Kansas company faces felony for not reporting red flags in Scott Tucker payday scam
The U.S. Attorney for the Southern District of New York has filed a criminal charge against a Prairie Village-based company, alleging the broker-dealer failed to report suspicious activities of disgraced Kansas City payday loan tycoon Scott Tucker.
Central States Capital Markets faces a felony charge of violating the Bank Secrecy Act for knowing, or being in a position to know, that Tucker was laundering money through investment accounts tied to his predatory lending scheme.
Wednesday’s charges are the first time a broker-dealer has been charged with a criminal violation of the Bank Secrecy Act, a law design to detect money laundering and other fraudulent activities in financial institutions.
Tucker is in prison, serving a 16-year, 8-month sentence after a jury in 2017 found him and his attorney, Tim Muir, guilty of building a $2 billion payday loan enterprise that charged illegal interest rates to borrowers. Tucker was the biggest among several people in Kansas City who built a fortune off of legally dubious short-term lending operations.
“Today’s charge makes clear that all actors governed by the Bank Secrecy Act — not only banks — must uphold their obligations to protect our economy from exploitation by fraudsters and thieves,” said Geoffrey Berman, U.S. Attorney for the Southern District of New York, in a statement.
Federal prosecutors said in conjunction with Wednesday’s criminal charge, they have also reached an agreement with Central States Capital Markets to pay $400,000 through a civil forfeiture and defer prosecution of the case for two years.
The agreement, in which Central States Capital Markets accepts responsibility for the allegations by federal prosecutors, requires the broker-dealer to improve its anti-money laundering compliance program.
If Central States Capital Markets meets the terms of its agreement with federal prosecutors, the criminal charge could be dismissed after two years.
Court records released on Wednesday say that Central States Capital Markets did not act on several red flags about Tucker’s business, including: news reports from 2011 about the suspicious nature of his business, litigation by the Federal Trade Commission against Tucker’s businesses that would later result in a $1.3 billion penalty, and his bank fraud conviction in 1991.
The broker-dealer also failed to detect and report several suspicious transactions, including 18 wire transfers totaling $40.5 million from a Florida bank to Tucker’s personal account with Central States Capital Markets. The firm also had software designed to detect money laundering, which generated 103 alerts about activity in Tucker’s accounts, but Central States Capital Markets never checked those alerts, according to court records.
Central States Capital Markets referred questions to its attorney, Douglas Jensen. Jensen, a former prosecutor for the Southern District of New York, said the firm has already paid the $400,000 forfeiture, his hired a anti-money laundering officer and is working with a vendor on training staff on compliance issues.
“Although a small firm with fewer than 25 employees, CSCM embraces the highest standards of integrity, risk management and compliance and remains committed to improving its controls and processes to protect all its stakeholders,” Jensen said in a statement. “These settlements in no way affect the company’s relationship with current and prospective customers, and CSCAM will continue to provide the exceptional service and results its customers have come to expect.”
Central States Capital Markets is a broker-dealer and investment adviser in Prairie Village; it had $3.8 million in revenue and a net loss of $600,000 in 2016, according to court records.
It’s a relatively small operation, with $22 million in assets under management, according to its filings with the U.S. Securities and Exchange Commission. It’s registered to do business in 33 states, including Kansas and Missouri.
In 2012, Central States Capital Markets opened investments accounts for American Indian tribal companies associated with Tucker’s payday loan scheme. Tucker set up his payday loan businesses on tribal lands, which cannot be regulated by state laws on short-term lending. The businesses were nominally established on tribal lands in Nebraska and Oklahoma but operated primarily in Overland Park.
Central States Capital Markets also opened personal investment accounts for Tucker and his brother, Blaine Tucker.
Central States Capital Markets is the second financial institution to come under scrutiny by federal prosecutors in connection to Tucker’s businesses. Earlier in 2018, U.S. Bancorp, the parent company for U.S. Bank, agreed to pay a $613 million penalty for also failing to report suspicious activity in its accounts controlled by Tucker.
Central States Capital Markets earlier this year was censured by the Financial Industry Regulatory Authority and fined $10,000 for not having a properly registered municipal securities principal supervise the firm’s branch office in Wichita.
In 2016, the firm was fined $85,000 by the Securities and Exchange Commission for violations in a municipal debt offering in 2011, according to a FINRA profile of Central States Capital Markets.
The Star’s Mark Davis contributed to this report.
This story was originally published December 19, 2018 at 12:01 PM.
