Op risk data: Sberbank suffers $108m supermarket clean-out

Also: Copper trader buys $36m of worthless bricks; big lenders hurt in $400m mortgage fraud. Data by ORX News

Sberbank’s Moscow head office: Russia’s largest bank fell victim to an alleged loan fraud

March’s largest operational risk loss was an 8 billion ruble ($108 million) commercial loan fraud at Russia’s Sberbank. The loans were made in January 2018, but the fraud only came to light last month after Russian authorities made three arrests.

The arrested individuals were former managers and employees of Russian supermarket owner InterTorg. The group reportedly gave the bank false information to obtain the loans, and then siphoned off the money for their own use.

InterTorg has since been declared bankrupt.

 

 

The second largest publicly reported loss was a settlement of $105 million by Sandell Asset Management and its owner Thomas Sandell in a tax evasion lawsuit brought by US authorities.

Sandell allegedly deferred paying taxes on $450 million of management and performance fees he had earned from overseeing offshore hedge funds. A 2008 change in deferred fee income recognition rules required Sandell to pay the taxes owed by the end of 2017. However, New York state authorities claim he tried to escape liability by relocating to London, even though his company continued to operate in New York.

The settlement arose after a whistleblower made claims under the New York False Claims Act in October 2018. The settlement covers damages, taxes, penalties, interest, legal fees and a $22 million payment to the whistleblower.

In March’s third largest loss, student debt relief company Hutton Ventures was ordered by a US district court to pay $53 million in penalties for misconduct.

Debt relief companies help borrowers to apply for loan forgiveness schemes or consolidate their loans to reduce their debt levels. Hutton was found to have violated US state and federal laws by providing false or misleading information to borrowers and charging fees for services that were otherwise available for free. In one example, company representatives told borrowers that no interest would be charged on the financing of a fee, when 20.99% interest was charged to nearly all New York customers in violation of the state’s 16% interest rate limit.

In fourth place, Swiss commodities trader Mercuria suffered a $36 million fraud when it discovered that it had been sent painted paving slabs instead of copper in a number of shipments from Turkey, according to a report by Bloomberg.

Mercuria is said to have agreed to buy $36 million of copper from Turkish company Bietsan, a supplier it had done business with before. The copper was initially loaded into a first shipment of containers, and was surveyed by an inspection company, which affixed anti-fraud seals to the containers. Soon after, the containers were allegedly opened, and the copper was replaced with painted paving stones. The perpetrators swapped fake and real container seals to avoid detection before the cargo left Turkey. Five shipments on separate days were reportedly switched in this manner.

While the cargo ships were at sea, Mercuria paid $36 million in five instalments. The fraud was discovered once the ships began arriving in the Chinese port of Lianyungang.

The fifth largest loss is a $22 million settlement by Swiss bank Rahn+Bodmer for helping US account holders evade tax. According to the US Department of Justice, the bank enabled customers to conceal their control of funds held in undeclared accounts. It did so by opening accounts for customers under pseudonyms or in the names of non-US legal entities to conceal their beneficial ownership. This allowed hundreds of US customers to evade paying a total of $16.4 million in US taxes between 2004 and 2012.

The DoJ announced a three-year deferred prosecution agreement with Rahn+Bodmer, in addition to the settlement.

 

 

Spotlight: Morgan accused of multi-million mortgage fraud

Mortgage fraud comes in all shapes and sizes; in the case of New York real estate kingpin Robert Morgan the size is upwards of $400 million.

That figure is the amount of loans that Morgan’s company is alleged to have fraudulently obtained, with losses to government-sponsored enterprises and banks including Fannie Mae, Freddie Mac, Deutsche Bank and UBS estimated at $9.5 million.

On March 4, the US Department of Justice announced that it had charged Morgan and fellow individuals from his property firm, Morgan Management, as well as a broker from another real estate firm, in a wide-ranging mortgage fraud scheme.

According to the DoJ, the individuals fraudulently obtained funds from financial institutions over a period of 12 years, by providing false information in support of mortgage loan applications for dozens of properties, including apartment blocks.

The defendants are said to have artificially inflated rents and reduced property expenses to make it look as if the properties were more profitable than they were. This way, they justified an unrealistically large mortgage loan amount.

In some cases, Morgan and others tried to conceal the fraud by making vacant units appear occupied during inspections by turning radios on, placing welcome mats and shoes in hallways outside vacant units, and paying individuals to pretend to be tenants in units the inspectors would enter.

The charges follow a separate investigation in 2020 by the US Securities and Exchange Commission, which resulted in an order for Robert Morgan to repay $63 million to investors affected by his fraud scheme.

Editing by Alex Krohn

All information included in this report and held in ORX News comes from public sources only. It does not include any information from other services run by ORX, and we have not confirmed any of the information shown with any member of ORX.

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