SEC Charges Military Body Armor Supplier and Former Outside Directors With Accounting Fraud

Source- http://www.sec.gov/news/press/2011/2011-52.htm

Washington, D.C., Feb. 28, 2011 – The Securities and Exchange Commission today charged a major supplier of body armor to the U.S. military and law enforcement agencies for engaging in a massive accounting fraud. The agency separately charged three of the company’s former outside directors and audit committee members for their complicity in the scheme.

The SEC alleges that Pompano Beach, Fla.-based DHB Industries (now known as Point Blank Solutions) engaged in pervasive accounting and disclosure fraud through its senior officers and misappropriated company assets to personally benefit the former CEO. This resulted in the filing of materially false and misleading periodic reports to investors. The SEC further alleges that outside directors Jerome Krantz, Cary Chasin, and Gary Nadelman were willfully blind to numerous red flags signaling the accounting fraud, reporting violations, and misappropriation at DHB.

The SEC previously charged former DHB CEO David Brooks as well as two other former DHB senior officers for their roles in the fraud.

"We will not second-guess the good-faith efforts of directors. But in stark contrast, Krantz, Chasin and Nadelman were directors and audit committee members who repeatedly turned a blind eye to warning signs of fraud and other misconduct by company officers," said Robert Khuzami, Director of the SEC's Division of Enforcement.

Eric I. Bustillo, Director of the SEC’s Miami Regional Office, added, “This massive accounting fraud permeated throughout an entire company and was facilitated by the egregious, wholesale failure of the company’s board to act in the face of mounting red flags. As the fraud swirled around them, Krantz, Chasin, and Nadelman ignored the obvious and submitted to the directives and decisions of DHB’s senior management while themselves profiting from sales of the company’s securities.”

The SEC filed two separate complaints in U.S. District Court for the Southern District of Florida against DHB and the former outside directors. According to the SEC’s complaint against Krantz, Chasin, and Nadelman, their willful blindness to red flags allowed senior management to manipulate the company’s reported gross profit, net income, and other key figures in its earnings releases and public filings between 2003 and 2005. The company overstated inventory values, failed to include appropriate charges for obsolete inventory, and falsified journal entries. By ignoring red flags, the three outside directors also facilitated the misconduct by Brooks, who diverted at least $10 million out of the company through fraudulent transactions with a related entity that he controlled. Their willful blindness to red flags additionally facilitated DHB’s improper payment of millions of dollars in personal expenses for Brooks, including luxury cars, jewelry, art, real estate, extravagant vacations, and prostitution services. Despite being confronted with the red flags indicating fraud, Krantz, Chasin, and Nadelman approved or signed DHB’s false and misleading filings.

The SEC’s complaints against DHB, Krantz, Chasin, and Nadelman charge them with violating or aiding and abetting the antifraud, reporting, books and records, and other provisions of the federal securities laws. DHB has agreed to settle with the SEC and agreed to a permanent injunction from future violations. The proposed settlement took into account the remedial measures already taken by the company. The company is currently in bankruptcy and its settlement with the SEC is pending the approval of the bankruptcy court. The SEC seeks injunctive relief, disgorgement of ill-gotten gains, monetary penalties, and officer and director bars against Krantz, Chasin, and Nadelman.

The U.S. Attorney’s Office for the Eastern District of New York previously filed criminal charges against Brooks, Hatfield, and Schlegel based on the same misconduct. On Sept. 14, 2010, a jury convicted Brooks and Hatfield of, among other things, multiple counts of securities fraud, insider trading, and obstruction of justice, including obstructing the SEC’s investigation. Brooks and Hatfield are awaiting sentencing. Schlegel previously pled guilty to criminal charges pursuant to a plea agreement. The SEC’s civil actions against Brooks, Hatfield, and Schlegel are stayed pending the full resolution of the criminal actions.

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Steven B. Rodd Charged with Conspiracy to Commit Mail Fraud, Conspiracy to Sell Unregistered Securities, and Mail Fraud

Source- http://tampa.fbi.gov/dojpressrel/pressrel11/ta022311.htm

ORLANDO, FL—United States Attorney Robert E. O'Neill announces the unsealing of an indictment last week charging Steven B. Rodd (45, Tampa) with conspiracy to commit mail fraud, conspiracy to sell unregistered securities, and mail fraud. If convicted on all counts, Rodd faces a maximum penalty of 25 years in federal prison. The indictment also notifies Rodd that the United States is seeking a money judgment from him in the amount of $936,500, representing the amount of commissions he illegally received from the scheme.

According to the indictment, Rodd was barred from selling securities by the State of Florida in 1998 and again in 2003. Despite these prohibitions, Rodd and his partner allegedly began selling an unregistered security named the Employee Investment Savings Account (EISA) through two companies, the Churchill Financial Group and Oxford Financial. The EISA program was supposedly an investment in TransContinental Airlines, a company owned by Louis J. Pearlman. In reality, the EISA was nothing more than an investment fraud. Together with his business partner, Rodd sold over $32 million worth of the EISA program to over 250 investors living in Pasco, Pinnellas, and Hillsborough Counties from 2005 through 2006. As part of the conspiracy, Rodd would lure elderly investors into Churchill Financial with newspaper and radio advertisements for annuities or certificates of deposit. He would then sell the investors the EISA program. It was also part of the alleged conspiracy for Rodd to conceal from investors his prior securities bars from the State of Florida, a pending investigation of the EISA program, and to lie to investigators about EISA program commissions and records.

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SEC Charges Desiree E. Brown, the former treasurer of Taylor, Bean & Whitaker Mortgage Corp. (TBW), for Role in Securities Fraud and Tarp Scheme

Source- http://www.sec.gov/news/press/2011/2011-49.htm

Washington, D.C., Feb. 24, 2011 — The Securities and Exchange Commission today charged the former treasurer of the one-time largest non-depository mortgage lender in the country with aiding and abetting a $1.5 billion securities fraud scheme and an attempt to scam the U.S. Treasury's Troubled Asset Relief Program (TARP).

The SEC alleges that Desiree E. Brown, the former treasurer of Taylor, Bean & Whitaker Mortgage Corp. (TBW), helped enable the sale of more than $1.5 billion in fictitious and impaired mortgage loans and securities from TBW to Colonial Bank, and caused them to be falsely reported to the investing public as high-quality, liquid assets. Brown also helped cause Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for TARP funds.

The SEC previously charged former TBW chairman and majority owner Lee B. Farkas in June 2010. Farkas also was arrested in June by criminal authorities. In a related action today, Brown pleaded guilty to criminal charges filed by the Department of Justice in the Eastern District of Virginia.

"Brown willingly participated with Farkas in a $1.5 billion fraud on Colonial Bank and its investors," said Lorin L. Reisner, Deputy Director of the SEC's Division of Enforcement. "Brown also aided efforts by Farkas to mislead Colonial Bank and its regulators regarding the bank's application for TARP funds."

According to the SEC's complaint filed in U.S. District Court for the Eastern District of Virginia, Brown and Farkas perpetrated the fraudulent scheme from March 2002 to August 2009, when Colonial Bank was seized by regulators and Colonial BancGroup and TBW both filed for bankruptcy. TBW was the largest customer of Colonial Bank's Mortgage Warehouse Lending Division (MWLD). Because TBW generally did not have sufficient capital to internally fund the mortgage loans it originated, it relied on financing arrangements primarily through Colonial Bank's MWLD to fund such mortgage loans.

The SEC alleges that when TBW began to experience liquidity problems and overdrew its then-limited warehouse line of credit with Colonial Bank by approximately $15 million each day, Brown and Farkas and an officer of Colonial Bank concealed the overdraws through a pattern of "kiting" in which certain debits were not entered until after credits due for the following day were entered. In order to conceal this initial fraudulent conduct, Brown, Farkas and the Colonial Bank officer created and submitted fictitious loan information to Colonial Bank and created fictitious mortgage-backed securities assembled from the fraudulent loans. By the end of 2007, the scheme consisted of approximately $500 million in fake residential mortgage loans and approximately $1 billion in severely impaired residential mortgage loans and securities. These fictitious and impaired loans were misrepresented as high-quality assets on Colonial BancGroup's financial statements.

The SEC alleges that in addition to causing Colonial BancGroup to misrepresent its assets, Brown assisted Farkas in causing BancGroup to misstate publicly that it had obtained commitments for a $300 million capital infusion that would qualify Colonial Bank for TARP funding. In fact, Farkas and Brown never secured financing or sufficient investors to fund the capital infusion. When BancGroup issued a press release announcing it had obtained preliminary approval to receive $550 million in TARP funds, its stock price jumped 54 percent - its largest one-day price increase since 1983. When BancGroup and TBW later mutually announced the termination of their stock purchase agreement and signaled the end of Colonial Bank's pursuit of TARP funds, BancGroup's stock declined 20 percent.

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Franklin C. Fisher, Jr., a Former CEO of Publicly Traded Company Pleads Guilty to Obstruction of Justice

Source- http://washingtondc.fbi.gov/dojpressrel/pressrel11/wfo022211.htm

WASHINGTON—Franklin C. Fisher, Jr., 70, an attorney licensed to practice law in Texas, pled guilty today to a charge of obstruction of justice stemming from his conduct during an investigation into allegations of securities fraud, announced Robert D. Okun, the Acting U.S. Attorney in this case, and James W. McJunkin, Assistant Director in Charge of the FBI's Washington Field Office.

Fisher, of Houston, pleaded guilty to a one-count information before Chief Judge Royce C. Lamberth in the U.S. District Court for the District of Columbia. He faces a statutory maximum term of 10 years in prison on the charge. His sentencing has not yet been scheduled. As part of the plea agreement, Fisher agreed to forfeit $390,000.

In connection with the guilty plea and as set forth in the executed Statement of Offense, Fisher acknowledged that from July 2004 through June 2007, he provided consulting services to Aztec Oil & Gas, Inc. Aztec Oil & Gas was publicly traded under the ticker symbol "AZGS" on the Over-the-Counter Bulletin Board. From June 15, 2007 through February 1, 2010, Fisher was Aztec's Chief Executive Officer and Chairman.

Fisher admitted that, from in or about September 2004 through in or about May 2005, he and Shelly S. Singhal, a securities broker from Newport Beach, California and an investment advisor to Aztec Oil & Gas, helped to pay for newsletters recommending the purchase of Aztec Oil & Gas shares. The newsletters contained false and misleading disclaimers, purportedly paid for by "a non-affiliated third party," Bedford Proprietary Trading, LLC. Bedford Proprietary Trading was a conduit used to receive cash payments directly and indirectly from Singhal, Fisher and others to pay for the newsletters recommending the purchase of Aztec Oil & Gas shares. Fisher and Singhal, after the newsletters were disseminated to the investing public, each caused Aztec Oil & Gas shares to be sold to the investing public.

In October 2008, Fisher was interviewed at the United States Attorney's Office for the District of Columbia concerning the involvement by Singhal and Fisher in the Aztec Oil & Gas newsletters. Prior to the interview, Fisher knew from his discussions with Singhal that the Aztec Oil & Gas newsletters for which Fisher had partially paid had not complied with applicable securities regulations. Fisher knew from those discussions, for example, that Singhal had included references to conduit companies, such as Bedford Proprietary Trading, as the source of the payment for the Aztec Oil & Gas newsletters to hide the fact that Singhal and Singhal's firm, SBI USA, were sources of funding for the Aztec Oil & Gas newsletters.

During the interview with FBI agents and prosecutors, Fisher falsely stated, among other things, that Fisher did not recall the connection between Singhal and SBI USA to Bedford Proprietary Trading and did not know the details of the promotional campaign recommending the purchase of Aztec Oil & Gas shares.

In April 2010, Singhal was indicted on three counts for his alleged involvement in a conspiracy and scheme to defraud the investing public through the use of stock manipulation schemes, including a scheme referred to as "scalping." One of the scalping schemes alleged in the indictment involved the promotional campaign related to the Aztec Oil & Gas shares. The indictment charges that Singhal and others fraudulently obtained at least $10 million in proceeds through the scheme to defraud by artificially increasing the demand for shares, through these newsletters, of three companies that they controlled, including Aztec Oil & Gas.

Fisher is the third attorney to plead guilty in connection with this ongoing securities fraud investigation. On November 3, 2009, Robert S. Brown, an attorney from New Rochelle, New York, pleaded guilty to one count of obstruction of justice concerning, among other things, his business dealings with Singhal. Brown's sentencing has not been scheduled. On January 8, 2010, Melissa A. Mahler, an attorney from Rochester, New York, pleaded guilty to one count of making a false statement. Mahler's sentencing has not been scheduled. As part of their plea agreements, Fisher, Brown and Mahler have agreed to cooperate in the investigation.

An indictment is merely an allegation that a defendant has committed a violation of criminal law and is not evidence of guilt. Every defendant is presumed innocent until, and unless, proven guilty in a court of law.

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Securities Attorney and Five Others Indicted for Conspiracy, Wire and Mail Fraud in Stock Manipulation Scheme

Source- http://www.justice.gov/opa/pr/2011/February/11-crm-212.html

WASHINGTON – Six individuals, including a securities attorney, were charged in an indictment unsealed today with defrauding investors in a stock manipulation scheme from 2003 to 2008, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, Deputy Chief Inspector Daniel S. Cortez for the U.S. Postal Inspection Service (USPIS) and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office. In a related action, the U.S. Securities and Exchange Commission (SEC) filed a civil complaint in the Southern District of Florida, Miami division.

The defendants charged in the indictment returned in the Southern District of Florida are: Jonathan Randall Curshen, 46, of Sarasota, Fla.; Michael Simon Krome, 49, a securities attorney from Long Island, N.Y.; Ronald Salazar Morales, aka “Ronny Salazar,” 39, of Costa Rica; Robert Lloyd Weidenbaum, 44, of Miami; and Eric Ariav Weinbaum, 37, and Izhack Zigdon, 47, of Israel. Curshen was arrested this morning in Sarasota, Fla., and made an initial appearance in U.S. District Court in Tampa, Fla. Krome was arrested in Long Island, N.Y., and will make an initial appearance later today in U.S. District Court in Central Islip, N.Y. Weidenbaum was arrested today in Miami and is making his initial appearance in U.S. District Court in Miami at 2 p.m. EST. Zigdon was previously arrested in Germany in October 2010 and the United States is seeking his extradition.

“The indictment unsealed today alleges that the defendants used their access and training to illegally manipulate stock prices for their own advantage,” said Assistant Attorney General Breuer. “Pump and dump schemes like the one alleged in this case leave legitimate investors holding worthless stocks. Anyone who defrauds the investing public in this way – whether you are a securities lawyer, a stock trader, or a simple fraudster – will be held to account.”

According to the indictment, Curshen was the principal behind Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks. The indictment alleges that Weinbaum and Zigdon took control of the outstanding shares of a company called CO2 Tech (ticker CTTD), which traded in the over-the-counter market through listings on Pink Sheets, an inter-dealer electronic quotation and trading system. Weinbaum and Zigdon allegedly obtained the shares by retaining Krome who allegedly employed a method to evade federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free-trading” shares of CO2 Tech that the co-conspirators could not have otherwise legally obtained.

The indictment alleges that the shares were subsequently sold to the general investing public by Weinbaum, Zigdon, Curshen and Salazar, a Sentry Global stock trader, through Sentry Global’s stock trading floor in Costa Rica. According to the indictment, the co-conspirators were able to hide from the investing public the actual financial condition and business operations of the company by evading the registration requirements. The indictment also alleges that Weidenbaum was paid approximately $1 million by Weinbaum and Zigdon to participate in sham stock trades of CO2 Tech to make it appear that there were genuine investors in the market that were buying the shares.

As alleged in the indictment, coordinated trades were often made between the co-conspirators in conjunction with the issuance of false and misleading press releases that were designed to make CO2 Tech appear that it had significant business prospects. According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes. The indictment alleges that these relationships never existed.

After fraudulently “pumping” the market price and demand for CO2 Tech stock through these press releases and coordinated trades, Weinbaum, Zigdon, Curshen and Salazar allegedly “dumped” shares by selling them for large profits to the general investing public in the over-the-counter market through listings on Pink Sheets. These shares were allegedly purchased by unsuspecting investors, including in the Southern District of Florida, and were often rendered virtually worthless.

The defendants are charged with one count of conspiracy to commit securities, mail and wire fraud. Additionally, Weinbaum and Zigdon are charged with three counts of wire fraud, Weidenbaum with two counts of wire fraud and Krome with one count of wire fraud; Curshen and Salazar are charged with two counts of mail fraud, Weinbaum and Weidenbaum with one count of mail fraud; and Krome is charged with one count of violating the securities registration laws and one count of obstruction of justice. The indictment also seeks forfeiture from the defendants.

The conspiracy charge carries a maximum penalty of five years in prison and a $250,000 fine. Each count of wire fraud and mail fraud carries a maximum penalty of 20 years in prison and a $250,000 fine. The securities registration violation carries a maximum penalty of five years in prison and a $10,000 fine, while the obstruction count carries a maximum penalty of 20 years in prison and a $250,000 fine.

In a related civil matter, the SEC charged Curshen, Krome, Salazar, Weinbaum and Zigdon with violations of the Securities Act of 1933 and violations of the Securities Exchange Act of 1934. Weidenbaum is charged with aiding and abetting certain violations by Weinbaum and Zigdon.

An indictment is merely a charge and defendants are presumed innocent until proven guilty.

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Dorothy Samantha Delay-Wilson Indicted by Federal Grand Jury for Fraud

Source- http://anchorage.fbi.gov/dojpressrel/pressrel11/ak021811.htm

ANCHORAGE, AK—United States Attorney Karen Loeffler announced that an Anchorage woman was indicted by a federal grand jury in Anchorage, Alaska, for securities fraud, wire fraud, mail fraud, money laundering, bankruptcy fraud and bank fraud.

The 26-count indictment names Dorothy Samantha Delay-Wilson, 64, of Anchorage, Alaska, as the sole defendant.

According to the indictment, from 1996, to 2009, Delay-Wilson carried out a scheme to defraud numerous individuals and organizations of money by making false representations and promises and by providing false documents to victims. According to the indictment, Delay-Wilson guaranteed investors a high-rate of return and made false claims regarding how she was going to invest the victims' money, making different claims to different victims. She told victims she would invest their money in a global investment fund, European sub-prime loans, and an investment banking service company, when in fact she used the victims' money for her personal expenses and to pay out earlier investors in a classic Ponzi scheme. Delay-Wilson also provided lending entities with fraudulent statements and documents regarding her assets to obtain loans. She also provided false statements in a bankruptcy proceeding regarding her assets.

Assistant U.S. Attorney Andrea ("Aunnie") Steward, who presented the case to the grand jury, indicated that the law provides for a maximum total sentence of 30 years in prison, a fine of $5 million, or both and full restitution to the victims. Under the Federal Sentencing Guidelines, the actual sentence imposed will be based upon the seriousness of the offenses and the prior criminal history of the defendant.

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SEC Charges Seven in Global Warming Pump-and-Dump Scheme

Source- http://www.sec.gov/news/press/2011/2011-46.htm

Washington, D.C., Feb. 18, 2011 — The Securities and Exchange Commission today charged a group of seven individuals who perpetrated a fraudulent pump-and-dump scheme in the stock of a sham company that purported to provide products and services to fight global warming.

The SEC alleges that the group included stock promoters, traders, and a lawyer who wrote a fraudulent opinion letter. The scheme resulted in more than $7 million in illicit profits from sales of stock in CO2 Tech Ltd. at artificially inflated prices. Despite touting impressive business relationships and anti-global warming technology innovations, CO2 Tech did not have any significant assets or operations. The company was purportedly based in London, and its stock prices were quoted in the Pink Sheets.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, the scheme was perpetrated through Red Sea Management Ltd., a Costa Rican asset protection company that laundered millions of dollars in illicit trading proceeds out of the United States on behalf of its clients. The U.S. Department of Justice today announced related criminal charges against six of the individuals.

“This group of illicit stock promoters sought to hide their scheme behind offshore entities, but their misconduct was exposed by the excellent cooperation of law enforcement agencies here and abroad,” said Cheryl Scarboro, Associate Director in the SEC’s Division of Enforcement.

According to the SEC’s complaint, the fraudulent pump-and-dump scheme in CO2 Tech stock occurred from late 2006 to April 2007 through the efforts of the following individuals:
Jonathan R. Curshen, a Sarasota, Fla., resident who founded and led Red Sea.

David C. Ricci and Ronny Morales Salazar of San Jose, Costa Rica, who were Red Sea stock traders.

Ariav “Eric” Weinbaum and Yitzchak Zigdon of Israel, who were Red Sea clients.

Robert L. Weidenbaum of Coral Gables, Fla., a stock promoter who operates a company called CLX & Associates.

Michael S. Krome of Lake Grove, N.Y., a lawyer who allegedly wrote a fraudulent opinion letter.

The SEC’s complaint alleges that CO2 Tech falsely touted business relationships that the company had not formed, including a relationship with the Boeing Company. In fact, there were no communications, correspondence or understandings between CO2 Tech and Boeing.

The SEC alleges that Weinbaum and Zigdon initiated the pump-and-dump of CO2 Tech by utilizing the services of Krome, who issued a fraudulent opinion letter to enable them to have the restrictive legend removed from their CO2 Tech stock certificate. This provided them nearly full control over the freely tradeable shares of CO2 Tech stock. Weinbaum then hired Red Sea to sell massive quantities of CO2 Tech stock to the investing public through its web of nominee brokerage accounts. Zigdon caused the materially false and misleading information about CO2 Tech to be disseminated in press releases and on CO2 Tech’s website.

According to the SEC’s complaint, Weinbaum hired Weidenbaum to redistribute the false information through websites, spam e-mails and fax blasts. Weidenbaum enlisted a group of stock promoters who then executed illegal “matched orders” with Red Sea’s nominee brokerage accounts in order to “jump-start” the market and increase the price of the stock. As a result of the false media campaign and the illegal matched orders, the market price of CO2 Tech stock increased 81 percent increase in one day and trading volume increased 1,573 percent.

The SEC alleges that after Weinbaum hired Red Sea, he directed Red Sea stock traders Ricci and Salazar to sell the stock. Ricci and Salazar placed multiple layered orders to sell CO2 Tech stock – thereby creating the false appearance that the market for the stock was deeper than it actually was. This coordinated misconduct enabled stock sales at artificially inflated prices for profits of more than $7 million at the expense of unsuspecting investors.

The SEC’s complaint alleges that Curshen, Ricci, Salazar, Weinbaum, Zigdon, and Krome violated Section 5(a), (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 thereunder. Weidenbaum is charged with aiding and abetting Weinbaum and Zigdon’s violations of Exchange Act 10(b) and Rule 10b-5. Without admitting or denying the allegations in the complaint, Ricci settled the SEC’s charges by agreeing to an injunction against future violations of these provisions and a penny stock bar.

In the related criminal action, charges brought by the Justice Department’s Criminal Division were unsealed against Curshen, Krome, Salazar, Weidenbaum, Weinbaum, and Zigdon. The defendants are charged in the Southern District of Florida variously with conspiracy to commit securities, mail and wire fraud; wire fraud; mail fraud; violating the securities regulation laws and obstruction of justice.

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Kurt Branham Barton, founder, president, and CEO of Triton Financial, L.L.C., Indicted by Federal Grand Jury in Ponzi Scheme

Source- http://sanantonio.fbi.gov/dojpressrel/pressrel11/sa021611.htm

United States Attorney John E. Murphy announced the return of a federal grand jury indictment in Austin charging a former Austin businessman in connection with a Ponzi scheme which victimized more than 300 individuals and resulted in a total estimated loss to investors of $41 million.

The 39-count indictment, returned late yesterday afternoon, charges 43-year-old Kurt Branham Barton, founder, president, and CEO of Triton Financial, L.L.C., with conspiracy to commit wire fraud, make false statements to secure loans from financial institutions, and money laundering. Barton is also charged with multiple substantive counts including one count of securities fraud, 15 counts of wire fraud, five counts of making a false statement related to the acquisition of loans, and 17 counts of money laundering.

The indictment alleges that between December 2005 and December 2009, Barton devised a scheme to obtain money from investors under false pretenses. Barton allegedly represented to investors that Triton was purchasing properties, businesses, and other assets with their funds when, in fact, he was using their money to satisfy the needs of other ventures and the need to pay quarterly dividends or redemptions to prior investors. According to the indictment, Barton used prominent former National Football League players and Heisman Trophy winners to solicit and encourage additional investors. To conceal his scheme, Barton allegedly presented fabricated and fictitious versions of his E*Trade monthly account statement to financial institutions, commercial lenders, and potential investors.

Upon conviction of all charges, Barton faces up to life in federal prison as well as restitution.

This investigation was conducted by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation. Assistant United States Attorney Mark Lane is prosecuting this case on behalf of the Government.

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Stephen Shea Pleads Guilty in Manhattan Federal Court in Connection with $140 Million Investment Fraud and Stock Manipulation Scheme

Source- http://www.fbi.gov/newyork/press-releases/2011/former-chief-operating-officer-pleads-guilty-in-manhattan-federal-court-in-connection-with-140-million-investment-fraud-and-stock-manipulation-scheme

PREET BHARARA, the United States Attorney for the Southern District of New York, announced today that STEPHEN SHEA, the former chief operating officer at Sky Capital, LLC, has pled guilty in Manhattan federal court in connection with a scheme to defraud investors through two successive securities broker-dealers—The Thornwater Company, L.P. ("Thornwater"), and Sky Capital, LLC.

According to the superseding indictment to which SHEA pled guilty, and statements made during the guilty plea proceedings before U.S. District Judge PAUL A. CROTTY:

From 1998 through 2006, SHEA participated in a scheme with ROSS MANDELL, ADAM HARRINGTON, and others to defraud investors through material misrepresentations and omissions that induced people to invest in private placements and other purported securities investment opportunities. In fact, investor funds were substantially used to enrich the defendants and others; to pay excessive, undisclosed commissions to brokers; and to pay off victims who had lost money through prior purported investment opportunities. In connection with the scheme, brokers, acting primarily from the offices of Thornwater and Sky Capital, LLC, in New York, New York, raised a total of approximately $140 million from investors. MANDELL allegedly controlled the operations of both broker-dealers.

As part of the scheme, brokers at Sky Capital, LLC, manipulated the market price of the stock of two affiliated entities, Sky Capital Holdings Ltd., and Sky Capital Enterprises Inc. (collectively "Sky Capital"). SHEA and others directed the market manipulation of Sky Capital stocks by enforcing a "no-net sales" policy designed to inflate the price of Sky Capital stocks. SHEA, and allegedly MANDELL and HARRINGTON, made undisclosed payments to Sky Capital brokers in exchange for their assistance with this aspect of the scheme.

SHEA, 38, of Brooklyn, New York, pled guilty to conspiracy and securities fraud charges. The conspiracy count carries a maximum sentence of five years in prison, and the securities fraud count carries a maximum sentence of 20 years in prison. SHEA faces a maximum fine of $250,000, or twice the gross gain or loss from the offense on the conspiracy count, and a maximum fine of $5 million on the securities fraud count. SHEA also faces mandatory restitution to the victims of his crimes. The charges against MANDELL and HARRINGTON remain pending and are merely accusations. They are presumed innocent unless and until proven guilty.

Mr. BHARARA praised the investigative work of the Federal Bureau of Investigation. He thanked the U.S. Securities and Exchange Commission for its assistance in this matter.

This case was brought in coordination with President BARACK OBAMA's Financial Fraud Enforcement Task Force, on which Mr. BHARARA serves as a co-chair of the Securities and Commodities Fraud Working Group. President OBAMA established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

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Daniel Spitzer Allegedly Swindled $105 Million from Approximately 400 Victims in Investment Fraud Scheme

Source- http://chicago.fbi.gov/dojpressrel/pressrel11/cg021111.htm

CHICAGO—A suburban Chicago man was charged with allegedly engaging in an investment fraud scheme, swindling more than $105 million from approximately 400 victims who invested in funds he purported to operate. Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Tom Brady, Inspector-in-Charge of the United States Postal Inspection Service, Chicago; and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation announced that Daniel Spitzer was charged with eight counts of mail fraud in a criminal indictment filed yesterday. Spitzer allegedly misused money he raised from investors for his own benefit, and to make Ponzi-type payments to investors.

Spitzer, 51, formerly of the U.S. Virgin Islands, currently resides in Barrington, Illinois, and will be arraigned at a later date in U.S. District Court. The indictment alleges that Spitzer was the principal officer and sole shareholder of Kenzie Financial Management, a U.S. Virgin Islands corporation; the sole manager and member of Kenzie Services, LLC ("Kenzie Services"), a corporation located in Charlestown, Nevis, West Indies; the president of Draseena Funds Group, Corp., an Illinois corporation; the manager of DN Management Company, LLC ("DN"), a Nevada limited liability company, and the manager of Nerium Management Company, an Illinois corporation.

According to the charges, through these corporate entities, defendant Spitzer controlled twelve investment funds collectively known as "the Kenzie Funds." Spitzer offered and sold to the public investments in the various Kenzie Funds in the form of membership interests and limited partnership interests. Through sales agents and various marketing materials, he informed investors and potential investors in the Kenzie Funds that their investments would be used primarily in foreign currency trading, that the Kenzie Funds had never lost money, and had achieved profitable historical returns. The defendant had to continually raise funds through the solicitation of new investors in the Kenzie Funds to make payments on investments made by earlier investors, all of which the defendant concealed and intentionally failed to disclose to both new and earlier investors. Although Spitzer falsely represented to prospective investors and investors that different Kenzie Funds had different levels of risk and different investment strategies, the defendant commingled the money invested in all twelve of the Kenzie Funds, then misappropriated a significant portion, and only invested less than one third of the approximately $105 million raised from investors.

The indictment further alleges that Spitzer represented to investors that the Kenzie Funds had rates of returns ranging from 4.52 percent to 13.54 percent over the prior five years, although the bank accounts for the Kenzie Funds reflected that the total net return over the five year period on the approximately $105 million investors contributed to all of the Kenzie Funds was less than 1 percent. As of June 30, 2009, Spitzer represented that the Kenzie Funds were worth approximately $250 million, at a time when the Funds collectively had only approximately $4 million in its bank accounts. As a part of the alleged Ponzi scheme, the defendant fraudulently obtained over $105 million from approximately 400 investors. The information alleges that as a result of his Ponzi scheme, Spitzer fraudulently obtained over $105 million.

The government is being represented by Assistant U.S. Attorney Madeleine Murphy. The United States Attorney's Office acknowledges the assistance of the Securities and Exchange Commission, Chicago Regional office. The investigation was conducted by the United States Postal Inspection Service and the FBI.

Each count of mail fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, and restitution is mandatory. In addition to the charges, the government is also seeking forfeiture in the amount of approximately $34 million in funds, the approximate amount of loss to the victims. The court may also impose a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. If convicted, however, the court must impose a reasonable sentence under the advisory United States Sentencing Guidelines.

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Richard A. Hansen Pleads Guilty in Manhattan Federal Court to Insider Trading

Source- http://www.fbi.gov/newyork/press-releases/2011/former-chairman-of-pennsylvania-investment-banking-firm-pleads-guilty-in-manhattan-federal-court-to-insider-trading

PREET BHARARA, the United States Attorney for the Southern District of New York, announced that RICHARD A. HANSEN, a former chairman of The Keystone Equities Group ("Keystone Equities"), pled guilty yesterday in Manhattan federal court to conspiracy and securities fraud charges in connection with his participation in an insider trading scheme. HANSEN pled guilty before U.S. District Judge PAUL A. CROTTY.

According to the information previously filed and the statements made during the guilty plea proceeding:

From June 2006 through September 2006, while he was chairman of Keystone Equities, HANSEN made stock purchases based on material, non-public information ("Inside Information"). HANSEN received the Inside Information from an individual named DONNA MURDOCH, who in turn obtained the Inside Information from JAMES GANSMAN. GANSMAN had access to the Inside Information because of his employment as a partner at the accounting firm Ernst & Young.

On June 20, 2006, GANSMAN informed MURDOCH that he had learned that Advanced Microdevices, Inc. ("AMD") and ATI Technologies ("ATI") were in discussions concerning AMD’s potential acquisition of ATI. MURDOCH thereafter tipped HANSEN about the impending acquisition and informed HANSEN that GANSMAN was working on the transaction. On June 23, 2006, HANSEN purchased or caused to be purchased 1,000 shares of ATI in two brokerage firm accounts in his daughters’ names. On July 24, 2006, ATI and AMD jointly announced that an AMD subsidiary would acquire all of ATI’s outstanding common stock. On that same day, ATI’s stock price climbed to a 52-week high of $19.69 before closing at $19.67—up nearly 19 percent from its previous day’s close. HANSEN thereafter sold or caused to be sold the ATI stock in his daughters’ accounts, realizing profits of almost $10,000.

Additionally, on June 23, 2006, GANSMAN learned that Ernst & Young had been retained by the Blackstone Group in connection with a possible acquisition of Freescale Semiconductor Corporation. Between June 23, 2006, and July 18, 2006, GANSMAN gave information to MURDOCH concerning this impending transaction. MURDOCH then tipped HANSEN about the Freescale deal, including that GANSMAN was working on it. On July 18, 2006, HANSEN purchased Freescale stock through two brokerage firm accounts held in his daughters’ names. On September 11, 2006, a wire service reported that Freescale would be acquired by an investment consortium led by Ernst & Young client Blackstone, and Freescale publicly announced it was "in discussions with parties relating to a possible business transaction." That day, Freescale’s stock price rose to a 52-week high of $37.18 before closing at $37.06, up 20.5 percent from its previous trading day’s close of $30.75. Approximately four days later, Freescale announced that it had entered into a definitive agreement to be acquired by a private equity consortium led by Blackstone. Shortly after the acquisition announcement, HANSEN sold or caused to be sold the Freescale shares he had purchased in his daughters’ accounts, realizing a profit of over $20,000.

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SEC Charges Tyson Foods with FCPA Violations

Source- http://www.sec.gov/news/press/2011/2011-42.htm

Washington, D.C., Feb. 10, 2011 — The Securities and Exchange Commission today charged Tyson Foods Inc. with violating the Foreign Corrupt Practices Act (FCPA) by making illicit payments to two Mexican government veterinarians responsible for certifying its Mexican subsidiary’s chicken products for export sales.

The SEC alleges that Tyson de Mexico initially concealed the improper payments by putting the veterinarians’ wives on its payroll while they performed no services for the company. The wives were later removed from the payroll and payments were then reflected in invoices submitted to Tyson de Mexico by one of the veterinarians for “services.” Tyson de Mexico paid the veterinarians a total of $100,311. It was not until two years after Tyson Foods officials first learned about the subsidiary’s illicit payments that its counsel instructed Tyson de Mexico to cease making the payments.

Tyson Foods agreed to pay more than $5 million to settle the SEC’s charges and resolve related criminal proceedings announced today by the Department of Justice.

“Tyson and its subsidiary committed core FCPA violations by bribing government officials through no-show jobs and phony invoices, and by having a lax system of internal controls that failed to detect or prevent the misconduct,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

According to the SEC’s complaint filed in federal court in the District of Columbia, the scheme occurred during fiscal years 2004 to 2006. In order to export products, meat-processing facilities in Mexico must obtain certification through an inspection program administered by Mexico’s federal government and supervised by an office in the Mexican Department of Agriculture. Tyson de Mexico participated in the program in order to export goods to Japan and other countries. The two veterinarians involved were responsible for certifying Tyson de Mexico’s chicken products for export and served as official Mexican government veterinarians at Tyson de Mexico’s facilities.

The SEC’s complaint alleges that a Tyson de Mexico plant manager discovered the wives on the payroll in June 2004 and informed a Tyson Foods accountant of the situation. After subsequent meetings involving Tyson Foods and Tyson International officials, the payroll payments to the veterinarians’ wives were replaced with invoice payments to one of the veterinarians. An executive of Tyson International approved this approach.

The SEC alleges that in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to implement a system of effective internal controls to prevent the salary payments to phantom employees and the payment of illicit invoices. The improper payments were improperly recorded as legitimate expenses in Tyson de Mexico’s books and records and included in Tyson de Mexico’s reported financial results for fiscal years 2004, 2005 and 2006. Tyson de Mexico’s financial results were, in turn, a component of Tyson Foods’ consolidated financial statements filed with the SEC for those years.

Without admitting or denying the SEC’s allegations, Tyson Foods consented to the entry of a final judgment ordering disgorgement plus pre-judgment interest of more than $1.2 million and permanently enjoining it from violating the anti-bribery, books and records, and internal controls provisions of the FCPA, codified as Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. The proposed settlement is subject to court approval.

In a related criminal information filed today, the Department of Justice charged Tyson Foods with conspiring to violate the FCPA and violating the FCPA. DOJ and Tyson Foods agreed to resolve the charges by entering into a deferred prosecution agreement. Tyson Foods has agreed to pay a $4 million criminal penalty.

The SEC’s case was investigated by Allen Flood and Conway Dodge of the SEC’s Division of Enforcement. The SEC acknowledges the cooperation of Tyson Foods in the investigation. The SEC acknowledges and appreciates the assistance of the U.S. Department of Justice’s Fraud Section and the Federal Bureau of Investigation.

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Anthony James Tuomi, former chief financial officer for Willamette Development Services (WDS), pleaded guilty today to conspiring to commit securities fraud

Source- http://portland.fbi.gov/dojpressrel/pressrel11/pd020811.htm

EUGENE, OR—Anthony James Tuomi, former chief financial officer for Willamette Development Services (WDS), pleaded guilty today to conspiring to commit securities fraud. He is scheduled to be sentenced for sentencing on August 9, 2011 before U.S. District Judge Michael R. Hogan. Tuomi is 36 and resided in Albany, Oregon when he committed the offense. WDS was located at 110 3rd Avenue SE in Albany, Oregon.

The case arose in 2008 from an investigation into allegations of fraud involving the chief executive officer (CEO) of WDS. WDS was ostensibly operated to develop profitable real estate projects. The CEO was ousted by the WDS executive board in January of 2008 amidst allegations of financial improprieties. In pleading guilty, Tuomi admitted that helped facilitate the financial improprieties, and that in soliciting investors, a number of false statements were made which caused people to invest, and lose, over $5,260,000 in WDS securities.

Tuomi admitted that, among other things, he facilitated misrepresentations about the financial condition of WDS. As an example, in January 2008, he prepared financial summaries of WDS projects which were sent to all investors. The summaries accompanied a letter written by the WDS CEO which claimed that all WDS investments were secure. The project summaries indicated substantial financial value in each project and substantial profits for WDS, even though Tuomi knew WDS was insolvent and that little financial value could be obtained from the projects. Prior to that time, since WDS had insufficient income to pay monthly obligations to its investors, new investor proceeds were used to satisfy existing investor obligations, creating the perception of a successful business. Private placement memoranda furthered this perception by falsely representing the experience of the CEO, as well as project business plans, financial practices, the frequency and accuracy of reports to investors, and compliance with fiduciary obligations. Tuomi admitted that, contrary to representations made to investors, investor proceeds were often diverted from their intended purposes without investor consent.

"Over the past few years, we've watched as the U.S. economy has faltered on false promises of financial success," said Arthur Balizan, Special Agent in Charge of the FBI in Oregon. "Enough is enough. Those who target investors through fraud and manipulation are going to find us knocking at their door."

"The loss of over $5 million from this fraud shows how critical it is that statements made to potential investors be truthful," said Marcus Williams, the IRS Special Agent in Charge of the Pacific Northwest. "I look forward to the day when white collar criminals realize that law enforcement will always be there to hold them accountable for the suffering they cause."

WDS did business through various entities including 21st Avenue, LLC; 36th & Division, LLC; Blossom Crossings, LLC; CTJ, LLC; Elite Funding, LLC; Far Shore Enterprises LLC; Far Shore Imports, LLC; Fisherman's Wharf, LLC; Gibson Hill Estates, LLC; High Level Investments, LLC; Jasper Homes, LLC; Joe LaCoste, LLC; Joe's Run, LLC; LaCoste Enterprises, LLC; LaCoste Investments, LLC; Lebanon Airport Estates, LLC; Lincoln City Roads Ends, LLC; Lunceford and LaCoste Investments, LLC (subsequently renamed Greyson Financial, LLC); Martin Willamette, LLC; McCoy Acquisitions, LLC; McKenzie Aviation, LLC; McKenzie Construction, LLC; McMinnville Corners, LLC; Nuera; Nuera Realty; Newport Bridge View, LLC; North Albany Town Homes, LLC; North Point Estates, LLC; Pac First Financial, LLC; Pac First Mortgage; Property Options; Santa Clara Homes, LLC; Santiam Engineering, LLC; St. James, LLC; Strawberry Fields, LLC; Stoltz Hill Estates, LLC; Sunset Ridge, LLC; The Walston Building, LLC; Turner Road, LLC; Willamette Lee, LLC; Willamette Village Business Center, LLC; Willamette Wetlands, LLC; Wisteria Estates, LLC; Yates Estates, LLC; and www.wds-llc.com.

The maximum statutory penalty for conspiring to commit securities fraud is a five-year term of prison and a $250,000 fine, followed by a three-year term of supervised release.

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SEC Charges Hedge Fund Managers and Traders in $30 Million Expert Network Insider Trading Scheme

Source- http://www.sec.gov/news/press/2011/2011-40.htm

Washington, D.C., Feb. 8, 2011 — The Securities and Exchange Commission today charged a New York-based hedge fund and four hedge fund portfolio managers and analysts who illegally traded on confidential information obtained from technology company employees moonlighting as expert network consultants. The scheme netted more than $30 million from trades based on material, nonpublic information about such companies as AMD, Seagate Technology, Western Digital, Fairchild Semiconductor, and Marvell.

The charges are the first against traders in the SEC’s ongoing investigation of insider trading involving expert networks. The SEC filed its initial charges in the case last week against technology company employees who illegally tipped hedge funds and other investors with material nonpublic information about their companies in return for hundreds of thousands of dollars in sham consulting fees.

In its amended complaint filed today in federal court in Manhattan, the SEC alleges that four hedge fund portfolio managers and analysts received illegal tips from the expert network consultants and then caused their hedge funds to trade on the inside information.

“It is illegal for company insiders who moonlight as consultants to sell confidential information about their companies to traders, and it is equally illegal to buy that corruptly obtained information and trade on it,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Instead of competing on a level playing field with other investors, these hedge fund managers sought to illegally trade today on what others would not learn until tomorrow.”

The SEC’s ongoing investigation is focusing on the activities of expert networks that purportedly provide professional investment research to their clients. While it is legal to obtain expert advice and analysis through expert networking arrangements, it is illegal to trade on material nonpublic information obtained in violation of a duty to keep that information confidential.

The technology company insiders who tipped the confidential information were expert network consultants to the firm Primary Global Research LLC (PGR).

The SEC’s amended complaint alleges:

Samir Barai of New York, N.Y., the founder and portfolio manager of Barai Capital Management, obtained inside information about several technology firms from company insiders, and then traded on the inside information on behalf of Barai Capital.

Jason Pflaum of New York, N.Y., a former technology analyst at Barai Capital Management, obtained inside information about technology companies and shared it with Barai. After Pflaum shared the confidential information with him, Barai used it to illegally trade on behalf of Barai Capital.

Noah Freeman of Boston, Mass., a former managing director at a Boston-based hedge fund, obtained inside information regarding Marvell and shared it with Donald Longueuil of New York, N.Y., a former managing director at a Connecticut-based hedge fund. Longueuil caused his hedge fund to trade on the inside information. Freeman also obtained inside information about another technology company and caused his hedge fund to trade on the nonpublic information.

The SEC’s amended complaint charges each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and additionally charges Barai, Pflaum, Freeman and Longueuil with aiding and abetting others’ violations of Section 10(b) and Rule 10b-5 thereunder. The complaint also charges Barai, Pflaum and Barai Capital with violations of Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties.

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