U.S. Broker-Dealer Ceo And Managing DirectorCharged In Manhattan Federal CourtFor Massive International Bribery Scheme
Senior Venezuelan Banking Official Allegedly Received At Least $5 Million In Bribes
Preet Bharara, the United States Attorney for the Southern District of New York, David O’Neil, the Acting Assistant Attorney General for the Criminal Division of the United States Department of Justice, and George Venizelos, Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the arrests and indictment of BENITO CHINEA and JOSEPH DEMENESES, the former Chief Executive Officer and former Managing Director, respectively, of a United States broker-dealer (the “Broker-Dealer”), on felony charges arising from a conspiracy to pay bribes to Maria De Los Angeles Gonzalez De Hernandez (“Gonzalez”), who was a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (“BANDES”). CHINEA and DEMENESES, working with others, arranged the bribe payments to Gonzalez in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. DEMENESES was also charged with participating in a conspiracy to obstruct justice by concealing facts about the scheme from the U.S. Securities and Exchange Commission (“SEC”) during a periodic examination of the Broker-Dealer.
CHINEA, 47, was arrested today in Manalapan, New Jersey, where he resides, and DEMENESES, 44, was arrested today in Fairfield, Connecticut, where he resides. Both defendants were presented today in Manhattan federal court before Judge Denise L. Cote.
Manhattan U.S. Attorney Preet Bharara said: “These two defendants, senior executives at a U.S. brokerage firm, are the fifth and sixth people to be charged in an alleged conspiracy to corrupt the trading business of a state-run economic development bank of Venezuela. They are alleged to have bribed a willing officer at the bank to steer its overseas trading business to the defendants’ brokerage firm, reaping millions for these defendants and their partners in crime. This Office will not tolerate the kind of outright bribery and concealment that characterized this scheme.”
Acting Assistant Attorney General O’Neil said: “These senior Wall Street executives are accused of paying six-figure bribes to an official in Venezuela to secure foreign business for their firm. Today’s charges show once again that we will aggressively pursue individual executives, all the way up the corporate ladder, when they try to bribe their way ahead of the competition.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged in the indictment, Chinea and Demeneses bribed Gonzalez to secure bank Bandes's financial trading business. Demeneses compounded the Broker-Dealer's illegal activities by conspiring to obstruct an investigation by regulators. The arrests today of Chinea and Demeneses should be a reminder to all those in the business community that engaging in bribery schemes to secure business and make a profit is illegal. Together with our law enforcement partners, the FBI will continue to investigate bribery and fraud at all levels.”
According to the allegations in the Indictment unsealed today, and other documents previously filed in Manhattan federal court:
Background on the Broker-Dealer and BANDES
At all times relevant to the charges, CHINEA was the chief executive officer and DEMENESES was a managing director in the Broker Dealer, which was headquartered in New York, with offices in Miami, Florida. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included DEMENESES, Ernesto Lujan (“Lujan”), and Tomas Alberto Clarke Bethancourt (“Clarke”), and which offered fixed income trading services to institutional clients. One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance. The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding. Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged BANDES a mark-up on purchases and a mark-down on sales.
The Bribery Scheme
From 2008 through 2012, CHINEA and DEMENESES, along with Lujan, Clarke, Jose Alejandro Hurtado (“Hurtado”), and Gonzalez, participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer, including CHINEA and DEMENESES, split the revenue the Broker-Dealer generated from this trading business with Gonzalez. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including CHINEA, DEMENESES, Lujan, Clarke and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.
To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For example, DEMENESES, Lujan and Clarke used an account in Switzerland to transfer at least $1.5 million to an account Gonzalez controlled in Switzerland. In addition to Gonzalez receiving the bribe payments, CHINEA and DEMENESES, as well as other coconspirators, received millions in proceeds from the scheme.
The Conspirators’ Efforts to Obstruct the SEC Examination
Finally, beginning in or about November 2010, the SEC commenced a periodic examination of the Broker-Dealer, and from November 2010 through March 2011, the SEC’s exam staff made several visits to the Broker-Dealer’s offices in New York, New York. In or about early 2011, DEMENESES discussed with others that the SEC was examining the Broker-Dealer’s relationship with BANDES and that the SEC was asking questions regarding certain emails and other information that its exam staff had discovered. DEMENESES, Lujan, Clarke, and Hurtado agreed that they would take steps to obstruct justice by concealing the true facts of the Broker-Dealer’s relationship with BANDES, including by deleting emails.
Previously, on May 3, 2013, Gonzalez, along with two employees of the Broker-Dealer, Clarke and Hurtado, were arrested on charges relating to this bribery scheme. On June 12, 2013, a managing director of the Broker-Dealer, Lujan, was arrested on related charges as well. Each of these four defendants has since entered guilty pleas pursuant to cooperation agreements.
A chart containing the charges and maximum penalties for CHINEA and DEMENESES is attached below. 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.
Mr. Bharara praised DOJ’s Criminal Division and the FBI for their work in the investigation. He also thanked the SEC for its assistance in this case and noted that the investigation is continuing. In a separate action, the SEC announced civil charges against CHINEA and DEMENESES.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. 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’s 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. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud 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 United States Attorneys Harry A. Chernoff and Jason H. Cowley, and Fraud Section Deputy Chief James Koukios and Trial Attorney Maria Gonzalez Calvet are in charge of the prosecution. Assistant United States Attorney Carolina Fornos is responsible for the forfeiture aspects of the case.
Additional information about the Justice Department’s FCPA enforcement efforts can be
found at www.justice.gov/criminal/fraud/fcpa.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.