UK Appeal Court rules that complying with some US MLATs to hand over evidence in an investigation is unlawful; relevant for Canada as well

By Christine Duhaime | June 12th, 2020

Cruel and unusual punishment

Everything I know about the Eighth Amendment and death penalty jurisprudence, I learned from former US Supreme Court Justice Anthony Kennedy, from whom I had the privilege of studying law during a course on international human rights and constitutional law. US Supreme Court Justice Kennedy, as he was then, was not my law professor but he educated our American law school class on death penalty jurisprudence. I mention Justice Kennedy because what emerged from his class was the foreseeability that the day would come when a foreign country may cease to provide intelligence or evidence to US government agencies because of the Eighth Amendment of the US Constitution and the death penalty.

With then US Supreme Court Justice Anthony Kennedy

It seems that day has arrived.

UK pausing handing over MLAT evidence because of Court ruling

A few days ago, British authorities, according to media reports, informed the US Department of Justice that it has suspended providing evidence to the US government in connection with investigations because of the death penalty in the US (and by implication, its interpretation of the Eighth Amendment).

Relying upon the decision in the UK Supreme Court in Elgizouli v. Secretary of State for the Home Department [2020] UKSC 10, on appeal from [2019] EWHC 60 (“Elgizouli“), the UK government has apparently declined to provide assistance under a mutual legal assistance treaty (“MLAT“) to the US in connection with a Visa fraud case. All things considered, Visa fraud is not considered in all countries to be a major criminal offence.

The UK is said to have informed its US counterparts that it has paused the provision of evidence to all countries with the death penalty on the books, not just the US, because of the Elgizouli decision. But the Elgizouli decision is about more than the death penalty.

So, what happened in the Elgizouli case that altered the legal landscape and paused international MLAT cooperation for law enforcement investigations, even low grade ones, among the US and the UK?

ISIS terrorist activities against humanity

Elgizouli is a case that has to do with the prosecution of members of a terrorist organization who engaged in terrorist activities.

During the time in which the Sunni terrorist organization called the Islamic State (“ISIS“) controlled territory in Iraq and Syria and set up a pseudo state, it commenced a campaign of kidnapping foreign nationals, beheading them, filming the beheadings and publishing the filming of the murders on Twitter and other social media channels. Among those captured and beheaded were James Foley, Steven Sotloff, Peter Kassig, David Haines and Alan Henning. In one case, a Jordanian member of the military was set on fire in a cage and his death was filmed and posted on Twitter. Thousands of Yazidi children and teenage girls were kidnapped, trafficked, sold and forced into sexual slavery by ISIS.

With the collapse of ISIS, their members fled to refugee camps, fled to Turkey, fled to houses to pretend to be non-ISIS and others were captured by Iraq, Syrian or Kurdish law enforcement agencies.

27 beheadings of US citizens and others

Two ISIS men implicated in the ISIS social media beheadings and killings of 27 foreigners, el Shafee el Sheikh and Alexanda Kotey, were captured by the Kurds in January 2018. el Sheikh lived in ar Raqqah during the time of ISIS.

It turns out that both are British foreign nationals. Because they originated from the UK and are implicated in the murder of US citizens in Syria, and are members of a terrorist organization which was responsible for the commission of heinous crimes against humanity, US law enforcement seeks their presence on US soil to prosecute them to provide justice for the families and for the global population harmed by ISIS. The UK Supreme Court called the acts in which they are implicated as “the worst of the worst” and noted that their prosecution is an aim “shared by all right-thinking members of our society.”

MLAT request from US for criminal investigation

The US Department of Justice, pursuant to a 1994 MLAT with the UK for criminal matters, made a request of the UK government for files, data, personal records and such in connection with both of the ISIS men. The UK government made a decision to provide to the US government, the personal and other information in respect of the two ISIS men and in its correspondence to the US government sought assurances that the death penalty would not be sought.

When making the decision to hand over personal information and evidence, the UK government did not consider the relevant UK privacy legislation, the Data Protection Act 2018 (the “Data Act“). In all, the UK government collected, processed and formulated over 600 separate documents of el Sheikh. It is clear that the UK government provided the information verbally to the US government in respect of el Sheikh but not clear whether it handed over any physical files comprising the 600 documents.

Sometime after July 2019, el Sheikh and Kotey were handed over to the US government in Syria by the Kurds. Their whereabouts are unknown. el Sheikh has since been stripped of UK citizenship in connection with his terrorist activities.

MLATs are treaties among countries for the provision of evidence and personal information restricted to criminal matters, even if the criminal matter is at the investigation stage, as was the case here. However, there is anecdotal evidence that MLATs are used (abused) for investigations and to collect foreign evidence for matters that are not criminal, such as for civil or regulatory matters under non-criminal statutes.

Concerns over cruel and unusual punishment

In response to the UK government, US authorities informed it that the death penalty under its federal law was an option and that if it sought the death penalty as against el Sheikh, it would not use evidence obtained from the UK under the MLAT for that purpose.

In the meantime, prosecutors in the UK determined that they did not have sufficient evidence to prosecute el Sheikh in the UK, meaning that if he returned to the UK, he would be free. The UK government then formed the belief, after consulting with US prosecutors, that the prosecution of el Sheikh would only be viable if the US relied upon the evidence obtained pursuant to the MLAT by UK authorities. In other words, it became a “but for” proposition according to the UK.

Judicial review of UK government decision to provide evidence to the US

A few years later, the mother of el Sheikh, Elgizouli, became aware from a newspaper article that personal information and evidence of her child had been provided (at least verbally) to the US government and that a decision had been made to physically provide it to the US government pursuant to an MLAT. She filed a judicial review for a review of the decision of the UK government employee(s) and official(s) who made the decision to hand over evidence to a foreign country.

Her solicitor sought a judicial review on two grounds: (a) at common law, it was unlawful for the UK government to provide information under an MLAT or otherwise, to a foreign state that may be used in furtherance of a prosecution in that state where, upon conviction, sentencing may involve the death penalty; and (b) irrespective of (a) above, the provision of personal information of a person by the UK government was unlawful under the Data Act (similar to Canada’s PIPEDA).

UK Supreme Court decisions

In January 2019, Elgizouli’s judicial review application was dismissed by a UK Court, which held that the provision of information to the US government was lawful on both grounds – as a matter of the MLAT and under the Data Act.

Elgizouli then successfully appealed the lower court decision to the UK Supreme Court.

Ground one – constitutional violation

Lord Kerr, writing for the majority, held that the decision of the UK government to provide evidence to the US government in such circumstances was unlawful on both grounds – the MLAT and as a matter of privacy legislation.

On ground one – the MLAT – relying upon the Bill of Rights, 1688 (which is the law in Canada as well), the constitutional instrument, the Court held that cruel and unusual punishment is prohibited, and that the death penalty ( and its average 12 year incarceration waiting time), constitutes cruel and unusual punishment. The material parts of the UK decision hold that a state agency cannot use its powers in furtherance of punishment that may be inhumane (an Eighth Amendment consideration). The cruel and unusual punishment is determined in reference to UK law (e.g., the law of the MLAT provider not the MLAT requester).

The Court held that it was fundamentally illogical to refuse to extradite persons to death penalty countries yet to proceed to provide those same countries with evidence pursuant to an MLAT for prosecution where the outcome may be the same, without obtaining written undertakings as a condition precedent that the person will be treated to punishment consistent with the MLAT providing country (e.g., no death penalty).

The Court held that it was against the common law for the UK to facilitate a death penalty country in its prosecution of any person where that person’s life and liberty is in peril and they may be executed, irrespective of if the exercise of power to provide MLAT evidence is an exercise of the prerogative powers – a key point because a prerogative power is a residual power held by the Queen and her delegatees in places like Canada. Prerogative powers when exercised, are not subject to review in the same way, and hence the Court make the point of holding that the decision applied to the exercise of the prerogative power in MLAT matters.

Ground two – privacy law violation

On ground two – privacy legislation – the Court held that the decision to provide evidence of el Sheikh to the US government was unlawful as it was a violation of the Data Act. The UK government argued that in these circumstances, it was entitled to rely upon a provision of the Data Act that authorizes the disclosure of a person’s personal information, despite the violation of privacy, when a controller or competent authority provides the information for a law enforcement purpose upon request.

The UK Supreme Court said absolutely not. It held that the collection and processing of evidence of el Sheikh was not lawful and that the law enforcement purpose for which it was sought was not legitimate. The purpose cannot be legitimate if it is inconsistent with UK law and it is inconsistent with UK law because of the risk in this case, however remote, of the defendant being subject to cruel and unusual punishment by virtue of the death penalty being on the table. In addition, the fact that the UK government made a decision in respect of the sharing of personal data of a citizen to a foreign state without appropriate safeguards in place to protect its citizen made it unlawful. The Court held that the only circumstance in which personal information or intel may be provided in such circumstances as arose here, is in an emergency situation in order to save lives or to protect the security of a nation.

What about MLATs sent to Canada?

UK law is applicable in Canada, especially the Bill of Rights, which is a constitutional instrument in Canada that is part of constitutional law, considered to be an always-speaking statute.

As a result of the Elgizouli decision, one can imagine that eventually a number of defence lawyers in Canada may challenge evidence provided to US regulatory agencies and law enforcement under MLATs on the dual grounds of an Eighth Amendment (Bill of Rights) argument and on the PIPEDA argument, even irrespective of the death penalty. That’s because what is considered cruel and unusual is in reference to the requestee, not the requestor, state, and the jurisprudence in that regard has dealt primarily with the the lengthy terms of incarceration while appeals progress and such, leading up to the termination of a convicted prisoner. The position against cruel and unusual punishment is a fundamental principal of justice in Canada (and per the Burns case, implicates the right to life, liberty and security). Recollect that the UK is said to have refused an MLAT request for an alleged Visa fraud case, where no death penalty is implicated.

MLAT may become a prosecution by proxy

One needs to recollect as well, vis à vis Canada as a country in which the death penalty has been abolished, that the law is that there is an obligation not to expose an accused to the real risks of its application, and not to provide the crucial link in the causal chain that would make such possible, a principle that is considered to have a wider application than in extradition. While merely persuasive, the special rapporteur for the United Nations on human rights took the position that the above obligations of death penalty abolitionist countries “extends to intelligence and incriminating evidence.” A prosecution by proxy is the concern and here the “but for” analysis arises, mentioned above. If Canada undertakes a “but for” action against one of its citizens (but for Canada providing evidence under an MLAT or otherwise that leads to the imposition of cruel and unusual punishment of one of its people in a foreign country, which would not have happened but for Canada’s help), it is prosecuting by proxy.

The Elgizouli case suggests that MLATs must be strictly complied with as to their terms and that undertakings as to punishment consistent with the law of the requestee, may have to be given by the requestor as a condition precedent of evidence being provided, and must be given in cases where the criminal investigation could lead to charges where the death penalty is available upon a conviction. Pursuant to Elgizouli, any disclosure of person information must be consistent with federal privacy legislation and have attendant safeguards attached to the disclosure thereof. Otherwise, the provision of evidence may be challenged years later when a person learns that they were secretly the subject of an MLAT. The cause of action to challenge a secret MLAT under judicial review, based on this case, arises when the MLAT becomes known to the person.


(1) Carol Steiker and Jordan Steiker, Justice Kennedy: He swung left on the death penalty but declined to swing for the fences, SCOTUSblog, July 2, 2018.

(2) Elgizouli v. Secretary of State for the Home Department [2020] UKSC 10, The Supreme Court, March 25, 2020.

(3) Britain briefly suspends sending evidence to US law enforcement, in move some see as a sign of fraying relationship, Washington Post, June 10, 2020.

(4) MEMRI TV YouTube Channel, British ISIS ‘Beatle’ El Shafee El Sheikh in Interview from Captivity: I Don’t Denounce Slavery, April 11, 2018.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Nigeria obtains asset seizure in Canada of fancy US$57 million Bombardier jet said to be owed by PEP and well-known convicted money launderer

By Christine Duhaime | June 9th, 2020

The government of Nigeria obtained an asset seizure order in a Quebec Court to restrain a jet made by Bombardier, a Canadian airplane manufacturer that makes luxury jets for the elite of the world.

The application in furtherance of the asset seizure was for a politically exposed person (“PEP“) from Nigeria, a former government official named Daniel Etete, who allegedly bought a Bombardier jet for US$57 million. The jet showed up in Montreal on May 29, 2020, and on May 30, 2020, the Quebec Superior Court granted a restraint order.

Etete was the Minister of Petroleum in Nigeria. He is a convicted money launderer in France and there is an outstanding arrest warrant for him in connection with a US$1.3 billion oil deal in Nigeria in which it is alleged that bribes were paid, and not only that, it is alleged that a huge portion of the US$1.3 billion from the oil deal went to a company controlled beneficially by Etete. His conviction for money laundering involved his misappropriation of money belonging to the people of Nigeria to buy a chateau in France and other luxuries. At one point, he had five tons in US cash in France.

Despite a quite low salary, Etete was allegedly able to fund the purchase of a jet from Bombardier and to finance its operations and pilots. He is implicated in a corruption trial in Milan, Italy and is facing charges there. He allegedly paid US$57 million towards the jet and at the same time, bought some luxury vehicles.

Nigeria claims that Etete used his position to remove state assets from the country. Etete denies any wrongdoing.

To make things interesting, the jet appears to be registered to a company formed in the AML-lax jurisdiction of BVI, whose nominee is a former Bombardier employee, a Canadian named Giuseppina Russa.

To make things even more interesting, Etete appears to own a mansion in the same complex in Dubai, Emirates Hills, where another PEP from South Africa lives who also bought a luxury jet from Bombardier without impediment and with financing from an agency called the Export Development Canada.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Mexico’s FIU freezes bank accounts used to launder money of 1,937 suspected CJNG cartel members and their lawyers, while 5 cartels continue turf wars to export fentanyl to US and Canada

By Christine Duhaime | June 4th, 2020

Mexico’s financial intelligence unit, working with the DEA, yesterday announced that it had frozen the bank accounts of 1,770 men and women and 167 companies believed to be tied to, or working for, the Cártel Jalisco Nueva Generación (“CJNG“), believed to have been used to launder approximately US$1.1 billion in proceeds of crime from the drug trafficking activities of the CJNG.

The head of Mexico’s FIU, Santiago Nieto, tweeted the freezing of the CJNG bank accounts.

The operation, dubbed Operation Blue Agave, named after the drink of Jalisco, went after CJNG cartel leaders, politically exposed persons in Mexico, CJNG lawyers and family members of the CJNG who are believed to have participated in, or benefited from, the alleged money laundering activities of the CJNG.

On Friday night, Francisco Navarette Serna, an alleged local leader of the CJNG was killed on stage singing during a live concern in Tierra Blanca, Mexico.

The CJNG is based in Guadalajara. Operation Blue Agave also targeted the Sinaloa cartel. The Sinaloa is known to be in charge of heroin and fentanyl trafficking in the US.

The CJNG is fighting for territory from the Sinaloa to control the lucrative fentanyl and counterfeit pill trafficking business into the US and Canada. The CJNG is the most powerful cartel in Mexico today as well as the richest. In some states, there are five cartels fighting to control the business of making and exporting fentanyl to the US, and onwards to Canada.

The leader of the CJNG is a former police officer named El Mencho. The cartel operates in at least 35 US states and in Puerto Rico. 

In February, El Mencho’s son, Rubén Oseguera González, was extradited from Mexico to the US to face drug trafficking charges in Washington, DC. He is known as “El Menchito,” or “Lil’ Mencho,” and was No. 2 within the CJNG, which has an army of 5,000 soldiers. 

His sister, Jessica Johanna Oseguera González, known as “La Negra” traveled from Mexico to Washington for his Court appearance but was arrested upon entering the courthouse.

And in May, Gerardo González Valencia, one of El Mencho’s brothers-in-law, was extradited from Uruguay to the US on charges of conspiracy to import cocaine and methamphetamine into the US.

The CJNG is a designated drug kingpin, as are many of its leaders.

The head of Mexico’s FIU subsequently tweeted that Mexico is going to continue to confront organized crime and exchange information with the DEA.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Proceeds of crime from US$550 million Ponzi scheme run by “obscenely greedy con artists”, including diamonds, gold coins, sports memorabilia, art, comic books, go on sale at online auction next week as Covid-19 solution

By Christine Duhaime | May 31st, 2020

The proceeds of crime from a massive US$550 million Ponzi scheme perpetrated by two convicted fraudsters in the US – Kevin Merrill and Jay Ledford – are being auctioned at an online auction house starting next week, in part because of Covid-19.

Diamonds, sports memorabilia, art, gold coins, comic book from securities fraud being sold online

The auction house is selling the assets from one of the largest forfeitures from a Ponzi scheme in the US. Items up for auction include gold coins, a collection of Spider Man comic books, art, autographed sports memorabilia, diamonds, luxury watches, rare wines and other items seized by and forfeited to the US government, as part of its investigation of Merrill and Ledford for wire fraud, securities fraud and money laundering in 2018 in Maryland.

Covid-19 impacting forfeiture sales

Because of Covid-19, the sale of several mansions bought by Merrill and Ledford have fallen through, as buyers have backed away from buying. The sale of an interest in a Gulfstream G200 private jet and many exotic cars have had to be placed on hold due to Covid-19.

The online auction takes place on this site here, starting on June 3, 2020.

Indicted in 2018 for massive fraud

Merrill and Ledford (an accountant), raised more than US$550 million from investors selling fictitious securities in debt collection portfolios. They were the subject of a complaint by the Securities and Exchange Commission (“SEC“) for securities violations arising from their operation of the Ponzi scheme and were indicted and charged with money laundering, wire fraud, conspiracy and identity theft.

Fabricated wire confirmations

Merrill and Ledford sold securities through several layers of corporate entities to obfuscate their activities. They fabricated the value of the debt assets of the company to lure in investors and re-sold the same securities to newer investors, sometimes seven times over. They also sold what are called phantom securities or assets, which are assets that do not exist.

They then engaged in fraud related to banking, fabricating bank documents, including paperwork to show wire transfers took place when they hadn’t, and paperwork of purported wire confirmations from banks to prove that funds had been wired when they hadn’t. They also fabricated accounting records.

Investors’ money spent on cars, mansions, private jets, casinos

Merrill spent a large portion of investor funds on himself, including as follows:

  • an art collection;
  • a luxury watch collection;
  • US$500,000 interest in a private jet;
  • prepaid life insurance policies;
  • diamonds and jewellery;
  • a comic book collection valued at US$200,000;
  • 12 mansions;
  • 25 exotic cars including two Rolls Royces, two Lamborghinis, a Ferrari and a Bugatti worth over US$10 million;
  • sports memorabilia;
  • fine wine collection;
  • gold coins;
  • Bitcoin; and
  • shares in tech companies.

Merrill also rented exotic cars and took numerous private jet trips. He and Ledford spent US$25 million of investor money at various casinos. The accountant Ledford, also used investor funds and bought diamonds, cars and mansions.

Lies to investigators to obstruct justice

Before being indicted, Merrill was questioned by investigators for the SEC. He lied to the investigating agents and gave them fabricated documents, presumably to divert their attention away from him.

“Out and out fabricating”

US Attorney Robert Hur, who prosecuted the criminal case against Merrill, Ledford and a third man, said that the defendants told lies to prospective investors about almost every conceivable aspect of the scheme and took extraordinary steps, including identity theft, to fool investors and engaged in “out and out fabricating” of documents, including wire transfer confirmations.

He described the case to reporters as one that involved wading through layers of lies and deception. The identity theft involved using the names of employees without their consent on corporate documents. Some sophisticated investors did due diligence on the investments but were given fake bank, asset and trading records by Merrill and Ledford and relied upon them and were duped, without suspecting Merrill and Ledford had created falsified documentation.

“Wading through layers of lies and deception” US Attorney Robert Hur (Source: WJZ YouTube Channel)

Mental health and gambling addiction

Shortly after their arrests, Merrill and Ledford negotiated guilty pleas on the condition that it be recommended to the Courts that they be housed in minimum security prisons.

Merrill sought, as part of his plea, special treatment to address mental health issues during incarceration, suggesting that he may have had mental health issues that may have impaired his judgment.

“Obscenely greedy con artist”

At sentencing, the government called Merrill a “con artist” who was “obscenely greedy.” He was sentenced to 22 years in jail.

Sentencing of Merrill (Source: WJZ YouTube Channel)

Ledford sought, as part of his plea, special treatment to address a gambling addiction problem, as well as the ability to enter a drug detox and rehab program, and to avail himself of mental health treatment programs in prison. He was sentenced to 14 years in prison.

But that wasn’t the end of it.

Violating Court order restraining assets

In violation of a Court order temporarily restraining all the identified and unidentified personal accounts and assets of Merrill and of the corporate entities, Merrill and his wife, Amanda Merrill, proceeded to deal with and dispose of some of those assets, including an account in Merrill’s name that the government had not discovered (but was part of the temporary asset restraint order).

When Merrill was arrested, the FBI had seized a number of assets and property including US$520,000 in cash in his Maryland home, his cars, jewellery and watches. Merrill was subsequently incarcerated and held in remand because the Court held that he posed a flight risk and a risk of the obstruction of justice. The lies to investors and investigators, as well as the fabrication of bank wires and the possibility of the dissipation of assets to defeat the asset restraint order, gave rise to a heightened risk of obstruction of justice and mandated remand, particularly since authorities were still investigating the extent of the fraud and attempting to locate victims. Merrill’s fraudulent conduct demonstrated that he would not likely respect any Court order, including in respect of the order over assets.

“Drink the good wine and replace it with s**t”

Concerns that Merrill was unlikely to abide by a Court order turned out to be valid.

While in remand, Merrill expressed his resentment to his wife that his accounts were frozen, and also realized that the government had failed to identify all his accounts and assets, and he was determined to use those unidentified assets.

He told her that the government had “taken enough” and instructed her to go to Florida and take cash that he had stashed there and hide it from authorities and to drink all the good wine in the house and replace it with “shit” wine.

“Fuck them” he wrote in a jail house note for her. Prison guards found the note in one of Merrill’s socks.

Ignoring the restraining order in respect of assets, Amanda Merrill dealt with an account in Merrill’s name without disclosing it to authorities and traveled to the mansion in Naples, Florida, where she removed bulk cash in suitcases. She instructed her lawyer to inform the US government that she had traveled to Florida for baby clothes. The FBI then executed search warrants at the Maryland and Florida houses and found US$23,000 in cash.

Amanda Merrill was charged with violating a Court order, obstruction of justice and conspiracy to remove property.

Merrill’s wife guilty of illegally dealing with assets

She pled guilty in a deal to one count of obstruction of justice. At sentencing, the Court was told that Merrill had conned and lied to her, as well as everyone else. Her lawyer said that she suffered a break down and should be given some accommodation. The Court disagreed and held that a message needed to be sent to deter violations of Court orders in respect of asset restraint in such cases and obstruction of justice. She was sentenced to house arrest and six weekends of jail time.

Merrill is incarcerated at Allenwood, Pennsylvania, until June 17, 2037, and Ledford is incarcerated at Safford, Arizona, until August 23, 2030.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Rewind to 2019’s most unusual financial crime case – the Ponzi schemer who paid US$720,000 for online spiritual rituals and filled freezers with beef tongues to cast voodoo spells on SEC lawyers to stop an investigation

By Christine Duhaime | May 30th, 2020

This case wins first prize as the most unusual financial crime case of 2019. It’s about Dawn J. Bennett, a former stock broker from Maryland, who first worked with Western International Securities. In addition to selling securities, Bennett was a financial expert on a radio show where she dispensed investment advice and believed that she could use witchcraft to control lawyers at the SEC and cause them to end a financial crime investigation.

Things didn’t go so well for Bennett at any of the companies she worked at or started, including at Western International Securities.

In 2015, she was allowed to resign from Western International Securities in the midst of concerns that arose from the organization as to her handling of some of the firm’s accounts.

Radio show expert

Having been essentially asked to depart, she then set up her own company called DJB Holdings, LLC, and commenced to sell securities to the investing public using, inter alia, her appearances as an expert on the radio show. It was called Financial Myth Busting.

On the radio show, social media and in material provided to prospective investors, Bennett made numerous misrepresentations in connection with her company, particularly about the amount of assets under management, exaggerating the size of her company and number of customers, to lure in money. The misrepresentations were repeated. It seems that every time she hit the radio waves, she lied or exaggerated in one way or another to drive business or to give the illusion that her company could, would and did safeguard investments and could, would and did provide remarkable returns to investors.

Initial SEC investigation

Her misrepresentations on the radio show and on social media attracted the attention of the Securities and Exchange Commission (“SEC“), who investigated whether they were true and substantiated or were untrue and misrepresentations made to lure investors.

When the SEC came calling, Bennett decided that they had no jurisdiction over her and refused to participate in an SEC process. She did not appear for a hearing. As a result, she was barred from the industry and fined.

At that point, the SEC was only alleging that she exaggerated and misrepresented information to attract investments, but Bennett then proceeded to mount a public campaign to defend herself, alleging that she had not engaged in any wrongdoing and was being targeted on groundless allegations.

Bennett protested too much

For whatever reason, perhaps because of the “[thou] doth protest too much” syndrome, the government decided to continue with a deeper look into Bennett.

What they discovered was not pretty.

Ponzi scheme discovered

It turns out Bennett was indeed protesting too much to try to divert the SEC away from her because she was operating a Ponzi scheme, taking money from new investors to pay out old ones, all the while living a lavish lifestyle. She was still on the radio show, pumping her experience and expertise to drive money to the firm from people who trusted her and believed that their money would be safe.

Fabricated financial records

Two complaints were then filed – one from the SEC and the other from the DOJ, both in Maryland, alleging, in essence that Bennett sold US$20 million in fake securities to investors, some of whom were elderly, and that she spent investors’ money on jewellery, cosmetic surgery procedures for Botox, luxury items and to start a new business that she intended to use as an exit strategy. She appears to have never used investor money to buy anything for investors; rather she just straight spent it and gave investors fake statements so they had the illusion that they held investment products.

The SEC complaint stated that Bennett made false statements, lied and fabricated documents to SEC investigators as part of their investigation, and created falsified documents attached to a financial institution to obtain more money; in essence committing bank fraud to keep the Ponzi scheme going because it was out of money.

It got wonky

And here is where is gets wonky.

Before the filed complaints, Bennett was aware of the 2nd SEC investigation. Among other things, they were asking for documents and taking statements from her staff.

Bennett paid US$720,000 for online spiritual rituals to deal with the SEC investigation

During the investigation, Bennett sought help from unusual sources.

She located a website that sells spiritual yagya ceremonies, which is a ritual that takes place over a sacred fire (allegedly in India except that it was in Washington State) that sends out a curse or a blessing, and proceeded to spend US$720,000 on those yagyas. She emailed the yagya provider to say that she needed help with her “enemies”, and hired five of their people to do yagyas for 29 days straight.

Bennett cut up beef tongues and froze them with voodoo spells against SEC lawyers

When yagyas had no effect, she then consulted witch doctors, possibly also online, to place a voodoo spell over three SEC lawyers involved in her case. To activate the voodoo spells, Bennett bought beef tongues, split them in two and stated “I cross and cover you, come under my command. I command you to hold your tongue” over the tongues and then stored them in mason jars and put them in freezers. She believed that she had magical power to cast spells using voodoo that would cause three SEC lawyers to stop the investigations. She cast so many voodoo spells over the SEC lawyers, that the tongues filled two freezers at her home.

She ran out of freezer space and when the FBI showed up, she was out of magic and out of time.

Fake a breakdown

Bennett also paid the legal fees of her employees and prepped them to meet with the SEC and went so far as to prepare scripts for them. One employee was coached to claim that they suffered some sort of a temporary mental illness.

Bennett was charged with wire fraud, securities fraud and making false statements to obtain credit from a bank and customers.

Personal debt disappeared

At her trial, her lawyers alleged that she believed that the business was legitimate, and worked hard to make it successful, and alleged that she put her own money into the business to keep it afloat.

But according to the trial, that wasn’t true – she had no money of her own to begin with. She simply put back in customer money she had previously taken from investors. The evidence showed that before starting her last company, she owed significant debt and was being sued for collection and that she used money from the new company (from investors) to pay off that personal debt and keep debt collectors at bay.

She was convicted and sentenced to 20 years in jail. She is currently incarcerated at a minimum security facility in West Virginia until November 15, 2034.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Launder money; lose your hand – two judges in Brunei caught laundering money avoid harsh sharia law punishment after taking $15 million from Court bank account and spending it on luxuries

By Christine Duhaime | May 29th, 2020

Two High Court judges in Brunei convicted of money laundering and breach of trust for looting a Court trust account, will not be punished under Brunei’s new sharia law, which involves the hudud punishment of having their right hands amputated. Instead, they are going to jail.

In July 2018, the two judges, Haji Nabil Daraina bin Pehin Udana Khatib Dato Paduka Seri Setia Ustaz Haji Awang Badaruddin (“Badaruddin“) and Ramzidah binti Pehin Datu Kesuma Diraja Haji Abdul Rahman (“Ramzidah“), were arrested for embezzlement and money laundering for allegedly taking $15 million from the trust account of the High Court held for bankruptcy proceedings. Originally, they were charged with 157 charges, which were reduced to 40.

Ramzidah was convicted on January 15, 2020, of 14 counts of criminal breach of trust and 10 counts of money laundering.

Ramzidah was the Court receiver for bankruptcy cases and in such capacity, she oversaw payments into the Court’s trust account for creditors. She removed funds from 255 judgment debtors’ sub-accounts that were to be paid out from the Court’s account. In most countries, certain garnished or seized sums are paid to a Court receiver in a pooled trust account until the resolution of cases. It was the pooled trust account that she used to withdraw funds.

Badaruddin, who was a former prosecutor before becoming a judge, was convicted of six counts of money laundering. They were both charged with possession of unexplained wealth but those charges were stayed.

The couple had bought several luxury cars worth over $3 million, a few expensive watches worth $150,000, and funded private school tuition fees. Over $6 million was sent offshore to the UK and disappeared.

Their judge’s salaries were each only US$3,500 annually, inconsistent with their ability to have spent in the manner they did.

Ramzidah’s lawyer argued that the funds came from relatives and not from the Court’s pooled trust account, and then for Badaruddin, the lawyer argued, inconsistently, that Badaruddin was unaware that his wife was taking funds from the Court’s trust account and did not realize the cars, watches, lifestyle and funds chilling in their joint bank account were not legitimately earned. The lawyer informed the Court that Ramzidah suffered a severe mental collapse and both had mental health issues.

Both were sentenced to jail – 10 years for Ramzidah and 5 years for Badaruddin. However, on April 3, 2019, sharia law was implemented in Brunei and under its penal code, technically, the punishment was amputation of their right hands. After Brunei implemented sharia law, there was a backlash globally with calls to boycott hotels of its ruler, sultan Hassanal Bolkiah, primarily over the death penalty by stoning for homosexuality and adultery. For now, Brunei says it is practicing a dual legal system of its former English common law and sharia law.

As judges, Badaruddin and Ramzidah are politically exposed persons under anti-money laundering law, and as such, are more at risk statistically, to engage in corruption and launder proceeds of crime.

The sultan’s hotels include The Beverly Hills Hotel, Hotel Bel-Air, Hotel Principe di Savoia, Hotel Eden, Hotel Plaza Athenee, Le Meurice, The Dorchester, and 45 Park Lane. Most US banks prohibit their employees and executives from staying or booking events at, any hotel owned by the sultan.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

BCSC and SEC jointly temporarily cease trade Vancouver company over Covid-19 PPE promotion

By Christine Duhaime | May 28th, 2020

The British Columbia Securities Commission (“BCSC“) and Securities and Exchange Commission (“SEC“) have jointly issued temporary cease trade orders in respect of a Vancouver company called Micron Waste Technologies Inc. (“Micron“). The BCSC cease trade order is here; the SEC cease trade order is here. It has been a number of years since a joint cease trade order has been issued by both.

The SEC suspension was issued after Micron hired a number of promotional-type companies on short-term contracts, one for $350,000. It then presumably caused to be promoted, or acquiesced in respect thereof, its stock on representations that it had the ability to rapidly make PPE to meet the needs of the global medical community during Covid-19. On the regulatory side, questions arose regarding the accuracy and adequacy of information in the marketplace about those representations.

According to its website, Micron makes cannabis waste technology solutions, which it states on its website, is a booming industry.

Despite the boom, it appears to be also pivoting into Covid-19 solutions and says that it has acquired a licence to manufacture PPE, which it states will protect against bio hazards, pathogens, and superbugs. This article here describes what bio-hazard protective gear is, and this article here also describes the levels of PPE, including level 4 for bio-hazards which is what Micron suggests it is manufacturing in a week. And this company here, describes PPE for law enforcement safety, dealing with bio-hazard threats in theatre.

In a news release, it states that it bought raw materials from China to make its own PPE and bought machinery from China to make its PPE, and that both are en route to Vancouver. It may not be known to Micron, but the chances of obtaining usable PPE raw materials and usable PPE manufacturing machinery from a government licensed company in China are slim. Literally, the whole world is seeking such things from China and the PPE fraud from China is astronomical at the moment.

According to its corporate filings, Micron is managed by a former RCMP officer who was in drug enforcement.

There is not yet filed on SEDAR, a material change report, or a copy of the material contracts in respect of its change to pivot into the PPE business through a new acquisition and loan arrangement, and in respect of its new licence to manufacture PPE for bio-hazards. Investors will also be able to know more when they can read the material contracts with China for PPE.

According to its financial statements on SEDAR, Micron has $2.5 million in the bank.

It paid $1.5 million to consultants in the past year, and made several payments to companies it says are controlled by its insiders.

The non-arms length consulting contracts have not yet been filed on SEDAR. The contracts for short-term investor relations and promotional services, including the one for $350,000, have not yet been filed on SEDAR either. Its short-term IR and promotional services contracts expire at the end of July 2020. Presumably there is a material event planned between now and the end of July 2020, such that $426,000 had to be paid for IR and promotional services, but what that event is remains unknown.

On the good news side, Micron represented in its SEDAR filings in May 2020, that its new PPE business will be self-funding. Thus it will not need to raise any more money from investors for a very long time.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Iran said to be officially moving into digital currencies with central bank

By Christine Duhaime | May 22nd, 2020

According to an article from Iran, summarized in CoinDesk, it seems that the Central Bank of Iran may have agreed to a policy of working with digital currency exchanges in Iran to provide the connective banking relationships to facilitate international transactions of the movement of digital currencies and money in and out of Iran. One of the exchanges is this one.

Typically, the government of Iran works 24/7 to find ways to exit billions of dollars from Iran for its politically exposed persons and to buy goods and services, often through sanctions avoidance methods. The concern is that any use by Iran of digital currencies, especially mining activities, will help it move funds out anonymously anywhere in the world.

Concerns are heightened by the fact that digital currency exchanges have historically not applied or implemented sanctions laws to prevent transactions from Iran. For example, here is an article of a politically exposed person on a sanctions list who created a digital currency which a Canadian digital currency exchange is facilitating the sale of.

Older articles on Iran and digital currencies are here and here.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

“There is no point to a lawsuit if it merely applies the law to lies” – SEC wins extreme remedy against digital currency exchange founder whose credibility is shot

By Christine Duhaime | May 17th, 2020

The founder of a digital currency exchange lied so much to the Securities and Exchange Commission (“SEC“) during its investigation and to a California Court, and made himself so not credible, that a Court has recommended one of the harshest remedies available – to deprive the defendant of the constitutional right to be heard – and to end a lawsuit against him with a default judgment.

Inherent jurisdiction of Court to terminate proceedings

All Courts have what is called inherent jurisdiction to punish parties in a litigation when untruthful evidence is created, tendered, sworn or filed in connection with an investigation, proceeding or litigation. When evidence a person gives ends up being so not credible because they made so many untrue statements or created fake documents or doctored others, often all that happens is their evidence is not taken into account or given any weight in the disposition of a litigation.

But a Court may also, on application of a party, punish the lying person by ending the litigation with a default judgment. This happens when the lying party’s conduct has been so harmful to the administration of justice that it’s impossible or prohibitively expensive to press the investigation or litigation reset button to ascertain the truth.

Forever cursed with losing litigation

There are other costs when a person is determined to be so not credible that the opposing party moves for default judgment successfully. Such a person is going to have to pay all the costs of litigation of all the parties. And more permanently such a person, having no credibility left, will never succeed in any future litigation even with different parties if their evidence is required or necessary. The latter is not the law but it’s the reality.

Here’s how the case with this digital currency exchange founder ended up there.

Untrue statements about ICO

In 2018, the SEC commenced an investigation into a digital currency exchange and initial coin offering (“ICO“) operated by a company called Blockvest LLC and its founder, Rasool Abdul Rahim El, who uses the name Reginald Ringgold III (“Rahim“).

The digital currency exchange and Rahim made statements to the public that the exchange and / or the ICO was licensed and regulated by the SEC, among other agencies, and that it was “approved” by the SEC and worked with Deloitte and was audited by them. The statements were untrue. The SEC believes such statements were made to induce the public into believing that the exchange had been vetted by the SEC, was safe and subject to regulatory oversight, when it was not.

On this promo page, it links to a (now deleted) Facebook post that says that Blockvest is moving to Malta.

Untrue statements wasted SEC’s time and public resources

During the SEC investigation, the SEC stated that Rahim lied to the SEC in respect of issues that were germane to the investigation and in respect of his exchange. The statements Rahim gave the SEC at the commencement of their investigation appear to have sent them down a path where they spent a substantial amount of time and resources investigating what ended up being untrue statements.

The SEC says that they engaged in costly and lengthy investigations as a result of Rahim’s deceit; and it caused the potential dissipation of assets depriving investors of recovery, in addition to wasting public funds with an investigation that was fruitless because it was based on untrue information.

In the midst of the investigation, the SEC filed an application ex parte for a temporary restraining order against Rahim and the exchange, alleging securities fraud. The Court granted the SEC’s application for a temporary restraining order.

Untrue statements used in Court

Rahim and Blockvest successfully applied to overturn the temporary order. Except that the application by Rahim and the digital currency exchange relied on untrue statements made by Rahim and some of his employees and/or investors.

The SEC then investigated the evidence filed by Rahim for that hearing and learned that some of that evidence was untrue, fabricated and involved at least one doctored document.

SEC applies to deprive Rahim of right to due process

When the SEC became aware of the extent of the conduct by Rahim in making untrue statements to the public, to its investigators and then to a Court, including the manufacturing of fake documents, they filed an application to end the Court case against Blockvest and Rahim, relying upon the Court’s inherent jurisdiction to sanction a deceiving litigant.

Sanctions that end a litigation, called terminating sanctions, are a severe remedy that can be imposed in circumstances where a litigation is pointless. A litigation is pointless when the objects of justice cannot be achieved such as where a party has engaged in practices that undermine the integrity of judicial proceedings and the deceptive conduct relates to the matters in controversy in such a way as to potentially interfere with a rightful decision. If a party engages in conduct that can cause severe damage to proceedings and there is a real risk that the truth might not come out, default judgment is an available, albeit rare, remedy. It’s rare because it’s a denial of due process and the right to be heard.

Statement made by at least four persons for Rahim were false or deceptive and Rahim had at least one of his people lie during an SEC investigative interview to support his version of an untrue reality. The SEC learned that some documents submitted to the Court were forged. The lawyer withdrew from the file.

Litigation rendered pointless by fake documents and untrue statements

In his defence, Rahim brought up his mental state and said that he was stressed by the SEC investigation and also suggested that some of the problematic documentation may have been his lawyer’s fault, ergo opening the door to the SEC taking the position that he and his company waived privilege and confidentiality in respect of the advice.

Rahim did not file statements to correct the falsehoods.

The SEC argued that the making and submission of false statements and fake documents so tainted the credibility of Rahim and the company generally, that there was no reason to pursue a litigation because there was no ground for a Court to review evidence that was so not credible.

One can see how this makes sense – if a person has lied so often in connection with a statutory investigation or legal proceeding, why would or should a Court allow the public purse to be used a second longer and how will the SEC or a Court ever know what statements can be relied upon and which cannot? A person who is not credible does not suddenly become credible over time or on a different day.

The Court found that the defendants’ misconduct greatly impeded the resolution of the case by obscuring critical facts, and would essentially make it impossible to separate fact from fiction.

In this case, the Court noted that dismissal is appropriate where a pattern of deception makes it impossible for a Court to conduct a trial with any reasonable assurance that the truth would be available, citing case law that “there is no point to a lawsuit if it merely applies law to lies. True facts must be the foundation for any just result.”

The Court recommended terminating the litigation with a default judgment.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Canadian who hid out in Canada for several years to avoid US prosecution, pleads guilty to securities fraud in New York

By Christine Duhaime | May 16th, 2020

A Canadian, possibly Iranian Canadian, pled guilty in New York today to conspiracy and securities fraud in connection with a scheme where fake securities of tech companies, such as Twitter and Uber, were sold to investors who suffered losses of US$18 million.

Fred Elm, whose real name is Frederic Elmaleh from Toronto, led an investment fund in Florida that sold units in shares of big tech companies such as Twitter, Alibaba, Square, Uber, Snapchat and others. Investors were guaranteed returns of 338% for holding shares in Twitter and 250% for holding shares in Square.

Only the fund did not hold those all those shares for investors, as represented. Investors lost millions of dollars when investor funds were used for the acquisition by Elmaleh of, among other things, fancy fast cars, such as a Bentley Continental GT and Maserati Gran Turismo, a 4,644 sq. ft. 5-bedroom Florida mansion with its own elevator, expensive watches and diamond jewelry. Elmaleh also bought a number of guns.

When investors sought the repayment of their investments, Elmaleh created fake financial documents, and doctored other documents to buy time and pacify investors, according to the pleadings.

On January 15, 2015, the SEC commenced an action in Florida for injunctive and other relief alleging that from 2013 to 2015, Elmaleh through several corporate entities he controlled, ran a Ponzi scheme selling fraudulent investments and that Elmaleh looted some of the proceeds from the Ponzi scheme.

Elmaleh fled to Canada in June 2017, and a few years later in November 2019, was located, arrested and extradited to the US. During the time he was in Canada, he appears to have moved into buying Bitcoin and Tron in Toronto.

US prosecutors sought repayment of over US$2 million from the 70 year old parents of Elmaleh in Toronto – at first for unjust enrichment because they received money from Elmaleh’s fund and provided no services – but later, they were alleged to have operated Ontario companies to front the movements of funds for their son. Over 20 people in Toronto were sued by the US government and funds were clawed back from them for unjust enrichment because payments were made by the firm and / or the fund and no services were rendered.

As part of his plea deal, Elmaleh agreed to pay back US$8.3 million and is expected to be sentenced to 17.5 years in federal prison. He is currently held at New York’s MCC. You can read more here.

Another Canadian who was part of the investment firm, Ahmed Naqvi, who also fled the US for Canada and who was also located, arrested and extradited, is expected to be sentenced in June 2020 in New York.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email