Thursday, June 30, 2011

Court Orders Hedge Funds to Return $230 Million Held in Offshore Accounts to The U.S.


Source- http://www.sec.gov/litigation/litreleases/2011/lr22015.htm

The Securities and Exchange Commission today announced that pursuant to a Court order, $230 million has been returned to the United States from overseas and will remain frozen until completion of the SEC's case against Connecticut based registered investment adviser Highview Point Partners, LLC and its principal Francisco Illarramendi.

The SEC charged Illarramendi and Highview with engaging in a multi-year Ponzi scheme involving hundreds of millions of dollars. Highview was added as a defendant on May 10, 2011 to a case the SEC previously filed in January 2011 against Illarramendi and his unregistered investment advisory firm MK Capital Management, LLC. The SEC also named three hedge funds managed by Highview and several entities affiliated with MK Capital Management as relief defendants because, according to the SEC’s charges, they are in possession of funds tainted by the Ponzi scheme. After an evidentiary hearing, the Honorable Janet Bond Arterton, U.S. District Judge for the District of Connecticut, entered an order on June 16, 2011 freezing the assets of three hedge funds advised by Highview, and ordered that all assets of the hedge funds, including $230 million held in offshore accounts, be immediately repatriated to the United States. Judge Arterton also ordered, with the consent of Highview, that Highview be placed under the control of John J. Carney of Baker Hostetler LLP, who was previously appointed as receiver in the case. Judge Arterton had previously frozen the assets of Illarramendi, Highview, MK Capital Management and several affiliated entities.

The SEC’s second amended complaint charges Illarramendi, Highview, and Michael Kenwood Capital Management with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and also charges Highview with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also names the following entities as relief defendants, alleging that they received investor funds to which they have no right: Highview Point Master Fund, Ltd., Highview Point Offshore, Ltd., and Highview Point LP, Michael Kenwood Asset Management LLC, Michael Kenwood Energy and Infrastructure LLC, and MKEI Solar LP. In addition to preliminary emergency relief, the SEC’s complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and penalties from the defendants, and disgorgement plus prejudgment interest from the relief defendants.

The SEC’s investigation is continuing. The SEC acknowledges and appreciates the assistance of the U.S. Attorney’s Office for the District of Connecticut and the Federal Bureau of Investigation.


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Wednesday, June 29, 2011

SEC Charges Peter L. Jensen and Thomas C. Tekulve, Jr. With Accounting Fraud at Southern California-Based Water Treatment Company



Source- http://www.sec.gov/litigation/litreleases/2011/lr22014.htm

The Securities and Exchange Commission today announced charges against two former Basin Water, Inc. executives with fraudulently inflating its revenues, beginning with the company’s first financial report after it went public.

The SEC alleges that former Basin Water chief executive officer Peter L. Jensen and former chief financial officer Thomas C. Tekulve, Jr. improperly recognized revenue to disguise the company’s true financial performance in its 2006 and 2007 quarterly and annual reports. The SEC also alleges that Jensen sold and donated his own Basin Water shares before the company’s true financial condition was revealed, reaping millions of dollars in trading profits and tax benefits. Basin Water built, sold, and leased water treatment systems that cleaned contaminated groundwater.

The SEC’s complaint, filed June 24, 2011, alleges that Jensen and Tekulve improperly included revenue from six sales transactions in Basin Water’s financial reports filed with the Commission. The SEC alleges that, depending upon the transaction, the sale was not final; did not have the customer’s required acceptance of the system; allowed the customer to pay nothing until the customer resold the system, even though there was no resale; did not provide enough assurance that the customer would pay for the system; or where the company had not shipped the system. The SEC alleges that as a result Basin Water overstated its 2006 revenues by 13% and its 2007 revenues by 74% and overstated its quarterly 2006 and 2007 revenues by 10% to 161%. The SEC further alleges that, before the company’s true financial condition was revealed, Jensen sold or donated approximately 1.9 million Basin Water shares for over $9.1 million in trading profits and tax deductions.

In February 2009, Basin Water restated its financial results. In July 2009, the Rancho Cucamonga, Calif.-based company declared Chapter 11 bankruptcy and is now defunct.


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Tuesday, June 28, 2011

Gary Foster, a former vice president in Citigroup, Charged with Bank Fraud for Embezzling More Than $19 Million


Source- http://www.fbi.gov/newyork/press-releases/2011/former-citigroup-vice-president-charged-with-bank-fraud-for-embezzling-more-than-19-million

Gary Foster, a former vice president in Citigroup, Inc.’s treasury finance department has been arrested on bank fraud charges arising from his embezzlement of more than $19 million. Foster was apprehended at John F. Kennedy International Airport Sunday morning when he arrived on a flight from Bangkok.1

The defendant’s initial appearance is scheduled this afternoon before United States Magistrate Judge Ramon E. Reyes, Jr. at the United States Courthouse, 225 Cadman Plaza East, Brooklyn, New York.

The charges and arrest were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and Janice K. Fedarcyk, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office.

According to the complaint, Foster transferred money from various Citigroup accounts to Citigroup’s cash account and then to his personal account at a different bank. Between July 2010 and December 2010, he allegedly caused approximately $900,000 to be moved from Citigroup’s interest expense account and approximately $14.4 million from Citigroup’s debt adjustment account to the bank’s cash account, and then caused the money to be wired out of Citigroup’s cash account to his personal account at another bank in eight separate wire transfers. The complaint further charges that Foster caused a fraudulent contract or deal number to be placed in the reference line of the wire transfer instructions to create the appearance that the transfers were in support of an existing contract.

“The defendant allegedly used his knowledge of bank operations to commit the ultimate inside job. We are committed to ensuring the integrity of the banking system and to prosecuting those who would undermine it for their personal gain,” stated United States Attorney Lynch. Ms. Lynch expressed her appreciation to Citigroup, which brought this matter to the attention of the FBI and the U.S. Attorney’s Office.

“The egregious behavior of those who would exploit our banking system for personal and criminal gain will not be tolerated. We remain committed to investigating and apprehending those who cheat the system,” said FBI Assistant Director-in-Charge Fedarcyk.

If convicted, the defendant faces a maximum sentence of 30 years’ imprisonment on the bank fraud charges.


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Saturday, June 25, 2011

Former Rothstein Rosenfeldt & Adler Employee Pleads Guilty to Conspiracy to Commit Wire Fraud in Connection with Ponzi Scheme


Source- http://www.fbi.gov/miami/press-releases/2011/former-rothstein-rosenfeldt-adler-employee-pleads-guilty-to-conspiracy-to-commit-wire-fraud-in-connection-with-ponzi-scheme

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, and Jose A. Gonzalez, Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division (IRS-CID), announce that Curtis Renie, 38, of Ft. Lauderdale, pled guilty today in Ft. Lauderdale to conspiracy to commit wire fraud, in violation of Title 18, United States Code, Section 371.

Sentencing is scheduled for August 26, 2011 at 1:15 p.m. before U.S. District Court Judge William P. Dimitrouleas. At sentencing, Renie, the chief of information technology at the former Fort Lauderdale law firm of Rothstein Rosenfeldt and Adler, P.A. (RRA), faces a maximum statutory sentence of up to five years in prison.

According to the charging documents and statements made in court during the plea, Renie and a co-defendant created a fictitious web page copying the legitimate web page of TD Bank. At Rothstein’s direction, Renie and his co-defendant posted false account balances on the fictitious web page to make it appear as if the accounts were well-funded. On one occasion, the defendants modified the phony TD Bank website to reflect that RRA held between $300 million and $1.1 billion on deposit at TD Bank. In fact, however, no such funds were in the accounts. The false account balances were shown to investors to induce them to invest into the fraudulent investment scheme.


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Thursday, June 23, 2011

Morgan Keegan & Company to Pay $200 Million to Settle Fraud Charges Related to Subprime Mortgage-Backed Securities


Source- http://www.sec.gov/news/press/2011/2011-132.htm

Washington, D.C., June 22, 2011 – The Securities and Exchange Commission, state regulators, and the Financial Industry Regulatory Authority (FINRA) announced today that Morgan Keegan & Company and Morgan Asset Management have agreed to pay $200 million to settle fraud charges related to subprime mortgage-backed securities. Two Morgan Keegan employees also agreed to pay penalties for their alleged misconduct, including one who is now barred from the securities industry.

The Memphis-based firms, former portfolio manager James C. Kelsoe Jr., and comptroller Joseph Thompson Weller were accused in an administrative proceeding last year of causing the false valuation of subprime mortgage-backed securities in five funds managed by Morgan Asset Management from January 2007 to July 2007. The SEC’s order issued today in settling the charges also finds that Morgan Keegan failed to employ reasonable pricing procedures and consequently did not calculate accurate “net asset values” for the funds. Morgan Keegan nevertheless published the inaccurate daily NAVs and sold shares to investors based on the inflated prices.

The SEC brought its enforcement action in coordination with FINRA and a task force of state regulators from Alabama, Kentucky, Mississippi, Tennessee and South Carolina.

“The falsification of fund values misrepresented critical information exactly when investors needed it most – when the subprime mortgage meltdown was impacting the funds,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Such misconduct does grievous harm to investors.”

William Hicks, Associate Director for the SEC’s Atlanta Regional Office, added, “This enforcement action makes clear that the SEC will deal firmly with those who abuse their responsibility to assign accurate values to securities or other assets held by funds.”

The SEC’s order finds that Kelsoe instructed Morgan Keegan’s fund accounting department to make arbitrary “price adjustments” to the fair values of certain portfolio securities. The price adjustments ignored lower values for those same securities provided by outside broker-dealers as part of the pricing process, and often lacked a reasonable basis. In some instances, when price information was received that was substantially lower than current portfolio values, fund accounting personnel acted at the direction of Kelsoe and lowered values of bonds over a period of days in a series of pre-planned reductions to values at or closer to the price confirmations. As a result, during the interim days, the Morgan Keegan did not price those bonds at their current fair value.

The SEC’s order further finds that Kelsoe screened and influenced the price confirmations obtained from at least one broker-dealer. Among other things, the broker-dealer was induced to provide interim price confirmations that were lower than the values at which the funds were valuing certain bonds, but higher than the initial confirmations that the broker-dealer had intended to provide. The interim price confirmations enabled the funds to avoid marking down the value of securities to reflect current fair value. In some instances, Kelsoe induced the broker-dealer to withhold price confirmations, where those price confirmations would have been significantly lower than the funds’ current valuations of the relevant bonds.

According to the SEC’s order, through his actions Kelsoe fraudulently prevented a reduction in the NAVs of the funds that should otherwise have occurred as a result of the deterioration in the subprime securities market in 2007. His misconduct occurred in the context of a nearly complete failure by Morgan Keegan to employ the fair valuation policies and procedures adopted by the funds’ boards of directors to fair value the funds’ portfolio securities.

Under the settlement, Morgan Keegan is required to pay $25 million in disgorgement and interest and a $75 million penalty to the SEC to be placed into a Fair Fund for the benefit of investors harmed by the violations. Morgan Keegan will pay $100 million into a state fund that also will be distributed to investors. The firms are additionally required to abstain from involvement in valuing fair valued securities on behalf of investment companies for three years. Kelsoe agreed to pay $500,000 in penalties and be barred from the securities industry by the SEC, and Weller agreed to pay a penalty of $50,000.


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Monday, June 20, 2011

Catherine Kissick a Former Colonial Bank Senior Vice President, Sentenced to 8 Years in Prison for Fraud Scheme


Source- http://www.justice.gov/opa/pr/2011/June/11-crm-794.html

WASHINGTON – A former senior vice president and head of Colonial Bank’s Mortgage Warehouse Lending Division was sentenced today to eight years in prison for her role in a more than $2.9 billion fraud scheme that contributed to the failures of Colonial Bank and Taylor, Bean & Whitaker (TBW). Colonial Bank was one of the 25 largest banks in the United States and TBW was one of the largest privately-held mortgage lending companies in the United States in 2009.

Catherine Kissick was sentenced today by U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.

Kissick, 50, of Orlando, Fla., pleaded guilty in March 2011 to one count of conspiracy to commit bank, wire and securities fraud. Co-conspirator Teresa Kelly, a former operations supervisor at Colonial Bank who reported to Kissick, was also sentenced today by Judge Brinkema to three months in prison. Kelly, 35, of Ocoee, Fla., pleaded guilty in March 2011 to one count of conspiracy to commit bank, wire and securities fraud. Kissick and Kelly both admitted to conspiring with Lee Bentley Farkas, the former chairman of TBW, and others, to fraudulently obtain funding for TBW to cover expenses related to operations and servicing payments owed to third-party purchasers of loans and/or mortgage-backed securities.

Farkas was convicted on April 19, 2011, on 14 counts of fraud for his role in masterminding the scheme, which was one of the largest bank frauds in the country. Farkas is scheduled to be sentenced on June 27, 2011. The Securities and Exchange Commission (SEC) has civil actions pending against Farkas and Kissick in the Eastern District of Virginia.

Co-conspirators Paul Allen, the former chief executive officer of TBW; Raymond Bowman, the former President of TBW; Desiree Brown, the former Treasurer of TBW; and Sean Ragland, a former senior financial analyst at TBW, have also pleaded guilty for their participation in the scheme. Earlier this month, Brown and Bowman were sentenced to six years in prison and 30 months in prison, respectively.

“As a senior executive at Colonial Bank, Catherine Kissick helped execute one of the largest bank frauds in history,” said Assistant Attorney General Breuer. “For years, she used her position within the bank to buy hundreds of millions of dollars in worthless assets from TBW, deceiving shareholders, investors and regulators. If she had refused to participate in the fraud, Lee Farkas’ scheme could have been stopped dead in its tracks. Ms. Kissick ultimately cooperated with the government, and that assistance is reflected in today’s sentence. But she, like her co-conspirators, will pay for her crimes with substantial time in prison.”

“Lee Farkas pulled off one of history’s largest bank frauds because he had people inside Colonial Bank with the power to do it and hide it,” said U.S. Attorney MacBride. “Without help from Catherine Kissick – a high-level executive at one of the nation’s top regional banks – the fraud scheme might have been discovered in its infancy. Her conviction and sentence should be a cautionary tale to other financial executives who may be tempted to bend the rules for favored clients.”

According to court documents and information presented at trial, Kissick and Kelly participated in the scheme from 2002 through August 2009. The fraud scheme caused Colonial Bank and Colonial BancGroup to purchase tens of millions of dollars of worthless assets, caused Colonial BancGroup to report false information in its financial statements, and artificially inflated the value of TBW’s mortgage servicing rights.

According to court documents and information presented at trial, TBW began running overdrafts in its master bank account at Colonial Bank because of TBW’s inability to meet its operating expenses, which included payroll, servicing payments owed to third-party purchasers of loans and/or mortgage-backed securities and other obligations. In or about 2002, Farkas, Kissick, Kelly and other co-conspirators engaged in a series of fraudulent actions to cover up the overdrafts, first by sweeping overnight money from one TBW account with excess funds into another, and later through the fictitious “sales” of mortgage loans to Colonial Bank, a fraud scheme the conspirators dubbed “Plan B.” The conspirators accomplished Plan B by selling Colonial Bank mortgage loans that did not exist or that TBW had already committed or sold to other third-party investors.

As Plan B evolved, co-conspirators at TBW also caused TBW to engage in sham sales of groups of mortgage loans, known as “pools,” to Colonial Bank that other entities already owned. As a result, false information was entered on Colonial Bank’s books and records, giving the appearance that the bank owned interests in legitimate pools of mortgage loans, when in fact the pools had no value and could not be securitized or sold. According to court documents, Kissick played a leadership role in the sweeping and Plan B portions of the fraud scheme and directed Kelly’s activities in the scheme.

Additionally, the co-conspirators at TBW caused TBW to misappropriate more than $1.5 billion in collateral from Ocala Funding LLC, a mortgage lending facility owned by TBW. The misappropriation caused Colonial Bank and the Federal Home Loan Mortgage Corporation (Freddie Mac) to falsely believe that they each had an undivided ownership interest in thousands of the same loans worth hundreds of millions of dollars. Kissick and Kelly did not participate in the Ocala Funding misappropriations.

According to court documents, the fraud scheme also included an effort by certain conspirators in the fall of 2008 to obtain $570 million in taxpayer funding through the Capital Purchase Program (CPP), a sub-program of the U.S. Treasury Department’s TARP. In connection with the application, Colonial BancGroup submitted financial data and filings that included materially false information related to mortgage loan and securities assets held by Colonial Bank as a result of the fraudulent activity at TBW. Colonial BancGroup never received the TARP funding. According to court documents, Kissick knew that Colonial BancGroup’s TARP application relied upon false bank financial data; however, Kelly was not aware of this aspect of the fraud scheme.

In August 2009, the Alabama State Banking Department, Colonial Bank’s regulator, seized the bank and appointed the FDIC as receiver. Colonial BancGroup also filed for bankruptcy in August 2009.

“As a senior bank official of Colonial Bank, Catherine Kissick had a fiduciary duty to speak up and report fraud but instead played an active role in perpetrating and concealing this large-scale fraud, including attempting to deceive the federal government and steal over $550 million from TARP,” said Acting Special Inspector General for the TARP Romero. “SIGTARP and its partners in the Financial Fraud Enforcement Task Force skillfully discovered the fraud and prevented the loss of significant taxpayer funds. SIGTARP will continue to vigorously investigate and prosecute persons who commit fraud or attempt to do so in connection with any program implemented under TARP, regardless of whether such person receives TARP funds.”

“This was a complex investigation that required careful efforts of investigators, forensic accountants and analysts poring through thousands of pages of complicated mortgage and lending documents,” said Assistant Director in Charge McJunkin. “Today’s result is a testament to the hard work and close cooperation of our law enforcement partners. Together we are committed to ensuring the integrity of our banking and mortgage systems.”

“We will continue to work side-by-side with our partners to protect the American dream and the American taxpayers and ensure that criminals who try to enrich themselves through fraud schemes are brought to justice,” said Deputy Inspector General Stephens of HUD.

“ The FDIC Office of Inspector General is pleased to join our law enforcement colleagues in defending the integrity of the financial services industry,” said FDIC Inspector General Rymer. “We are particularly concerned in cases like this one where fraudulent activities involving employees of Colonial Bank and officials of Taylor Bean and Whitaker contributed to the failure of Colonial Bank, resulting in a $3.8 billion loss to the Deposit Insurance Fund. We are committed to continuing our investigations of such criminal misconduct to help maintain the safety and soundness of the nation’s financial institutions and the viability of the fund.”

“This sentence sends a strong message to individuals who would try to defraud Freddie Mac and American taxpayers, who have invested $64.2 billion in Freddie Mac to date,” said Inspector General Linick of the FHFA-OIG. “FHFA-OIG looks forward to future cooperative efforts with law enforcement partners to combat fraud against FHFA, Freddie Mac, Fannie Mae, and the Federal Home Loan Banks.”


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Saturday, June 18, 2011

A federal Court has Permanently Barred HedgeLender LLC with Offices in Pennsylvania and Virginia from Promoting Stock-Loan Tax Scheme


Source- http://www.justice.gov/opa/pr/2011/June/11-tax-780.html

WASHINGTON – A federal court has permanently barred HedgeLender LLC from promoting a stock-loan tax scheme, the Justice Department announced today. According to court findings, HedgeLender, which maintained offices in Philadelphia and Reston, Va., promoted a scheme purportedly allowing owners of appreciated stock to obtain cash through purported loans without reporting or paying tax on capital gains.

In entering a permanent injunction order against the firm, Judge T.S. Ellis III of the U.S. District Court for the Eastern District of Virginia found that HedgeLender knowingly made false statements when it told potential customers that these “HedgeLoan” transactions were true loans secured by the customers’ stock. In reality, the court found, the stock was sold immediately, and the funds provided to the customers were sales proceeds, not loan proceeds, and therefore subject to federal income tax on capital gains at the time of receipt. According to the court, HedgeLender caused the sale of more than $268 million in securities through the HedgeLoan scheme, and it promoted the program even after the U.S. Securities and Exchange Commission sued two of its owners, who agreed to stop promoting a similar stock-loan product.

The order announced today is the latest in a series of federal court decisions finding that purported stock-loan transactions like the HedgeLoan scheme are actually sales and not loans. In November 2009, a California federal court enjoined the developer of a similar scheme, the Derivium 90 percent loan program. The government complaint against HedgeLender alsonamed two alleged owners of HedgeLender, Daniel Stafford and Fred R. Wahler, Jr., as well as William Chapman and two companies he allegedly owned, Alexander Capital Markets LLC and Alexander Financial LLC. All five of those defendants previously agreed to permanent injunctions without admitting the allegations in the complaint.


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Wednesday, June 15, 2011

Christopher Pettengill Charged in Connection with Trevor Cook Ponzi Scheme


Source- http://www.fbi.gov/minneapolis/press-releases/2011/plymouth-man-charged-in-connection-with-trevor-cook-ponzi-scheme

MINNEAPOLIS—Earlier today in federal court, a 54-year-old Plymouth man was charged, via an Information, with lending credibility to and ultimately persuading others to invest in a multi-million-dollar Ponzi scheme orchestrated by Trevor Cook. Christopher Pettengill was specifically charged with one count of securities fraud, one count of conspiracy to commit wire fraud, and one count of money laundering.

Allegedly, from February through September of 2008, Pettengill knowingly concealed information from investors concerning the foreign currency program sold by Pettengill, Cook, and others called the Oxford Entities Currency Program. While concealing that vital information, Pettengill allegedly continued to secure millions of dollars in investment assets from investors while assuring them that the investments involved little or no risk. In addition, Pettengill allegedly conducted numerous wire transfers during the course of the conspiracy, and on September 3, 2008, he allegedly made a credit card payment of $11,369.19, which was derived from the proceeds of the securities fraud.

If convicted, Pettengill faces a potential maximum penalty of ten years in prison on the money laundering charge, five years for securities fraud, and five years for conspiracy to commit wire fraud. All sentences will be determined by a federal district court judge. In August of 2010, Cook was sentenced to 300 months in federal prison for orchestrating the scam. On March 22, 2011, co-defendant Jon Jason Greco was charged with two counts of making false statements to federal agents in relation to the case.


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Tuesday, June 14, 2011

Zvi Goffer, Emanuel Goffer and Michael Kimelman Found Guilty in Manhattan Federal Court of Insider Trading Crimes


Source- http://www.fbi.gov/newyork/press-releases/2011/three-wall-street-professionals-found-guilty-in-manhattan-federal-court-of-insider-trading-crimes

PREET BHARARA, the United States Attorney for the Southern District of New York, announced that ZVI GOFFER, who worked at the Schottenfeld Group LLC and Incremental Capital; EMANUEL GOFFER, who worked at Spectrum Trading LLC and Incremental Capital; and MICHAEL KIMELMAN, who worked with Incremental Capital, were found guilty today by a jury in Manhattan federal court of conspiracy and securities fraud crimes in connection with their participation in an insider trading ring comprised of Wall Street professionals and attorneys. The GOFFER brothers and KIMELMAN were convicted after a three-week trial presided over by U.S. District Judge RICHARD J. SULLIVAN.

Manhattan U.S. Attorney PREET BHARARA stated: “Zvi Goffer may have had a reputation in the hedge fund world for being ubiquitous, but today he, along with his brother Emanuel and Michael Kimelman, discovered they are not above the law. Since this case was first brought by this office, our prosecutions have been responsible for dismantling elaborate networks of corrupt executives who gamed the system, exploited their access to proprietary information, shirked their ethical responsibilities, and violated the law with impunity. With today’s guilty verdicts, each and every one of the defendants originally arrested in the Galleon insider trading investigation now stands convicted. And we will continue to work tirelessly with our partners at the FBI to root out corporate corruption on Wall Street and to hold privileged professionals who gallop over the line accountable for their actions.”

According to the Superseding Indictment filed in Manhattan federal court, other court documents, and statements made during related court proceedings:

The defendants, along with their co-conspirators, including JASON GOLDFARB, who was an attorney in New York, New York; ARTHUR CUTILLO and BRIEN SANTARLAS, who were attorneys at the law firm of Ropes & Gray LLP in New York, New York; CRAIG DRIMAL, who worked in the office of the now-defunct Galleon Group (“Galleon”), but was not employed by Galleon; and DAVID PLATE, who worked as a proprietary trader at The Schottenfeld Group, operated an insider trading network through which ZVI GOFFER obtained, revealed, and traded on material, nonpublic information (the "Inside Information") regarding mergers and acquisitions of public companies.

ZVI GOFFER and others paid sources, including CUTILLO and SANTARLAS, in exchange for Inside Information. In violation of their duties of confidentiality to Ropes & Gray and its clients, CUTILLO and SANTARLAS provided Inside Information about several mergers and acquisitions of public companies for which Ropes & Gray was providing legal services prior to the public announcements of the deals, as well as other information that they learned in the course of their employment at the law firm. EMANUEL GOFFER and MICHAEL KIMELMAN, among others, received this Inside Information. For example, CUTILLO and SANTARLAS received cash payments for providing Inside Information concerning the acquisition of 3Com Corporation and Axcan Pharma, Inc., to GOLDFARB, who passed the Inside Information to ZVI GOFFER. GOFFER subsequently passed the Inside Information concerning 3Com to others, including EMANUEL GOFFER and MICHAEL KIMELMAN, who also earned profits trading on the information.

These defendants, along with their co-conspirators, DRIMAL and PLATE, traded hundreds of thousands of shares of stock based on the Inside Information and collectively earned millions of dollars in profits for themselves and their firms.

ZVI GOFFER, 34, of New York, New York, was convicted of two counts of conspiracy to commit securities fraud and 12 counts of securities fraud. EMANUEL GOFFER, 32, of New York, New York and MICHAEL KIMELMAN, 40, of Larchmont, New York, were each convicted of one count of conspiracy to commit securities fraud and two counts of securities fraud.

Each of the conspiracy counts carries a maximum sentence of five years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million or twice the gross gain or loss from the offense.

ZVI GOFFER is scheduled to be sentenced by Judge SULLIVAN on September, 21, 2011, at 2:00 p.m.

EMANUEL GOFFER is scheduled to be sentenced by Judge SULLIVAN on October 7, 2011, at 10:00 a.m.

MICHAEL KIMELMAN is scheduled to be sentenced by Judge SULLIVAN on October 7, 2011, at 2:00 p.m.

GOLDFARB, 32 of New York, New York; CUTILLO, 34, of Ridgewood, New Jersey; DRIMAL, 55, of Weston, Connecticut; PLATE, 36, of New York, New York; SANTARLAS, 34, of Hoboken, New Jersey; and SHANKAR, 36, have all previously pled guilty to conspiracy and securities fraud charges.


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Monday, June 13, 2011

Former Treasurer Desiree Brown and President Raymond Bowman of Taylor, Bean & Whitaker Each Sentenced to Prison for Fraud Scheme


Source- http://www.justice.gov/opa/pr/2011/June/11-crm-761.html

WASHINGTON – The former treasurer and the former president of Taylor, Bean & Whitaker (TBW) were sentenced today to 72 months in prison and 30 months in prison, respectively, for their roles in a more than $2.9 billion fraud scheme that contributed to the failures of TBW and Colonial Bank. TBW was one of the largest privately-held mortgage lending companies in the United States in 2009.

Desiree Brown, the former treasurer of TBW, and Raymond Bowman, the former president of TBW, were each sentenced today by U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia. The sentences were announced by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Acting Special Inspector General Christy Romero for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; Michael P. Stephens, Acting Inspector General of the Department of Housing and Urban Development (HUD-OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA-OIG); and Victor S. O. Song, Chief of the Internal Revenue Service-Criminal Investigation (IRS-CI).

Brown, 45, of Hernando, Fla., pleaded guilty in February 2011 to one count of conspiracy to commit bank, wire and securities fraud. Bowman, 45, of Braselton, Ga., pleaded guilty in March 2011 to one count of conspiracy to commit bank, wire and securities fraud and one count of making false statements to federal agents. Both admitted to conspiring with Lee Bentley Farkas, the former chairman of TBW, and others, to fraudulently obtain funding for TBW to cover expenses related to operations and servicing payments owed to third-party purchasers of loans and/or mortgage-backed securities.

Farkas was convicted on April 19, 2011, on 14 counts of fraud for his role in masterminding the scheme, which was one of the largest bank frauds in the country. Farkas is scheduled to be sentenced on June 27, 2011. The Securities and Exchange Commission (SEC) has a civil action pending against Farkas in the Eastern District of Virginia.

Co-conspirators Paul Allen, the former chief executive officer of TBW; Catherine Kissick, a former senior vice president of Colonial Bank and head of its Mortgage Warehouse Lending Division (MWLD); Teresa Kelly, a former operations supervisor for Colonial Bank’s MWLD; and Sean Ragland, a former senior financial analyst at TBW, have also pleaded guilty for their participation in the scheme.

“Raymond Bowman and Desiree Brown used their positions as high-level executives at TBW to help Lee Farkas perpetrate a sprawling $2.9 billion fraud,” said Assistant Attorney General Breuer. “Their crimes contributed to the failure of Colonial Bank and the collapse of TBW, harming hundreds of shareholders, investors and employees. Today’s prison sentences reflect the seriousness of their conduct, while also recognizing the substantial assistance they ultimately provided to the government in investigating and prosecuting Mr. Farkas and other co-conspirators.”

“These TBW executives helped pull off one of the largest, longest-running bank fraud schemes in history that led to the collapse of Colonial Bank and TBW,” said U.S. Attorney MacBride. “They knew that without their fraud scheme, TBW would fail. They helped Lee Farkas do what they knew was wrong, and now they will pay for their crimes. At the same time, these defendants agreed to cooperate with the government and that cooperation was clearly taken into account in the sentences imposed today.”

According to court documents and information presented at trial, Bowman and Brown participated in the scheme from 2003 through August 2009. The fraud scheme caused Colonial Bank and Colonial BancGroup to purchase tens of millions of dollars of worthless assets, caused Colonial BancGroup to report false information in its financial statements, and artificially inflated the value of TBW’s mortgage servicing rights.

According to court documents and information presented at trial, TBW began running overdrafts in its master bank account at Colonial Bank because of TBW’s inability to meet its operating expenses, which included payroll, servicing payments owed to third-party purchasers of loans and/or mortgage-backed securities and other obligations. In or about 2002, Farkas, Bowman and other co-conspirators, engaged in a series of fraudulent actions to cover up the overdrafts, first by sweeping overnight money from one TBW account with excess funds into another, and later through the fictitious “sales” of mortgage loans to Colonial Bank, a fraud scheme the conspirators dubbed “Plan B.” Brown joined the conspiracy in late 2003 shortly after Plan B commenced. The conspirators accomplished Plan B by selling Colonial Bank mortgage loans that did not exist or that TBW had already committed or sold to other third-party investors.

As Plan B evolved, co-conspirators at TBW also caused TBW to engage in sham sales of groups of mortgage loans, known as “pools,” to Colonial Bank that other entities already owned. As a result, false information was entered on Colonial Bank’s books and records, giving the appearance that the bank owned interests in legitimate pools of mortgage loans, when in fact the pools had no value and could not be securitized or sold. Additionally, the conspirators, including Brown, caused TBW to misappropriate more than $1.5 billion in collateral from Ocala Funding LLC, a mortgage lending facility owned by TBW. The misappropriation caused Colonial Bank and the Federal Home Loan Mortgage Corporation (Freddie Mac) to falsely believe that they each had an undivided ownership interest in thousands of the same loans worth hundreds of millions of dollars.

According to court documents, the fraud scheme also included an effort by certain conspirators in the fall of 2008 to obtain $570 million in taxpayer funding through the Capital Purchase Program (CPP), a sub-program of the U.S. Treasury Department’s TARP. In connection with the application, Colonial BancGroup submitted financial data and filings that included materially false information related to mortgage loan and securities assets held by Colonial Bank as a result of the fraudulent activity at TBW. Colonial BancGroup never received the TARP funding.

In August 2009, the Alabama State Banking Department, Colonial Bank’s regulator, seized the bank and appointed the FDIC as receiver. Colonial BancGroup also filed for bankruptcy in August 2009.


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Sunday, June 12, 2011

Robert David Watson the “developer and owner” of “Alpha One”, Convicted of Securities Fraud


Source- http://www.fbi.gov/houston/press-releases/2011/201calpha-one201d-foreign-currency-trader-convicted-of-securities-fraud

HOUSTON, TX—Robert David Watson, 50, of Spring, Texas, the “developer and owner” of “Alpha One”, a purportedly profitable foreign currency investment model, has been convicted of securities fraud after defrauding investors of millions of dollars, United States Attorney José Angel Moreno announced today.

Indicted in November 2010, Watson pleaded guilty this morning to securities fraud before U.S. District Judge Gray H. Miller. Watson faces up to 20 years in prison and $5 million fine at sentencing which Judge Miller has set for Sept. 23, 2011. The court has permitted Watson to remain on bond pending his sentencing hearing. The United States will seek restitution for the victims of Watson’s fraud at the sentencing.

At today’s hearing, Watson admitted that between 2003 and 2009, he used and employed manipulative and deceptive devices and contrivances in connection with the purchase and sale of investments in a sequence of trading enterprises he formed. He admitted raising tens of millions of dollars from scores of investors and to having exercised custody and control over those funds under the pretense that he used them to trade, including buying and selling foreign currencies.

To persuade people to invest or remain invested in his enterprises, he represented that he sought profits in the foreign currency markets using a model called Alpha One, which he maintained he developed and owned. Among other things, Watson claimed that Alpha One earned high historical returns since 2000, never had a losing month, and earned an annualized return of 23.04% between June 2006 and February 2009.

Watson, however, admitted that he failed to trade as he represented. Rather, he made a minimal number of trades and earned little if any profits. Nevertheless, he caused periodic, sham account statements to be sent to investors via U.S. Mail or wire communication, or to be made available

to investors electronically, that purportedly tracked returns from trading profits, when in fact the statements did not reflect real trades or account values. To make those sham account statements appear legitimate, he prepared phony statements of trading activity and bank accounts, which he provided to the entities’ insiders and employees and showed to inquisitive investors. When investors withdrew supposed returns or their principal investments, he admitted he caused them to be paid with funds raised from other investors, not profits from foreign currency trades. Although he did minimal trading, Watson paid himself lucratively, receiving hundreds of thousands of dollars annually during the scheme.


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Saturday, June 11, 2011

Adley H. Abdulwahab, 35, of Houston, was convicted by a federal jury today for his role in a $100 million fraud scheme with more than 800 victims across the United States and Canada.


Source- http://www.justice.gov/opa/pr/2011/June/11-crm-765.html

WASHINGTON – Adley H. Abdulwahab, 35, of Houston, was convicted by a federal jury today for his role in a $100 million fraud scheme with more than 800 victims across the United States and Canada.

The conviction was announced today by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division.

“Today’s quick verdict found Mr. Abdulwahab guilty of a $100 million fraud and stealing the life savings of elderly retirees and hundreds of others who have seen everything they worked years for disappear,” said U.S. Attorney MacBride. “This case, involving victims in dozens of states, clearly demonstrates that a national fraud case can have real implications to everyday people. That is why we created the Virginia Financial and Securities Fraud Task Force last year to go after national cases that impact ordinary citizens on Main Street as well as Wall Street.”

“Mr. Abdulwahab participated in a $100 million fraud scheme, cheating more than 800 victims across the United States and Canada,” said Assistant Attorney General Breuer. “While lying to investors about his education and criminal history, he was off buying fancy cars with their money. Today, a jury let him know that financial crime has consequences, and that investment fraud will not be tolerated.”

On Sept. 7, 2010, a federal grand jury returned an 18-count indictment against Abdulwahab and two other principals of A&O Resource Management Ltd. and various related entities that acquired and marketed life settlements to investors. Today, Abdulwahab was convicted on all counts, including: one count of conspiracy to commit mail fraud, five counts of mail fraud, one count of conspiracy to commit money laundering, five counts of money laundering and three counts of securities fraud. The Court will set the sentencing at a later date. At sentencing, Abdulwahab faces up to 20 years in prison on each count except the securities fraud counts, on which he faces up to five years in prison.

Abdulwahab’s co-defendant, Christian Allmendinger, 39, was convicted by a jury on March 23, 2011. Allmendinger will be sentenced on Aug. 14, 2011. Evidence at Abdulwahab’s trial established that during his involvement with the company, A&O obtained approximately $100 million from approximately 800 investors, many of whom were elderly.

According to court records and evidence at trial, Abdulwahab was part owner of A&O and was active in the day-to-day management of the companies, as well as in the marketing of A&O life settlement investment products to investors. He and others engaged in a scheme to defraud investors by making misrepresentations about such things as A&O’s prior success, its size and office locations, its number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds. Abdulwahab also lied to investors about having a college degree in Economics, as well as failing to disclose to investors that he previously pleaded guilty to a felony forgery of a commercial instrument in a state court in Texas. Evidence at trial showed that Abdulwahab routinely used investor funds for personal enrichment, including a lavish home, a Ferrari and a BMW.

When state regulators began to scrutinize A&O’s investment products, Abdulwahab and others manufactured a sham sales transaction to “sell” A&O to a shell corporate entity named Blue Dymond and later to another shell corporate entity named Physician’s Trust. However, A&O and Physician’s Trust was still secretly controlled by Abdulwahab and his co-conspirators.

Five individuals have pleaded guilty in connection with the A&O fraud scheme: David White, the former President of A&O; Brent Oncale, former vice president of A&O; Russell E. Mackert, an attorney for A&O; Eric M. Kurz, a wholesaler of A&O investment products; and Tomme Bromseth, an A&O sales agent in the Richmond area.


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Thursday, June 9, 2011

SEC Suspends Trading in 17 Companies in Proactive Effort to Combat Microcap Stock Fraud


Source- http://www.sec.gov/news/press/2011/2011-120.htm

Washington, D.C., June 7, 2011 — The Securities and Exchange Commission today suspended trading in 17 microcap stocks because of questions about the adequacy and accuracy of publicly available information about the companies, which trade in the over-the-counter (OTC) market.

The trading suspensions spring from a joint effort by SEC regional offices in Los Angeles, Miami, New York, and Philadelphia; its Office of Market Intelligence; and its new Microcap Fraud Working Group, which uses a coordinated, proactive approach to detecting and deterring fraud involving microcap securities. The trading suspensions follow a similar suspension last week against Uniontown Energy Inc. (UTOG), based in Henderson, Nev., and Vancouver, Canada.

“They may be called ‘penny stocks,’ but victims of microcap fraud can suffer devastating losses,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The SEC’s new Microcap Fraud Working Group is targeting the insiders and promoters, as well as the transfer agents, attorneys, auditors, broker-dealers, and other “gatekeepers” who flourish in the shadows of this less-than-transparent market.”

George Canellos, Director of the SEC’s New York Regional Office, added, “The investing public does not have accurate or adequate information about these securities to use in making informed investment decisions. Nonetheless, stock-touting websites, twitter users, and often anonymous individuals posting to Internet message boards have hyped many of these companies, and these promotional campaigns have been followed by spikes in share price and trading volume.”

The 17 companies and their ticker symbols are:


American Pacific Rim Commerce Group (APRM), based in Citra, Fla.
Anywhere MD, Inc. (ANWM), based in Altascadero, Calif.
Calypso Wireless Inc. (CLYW), based in Houston.
Cascadia Investments, Inc. (CDIV), based in Tacoma, Wash.
CytoGenix Inc. (CYGX), based in Houston.
Emerging Healthcare Solutions Inc. (EHSI), based in Houston.
Evolution Solar Corp. (EVSO), based in The Woodlands, Texas.
Global Resource Corp. (GBRC), based in Morrisville, N.C.
Go Solar USA Inc. (GSLO), based in New Orleans.
Kore Nutrition Inc. (KORE), based in Henderson, Nev.
Laidlaw Energy Group Inc. (LLEG), based in New York City.
Mind Technologies Inc. (METK), based in Cardiff, Calif.
Montvale Technologies Inc. (IVVI), based in Montvale, N.J.
MSGI Security Solutions Inc. (MSGI), based in New York City.
Prime Star Group Inc. (PSGI), based in Las Vegas, Nev.
Solar Park Initiatives Inc. (SOPV), based in Ponte Verde Beach, Fla.
United States Oil & Gas Corp. (USOG), based in Austin, Texas.

Some examples of the promotions are as follows:

Calypso Wireless Inc. has not filed periodic reports since February 2008, when it filed a report for the period ending Sept. 30, 2007. Despite that, the company’s share price rose from 4 cents on Sept. 21, 2010 to an intra-day high of 17 cents on Sept. 24, 2010. Over the same period, trading volume jumped to nearly six million shares, up from 376,000 shares. On Sept. 24, 2010, a stock-promoting website encouraged investors to continue buying Calypso Wireless shares (PINK: CLYW, CLYW message board), stating, in part, “Over the week, CLYW stock has been running wild … This CLYW stock rush happened just like that, on no company’s news and on old, well known SEC filings, done for the investment community.”

Shares in Kore Nutrition Inc. began to spike on Aug. 31, 2010, following the release of a company-paid research report setting a target price of $10.50. Moreover, on Sept. 1 and 8, 2010, the company issued press releases announcing new distribution agreements to market its energy drinks. The research report and distribution agreement claims were reiterated on numerous stock-promotion websites, touting Kore Nutrition as a “winner.” Kore Nutrition’s quarterly report for the period ending Sept. 30, 2010, filed with the SEC on Nov. 15, 2010, made no mention of the announced distribution agreements.

Montvale Technologies Inc. announced the dissolution of the company on Feb. 12, 2010, and last filed financial statements with the SEC for the third quarter of 2009. The company’s shares have nonetheless continued to trade, and to be promoted. On Dec. 22, 2010, a website recommended a “closer look” at Montvale Technologies, claiming it “has the potential to do very well in the short term.” That day, the share price rose 75 percent from 12 cents to 20 cents, and trading volume soared 500 percent over the prior day.

The Microcap Fraud Working Group is a joint initiative of the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations. The Working Group is pursuing a strategic approach to combating microcap fraud by focusing on recidivists and insiders, and on the attorneys, auditors, broker-dealers, transfer agents and other gatekeepers that facilitate a large volume of the fraud in this sector. The Working Group is comprised of staff from the SEC’s headquarters in Washington D.C., each of its 11 regional offices, and from the Office of Market Intelligence, Division of Corporation Finance, Division of Risk, Strategy, and Financial Innovation, Office of General Counsel, Division of Trading and Markets, and the Division of Investment Management.



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