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Former Investment Fund Manager from Los Angeles Charged with Defrauding Investors
John Farahi, of Bel Air Estates, California, was named in a 41-count indictment returned on December 7, 2011 by a federal grand jury. The former investment fund manager defrauded investors out of millions of dollars by falsely promising investors their money would be invested conservatively to purchase corporate bonds backed by the Troubled Asset Relief Program (TARP) and then collaborating with his corporate counsel to cover-up the fraud.
Farahi, a former Reno, Nevada City Council Member and Farsi-language radio investment advisor, instead used the investment funds for a variety of personal purposes, including to support his family’s lavish lifestyle, to make Ponzi payments to early clients of his investment fund, and to trade in high-risk and speculative future options trading. Farahi was able to attract many of his clients through his daily radio show in which he touted a conservative investment philosophy. Most of his clients were members of the Southern California Iranian-Jewish community.
In the face of huge trading losses at the end of 2008, Farahi allegedly tried to extend the scheme by drawing down extensively on lines of credits at banks while making false statements to those banks about his financial condition. The victim banks included TARP recipients Bank of America and U.S. Bank as well as Sun West Bank.
The indictment charges Farahi with 16 counts of mail fraud, one count of wire fraud, five counts of offering for sale unregistered securities, four counts of loan fraud, one count of aggravated identity theft, five counts of alteration of documents, one count of suborning perjury, one count of concealing a material fact, one count of witness tampering. If he is convicted of the 40 counts in which he is charged, Farahi would face a statutory maximum sentence of 717 years in federal prison.
It is alleged that Farahi’s scheme lasted from 2005 until 2010. The Securities Exchange Commission (SEC) had filed a federal complaint alleging violations of federal securities laws against Farahi and other in January 2010. Many of the charges Farahi now faces are derived from his attempts to mislead, conceal, and redirect the SEC’s investigation. Otherwise known as cover-up crimes, targets of federal investigations often get themselves into more trouble early on in an investigation by lying to investigators or acting unethically. Now that the SEC has referred the case to the DOJ for criminal prosecution, Farahi now faces a significant number of charges in addition to his initial fraud scheme.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Goldman Sachs’ dealings with Libya under scrutiny for potential FCPA violations
The Securities and Exchange Commission (SEC) is looking into Goldman Sachs’ relationships with the Libyan Investment Authority. Back in 2007, Libyan leader Moammar Gadhafi attracted banks and securities firms when he launched the $40 billion fund.
SEC officials are looking into, among other things, a $50 million fee Goldman agreed to pay the Libyan Investment Fund as part of a plan to help the fund recoup losses.
Although the fee was never paid, the money was to be passed on to Palladyne International Asset Management BV, an entity run by the son-in-law of the head of Libya’s state-owned oil company. Negotiations stalled before the violence in Libya broke out and payment never actually took place.
While no formal investigation has been launched, the SEC has made inquiries. It would not be surprising to see this develop into a formal investigation. Given the federal government’s new found appreciation for enforcing the Foreign Corrupt Practices Act of 1977 (FCPA), it seems likely that the SEC will attempt to determine whether the $50 million fee Goldman agreed to pay can be construed as a bribe made to a foreign government official or employee of a state-owned company.
The FCPA, as amended, 15 U.S.C. 78dd-1, et seq., makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. The FCPA accomplishes this in two distinct ways:
(1) Prohibiting the payment of anything of value to officials of foreign governments (the “anti-bribery” provision); and
(2) Requiring accurate accounts and effective internal accounting controls (the “books and records” provisions).
Given the fact that the $50 million payment was not made, there will likely not be a “books and records” violation. However, the FCPA does make it unlawful to “promise to pay . . . or . . . promise to give . . . anything of value.” Stated plainly, a promised or attempted bribery of foreign government officials is unlawful under the “anti-bribery” provision of the FCPA. All Goldman can do at the moment is comply with the inquiries and its own document retention policies and hope that the government does not pursue a full investigation. Once a full investigation begins, Goldman will have to be careful not to get caught up in any of the “cover up” crimes like obstruction of justice and false statements. Additionally, federal prosecutors have not been shy about utilizing their full arsenal of tools to obtain convictions from entities it thinks have done something wrong. For example, federal prosecutors today coordinate their investigations with a very diverse group of regulatory and enforcement agencies.
This is why every U.S. person engaged in international trade must remain vigilant on many legal fronts. It is not uncommon to have multiple U.S. regulatory and statutory regimes simultaneously in play at any given moment. For example, any investigation into Goldman for their activities with Libya will not only implicate the SEC, but also the Department of Justice, the Department of Treasury Office of Foreign Assets Control, and possibly the Department of Commerce. The tools available to the government to coerce convictions are plentiful.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
