s 2011 audit, JAMEEL emailed a balance confirmation to KITD’s independent auditors in which she falsely claimed that the U.A.E. Escrow Account contained approximately $6.1 million when, in truth and in fact, and as JAMEEL well knew, the U.A.E. Escrow Account was empty. 

JAMEEL, 49, is charged in four counts.  JAMEEL is charged with one count of conspiracy to commit securities fraud, make false statements in annual and quarterly SEC reports, and make false statements to auditors, one count of securities fraud, one count of conspiracy to commit money laundering, and one count of money laundering. 

The conspiracy to commit securities fraud, make false statements in annual and quarterly SEC reports, and make false statements to auditors carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.  The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million or twice the gross gain or loss from the offense.  The money laundering counts each carry a maximum sentence of 20 years in prison and a maximum fine of $500,000 or twice the gross gain or loss from the offense. 

*                      *                      *           

Mr. Bharara praised the work of the FBI and the Postal Inspection Service, and thanked the Securities and Exchange Commission for their assistance.  He added that the investigation is continuing.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.       

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Damian Williams, Andrea M. Griswold, and Edward Y. Kim are in charge of the prosecution.  

The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

 

[1] The charges contained in the Indictments are merely accusations and the defendants are presumed innocent unless and until proven guilty.

16-188
Topic: 
Financial Fraud
Updated July 15, 2016