Market Frauds & NSS related Stuff

[tecch10000]

July 29, 2010

CFTC and Defendant Paul Greenwood Agree to a Consent Order Finding that Greenwood Operated a Multi-Billion Dollar Investment Scam
Federal court enjoins Greenwood for his role in misappropriating more than $80 million of pool participants’ funds for his personal benefit.
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that a federal court in New York entered a consent order of permanent injunction and equitable relief against Paul Greenwood of North Salem, N.Y. The CFTC charged Greenwood with operating a $1.3 billion investment scam in which he and co-defendant Stephen Walsh, of Sands Point, N.Y., misappropriated at least $553 million from commodity pool participants in connection with entities they owned and controlled, such as Westridge Capital Management, Inc., WG Trading Investors, LP and WGIA, LLC (see CFTC Press Release 5621-09, Feb. 25, 2009).

The consent order, entered on July 28, 2010, by the U.S. District Court for the Southern District of New York, permanently bars Greenwood from trading commodity futures and options contracts and CFTC-regulated foreign currency contracts. Greenwood also is permanently prohibited from soliciting funds for such trading, registering with the CFTC and acting as a principal, agent or employee of a CFTC registrant. The order also requires Greenwood to disgorge ill-gotten gains to defrauded pool participants and to pay a civil monetary penalty. The CFTC and Greenwood or the court will determine the specific amounts of disgorgement and the civil monetary penalty at a later date.

The order finds that, from at least 1996 to the present, Greenwood fraudulently solicited approximately $7.6 billion from various entities through Westridge Capital Management and WGIA, LLC. Defrauded pool participants include institutional investors such as pension and retirement plans and charitable and university foundations. According to the order, Greenwood defrauded victims by falsely representing that their funds would be traded by means of an investment strategy called equity index arbitrage, which involves buying and simultaneously selling through futures the stocks of a well-known equity index, such as the Standard and Poor’s 500 Index. Instead, the order finds, pool participants’ funds were transferred to another entity from which Greenwood siphoned funds.

The order holds Greenwood liable for futures fraud and misappropriation of pool participants’ funds

The consent order finds that, to cover-up the misappropriation of pool participants’ funds, Greenwood manufactured promissory notes to create the appearance that pool participants’ funds had been loaned to him. Greenwood and others caused companies that he ran to divert approximately $80 million to Greenwood for his benefit, according to the order.

Litigation is pending against other defendants and relief defendants in this action. Efforts to return funds to pool participants are ongoing.

Greenwood enters guilty plea in criminal action

On July 28, 2010, Greenwood entered a guilty plea in the U.S. District Court for the Southern District of New York in a companion criminal action. The Securities and Exchange Commission also filed an action against Greenwood, and the court entered a consent order there as well.

The CFTC appreciates the assistance of the National Futures Association, the office of the U.S. Attorney for the Southern District of New York, the Federal Bureau of Investigation and the Securities and Exchange Commission.

CFTC Division of Enforcement staff members responsible for this matter are: Patricia Gomersall, Kyong J. Koh, JonMarc P. Buffa, Joseph Rosenberg, Peter M. Haas, Paul G. Hayeck and Joan Manley.

Last Updated: July 29, 2010

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[Goldenbollox]

U.S. Securities and Exchange Commission
Litigation Release No. 21605 / July 29, 2010
Securities and Exchange Commission v. Citigroup Inc., Civil Action No. 1:10-CV-01277 (ESH) (D.D.C. July 29, 2010)
SEC Charges Citigroup Inc. in Connection with Misleading Disclosures Regarding Its Exposure to Sub-Prime Assets
Company Consents to Injunction and Payment of a $75 Million Penalty

The Securities and Exchange Commission today charged Citigroup Inc. with misleading investors about the extent of the company's exposure to sub-prime mortgage-related assets during 2007.

The SEC alleges in its complaint against Citigroup that between July 20, 2007 and November 4, 2007, in response to intense investor interest in the topic, Citigroup repeatedly made misleading statements about the extent of its holdings of assets backed by sub-prime mortgages in earnings calls and public filings. Throughout the period in question, Citigroup represented that its sub-prime exposure in Citigroup's investment banking unit, Citi Markets & Banking, was $13 billion or less, when in fact, at all times during that period, the investment bank's sub-prime exposure was over $50 billion.

Citigroup, a global financial services company based in New York City, agreed to pay a $75 million penalty to settle the SEC's charges.

The SEC alleges that, beginning in July 2007, Citigroup made a series of statements in earnings calls and public filings in which it represented that its investment bank had approximately $13 billion of sub-prime exposure, and that the investment bank's sub-prime exposure declined over the course of 2007. In fact, the $13 billion figure that Citigroup disclosed omitted two categories of sub-prime-backed assets, "super senior" tranches of collateralized debt obligations (CDOs) and "liquidity puts," through which Citigroup had approximately $43 billion of additional sub-prime exposure. Citigroup only disclosed the extent of its holdings of the super senior tranches of CDOs and the liquidity puts in November 2007, after a sharp decline in their value. According to the SEC's complaint, the misleading disclosures were made at a time of heightened investor and analyst interest in public company exposure to sub-prime mortgages.

According to the SEC's complaint, as early as April 2007, Citigroup's senior management began to gather information on the investment bank's sub-prime exposure for purposes of possible public disclosure. From the outset of these efforts, internal documents describing the investment bank's exposures included the super senior CDO tranches and the liquidity puts, while noting that they bore little risk of default. Nevertheless, on four occasions — a July 20, 2007 earnings call; a July 27, 2007 Fixed Income investors call; an October 1, 2007 earnings pre-announcement; and an October 15, 2007 earnings call — Citigroup stated that its investment bank's sub-prime exposure was $13 billion or slightly less, and had been managed down from $24 billion at the end of 2006. The statements made in the October 1, 2007 earnings pre-announcement were included in a Form 8-K that Citigroup filed with the Commission. Citigroup did not disclose in any of these communications that it was excluding the amount of its sub-prime exposure from super senior tranches of CDOs or liquidity puts.

Without admitting or denying the SEC's allegations, Citigroup Inc. consented to the entry of a final judgment that (1) permanently restrains and enjoins it from violation of Section 17(a)(2) of the Securities Act of 1933, Section 13(a) of the Securities Exchange Act of 1934, and Exchange Act Rules 12b-20 and 13a-11 and (2) orders it pay penalty and disgorgement of $75,000,001.

Separately, the SEC also instituted settled cease-and-desist proceedings against Gary Crittenden, Citigroup's former chief financial officer, and Arthur Tildesley, Jr., Citigroup's former head of Investor Relations, for their roles in causing Citigroup to make certain of the misleading statements.

See Also: SEC Complaint
 

[Goldenbollox]

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21604 / July 28, 2010
SEC v. Geotec, Inc. f/k/a Geotec Thermal Generators, Inc., Bradley T. Ray, William Richard Lueck, and Stephen D. Chanslor, Case No. 09-80986-CIV-COHN (S.D. Fla.)
DEFENDANTS GEOTEC, INC., BRADLEY T. RAY, STEPHEN D. CHANSLOR, AND WILLIAMS RICHARD LUECK SETTLE SEC ENFORCEMENT ACTION IN GEOTEC, INC. LITIGATION

The Securities and Exchange Commission announced that on July 28, 2010, the United States District Court for the Southern District of Florida entered Final Judgments, by consent, against Geotec, Inc., Bradley T. Ray, Stephen D. Chanslor, CPA, and William Richard Lueck, in connection with an enforcement action filed in 2007 that charged the Defendants with fraud and reporting, books and records, and internal controls violations arising from two distinct securities schemes.

The final judgment against Lueck enjoins him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13a-14 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-11 thereunder and imposes an officer and director bar. Based on Lueck's cooperation in this case, the final judgment does not impose a civil penalty against him.

The SEC's complaint alleged that Geotec, Lueck, Ray and Chanslor made false statements in one or more Geotec 2005 SEC filings concerning the company's acquisition of millions of tons of coal. Specifically, the complaint alleged that Geotec falsely stated that another company had obtained a permit for the coal Geotec acquired and failed to disclose that the coal was under a state receivership. The complaint also alleged that Geotec improperly reported the coal as inventory valued at $18.9 million, improperly reported $4.6 million in revenue from a sale of a portion of the coal, and failed to have its quarterly reports filed with the SEC reviewed by an independent accountant. The SEC's complaint also alleged that Lueck improperly directed Geotec to issue 100,000 shares of company stock to a purported stock promoter in a kickback scheme.

Without admitting or denying the allegations in the Commission's complaint, Geotec, Ray, Chanslor, and Lueck consented to the entry of final judgments against them. The final judgment against Geotec enjoins it from violating Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-11, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The final judgment against Ray enjoins him from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13a-14 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, imposes an officer and director bar, and orders him to pay a civil penalty of $75,000.

The final judgment against Chanslor enjoins him from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13a-14 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder, imposes an officer and director bar, and orders him to pay a civil penalty of $25,000.

Chanslor also consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after three years.

The final judgments against Geotec, Ray, Chanslor, and Lueck resolve the litigation in this case.

For further information, see LR-21116 (July 2, 2009).

 
http://www.sec.gov/litigation/litreleases/2010/lr21604.htm

[Goldenbollox]

U.S. SECURTIES AND EXCHANGE COMMISSION
Litigation Release No. 21603 / July 28, 2010
Securities and Exchange Commission v. Thomas Fisher, et al., 07-cv-4483 (N.D. Ill., filed on Aug. 9, 2007)
COMMISSION OBTAINS PERMANENT INJUNCTION AGAINST FORMER NICOR CHIEF EXECUTIVE OFFICER THOMAS FISHER

The Securities and Exchange Commission ("Commission") announced today that it obtained an order of permanent injunction ("Order") against Thomas Fisher, the former Chairman, Chief Executive Officer, and President of Nicor, Inc., a gas utility holding company based in Naperville, Illinois, in the United States District Court for the Northern District of Illinois. Fisher consented to entry of the Order that permanently enjoins him from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and from aiding and abetting violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13, and requires him to pay $825,000 in disgorgement and prejudgment interest.

The Commission's complaint alleges that from at least 1999 through 2002, Fisher and two other senior Nicor executives materially overstated Nicor's revenues under the company's performance-based rate ("PBR") program and thereby materially overstated Nicor's financial performance. Defendants are alleged to have misrepresented Nicor's actual performance under the PBR program by, among other things, making or authorizing false and misleading statements about Nicor's performance to its investors, the public, the SEC, and the Illinois Commerce Commission. When the false and misleading statements were finally uncovered and Nicor's improper accounting was revealed, Nicor's stock dropped by over 40%.

For further information about the Commission's action in Securities and Exchange Commission v. Thomas Fisher, et al., see Litigation Release No. 20233 (Aug. 9, 2007).

 
http://www.sec.gov/litigation/litreleases/2010/lr21603.htm

[Goldenbollox]

U.S. SECURITIES AND EXCHANGE COMMISSION
Lit. Release No. 21601 / July 23, 2010
SEC Awards $1 Million for Information Provided in Insider Trading Case
Securities and Exchange Commission v. Pequot Capital Management, Inc., et al., Civil Action No. 3:10-CV-00831-CVD (United States District Court for the District of Connecticut, Complaint filed May 27, 2010).

The Securities and Exchange Commission today announced the award of $1 million to Glen Kaiser and Karen Kaiser of Southbury, Connecticut, who provided information and documents leading to the imposition and collection of civil penalties in the above litigation. This is the largest award paid by the SEC for information provided in connection with an insider trading case.

The SEC staff previously investigated alleged insider trading in Microsoft Corp. securities by hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee who accepted an employment offer at Pequot, but closed its investigation without action. In late 2008, Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action against Defendants Pequot and Samberg alleging they engaged in insider trading. Among other documents and information the Kaisers provided the SEC was a key email communication between Zilkha and another Microsoft employee that was not turned over to the SEC in the first investigation. Without admitting or denying the allegations in the SEC’s complaint, Pequot and Samberg consented to the entry of injunctions and orders requiring the payment of civil penalties totaling $10 million (as well as the payment of disgorgement and prejudgment interest totaling over $17 million and an investment advisory bar as to Samberg and censure as to Pequot).

The SEC approved the award earlier this week pursuant to Section 21A(e) of the Securities Exchange Act of 1934, which authorized the Commission, in its discretion, to grant an award of up to 10% of the penalties paid in a case to a person who provided information leading to the imposition of those penalties, but only in insider trading cases. That provision has since been repealed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added new Section 21F to the Securities Exchange Act, authorizing the Commission to award bounties to parties who provide information leading to recovery of monetary sanctions in a broader range of cases, not limited as before to civil penalties recovered in insider trading cases.

On the same day the Commission filed the settled complaint against Pequot and Samberg in the above matter, it also issued an order instituting administrative and cease-and-desist proceedings against Zilkha in connection with the conduct described above. That matter is pending before an SEC administrative law judge.

For further information, please see Litigation Release Number 21450 (May 28, 2010) [Commission filing of settled civil injunctive action against Pequot and Samberg]; Advisers Act Release Number IA-3032 (May 27, 2010) [order instituting proceedings against Zilkha]; and Advisers Act Release Number IA-3035 (June 8, 2010) [settled proceeding barring Samberg from associating with an investment adviser and censuring Pequot].

 
http://www.sec.gov/litigation/litreleases/2010/lr21601.htm
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[Goldenbollox]

U.S. Securities and Exchange Commission
Litigation Release No. 21600 / July 23, 2010
Accounting and Auditing Enforcement Release No. 3157 / July 23, 2010
Securities and Exchange Commission v. Sunrise Senior Living, Inc., et al. Civil Action No. 1:10-CV-01247 (D.D.C.)
SEC BRINGS SETTLED CIVIL CHARGES AGAINST SUNRISE SENIOR LIVING, INC. AND TWO FORMER COMPANY OFFICERS, LARRY E. HULSE AND KENNETH J. ABOD
Sunrise and Hulse Agree to Injunctions and Hulse Agrees to Pay $164,993 in Penalties, Disgorgement, and Prejudgment Interest

The Securities and Exchange Commission today filed a civil action in U.S. District Court for the District of Columbia against Sunrise Senior Living, Inc., a Virginia-based owner and manager of assisted living facilities whose stock is listed on the New York Stock Exchange, and former Sunrise officers, Larry E. Hulse and Kenneth J. Abod. The Commission's complaint alleges that Sunrise engaged in financial reporting fraud during the relevant period from 2003 through 2005, by making improper adjustments to its reserve for self-insured health and dental benefits and its accrual for corporate bonuses to meet public earnings forecasts. The complaint further alleges that Hulse, Sunrise's Chief Financial Officer during most of the relevant period, oversaw improper adjustments to the health and dental reserve and signed false SEC filings and Sarbanes-Oxley certifications. In addition, the complaint alleges that Hulse and Abod, Sunrise's former Treasurer during most of the relevant period, directed Sunrise employees to make improper adjustments to the bonus accrual account. Hulse and Abod are both certified public accountants.

Without admitting or denying the allegations in the complaint, Sunrise has agreed to a final judgment permanently enjoining it from violating Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 12b-20, 13a-1, and 13a-13. Hulse has consented, without admitting or denying the allegations in the complaint, to entry of a final judgment permanently enjoining him from violating and/or aiding and abetting violations of the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 ("Securities Act") and Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13, 13a-14, and 13b2-1.

Hulse also agreed to pay $164,993, comprised of $50,000 in civil penalties, disgorgement of $83,333, and prejudgment interest of $31,660. As part of his settlement, and following the entry of the proposed final judgment against him, Hulse, without admitting or denying the Commission's findings, has consented to the issuance of an administrative order pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after three years. Abod has agreed, without admitting or denying the allegations in the complaint, to pay a civil penalty of $25,000. The proposed settlements in the civil action are subject to Court approval.

In a related settled administrative proceeding, the Commission charged that for Sunrise's year-end 2004 and its first fiscal quarter of 2005, Abod willfully violated Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder and caused and willfully aided and abetted Sunrise's violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and Rules 12b-20, 13a-1 and 13a-13 thereunder. Abod has agreed to cease and desist from committing or causing the violations charged as well as any future violations of these provisions and denied the privilege of appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after one year.

The terms of the proposed settlement with Sunrise reflect credit given to Sunrise for its substantial assistance in the investigation.

See Also: SEC Complaint
 
http://www.sec.gov/litigation/litreleases/2010/lr21600.h

[Goldenbollox]

U.S. Securities and Exchange Commission
Litigation Release No. 21599 / July 22, 2010
Accounting and Auditing Enforcement Release No. 3156 / July 22, 2010
Securities and Exchange Commission v. Dell Inc., Michael S. Dell, Kevin B. Rollins, James M. Schneider, Leslie L. Jackson, Nicholas A.R. Dunning, Civil Action No. 1:10-cv-01245 (D.D.C.)
SEC CHARGES DELL AND SENIOR EXECUTIVES WITH DISCLOSURE AND ACCOUNTING FRAUD
Company to Pay $100 Million Penalty, Michael Dell to Pay $4 Million Penalty

The Securities and Exchange Commission today charged Dell Inc. with failing to disclose material information to investors and using fraudulent accounting to make it falsely appear that the company was consistently meeting Wall Street earnings targets and reducing its operating expenses.

The SEC alleges that Dell did not disclose to investors large exclusivity payments the company received from Intel Corporation not to use central processing units (CPUs) manufactured by Intel’s main rival.  It was these payments rather than the company’s management and operations that allowed Dell to meet its earnings targets.  After Intel cut these payments, Dell again misled investors by not disclosing the true reason behind the company’s decreased profitability.

The SEC charged Dell Chairman and CEO Michael Dell, former CEO Kevin Rollins, and former CFO James Schneider for their roles in the disclosure violations.  The SEC charged Schneider, former regional Vice President of Finance Nicholas Dunning, and former Assistant Controller Leslie Jackson for their roles in the improper accounting.

Dell Inc. agreed to pay a $100 million penalty to settle the SEC’s charges.  Michael Dell and Rollins each agreed to pay a $4 million penalty, and Schneider agreed to pay $3 million, to settle the SEC’s charges against them.  Dunning and Jackson also agreed to settle the SEC’s charges.

The SEC’s complaint, filed in federal district court in Washington, D.C., alleges that Dell Inc., Michael Dell, Rollins, and Schneider misrepresented the basis for the company’s ability to consistently meet or exceed consensus analyst EPS estimates from fiscal year 2002 through fiscal year 2006.  Without the Intel payments, Dell would have missed the EPS consensus in every quarter during this period.   For instance, in one internal 2004 email to Michael Dell in which Rollins argued that Dell should diversify its business toward higher margin server and other products, Rollins noted that Dell’s reliance on Intel payments was a strategic “problem,” stating that “for 3 qtrs now, Intel money has made the qtr.  A bad way to run the railroad.”  Rollins subsequently forwarded the email to Schneider.

The SEC’s complaint further alleges that Dell’s most senior former accounting personnel, including Schneider, Dunning, and Jackson engaged in improper accounting by maintaining a series of “cookie jar” reserves that it used to cover shortfalls in operating results from FY 2002 to FY 2005.  Dell’s fraudulent accounting made it appear that it was consistently meeting Wall Street earnings targets and reducing its operating expenses through the company’s management and operations.

According to the SEC’s complaint, Intel made exclusivity payments to Dell in order for Dell not to use CPUs manufactured by its rival – Advance Micro Devices, Inc. (AMD).  These exclusivity payments grew from 10 percent of Dell’s operating income in FY 2003 to 38 percent in FY 2006, and peaked at 76 percent in the first quarter of FY 2007.  The SEC alleges that Dell Inc., Michael Dell, Rollins, and Schneider failed to disclose the basis for the company’s sharp drop in its operating results in its second quarter of fiscal 2007 as Intel cut its payments after Dell announced its intention to begin using AMD CPUs.  In dollar terms, the reduction in Intel exclusivity payments was equivalent to 75 percent of the decline in Dell’s operating income.  Michael Dell, Rollins, and Schneider had been warned in the past that Intel would cut its funding if Dell added AMD as a vendor.  Nevertheless, in Dell’s second quarter FY 2007 earnings call, they told investors that the sharp drop in the company’s operating results was attributable to Dell pricing too aggressively in the face of slowing demand and to component costs declining less than expected.   

The SEC’s complaint further alleges that the reserve manipulations allowed Dell to materially misstate its earnings and its operating expenses as a percentage of revenue – an important financial metric that the Company itself highlighted – for over three years.  The manipulations also enabled Dell to misstate materially the trend and amount of operating income of its EMEA segment, an important business unit that Dell also highlighted, from the third quarter of FY 2003 through the first quarter of FY 2005.

Without admitting or denying the SEC’s allegations, Dell Inc. consented to the entry of an order that permanently restrains and enjoins it from violation of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, and 13a-13.  Dell Inc. also agreed to enhance its Disclosure Review Committee and disclosure processes, including the retention of an independent consultant to recommend improvements to those processes and enhance training regarding the disclosure requirements of the federal securities laws.

Michael Dell and Rollins consented to settle the SEC’s disclosure charges, without admitting or denying the SEC’s allegations, to the entry of an order that permanently restrains and enjoins each of them from violating Sections 17(a)(2) and (3) of the Securities Act and from violating or aiding and abetting violations of other provisions of the federal securities laws.   

Schneider consented to settle the disclosure and accounting fraud charges against him without admitting or denying the SEC’s allegations, and agreed to pay a penalty, disgorgement of $83,096, and prejudgment interest of $38,640.  Dunning and Jackson consented to settle the SEC’s improper accounting charges without admitting or denying the SEC’s allegations.  Dunning agreed to pay a penalty of $50,000.  In their settlement offers, Schneider, Dunning and Jackson consented to the issuance of administrative orders pursuant to Rule 102(e) of the Commission’s Rules of Practice, suspending each of them from appearing or practicing before the SEC as an accountant with the right to apply for reinstatement after five years for Schneider and three years for Dunning and Jackson.

The SEC’s investigation is continuing as to other individuals.

The SEC acknowledges the assistance of the Federal Trade Commission in this investigation.

See Also: SEC Complaint
 
http://www.sec.gov/litigation/litreleases/2010/lr21599.htm

[Goldenbollox]

U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 21598 / July 22, 2010
Securities and Exchange Commission v. Carl W. Jasper, Civil Action No. C 07-6122 JW (N.D. Cal., filed December 4, 2007)

Court Enters Permanent Injunction, Officer and Director Bar, Civil Penalty, and Forfeiture of Bonuses and Stock Sale Proceeds Pursuant to Section 304(a) of the Sarbanes-Oxley Act Against Former CFO Carl W. Jasper Following A Jury’s Verdict for the Commission in Stock Options Backdating Case

The Securities and Exchange Commission today announced that, on July 21, 2010, following a jury’s verdict for the Commission, the Honorable James Ware of the United States District Court for the Northern District of California entered judgment against Defendant Carl W. Jasper imposing a permanent injunction against future violations of the federal securities laws and other relief, including a bar against serving as an officer or director of a public company for two years, a civil monetary penalty, and forfeiture of bonuses and stock sales pursuant to Section 304(a) of the Sarbanes-Oxley Act.

The judgment resolves the Commission’s civil action and grants relief sought against Jasper in a Complaint filed on December 4, 2007.  In its Complaint, the Commission had alleged that Jasper, the former CFO of Maxim Integrated Products, Inc., a Silicon Valley semiconductor company, participated in a years-long fraudulent scheme to report false financial information to investors.

The Commission’s Complaint alleged, among other things, that between 2000 and 2005, Jasper helped Maxim fraudulently conceal hundreds of millions of dollars in compensation expenses through the use of backdated, “in-the-money” options grants.  The Commission’s complaint also alleged that Jasper was aware of the improper backdating practices, drafted backdated grant approval documents for Maxim’s CEO to sign, and signed several financial statements that he knew or was reckless in not knowing were materially false and misleading.  Following an eight-day trial in United States District Court in San Jose, California, a jury found Jasper liable for, among other violations, fraud and lying to auditors.

The judgment (i) permanently enjoins Jasper from violating the federal securities laws; (ii) bars Jasper from serving as an officer or director of a public company for two years; (iii) orders Jasper to pay a $360,000 civil monetary penalty; and (iv) orders Jasper to forfeit $1,869,639 in bonuses and stock sale proceeds earned by Jasper.

For additional information, please see Litigation Release Nos. 20381 (December 4, 2007) and 21507 (April 26, 2010)

 
http://www.sec.gov/litigation/litreleases/2010/lr21598.htm

[Goldenbollox]

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21597 / July 22, 2010
Securities and Exchange Commission v. Laurence M. Brown, et al., Civil Action No. 10-CV-5564 (S.D.N.Y.)

The Securities and Exchange Commission today filed a civil action against two certified public accountants based in Armonk, New York, Laurence M. Brown and Ronald J. Mangini, for fraudulently selling securities to investors and misappropriating the money for their personal use.

In its complaint, filed in the United States District Court for the Southern District of New York, the SEC alleges that, from as early as April 2008 until June 2010, Brown and Mangini sold what purported to be the common stock and promissory notes of a company called Infinity Reserves-Tennessee Inc., which they represented to be a "gas gathering and trunk pipeline system." In fact, the securities Brown and Mangini sold were fictitious. Infinity Reserves is the name of a company owned by one of their clients, and the company's principal asset is a now defunct natural gas pipeline in Tennessee. Without the knowledge or authorization of the client, who is the sole shareholder of Infinity Reserves, Brown and Mangini have been falsely holding themselves out to investors as senior officers of Infinity Reserves with authority to sell the phony securities at issue.

The complaint further alleges that Brown and Mangini have sold the securities to a number of investors, including clients of their accounting practice, and have illegally obtained over $2 million from those investors. Brown and Mangini have returned only small amounts of funds to certain investors as interest payments, while diverting the vast majority of investor funds — at least $1.6 million — to their and their family members' personal use.

The SEC's complaint also names as relief defendants certain of the defendants' family members and related entities, who received hundreds of thousands of dollars of investor funds: Brown's wife and daughter, Susan and Sloane Brown; Infinity Farms, Ltd., which received investor funds through a bank account controlled by Brown, and his wife and daughter; Mangini's wife, June Mangini; and Maylil, Inc., which received investor funds through a bank account controlled by Ronald and June Mangini.

The SEC's complaint charges Brown and Mangini with violations of the anti-fraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. In addition to emergency relief, including an order to freeze assets, the SEC's complaint seeks permanent injunctions, disgorgement of the defendants' and relief defendants' ill-gotten gains plus prejudgment interest, and financial penalties from the defendants.

In addition to the SEC's charges, the U.S. Attorney's Office for the Southern District of New York today brought criminal charges against Laurence Brown concerning the same illegal activities alleged in the Commission's complaint.

 
http://www.sec.gov/litigation/litreleases/2010/lr21597.htm

[Goldenbollox]

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21596 / July 22, 2010
United States v. Maxo Francois, a/k/a "Max Francois", et al., Case No. 1:10-cr-20443-JAL-1 (S.D. Fla.)
Focus Financial's Principals and Others Criminally Charged in $8 Million Ponzi Scheme Targeting South Florida's Haitian-American Community

On June 16, 2010, the United States Attorney for the Southern District of Florida announced that Maxo Francois, a/k/a Max Francois, Jean Fritz Montinard, Aiby Pierre-Louis and Maguy Nerus, a/k/a Maguy Jean-Louis, were charged with one count of conspiracy to commit mail fraud and one count of conspiracy to commit money laundering in violation of 18 U.S.C. §§ 1349 and 1956(h). The criminal charges are for their roles in a multi-million dollar Ponzi scheme which targeted the South Florida Haitian-American Community. According to the Indictment, Focus Development Center, Inc. and Focus Financial Group, Inc. a/k/a Focus Financial Associates (collectively "Focus Financial") issued and sold 12-month promissory notes to investors providing for a guaranteed 15% annual return. The defendants induced investors to purchase these notes by making presentations in community churches and on the radio, falsely claiming that Focus Financial used the funds to create Haitian-American businesses and jobs, that the businesses generated sufficient profits to pay 15% annual returns, and that investors' principal was safe and secure. In reality, Focus Financial and its affiliated businesses never generated sufficient profits to pay annual returns and, instead, the defendants used new investor funds to pay principal and interest payments to earlier investors. The Indictment further charges that as a result of the scheme, the defendants raised $8 million from more than 600 Haitian-American investors living in South Florida who ultimately suffered losses of approximately $6 million.

On June 9, 2005, the Securities and Exchange Commission (SEC) filed a civil injunctive action against Focus Financial and its principals, Francois, Montinard and Pierre-Louis, charging them with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC subsequently obtained judgments against each of the defendants, providing for full permanent injunctive relief, holding each of the defendants jointly and severally liable for disgorgement in the amount of $5.9 million, plus prejudgment interest thereon, and ordering them to pay civil penalties in the amount of $120,000 each.

On September 29, 2005, the SEC's Miami Regional Office and the State of Florida Office of Financial Regulation held an investor education and outreach program in North Miami, Florida, in English and with Creole translators, to provide information to Focus Financial victims and provide information to the Haitian-American community about avoiding financial scams.
For more information on earlier actions in this case, see Litigation Release No. 19258 (June 9, 2005), Litigation Release No. 19472 (November 18, 2005), Litigation Release 19707 (May 22, 2006), Litigation Release No. 19753 (July 5, 2006), Litigation Release No. 19915 and 19916 (November 15, 2006).

 
http://www.sec.gov/litigation/litreleases/2010/lr21596.htm

[Goldenbollox]

SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21595 / July 20, 2010
FINAL JUDGMENTS OF PERMANENT INJUNCTION AND OTHER RELIEF ENTERED AGAINST DEFENDANTS WILLIAM B. BLOUNT, BLOUNT PARRISH & CO., INC., AND ALBERT W. LAPIERRE
Securities and Exchange Commission v. Larry P. Langford, et al., Case No. CV-08-0761-AKK (N.D. AL)

The Securities and Exchange Commission announced that on July 14, 2010, the Honorable Abdul K. Kallon, United States District Judge for the Northern District of Alabama, entered Final Consent Judgments of Permanent Injunction and Other Relief against Defendants William B. Blount (Blount), Blount Parrish & Co., Inc. (Blount Parrish), and Albert W. LaPierre (LaPierre). Without admitting or denying the allegations in the Commission's complaint, Blount, Blount Parrish and LaPierre consented to the entry of injunctions against future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15B(c)(1) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5, and Municipal Securities Rulemaking Board Rules G-17 and G-20. The Final Judgments also dismiss the Commission's claims for disgorgement, prejudgment interest and civil penalties against Blount, Blount Parrish and LaPierre.

The Commission commenced this action by filing its Complaint on April 30, 2008, against Blount, Blount Parrish, LaPierre and the former Birmingham Mayor Larry P. Langford. The Commission's complaint alleged that while Langford served as president of the County Commission of Jefferson County, Alabama, he accepted more than $156,000 in undisclosed cash and benefits over the course of two years from Blount, the chairman of Blount Parrish. According to the complaint, Langford selected Blount Parrish to participate in every Jefferson County municipal bond offering and security-based swap agreement transaction during 2003 and 2004, from which Blount Parrish received over $6.7 million in fees. Moreover, the Commission alleged, Langford and Blount concealed the payment scheme by using their long-time friend, LaPierre, an Alabama registered political lobbyist, as a conduit.

For more information on earlier actions in this case, see LR-20545 (April 30, 2008) and LR-20821 (Dec. 5, 2008).

 
http://www.sec.gov/litigation/litreleases/2010/lr21595.htm

[Goldenbollox]

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21594 / July 19, 2010
Securities and Exchange Commission v. Gary S. Becker, Gregory S. Schaefer, and Dillon Scott Securities, Inc., Civil Action No. 09-CV-5707 (SAS)(S.D.N.Y. June 22, 2009)         

The Securities and Exchange Commission announced that on July 12, 2010, the Honorable Shira A. Scheindlin, United States District Judge for the Southern District of New York, entered a final judgment by default against defendants Gary S. Becker, Gregory S. Schaefer, and the brokerage firm they controlled, Dillon Scott Securities, for their participation in three fraudulent offerings of Gold Rush Technologies, Inc., Dillon Scott’s parent company.  The Court issued an order enjoining defendants from future violations of the antifraud as well as broker-dealer and securities registration provisions of the federal securities laws.  The Court further ordered defendants to disgorge $1,306,950 plus prejudgment interest of $218,770.23, to be paid joint and severally, and also ordered civil penalties against each Becker and Schaefer in the amount of $1,306,950 as well as permanent penny stock bars against them.

The SEC's complaint, filed on June 22, 2009, alleged that from January 2001 through July 2007, the defendants raised at least $1.3 million from 29 investors through three unregistered offerings of Gold Rush.  Becker and Schaefer, in offering memoranda, direct solicitations, and solicitations by two of their salespersons, represented that the money raised would be used to form and expand a brokerage firm, Dillon Scott.  Instead, Becker and Schaefer diverted about 79% of the offering proceeds to enrich themselves and others.  Becker and Schaefer used Gold Rush's corporate ATM cards over 4,200 times to withdraw approximately $600,000.  They also wrote checks to themselves and others in amounts totaling approximately $361,000.   In addition, Becker and Schaefer also used investor funds to pay various personal expenses including meals, groceries, and domestic and international travel.  Dillon Scott, aided and abetted by Becker and Schaefer, did not disclose Becker's control over Dillon Scott in the firm's broker-dealer regulatory filings; permitted Becker and another individual to effect securities transactions when they were not registered with FINRA; and did not keep and maintain a current Form U-4 or other questionnaire or application for employment for Becker and the salesperson.

As a result of these activities, Becker, Schaefer, and Dillon Scott violated the general antifraud and registration provisions of the securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.   Dillon Scott also violated Sections 15(b)(7), 15(c)(1), and 17(a) of the Exchange Act and Rules 10b-3, 15b3-1, 15b7-1, and 17a-3(a)(12), and Becker and Schaefer aided and abetted these violations.

For more information, see Litigation Release No. 21100 (June 23, 2009).

 
http://www.sec.gov/litigation/litreleases/2010/lr21594.htm

[Goldenbollox]

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21593 / July 16, 2010
Accounting and Auditing Enforcement Release No. 3154 / July 16, 2010
SEC v. Trident Microsystems, Inc., Frank C. Lin, and Peter Y. Jen, Civil Action No. 1:10-CV-01202 (JDB)(D.D.C.)
SEC CHARGES TRIDENT MICROSYSTEMS, INC. AND ITS FORMER CEO AND FORMER CAO WITH STOCK OPTIONS BACKDATING

The Securities and Exchange Commission today filed a civil action against Trident Microsystems, Inc., a Santa Clara, California-based provider of integrated circuits, Trident's founder and former Chief Executive Officer, Frank C. Lin, and Trident's former Chief Accounting Officer, Peter Jen, alleging violations related to stock option backdating.

The Commission's complaint, filed in the United States District Court for the District of Columbia, alleges that from at least 1993 to May 2006, Trident, through the conduct of Lin and Jen, engaged in a fraudulent and deceptive scheme to provide undisclosed compensation to executives and other employees, concealing millions of dollars in expenses from the Company's shareholders. According to the complaint, Lin used, and directed others to use, hindsight to select for stock option grants dates that coincided with the dates of low closing prices for the Company's stock. Lin backdated stock option documentation to make it appear as if options had been granted on earlier dates, resulting in disguised "in-the-money" option grants to Company employees, officers, and on at least one occasion to directors. Among the alleged backdating practices, Trident backdated offer letters to newly hired employees and "parked" low-priced options under the names of certain employees which were later allocated to different employees in subsequent months when Trident's stock price increased. The complaint alleges that Jen was aware of some of the backdating practices during at least 1998 to 2006 and that he approved backdated grants to certain employees.

The complaint alleges that Lin and Jen signed and/or approved of the filing of annual and quarterly reports with the Commission that they knew, or were reckless in not knowing, failed to include compensation expenses associated with the "in-the-money" portions of the backdated grants. The reports falsely stated that Trident complied with stock option accounting rules and, in certain cases, stated that Trident granted options at the fair market value of the Company's stock on the date of grant. Lin and Jen also signed registration statements filed with the Commission that incorporated by reference these false and misleading periodic reports. The complaint also alleges that Lin and Jen reviewed and/or prepared proxy statements provided to shareholders that falsely reported stock option grant dates for executives and falsely stated that those stock options were granted at the market value of the Company's stock on the date of grant. Lin and Jen also filed beneficial ownership forms (Forms 4) with the Commission misrepresenting the purported grant dates of backdated stock options that they each received.

According to the complaint, in August 2007, Trident filed a restatement to record approximately $37 million of compensation expenses that the Company had failed to record over a thirteen-year period. As a result of Trident's failure to properly account for its stock option grants, Trident materially overstated its pre-tax income or understated its pre-tax losses, by as much as 113%, in each of the Company's fiscal years from 1993 through 2005, and through the third quarter of its 2006 fiscal year, according to the complaint.

Trident, Lin, and Jen agreed to settle the matter without admitting or denying the allegations of the Commission's complaint.

Trident consented to the entry of an order permanently enjoining it from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b), 13(a), 13(b)(2)(A), 13 (b)(2)(B) and 14 (a) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 14a-9.

Lin consented to an order permanently enjoining him from violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Exchange Act, and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-9, and 16a-3; and from aiding and abetting violations of the Exchange Act's reporting, books and records, and internal controls provisions. Lin agreed to pay a $350,000 penalty and to be barred for five years from serving as an officer or director of any issuer that has a class of securities registered with the Commission or that is required to file reports with the Commission. Lin also agreed to disgorge the "in-the-money" benefit he received upon his exercise of backdated option grants, plus pre-judgment interest thereon, for total disgorgement of $817,509, which the Commission will deem satisfied upon Lin's payment of this amount to Trident.

Jen consented to an order permanently enjoining him from violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), and 16(a) of the Exchange Act, and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, and 16a-3; and from aiding and abetting violations of Exchange Act's reporting, books and records, internal controls, and proxy solicitation provisions. Jen agreed to pay a $50,000 penalty and to be barred for five years from serving as an officer or director of a public company. Jen also agreed to disgorge the "in-the-money" benefit he received upon his exercise of backdated option grants, plus pre-judgment interest thereon, totaling $359,819. The Commission deems Jen's disgorgement satisfied based on Jen's prior payment of this amount to Trident.

These settlements are subject to the approval of the United States District Court for the District of Columbia.

See Also: SEC Complaint
 
http://www.sec.gov/litigation/litreleases/2010/lr21593.htm

[Goldenbollox]

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21592 / July 15, 2010
Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre, Civil Action No. 10 Civ. 3229 (S.D.N.Y. filed April 16, 2010)
GOLDMAN SACHS TO PAY RECORD $550 MILLION TO SETTLE SEC CHARGES RELATED TO SUBPRIME MORTGAGE CDO
Firm Acknowledges CDO Marketing Materials Were Incomplete and Should Have Revealed Paulson's Role

The Securities and Exchange Commission today announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.

In its April 16 complaint, the SEC alleged that Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation (CDO) it marketed that hinged on the performance of subprime residential mortgage-backed securities. Goldman failed to disclose to investors vital information about the CDO, known as ABACUS 2007-AC1, particularly the role that hedge fund Paulson & Co. Inc. played in the portfolio selection process and the fact that Paulson had taken a short position against the CDO.

In settlement papers submitted to the U.S. District Court for the Southern District of New York, Goldman made the following acknowledgement:

    Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.

Goldman agreed to settle the SEC's charges without admitting or denying the allegations by consenting to the entry of a final judgment that provides for a permanent injunction from violations of Section 17(a) of the Securities Act of 1933. Of the $550 million to be paid by Goldman in the settlement, $250 million would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.

The settlement also requires remedial action by Goldman in its review and approval of offerings of certain mortgage securities. This includes the role and responsibilities of internal legal counsel, compliance personnel, and outside counsel in the review of written marketing materials for such offerings. The settlement also requires additional education and training of Goldman employees in this area of the firm's business. In the settlement, Goldman acknowledged that it is presently conducting a comprehensive, firm-wide review of its business standards, which the SEC has taken into account in connection with the settlement of this matter.

The settlement is subject to approval by the Honorable Barbara S. Jones, United Sates District Judge for the Southern District of New York.

Today's settlement, if approved by Judge Jones, resolves the SEC's enforcement action against Goldman related to the ABACUS 2007-AC1 CDO. It does not settle any other past, current or future SEC investigations against the firm. Meanwhile, the SEC's litigation continues against Fabrice Tourre, a vice president at Goldman.

The SEC investigation that led to the filing and settlement of this enforcement action was conducted by the Enforcement Division's Structured and New Products Unit, led by Kenneth Lench and Reid Muoio, and including Jason Anthony, N. Creola Kelly, Melissa Lamb, and Jeffrey Leasure. Additionally, together with Deputy Director Reisner, Richard Simpson, David Gottesman, and Jeffrey Tao have been handling the litigation.
Additional Materials:

Litigation Release No. 21489 (SEC v. Goldman, Sachs & Co. and Fabrice Tourre)

 
http://www.sec.gov/litigation/litreleases/2010/lr21592.htm

[Goldenbollox]

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21591 / July 9, 2010
Securities and Exchange Commission v. InvestSource, Inc. and Songkram Roy Sahachaisere, United States District Court for the Central District of California, Case No. SACV 10-1041 DOC (RNBx) (filed July 9, 2010).
SEC CHARGES HUNTINGTON BEACH-BASED STOCK PROMOTER WITH FRAUD

The Securities and Exchange Commission today filed a civil action against a Huntington Beach-based penny stock promoter, Songkram Roy Sahachaisere, and his company, InvestSource, Inc. for committing fraud while promoting stock of their clients through massive email campaigns.

In its complaint filed in the United States District Court for the Central District of California, the SEC alleges that Sahachaisere, age 40, and InvestSource provide "investor relations services" by touting various penny stocks in its daily email newsletter, called the "Daily Digest," and by posting company profiles on its website. From January 2008 to March 2009, defendants sent nearly 450 email messages publicizing these penny stocks to over 24 million recipients, receiving clients' stock as compensation. The complaint focuses on seven specific penny stocks that defendants touted in which, the SEC alleges, defendants made misleading statements regarding the nature of their compensation on InvestSource's website and in the promotional emails. The defendants also failed to disclose that they were selling the very securities they were recommending investors buy. According to the complaint, between April 2008 and March 2009, defendants sold over 5 million shares of these seven clients through one or more of their approximately 36 brokerage accounts, illegally reaping profits of at least $276,000.

The SEC's complaint charges InvestSource and Sahachaisere with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges them with violating the antitouting provisions contained in Section 17(b) of the Securities Act. The SEC's complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties against both defendants. In addition, the SEC seeks penny stock and officer and director bars against defendant Sahachaisere.

See Also: SEC Complaint
 
http://www.sec.gov/litigation/litreleases/2010/lr21591.htm