SEC charges four in Venezuelan bond trading fraud scheme

The US Securities and Exchange Commission (SEC) has charged four individuals with ties to New York-based broker-dealer Direct Access Partners (DAP) in a scheme involving millions of dollars in bribes allegedly paid to a high-ranking Venezuelan finance official to secure the bond trading business of Venezuela's state-owned development bank Bandes, the SEC said in a release. According to the SEC's complaint, filed in federal court in Manhattan, the global markets group at DAP executed fixed income trades for customers in foreign sovereign debt. DAP Global generated over US$66mn in revenue for DAP from transaction fees - in the form of markups and markdowns - on riskless principal trade executions in Venezuelan sovereign or state-sponsored bonds for Bandes, SEC said, while noting that a portion of this revenue was illicitly paid to Bandes' VP of finance, María de los Ángeles González de Hernandez, who authorized the fraudulent trades. "These traders triggered a fraud that was staggering in audacity and scope," said Andrew Calamari, director of the SEC's New York regional office. "They thought they covered their tracks by using offshore accounts and a shadow accounting system to monitor their illicit profits and bribes, but they underestimated the SEC's tenacity in piecing the scheme together." The SEC's complaint charges Tomas Alberto Clarke Bethancourt, Iuri Rodolfo Bethancourt, Jose Alejandro Hurtado and Haydee Leticia Pabon with fraud and "seeks final judgments that would require them to return ill-gotten gains with interest and pay financial penalties." The SEC noted that its investigation is continuing and in a parallel action, the US attorney's office for the Southern District of New York has announced criminal charges against Gonzalez, Clarke and Hurtado. SEC said the scheme began in October 2008 and continued until at least June 2010, and that Bandes was a new customer to DAP brought in by the DAP global executives through their connections to Hurtado. As a result of the kickbacks to Gonzalez, DAP obtained the Venezuelan bank's lucrative trading business and provided Gonzalez with the incentive to enter into trades with DAP at considerable markups or markdowns without regard to the prices paid by Bandes, SEC said. "Gonzalez used her senior role at the Caracas-based bank to ensure that its bond trades would continue to be steered to DAP. As the scheme evolved over time, the traders deceived DAP's clearing brokers, executed internal wash trades, inter-positioned another broker-dealer in the trades to conceal their role in the transactions, and engaged in massive roundtrip trades to pad their revenue," the release reads.