WASHINGTON – A lawyer facing Securities and Exchange Commission charges that he violated federal securities laws as part of a pay-to-play scheme to secure Ohio pension business is fighting the charges after failing to get the case dismissed in October.
Robert Crowe, a partner with Nelson Mullins Riley & Scarborough who has offices in both Boston and Washington, responded to the SEC's complaint by arguing that the commission's allegations against him are unrelated to the purchase or sale of covered securities.
In a filing with the U.S. District Court for the Southern District of Ohio, he also claimed his alleged actions were not material to the purchase or sale of securities.
The SEC alleged that Crowe participated in a plan by an official with Boston-based State Street Bank and Trust Co. and others to funnel money to an Ohio treasurer's election campaign in exchange for subcustodian contracts for several Ohio pension funds.
The plan included a former Ohio deputy treasurer now in federal prison and a lobbyist that State Street paid $160,000, according to the SEC.
Crowe, who was the alleged fundraising expert for the scheme that took place in 2010 and 2011, worked with the head of State Street's public funds group at the time, Vincent DeBaggis, to arrange for at least $60,000 in political contributions to be made to the treasurer's campaign during that period, the SEC alleged.
The SEC's complaint charged Crowe with four counts of violating federal securities laws prohibiting fraud in transactions, two for direct violations and two for aiding and abetting of DeBaggis' violations by saying in documents associated with the custodial contracts that State Street had not provided any public official with anything of value.
Crowe also argued that the SEC's claims are barred by, among other things, the statute of limitations because the conduct the complaint references occurred five years before the complaint was filed. Additionally, he said the SEC failed to plead with particularity and he reserved his right to assert additional defenses as the case proceeds.
Crowe originally sought to convince Judge Algenon Marbley, who is presiding over the proceedings, to dismiss the case on similar grounds but was unsuccessful. He argued that the SEC did not state securities law violations in its complaint because it did not adequately say the alleged fraud was "in connection with" a securities transaction or that he had the required intent or knowledge required for aiding and abetting claims.
He argued that the global custodial contracts State Street received did not involve the bank making securities transaction decisions. Instead, the bank was carrying out tasks it was told to do by the officials of the three pension systems for which it was working, Crowe said.
Under Ohio law, the power to make investment and other decisions related to transactions rests only with the pension funds. Without the bank's ability to make investment decisions and without providing examples of securities that were affected, Crowe said the SEC could not meet established precedent.
Additionally, Crowe unsuccessfully argued that the SEC could not bring its complaint under federal securities laws because it adopted a rule to address "pay to play" conduct that applied only to investment advisors and that state campaign finance laws, not federal securities laws, applied to his conduct.
The SEC charged that during 2010 and 2011, State Street worked with now-imprisoned former Ohio deputy treasurer, Amer Ahmad, and an immigration attorney with ties to Ahmad, Mohamed Noure Alo, to funnel portions of lobbying fees State Street paid Alo to the deputy treasurer in exchange for the subcustodian business.
The SEC alleged that at one point, Crowe strategized with DeBaggis over how to meet a demand from Ahmad that DeBaggis come up with between $20,000 and $25,000 in a five-day stretch of time in order to improve their chances of getting the subcustodian business. Crowe and DeBaggis approached Alo, who had received $16,000 from State Street, and asked him to wire the $16,000 to Crowe so that Crowe could arrange the contributions to Ahmad, according to the SEC.
Crowe wrote an $11,300 check to the treasurer's campaign, the maximum individual contribution limit, and bundled that with a $3,000 check from a Crowe-controlled Nelson Mullins political action committee and individual contributions from two Nelson Mullins employees that Crowe reimbursed, the SEC's complaint alleged.
The SEC said that Crowe, at a later date, created a "dummy invoice" to Alo for the $16,000 that Alo had wired to him. Crowe's invoice said the money was for mentoring services and, according to the SEC, it was postmarked July 12, 2010 but was dated Feb. 15, 2010.
The pay-to-play scheme eventually came apart after the treasurer for whom Ahmad worked lost in the November 2011 election and the Department of Justice subpoenaed State Street's documents related to the subcustodian bids, the SEC said. State Street terminated its agreements with Alo and Crowe in 2011 and fired DeBaggis in September 2014.
State Street and DeBaggis both agreed to settlements with the commission. State Street agreed to pay $12 million, which included an $8 million penalty and $4 million of ill-gotten gains that were to be disgorged. DeBaggis agreed to pay a $100,000 penalty and to disgorge roughly $174,000 in ill-gotten gains.
