Thursday, December 3, 2020

Puerto Rico, New York District Attorneys Tackle Financial Crimes

By on September 3, 2020

Seal of the US Department of Justice

SAN JUAN – Weeks after the two rounds of high profile indictments that included the arrest of two elected officials, the U.S. Attorney for the District of Puerto Rico, Stephen W. Muldrow, announced another round of arrests, but in this case for financial crimes.

Muldrow announced that, following an FBI investigation and grand jury indictments, Gary Steven Wyckle and Alejandro Cortés-López, the president and executive vice president of The Republic Group Inc. were arrested. The 14-count indictment includes charges alleging conspiracy to commit wire fraud, securities fraud and wire fraud, and both defendants could face up to 30 years in prison.

“When people lose trust in the systems, society crumbles. This is why the FBI is committed to staying ahead of this threat, by following the evidence wherever it may lead and pursuing these cases to the fullest extent of the law,” said Rafael Riviere Vázquez, Special Agent in Charge of the FBI.

Muldrow’s announcement is not the only financial crimes-related indictment announced by the U.S. Department of Justice. On Thursday, the acting U.S. attorney for the Southern District of New York, Audrey Strauss, announced the arrests of a New York hedge fund manager for trying to rig the Neiman Marcus bankruptcy process. The charges for Daniel Kamensky, the founder and manager of Marble Ridge Capital, include securities fraud, wire fraud, extortion, and obstruction of justice.

The Republic Group Scheme

According to the Puerto Rico District Attorney’s (DA) Office, between about 2010 and 2017, Wyckle and Cortés-López, “along with other individuals known and unknown to the Grand Jury, raised over $12,000,000 in so-called Promissory Notes on behalf of The Republic Group, Inc.” 

The Puerto Rico DA’s statement indicates that Wyckle and Cortés-López contacted investors to convince them their investment would facilitate high-interest rate, short-term loans for various companies, including hotels, resorts and other hospitality industries in the Dominican Republic and elsewhere. Instead, the Puerto Rico DA claims the money was used for Wyckle’s personal expenses, and to make lulling payments to existing investors, while Cortés-López was paid a commission from each investor he brought to The Republic Group.

“The defendants’ alleged conduct undermines the confidence investors place in the financial markets,” the U.S. attorney said about the case, which is being prosecuted by Assistant U.S. Attorney Edward Veronda. 

“Financial markets are governed by rules that are supposed to protect investors. These defendants, skilled at convincing individuals to place their trust in them, engaged in a ‘Ponzi’ scheme to defraud investors, and ultimately cost them millions of dollars. We will investigate and prosecute these types of crimes to the fullest extent of the law,” Muldrow concluded.

The Neiman Marcus Intervention

While Muldrow is looking at a possible Ponzi scheme, the New York DA is looking at a possible scheme in which the Marble Ridge founder pressured a rival bidder in the Neiman Marcus bankruptcy process to abandon its higher bid so that Marble Ridge could obtain those assets for a lower price. Then, according to the New York DA’s media release, Kamensky tried to push the rival bidder into covering it up.

Regarding Kamensky, who manages more than $1 billion and had worked as a bankruptcy attorney, Strauss said: “As alleged, Daniel Kamensky disregarded his fiduciary responsibility to unsecured creditors of Neiman Marcus – and broke the law – when he attempted to coerce a competitor to withdraw a higher bid for assets of the bankruptcy estate.”

She added: “As further alleged, acknowledging the illegality of his actions, Kamensky then attempted to obstruct an investigation by trying to persuade the competitor to change his account of the coercion, telling the competitor that otherwise ‘this is going to the U.S. Attorney’s Office.’ As today’s charges show, Kamensky was right about that.”

If convicted, Kamensky is looking at up to five decades in prison, with two of the four charges carrying a maximum sentence of 20 years each and the other two charges carrying sentences of up to five years each.  

According to the indictment, on July 31, less than three months since the Neiman Marcus bankruptcy process started in Texas in May, Kamensky received notice that a financial services company based in New York, simply identified as “the Investment Bank,” was interested in placing a bid of between 30 cents and 40 cents per share. Marble Ridge’s bid was substantially lower at 20 cents per share. But after pressure from Kamensky, the Investment Bank announced it would not make a bid.  

After this series of events, Marble Ridge resigned as a member of the Official Committee of Unsecured Creditors in the Neiman Marcus bankruptcy and advised its investors that it intended to begin winding down operations and returning investor capital.

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