Monday, July 18, 2016
By NEIL HARTNELL
Tribune Business Editor
A Bahamas-based broker and its principal have allegedly been used as “bait” by the Federal Bureau of Investigations (FBI) to help snare numerous international securities fraudsters.
Guy Gentile, head of Swiss-America Securities, is claiming that he and his Bahamian businesses were “forced” to play key roles in undercover ‘sting’ operations targeting criminals earning millions of dollars from market manipulation scams.
Their participation even extended to the ‘bugging’, both by video and sound, of Swiss-America’s head office at Bay Street’s Elizabeth on Bay Plaza in a successful bid to gain evidence against a Canadian fraudster who subsequently pleaded guilty to the charges against him.
The allegations are contained in documents filed last Thursday with the New Jersey federal courts, as part of Mr Gentile’s bid to have an eight-year old case against him dismissed.
The Swiss-America Securities principal is alleging that the US federal authorities have resuscitated the case matter after he refused to continue acting as a ‘co-operating witness’ or ‘undercover agent’ for them.
Mr Gentile claims he has been forced to spend almost four years in such a role, going ‘above and beyond’ what was required of him in 2012 in return for supposedly having the now-reborn charges against him dropped back then.
Forced to act as a “co-operating witness”, Mr Gentile is essentially alleging that he became ‘too good’ in his new ‘job’, delivering evidence that has resulted in numerous successful prosecutions, jail sentences and multi-million dollar fines against US targets.
As a result, he is claiming that the FBI and US federal prosecutors have been reluctant to release him from this work, with his decision to walk away sparking the re-filing of charges against him.
Mr Gentile’s allegations, which have been seen by Tribune Business, reveal several issues that are specific to the Bahamas.
- As part of the terms of his 2012 ‘non-prosecution’, Mr Gentile was prohibited from ‘selling or transferring’ his ownership interest in Swiss-America Securities to anyone else.
He alleges that the FBI was especially taken by his ownership of a Bahamian broker/dealer, viewing it as a “mouse trap” that would help draw in the international fraudsters it was targeting.
- Mr Gentile’s other Elizabeth on Bay plaza business, Sur Club Sushi Bar, was also seen by the FBI as a valuable part of the ‘sting’. It was viewed as a location where Mr Gentile could ‘wine and dine’ both its “targets” and those of the Securities & Exchange Commission (SEC).
However, because his travel was inhibited by his agreement with the FBI, Mr Gentile is alleging that Sur Club Sushi Bar “floundered” and went out of business, costing him significant sums and damaging his reputation.
The FBI was given “full use” of Swiss-America’s Bahamian office to obtain critical evidence against Alex Milrud, a Canadian of Russian descent, who boasted that he could earn up to $50 million per month from stock market manipulation techniques known as ‘layering’ or ‘spoofing’.
Mr Gentile alleges that he also helped train the FBI agents responsible for cracking a $500 million securities fraud and tax evasion scam being operated from Belize.
Among those charged as a result are two Bahamians, Kelvin Leach and Rohn Knowles, who formerly ran the Belize-based broker/dealer, Titan Securities.
Mr Gentile’s allegations raise immediate questions as to whether Bahamian law enforcement authorities knew of, and/or gave permission for, his local businesses to be used in FBI ‘sting’ type operations.
The claims call for answers from both the Attorney General’s Office and the Royal Bahamas Police Force, plus possibly the Ministry of Foreign Affairs, as to whether they had any knowledge as to what was occurring on Bahamian soil and the FBI’s extra-territorial use of its powers.
It is also unlikely that the Securities Commission of the Bahamas, Swiss-America Securities’ main regulatory, would have known what the broker/dealer was being used for by the federal authorities.
However, given that Mr Gentile opened Bahamas-based accounts for Milrud and other scammers, there are questions as to whether the FBI’s activities may have endangered the integrity and reputation of the Bahamian financial services industry.
Amid allegations that at times bear resemblance to the plot in ‘Wolf of Wall Street’, the film about stock market abuse and excesses starring Leonardo DiCaprio, Mr Gentile details how his “liberty was restricted” by the US Attorney’s Office for New Jersey.
The conditions included “being unable to sell or otherwise transfer his interests” in Swiss-America Securities, which does business under the ‘SureTrader’ name.
Explaining why this was stipulated, Mr Gentile’s motion to dismiss alleged: “As an offshore broker/dealer, the Government could use it through Mr Gentile as a proverbial ‘mouse trap’ (an FBI agent’s phrase) to help locate individuals engaged in securities fraud.
“The Government also required Mr Gentile to continue operating his restaurant business in the Bahamas, Sur Club Sushi Bar, for purposes of meeting, and baiting with phony investment transactions, targets of the FBI and SEC.
“Because Mr Gentile, however, was not permitted to personally attend to the restaurant due to his travel restrictions, the business ultimately floundered, causing him to sustain significant monetary and reputational losses.”
The dismissal motion alleges that Mr Gentile also delivered to the federal authorities “one of the most sophisticated, high-profile investigations in the history of New Jersey” in the shape of Alexsandr Milrud.
“Specifically, Mr Gentile identified and explained to the Government that Aleksandr Milrud, a Russian national, was involved in a complex, high-speed international stock trading scheme involving the use of traders from around the world to place ‘buy’ or ‘sell’ orders, and then cancel them quickly,” the motion alleges.
“The activity, referred to as ‘layering’ or ‘spoofing’, would artificially raise or lower stock prices, thereby allowing traders to exploit the price moves for profit. Incredibly, the subject activity was believed to yield to as much as $600,000 in a single day, and generate between $1 million and $50 million per month.
“Yet, the [US] government only understood the fraudulent nature of this scheme after Mr Gentile identified it and explained how it functioned,” the dismissal motion continues.
“As part of the government’s investigation into this activity, and at the government’s direction, Mr Gentile traveled with Milrud to the Bahamas on several occasions during the fall of 2014, in order to visit Mr Gentile’s broker/dealer, SureTrader, and establish and fund a trading account within it.”
The dismissal motion added that to obtain sufficient evidence against Milrud, Mr Gentile “permitted the [US] government full use of his Bahamian broker-dealer, wired his entire office with video and audio surveillance, so that FBI agents had a recording of everything that transpired, installed keystroke recording software on his computer, and met with Milrud in his office, where he was able to get Milrud to demonstrate how his securities fraud scheme operated.
“This was after, of course, Mr Gentile explained to the government how Milrud’s sophisticated securities fraud worked,” the court papers alleged. “Equipped with this irrefutable evidence obtained by Mr Gentile, on January 13, 2015, the US government, arrested Milrud ho, having no defense, pled guilty on September 14, 2015.”
Mr Gentile, in an affidavit accompanying the dismissal motion, alleged that obtaining the evidence against Milrud “required significant improvisation on my part” because of technical problems with the recording equipment provided by the FBI.
The computer rigged to record each ‘keystroke’ by Milrud took 45 minutes to set itself up because the FBI had failed to download the software properly, forcing Mr Gentile to come up with a creative explanation as they sat together in his Bahamian office.
The Swiss-America chief alleged that he also kept “the operation alive” by turning on the TV at the same time as the audio recording equipment, so as to disguise the loud ‘click’ made by the latter.
“Ultimately, I was able not only to lay the groundwork for a future investigation into Milrud, but actually convince him to log on to my computer and engage in fraudulent layering trading with his Chinese traders,” Mr Gentile alleged.
The court papers seen by Tribune Business also detail other investigations allegedly worked on , or assisted, by Mr Gentile.
These included “a particularly dangerous operation” that purportedly saw him obtain the photo and fingerprints of a a trader called ‘the Ghost’, who was “a highly coveted” US target due to his participation in “large-scale securities fraud” that was previously undetected.
Mr Gentile also flagged a $1`million insider trading scheme run by ex-J P Morgan investment bank analyst, Ashish Aggarwal, who was tipping a friend, Shahriyar Bolandian, with non-public information on technology firm mergers and acquisitions.
This scheme was run partially using Swiss-America Securities accounts, and Mr Gentile provided documentary evidence to support charges against the duo by both the SEC and US Justice Department.
Then there was the training he provided to FBI agents “to infiltrate the massive securities fraud conspiracy” in Belize, which resulted in the US criminal charges against the Bahamian duo of Leach and Knowles, plus a host of other individuals.
Mr Gentile’s affidavit also discloses other Bahamian connections, including two meetings he had in this nation with a ‘penny stock promoter’ referred to as Mohammed.
Besides the numerous prosecutions and charges generated for the US Department of Justice by Mr Gentile’s work, he also allegedly generated more than $12 million in fines and penalties for the SEC.
As a result, his US attorneys are arguing that to reinstate the charges against him is unfair, lacks due process, and breaches both his right to a speedy trial and the American statute of limitations on the time in which a case can be brought.
Describing the US government’s conduct as “outrageous”, Mr Gentile’s attorneys argued: “The [US] constitution precludes the government from doing what it has done here – arresting and then subjecting an individual to strict bail conditions, without judicial knowledge or supervision – for nearly four years, while inducing him to work with false and misleading promises, all without obtaining a waiver of his right to a speedy trial and effectively tolling the statute of limitations.
“Allowing this prosecution to go forward would create a dangerous precedent. It would place a judicial stamp of approval on the [US] government’s arrest of a citizen and stripping away of his basic liberties for the government’s own significant gain, without any attendant judicial safeguards.”
Continuing this line of attack, Mr Gentile’s US attorneys are alleging that after being “strung along” by the FBI and US Justice Department, the latter is engaging “in grotesque legal gymnastics” to bring the charges against him now.
“The government misleadingly exploited Mr Gentile, plying him with false winks and nods and more explicit words, in order to give, as the US Attorney’s Office has acknowledged, ‘the Newark office visibility into a space it has never had before, first-ever criminal case for high-frequency trading, and … real time visibility into these high profile areas’,” they concluded.
Mr Gentile is also alleging that his marriage has collapsed as a result of his work for the FBI, and that he has been threatened with physical harm on two occasions by ‘targets’ who developed suspicions about him.
The civil and criminal charges against Mr Gentile, which involve claims of securities and wire fraud, relate to an alleged $17 million ‘pump and dump’ scheme, which took place between 2007-2008.
Two Canadian stock promoters, Mike Taxon and Itamar Cohen, who were charged in relation to the same scheme, both pleaded guilty to US criminal charges last year.
The SEC has also charged an American attorney, Adam Gottbetter, for his role in attempting to manipulate one of the two stocks Mr Gentile is alleged to have been involved with - Raven Gold Corporation and Kentucky USA Energy.
Gottbetter, in particular, is understood to have been a key FBI and SEC ‘target’. However, the documents seen by Tribune Business allege that Mr Gentile again played a key role in generating evidence, and building a case, against the trio.