US District Court Judge George Daniels of the Southern District of New York has entered four separate orders stemming from an investigation code-named “Operation Wooden Nickel”, an undercover law enforcement sting conducted by the Commodity Futures Trading Commission, the Federal Bureau of Investigation, the Department of Justice and the Securities and Exchange Commission.
Vito Napoletano of Staten Island, New York, Boris Shuster of Brooklyn, New York, Patrick Sweeney of Freehold, New Jersey, and Joseph Torre of Old Bridge, New Jersey were sued by the CFTC on 18 November 2003, in six civil injunctive actions for engaging in fraud in the sale and solicitation of illegal foreign currency futures contracts.
Including today’s announcement, Judge Daniels has entered several orders imposing more than USD26m in restitution and more than USD19m in civil monetary penalties against 36 Wooden Nickel defendants.
In the current orders, Judge Daniels ordered Napoletano, Shuster, Sweeney and Torre to pay more than USD7m in restitution to defrauded victims and USD600,000 in civil monetary penalties. The court also permanently banned the four defendants from trading on markets subject to the CFTC’s jurisdiction and from registering with the CFTC due to their roles in defrauding investors and banks in the illegal forex schemes.
The order against Napoletano finds that he fraudulently solicited funds from investors, misappropriated their funds and made false reports to investors regarding the profitability of their accounts. The order also finds that Napoletano filed false reports with the National Futures Association regarding the balances and locations of customers’ funds. The court ordered Napoletano to pay defrauded investors USD5,129,687 in restitution and a USD360,000 civil monetary penalty.
The order against Shuster finds that he fraudulently solicited customers of the New York forex firm Walter, Scott, Lev & Associates, made fraudulent misrepresentations as to the trading of customers’ funds, issued false customer account statements showing profits and misrepresented to customers that catastrophic trading losses had wiped out their funds. The court ordered Shuster to pay USD1.5m in restitution and a USD120,000 civil monetary penalty.
The court order against Sweeney finds that he participated in defrauding and deceiving banks by engaging in illegal forex transactions to convert bank funds and to conceal this conversion of funds from the banks. The court ordered Sweeney to pay USD424,001 in restitution to the defrauded banks and a USD120,000 civil monetary penalty.
In the order against Torre, the court finds that Torre knowingly aided and abetted a scheme in which he helped divert forex profits to co-conspirators and then received a cash kickback for arranging the transactions.