Investment Adviser Steven W. Salutric Charged with Causing 10 Clients to Lose More Than $4.26 Million in Fraud Scheme

Source-  http://www.fbi.gov/chicago/press-releases/2011/west-suburban-investment-adviser-charged-with-causing-10-clients-to-lose-more-than-4.26-million-in-fraud-scheme 

CHICAGO—A west suburban investment adviser allegedly engaged in an investment fraud scheme that swindled the retirement savings of some elderly clients and, overall, caused about 10 clients to lose more than $4.26 million, federal law enforcement officials announced today. The defendant, Steven W. Salutric, was charged with one count of wire fraud in a criminal information filed today in U.S. District Court. Salutric allegedly diverted some of his clients’ funds to his personal business associates and to entities in which he had a financial interest, including restaurants, a movie production company, car dealerships, and real estate development projects, while using additional customer funds to make Ponzi-type payments to other clients.

Salutric, 53, of Carol Stream, was a founding principal of the former Results One Financial, LLC, a registered investment advisory firm located in Elmhurst, which had more than 1,000 clients and approximately $160 million in assets under management. Salutric managed the funds of approximately 100 clients, mostly individuals and small businesses. He will be arraigned at a later date in U.S. District Court. The charges were announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The U.S. Department of Labor’s Employee Benefits Security Administration and the Securities and Exchange Commission also assisted with the investigation.

According to the charges, Salutric schemed to defraud clients of Results One between December 2002 and January 2010 by fraudulently obtaining their funds that were held in customer accounts at Charles Schwab & Co, Inc., which served as the custodian of client assets. Salutric had discretionary authority to trade in the clients’ accounts, typically involving the relatively low-risk purchase and sale of mutual fund shares. Instead, Salutric fraudulently withdrew clients’ funds without their knowledge or permission, and he fraudulently placed clients’ money in high-risk alternative investments without their knowledge or permission, the charges allege.

Salutric allegedly fraudulently obtained more than $3 million from clients by preparing, forging clients’ signatures on, and faxing documents that falsely represented to Schwab that the clients wished to transfer funds from their Schwab accounts to bank accounts held by Salutric’s personal business associates and entities in which he had a financial interest. Salutric allegedly used at least a portion of the clients’ funds to make Ponzi-type deposits to other clients’ accounts to conceal and prolong the scheme.

In one instance, Salutric allegedly fraudulently transferred approximately $1 million from a single client to himself and various entities, including restaurants, a movie production company, car dealerships, and real estate development projects, in which he had a financial interest. In other instances, Salutric allegedly lulled his clients by making false assurances, including telling one victim that his funds were invested in a union pension plan yielding a 15 percent return, telling another that his funds were invested in AT&T bonds providing an eight percent return, and telling yet another that his funds were placed in a certificate of deposit, when he knew that he had diverted funds from each victim for his personal benefit. As a result of the scheme, about 10 clients suffered losses totaling at least $4,261,818, the charges allege.

The government is being represented by Assistant U.S. Attorney Tyler Murray.

Wire fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, and restitution is mandatory. 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, the court must impose a reasonable sentence under sentencing statutes and the advisory United States Sentencing Guidelines.

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Derek Christopher Swann to Serve 40 Months in Prison and Pay $4.3 Million in Restitution in Connection with Edmond Condominium Project

Source-  http://www.fbi.gov/oklahomacity/press-releases/2011/norman-man-to-serve-40-months-in-prison-and-pay-4.3-million-in-restitution-in-connection-with-edmond-condominium-project 

OKLAHOMA CITY—DEREK CHRISTOPHER SWANN, 39, of Norman, was sentenced yesterday to serve 40 months in federal prison for money laundering related to a failed Edmond commercial and residential development called “The Falls,” announced Sanford C. Coats, United States Attorney for the Western District of Oklahoma. Earlier this year, Giovanni Bryan Stinson, 38, of Edmond, pled guilty to conspiracy to commit securities fraud, in connection with raising investor proceeds for The Falls based on false information.

According to the informations filed against Swann and Stinson, those two men decided in 2005 to try to build The Falls project in Edmond. The next year, Swann, Stinson, and others at their direction began soliciting private investors for money to develop The Falls. Swann and Stinson acquired investor proceeds for The Falls based on false information and then used those proceeds for personal expenses and repayment of earlier investors. According to the Informations, individuals invested more than $5 million into The Falls based on promises that the monies would be spent for engineering, architectural, or infrastructure costs. Rather than paying for those expenses, Swann and Stinson used investor proceeds to pay for golf and entertainment expenses at a private Oklahoma City golf club, to lease BMW cars for The Falls’ officers, and to repay earlier investors. The Falls project was never completed.

On February 28, 2011, Swann pled guilty to one count of money laundering. At the plea hearing, Swann admitted that he helped to convince a Texas investor to wire $255,000 to a local bank for the Edmond project. Swann further admitted that after receiving those funds, he transferred the money to another account and used some of those funds for purposes not disclosed to the investor.

Today, United States District Judge David L. Russell sentenced Swann to 40 months in federal prison, followed by three years of supervised release. Swann was also ordered to pay $4,334,900.01 in restitution to more than two dozen investor victims.

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SEC Charges Magyar Telekom Plc. and Former Executives with Bribing Officials in Macedonia and Montenegro

Source-  http://www.sec.gov/news/press/2011/2011-279.htm 

Washington, D.C., Dec. 29, 2011 — The Securities and Exchange Commission today charged the largest telecommunications provider in Hungary and three of its former top executives with bribing government and political party officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry.

The SEC alleges that three senior executives at Magyar Telekom Plc. orchestrated, approved, and executed a plan to bribe Macedonian officials in 2005 and 2006 to prevent the introduction of a new competitor and gain other regulatory benefits. Magyar Telekom's subsidiaries in Macedonia made illegal payments of approximately $6 million under the guise of bogus consulting and marketing contracts. The same executives orchestrated a second scheme in 2005 in Montenegro related to Magyar Telekom's acquisition of the state-owned telecommunications company there. Magyar Telekom paid approximately $9 million through four sham contracts to funnel money to government officials in Montenegro.

Magyar Telekom's parent company Deutsche Telekom AG also is charged with books and records and internal controls violations of the Foreign Corrupt Practices Act (FCPA).

Magyar Telekom agreed to settle the SEC's charges by paying more than $31.2 million in disgorgement and pre-judgment interest. Magyar Telekom also agreed to pay a $59.6 million criminal penalty as part of a deferred prosecution agreement announced today by the U.S. Department of Justice. Deutsche Telekom settled the SEC's charges, and as part of a non-prosecution agreement with the Department of Justice agreed to pay a penalty of $4.36 million.

"Magyar Telekom's senior executives used sham contracts to funnel millions of dollars in corrupt payments to foreign officials who could help them keep competitors out and win business," said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division's FCPA Unit. "They purposely structured the sham contracts to circumvent internal review, and when questions were eventually raised about their use of 'consulting' contracts, they reconfigured them as 'marketing' contracts to avoid scrutiny and prolong their scheme."

The three former top executives at Magyar Telekom charged by the SEC for orchestrating the bribery schemes are:
Elek Straub, former Chairman and CEO.
Andras Balogh, former Director of Central Strategic Organization.
Tamas Morvai, former Director of Business Development and Acquisitions.



According to the SEC's complaints filed in the Southern District of New York, in the wake of legislation intended to liberalize the Macedonian telecommunications market, Magyar Telekom entered into a secret agreement entitled the "Protocol of Cooperation" with senior Macedonian government officials to delay or preclude the issuance of a license to a new competitor and mitigate other adverse effects of the new law. To win their support, Magyar Telekom paid €4.875 million to a third-party intermediary under a series of sham contracts with the intention that the intermediary would forward money to the government officials. Magyar Telekom also promised a Macedonian political party the opportunity to designate the beneficiary of a business venture in exchange for the party's support.

The SEC further alleges that in Montenegro, Magyar Telekom used intermediaries to pay bribes to government officials in return for their support of Magyar Telekom's acquisition of the state-owned telecommunications company on terms favorable to Magyar Telekom. At least two Montenegrin government officials involved in the acquisition received payments made through the bogus contracts. A family member of a top Montenegrin government official also received payments.

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Yves Benhamou Sentenced in Manhattan Federal Court for Insider Trading Scheme

Source-  http://www.fbi.gov/newyork/press-releases/2011/french-doctor-sentenced-in-manhattan-federal-court-for-insider-trading-scheme 

Preet Bharara, the United States Attorney for the Southern District of New York, announced that YVES BENHAMOU, a French doctor who served as an adviser on a clinical drug trial, was sentenced today to time served and three years of supervised release for his participation in a scheme to commit securities fraud, conspiracy to engage in insider trading, obstruction of justice, and for making false statements to the FBI related to the scheme. BENHAMOU provided material, non-public information (“Inside Information”) that he received in the course of his work on a clinical drug trial to Joseph F. Skowron III, a/k/a “Chip Skowron,” a former portfolio manager in the health care unit of a hedge fund group (the “Hedge Fund”). Skowron then used the Inside Information to avoid approximately $30 million in trading losses. In addition, BENHAMOU agreed with Skowron to lie to the U.S. Securities and Exchange Commission (“SEC”) during an investigation into Skowron’s trading. BENHAMOU was sentenced today by U.S. District Judge George B. Daniels. In sentencing BENHAMOU, Judge Daniels granted the government’s motion to depart downward from the U.S. Sentencing Guidelines based on the substantial cooperation BENHAMOU provided in this investigation.

According to the Information to which BENHAMOU pled guilty, other court documents filed in the case, and statements made during the guilty plea and sentencing proceedings:

During the period of the insider trading scheme, BENHAMOU was a medical doctor with an expertise in hepatitis treatment. He served on a steering committee that oversaw a clinical trial of a drug called Albuferon conducted by the biopharmaceutical company Human Genome Sciences, Inc. (“HGSI”). At the same time, BENHAMOU also worked as a consultant for an expert networking firm that, for a fee, put him in contact with portfolio managers and other investors at hedge funds, including Skowron, who purchased and sold securities in the healthcare sector. Skowron was responsible for the Hedge Fund’s investment decisions in public companies, including HGSI, that were involved in the development of drugs to treat hepatitis C.

Beginning in April 2007, BENHAMOU and Skowron developed a personal and financial relationship independent of the expert networking firm. For example, Skowron gave BENHAMOU 5,000 euros in cash during a meeting in Barcelona, Spain. Skowron also paid some of BENHAMOU’s expenses, including $4,624.83 in September 2007 for a New York City hotel room for him and his wife. SKOWRON also offered to hire BENHAMOU as a consultant or permanent adviser to a new hedge fund. He gave these benefits to BENHAMOU to encourage him to provide Inside Information about the Albuferon clinical drug trial. BENHAMOU understood that Skowron would buy or sell HGSI stock on the basis of the Inside Information. Indeed, as a result of a series of communications between BENHAMOU and Skowron in January 2008 about a decision to discontinue a portion of the clinical trial, Skowron caused the Hedge Fund to sell more than 6 million shares of HGSI, thereby avoiding approximately $30 million in losses.

In addition, BENHAMOU and Skowron undertook efforts to conceal the insider trading scheme from regulatory authorities. Specifically, after the SEC began investigating the Hedge Fund’s trading in HGSI stock, Skowron lied to the SEC, and induced BENHAMOU to lie to the SEC by falsely denying that they had discussed the serious adverse events in the trial before they were made public.

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GE Funding Capital Market Services Inc. Admits to Anticompetitive Conduct by Former Traders in the Municipal Bond Investments Market and Agrees to Pay $70 Million to Federal and State Agencies

Source- http://www.justice.gov/opa/pr/2011/December/11-at-1706.html 

WASHINGTON – GE Funding Capital Market Services Inc. entered into an agreement with the Department of Justice to resolve the company’s role in anticompetitive activity in the municipal bond investments market and agreed to pay a total of $70 million in restitution, penalties and disgorgement to federal and state agencies, the Department of Justice announced today.

As part of its agreement with the department, GE Funding admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former traders. According to the non-prosecution agreement, from 1999 through 2004, certain former GE Funding traders entered into unlawful agreements to manipulate the bidding process on municipal investment and related contracts, and caused GE Funding to make payments and engage in other related activities in connection with those agreements through at least 2006. These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other public entities.

“GE Funding’s former traders entered into illegal agreements to manipulate the bidding process on municipal investment contracts,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Justice Department’s Antitrust Division. “This anticompetitive conduct harmed municipalities, as well as taxpayers. Today’s resolution requires GE Funding to pay penalties, disgorgement and restitution to the victims of its illegal activity. We will continue to use all the tools at our disposal to uphold our nation’s antitrust laws and ensure competition in the financial markets.”

Under the terms of the agreement, GE Funding agreed to pay restitution to victims of the anticompetitive conduct and to cooperate fully with the Justice Department’s Antitrust Division in its ongoing investigation into anticompetitive conduct in the municipal bond derivatives industry. To date, the ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation. Nine of the 18 executives charged have pleaded guilty.

The Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS) and 25 state attorneys general also entered into agreements with GE Funding requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of restitution to the victims harmed by the bid manipulation by GE Funding employees, as well as other remedial measures.

As a result of GE Funding’s admission of conduct; its cooperation with the Department of Justice and other enforcement and regulatory agencies; its monetary and non-monetary commitments to the SEC, IRS and state attorneys general; and its remedial efforts to address the anticompetitive conduct, the department agreed not to prosecute GE Funding for the manipulation of bidding for municipal investment and related contracts, provided that GE Funding satisfies its ongoing obligations under the agreement.

JPMorgan Chase & Co., UBS AG and Wachovia Bank N.A. also reached agreements with the Department of Justice and other federal and state agencies to resolve anticompetitive conduct in the municipal bond derivatives market. On May 4, 2011, UBS AG agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies for its participation in the anticompetitive conduct. On July 7, 2011, JPMorgan agreed to pay a total of $228 million in restitution, penalties and disgorgement to federal and state agencies for its role in the conduct. On Dec. 8, 2011, Wachovia Bank agreed to pay a total of $148 million in restitution, penalties and disgorgement to federal and state agencies for its participation in the anticompetitive conduct.

The department’s ongoing investigation into the municipal bonds industry is being conducted by the Antitrust Division, the FBI and the IRS-Criminal Investigation. The department is coordinating its investigation with the SEC, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York. The department thanks the SEC, IRS and state attorneys general for their cooperation and assistance in this matter.

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Nicholas Cox and Rodney Whitney Plead Guilty to Defrauding Commodities Trading Investors

Source-  http://www.justice.gov/opa/pr/2011/December/11-atj-1702.html 

WASHINGTON – The principal and co-owner of Integra Capital Management LLC, a North Carolina company, pleaded guilty today for his role in a commodities trading investment scheme that allegedly raised more than $3.2 million, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Anne M. Tompkins of the Western District of North Carolina.

Nicholas Cox, 34, a North Carolina resident, pleaded guilty before U.S. Magistrate Judge David Keesler in Charlotte, N.C., to one count of conspiracy to commit mail fraud, five counts of mail fraud and one count of conspiracy to commit money laundering. Cox was charged in an indictment returned on May 17, 2011, by a federal grand jury in the Western District of North Carolina.

According to plea documents, between September 2006 and January 2009, Cox and his co-conspirator, Rodney Whitney, who was also a principal and co-owner of Integra, engaged in a scheme to defraud investors in commodity trading pools operated by Cox and Whitney through Integra. According to the indictment, Integra was established for the purpose of pooling investors’ funds in commodity pools, and investing in commodity futures and foreign currency exchange (forex) trading.

Whitney pleaded guilty on March 21, 2011, before U.S. Magistrate Judge David S. Cayer to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering.

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Attorney Mitchell J. Stein Charged in Multi-Million Dollar Stock Fraud

Source-  http://www.justice.gov/opa/pr/2011/December/11-crm-1681.html 

WASHINGTON – An attorney for a South Carolina health care device company, Signalife, was arrested on Dec. 18, 2011, at Los Angeles International Airport on charges related to his alleged role in a multi-million dollar market manipulation fraud scheme, Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division announced today.

An indictment unsealed yesterday in U.S. District Court for the Southern District of Florida charges attorney Mitchell J. Stein, 53, of Hidden Hills, Calif., and Boca Raton, Fla., with one count of conspiracy to commit mail fraud and wire fraud, three counts of mail fraud, three counts of wire fraud, three counts of securities fraud, three counts of money laundering and one count of conspiracy to obstruct justice. The indictment also seeks forfeiture of the proceeds of the offenses.

The indictment alleges that Stein engaged in a scheme to artificially inflate the stock price of Signalife Inc. by creating the false impression of sales activity for the company. Signalife, now known as Heart Tronics, was a publicly traded company that purportedly sold electronic heart monitoring devices. According to the indictment, Stein’s wife held approximately 85 percent of the shares of Signalife.

The indictment alleges that Stein and his co-conspirators created fake purchase orders and related documents from fictitious customers and then caused Signalife to issue press releases and file documents with the Securities and Exchange Commission (SEC) trumpeting these fictitious sales. The indictment also alleges that in a further effort to create the false appearance of sales activity, Stein arranged to have Signalife products shipped to and temporarily stored with an individual who had not purchased any products.

The indictment further alleges that Stein and his co-conspirators sold shares of Signalife stock at inflated prices, disguising the fact that they were doing so by placing the shares in purportedly blind trusts. In addition to selling shares in that manner, Stein and his co-conspirators allegedly also caused Signalife to issue additional shares to third parties so that those third parties could sell the shares and remit the proceeds of those sales to Stein and his co-conspirators.

According to the indictment, Stein also conspired to obstruct an SEC investigation into Heart Tronics by testifying falsely and arranging for others to testify falsely in an effort to conceal the fraud scheme.

If convicted, Stein faces up to 20 years in prison on each count of mail fraud, wire fraud, securities fraud, and conspiracy to commit mail and wire fraud, as well as up to 10 years in prison on each count of money laundering and up to five years in prison on the conspiracy to obstruct justice count.

The SEC conducted a parallel investigation and today announced its filing of a civil enforcement action against Stein and others. The department thanks the SEC for its substantial assistance in this matter.

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SEC Charges Securities Trader Aurelio Rodriguez with Cross-Border Fraudulent Interpositioning Scheme

Source-  http://www.sec.gov/news/press/2011/2011-277.htm 

Washington, D.C., Dec. 23, 2011 — The Securities and Exchange Commission today charged a former securities trader at a San Diego-based brokerage firm with orchestrating an illegal trading scheme.

The SEC alleges that Aurelio Rodriguez acted in concert with a Mexican investment adviser, InvesTrust, and unnecessarily inserted a separate broker-dealer as a middleman into securities transactions in order to generate millions of dollars in additional fees. Rodriguez, who resided in Coronado, Calif., at the time and currently lives in Mexico, agreed to pay $1 million to settle the SEC’s charges. The SEC also charged his former firm Investment Placement Group (IPG) and its CEO with failing to properly supervise Rodriguez. IPG agreed to pay more than $4 million to settle the charges.

In an interpositioning scheme, an extra broker-dealer is illegally added as a principal on trades even though no real services are being provided. The SEC alleges that Rodriguez colluded with InvesTrust and needlessly inserted a broker-dealer based in Mexico into securities transactions between IPG and InvesTrust’s pension fund clients, causing the pension funds to pay approximately $65 million more than they would have without the middleman.

“Rodriguez repeatedly abused his position as a securities industry professional to commit this cross-border fraudulent scheme to the detriment of the pension funds,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office. “The scheme’s participants reaped millions of dollars from these illicit activities.”

According to the SEC’s order instituting administrative proceedings against Rodriguez, the scheme occurred from January to November 2008. Rodriguez in coordination with InvesTrust acquired 10 different credit-linked notes in an IPG proprietary account. Rodriguez knew that the notes were slated for InvesTrust’s pension fund clients.

The SEC alleges that IPG, through Rodriguez, added a markup of roughly 1.5 to 4.5 percent to the purchase price and then sold the notes to the middleman Mexican brokerage firm. IPG, through Rodriguez, repurchased the notes from the Mexican brokerage firm within a day or so at a slightly higher price. IPG added another markup and then sold the securities to InvesTrust’s pension fund clients.

According to the SEC’s order, in some instances Rodriguez repeated the buy-sell pattern with the middleman Mexican brokerage firm multiple times, driving up the price with each successive trade before finally selling the notes to the pension funds at artificially inflated prices. Rodriguez received millions of dollars in additional markups generated from the interpositioned transactions.

The SEC’s order finds that Rodriguez violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5. Without admitting or denying the SEC’s findings, Rodriguez consented to the order and agreed to pay $1 million in ill-gotten gains and to be barred from the securities industry as well as from participating in any penny stock offering, for five years. The order also requires him to cease and desist from committing or causing any violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

The SEC instituted separate but related administrative proceedings against IPG and its CEO Adolfo Gonzalez-Rubio, who was Rodriguez’s direct supervisor. IPG and Gonzalez-Rubio each agreed to settle their cases without admitting or denying the SEC’s findings. IPG agreed to be censured, pay approximately $3.8 million in disgorgement and prejudgment interest, pay a $260,000 penalty, and comply with certain undertakings. Gonzalez-Rubio agreed to a three-month suspension as a supervisor with any broker, dealer, investment adviser, or certain other registered entities.

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Judge Orders Plastics Executive Alfred S. Teo to Pay $49.5 Million in SEC Case

Source-  http://www.sec.gov/news/press/2011/2011-275.htm 

Washington, D.C., Dec. 22, 2011 — The Securities and Exchange Commission today announced the successful resolution of its trial against a plastics industry executive charged with lying in SEC filings regarding his ownership of Musicland Stores Corporation stock. Alfred S. Teo, Sr. and a trust he controlled have been ordered by a federal judge to pay $49.5 million in a final judgment against them.

Under SEC rules, when a person or group of people acquires beneficial ownership of more than 5 percent of a voting class of a company’s publicly traded stock, they are required to file a Schedule 13D with the SEC. Teo, who is chairman of several private companies that are some of the largest producers of plastic bags in North America, was charged by the SEC in 2004with filing false and misleading 13D forms and failing to make other required filings from 1998 to 2001. Teo and the trust thereby materially misrepresented their ownership of Musicland stock.

Following a 10-day trial in May in federal court in Newark, N.J., a jury returned a verdict finding Teo liable for securities fraud and disclosure violations on all counts against him. The jury also found the MAAA Trust controlled by Teo liable for disclosure violations. U.S. District Court Judge Susan D. Wigenton issued the final judgment in the case yesterday.

“Teo lied in his public filings for his personal gain and fraudulently circumvented core disclosure requirements designed to protect investors in public companies,” said George S. Canellos, Director of the SEC’s New York Regional Office. “The court’s decision sends a strong message that our regulatory framework depends on truthful disclosure, and intentional violations will be appropriately sanctioned.”

The evidence at trial showed that Teo, who lives in Kinnelon, N.J., and Fisher Island, Fla., lied in SEC filings about the amount of shares he controlled in order to avoid triggering Musicland’s shareholders rights plan or “poison pill.” Teo understood that triggering the poison pill would have significantly diluted his stock and caused massive losses to him. Teo deceptively purchased millions of Musicland shares well above the poison pill threshold, which he eventually sold to receive illicit profits.

Specifically, the court ordered Teo and the trust to pay $17,422,054.13 in disgorgement plus $14,649,034.89 in prejudgment interest, and penalties of $17,422,054.13. In addition to that $49,493,143.15 final judgment, Teo previously paid $996,782.68 in disgorgement and prejudgment interest for insider trading violations pursuant to a court order in this case on March 15, 2010. Teo also paid a $1 million fine and was sentenced to a 30-month prison term in a parallel criminal action for his insider trading crimes.

The court yesterday also enjoined Teo and the trust from further violations of the disclosure provisions of the federal securities laws. The court previously enjoined Teo from further violations of the antifraud provisions and barred him from serving as an officer and director of a public company.

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SEC Charges California Company, Co-CEOs, and Attorney in Series of Fraudulent Schemes Pumping Company Stock

Source-  http://www.sec.gov/news/press/2011/2011-271.htm 

Washington, D.C., Dec. 20, 2011 — The Securities and Exchange Commission today charged a purported heart monitoring device company and six individuals involved in a series of fraudulent schemes to artificially inflate the company’s stock. Among those charged are a former pro football player, a Hollywood talent agent, and an attorney who masterminded the scheme.

The SEC alleges that Heart Tronics installed former pro football player Willie Gault as a figurehead co-CEO along with former Hollywood executive J. Rowland Perkins in order to generate publicity for the company and foster investor confidence. Meanwhile behind the scenes, California-based attorney Mitchell J. Stein was controlling most of the company’s business activities, hiring promoters to tout Heart Tronics stock on the Internet, and reaping nearly $8 million from secret trades that he orchestrated unbeknownst to investors.

According to the SEC’s complaint filed in federal court in Los Angeles, Gault and Perkins rarely questioned Stein’s fraudulent agenda and abdicated their fiduciary responsibilities under the Sarbanes-Oxley Act. Stein and Gault together defrauded one investor into making a substantial investment in Heart Tronics based on false representations that his money would fund the company’s operations. Instead, Stein and Gault diverted the investor’s proceeds for personal use, including the purchase of Heart Tronics stock in Gault’s personal brokerage account “Catch 83” to create the false appearance of volume and investor demand for the stock.

“Stein took advantage of Gault’s celebrity to further prop up the image of Heart Tronics as a successful enterprise,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement. “Stein secretly sold millions of dollars in stock while peddling false claims of Heart Tronics’s lucrative sales orders, and has been living the high life off his illicit proceeds with multiple homes, exotic cars, and private jets.”

In addition to Heart Tronics, Stein, Gault and Perkins, the SEC charged three other individuals involved in the scheme, including Stein’s chauffer and handyman Martin B. Carter of Boca Raton, Fla., who carried out the fraud with him. The SEC also charged stock promoter Ryan A. Rauch of San Clemente, Calif., as well as Mark C. Nevdahl of Spokane, Wash., who was the trustee and stockbroker for a number of nominee accounts that Stein used to unlawfully sell Heart Tronics stock.

In a parallel criminal investigation, the U.S. Department of Justice today announced the arrest of Stein.

According to the SEC’s complaint, Heart Tronics was known as “Signalife” during most of the scheme’s time period from December 2005 to December 2008. Heart Tronics common stock was formerly listed on the American Stock Exchange but is now quoted on the OTC Link under the symbol HRTT.PK.

The SEC alleges that Heart Tronics fraudulently and repeatedly announced millions of dollars in sales orders for its product between 2006 and 2008 when, in fact, the company never had viable sales orders from actual customers. Stein and Carter fabricated numerous documents to support the false disclosures to the public, going so far as to have Carter make a one-day round-trip to Japan at Stein’s direction to mail back a letter from a fictitious customer in order to deceive management, disclosure counsel, and auditors. They also arranged to ship products to one of Carter’s friends to create the illusion that the company was delivering a heart monitoring device to a bona fide customer. Stein also profited by causing Heart Tronics to unlawfully pay Carter approximately $2 million in cash and Heart Tronics stock in a sham consulting agreement, and Carter paid nearly all of the proceeds back to Stein in the form of a kickback.

The SEC alleges that Stein hired Rauch to solicit numerous investment advisers, retail and institutional brokers, and other investors to buy Heart Tronics stock. Rauch failed to disclose that he was being paid by Heart Tronics in exchange for promoting company stock to investors. While Stein was orchestrating his campaign of misinformation and other schemes designed to inflate Heart Tronics’ stock price, his wife as the company’s majority shareholder directed the sale of more than $5.8 million worth of Heart Tronics stock while failing to disclose the sales as required under federal securities laws.

According to the SEC’s complaint, Stein enlisted Nevdahl to act as trustee for a number of purportedly blind trusts to create the façade that the shares were under the control of an independent trustee. The trusts were blind in name only, and Nevdahl met Stein and his wife’s regular demands for cash by continually selling Heart Tronics stock though the trusts.

The SEC’s complaint charges the defendants with various violations of the federal securities laws and seeks disgorgement of ill-gotten gains with prejudgment interest financial penalties and permanent injunctive relief. The SEC seeks permanent officer-and-director bars and penny stock bars against Stein, Gault, and Perkins as well as a permanent penny stock bar against Carter and Rauch. The SEC’s complaint also seeks the return of ill-gotten gains from nine relief defendants including Stein’s wife Tracey Hampton-Stein and her company ARC Finance Group LLC, which is the majority shareholder of Heart Tronics.

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Juan Carlos Guillen Zerpa Sentenced to 14 Months in Federal Prison for Obstructing SEC Investigation

Source-  http://www.fbi.gov/newhaven/press-releases/2011/venezuelan-accountant-sentenced-to-14-months-in-federal-prison-for-obstructing-sec-investigation 

David B. Fein, United States Attorney for the District of Connecticut, announced that JUAN CARLOS GUILLEN ZERPA, 44, a citizen of Venezuela, was sentenced today by United States District Judge Stefan R. Underhill in Bridgeport to 14 months of imprisonment, followed by two years of supervised release, for conspiring to obstruct a U.S. Securities and Exchange Commission investigation of a Connecticut hedge fund advisor. GUILLEN also was ordered to pay a fine in the amount of $10,000.

“The U.S. Attorney’s Office, FBI and our Connecticut Securities, Commodities and Investor Fraud Task Force are committed to the aggressive investigation and prosecution of individuals who attempt to obstruct the SEC and its critically important mission of protecting investors and the integrity of American capital markets,” stated U.S. Attorney Fein.

According to court documents and statements made in court, Francisco Illarramendi of New Canaan, Conn. acted as an investment adviser to certain hedge funds. In approximately 2006, one hedge fund he advised lost millions of dollars of the money he was charged with investing. Rather than disclose to his investors the truth about the losses incurred, Illarramendi intentionally chose to conceal this information by engaging in a long-running scheme to defraud and mislead his investors, creditors and the SEC to prevent the truth about the losses from being discovered. As part of the scheme, Illarramendi and others created fraudulent documents, including a fictitious asset verification letter falsely representing that one of the hedge funds, the Short Term Liquidity Fund (“STLF”), had at least $275 million in credits as a result of outstanding loans, when Illarramendi and others knew it did not have any such credits.

GUILLEN is a resident and citizen of Venezuela who was the managing partner of a Venezuelan accounting firm associated with a major international accounting firm. In late 2010, GUILLEN agreed to prepare the asset verification letter that would falsely indicate that the STLF had made outstanding loans to Venezuelan companies. A co-conspirator, Juan Carlos Horna Napolitano, then worked with other persons to create a fraudulent list of loans and to incorporate this list in the asset verification letter to be signed by GUILLEN.

In approximately January 2011, GUILLEN executed the false asset verification letter and sent it by e-mail to Illarramendi. Thereafter, GUILLEN and Horna learned that the false asset verification letter had been supplied to the U.S. Securities and Exchange Commission (“SEC”), and that the SEC had initiated a civil action against Illarramendi and others (SEC v. Illarramendi, et al., 3:11-CV-00078). In an effort to deceive and mislead the SEC and to prevent the SEC from learning during the civil action that the asset verification letter was false, GUILLEN, Illarramendi, Horna and others sought to create fraudulent documentation to falsely support the information contained in the letter. GUILLEN also participated in a telephone call with representatives of the SEC in January 2011 in which he intentionally misrepresented that the assertions in the asset verification letter about the existence of the hedge funds’ assets were true, when he knew they were false.

GUILLEN expected to receive approximately $1 million for his willingness to sign the false asset verification letter. Horna maintained control of a Florida bank account in the name of Jeislo Real Estate Investments, LLC. In furtherance of the conspiracy, Illarramendi caused two transfers of funds in the total amount of $1.25 million to be made into this bank account. As partial payment for GUILLEN’s services in this conspiracy, Horna caused $250,000 to be transferred to a third party for the benefit of GUILLEN.

As part of this case, GUILLEN has forfeited $315,000 to the government.

In a letter to the Court, David E. Bergers, Regional Director of the SEC’s Boston Regional Office stated, “...the Defendant’s conduct delayed the Commission staff’s detection of a very serious financial fraud. It also resulted in the Commission staff expending additional government resources to uncover the fraud via other methods. We consider this kind of misconduct, especially by industry professionals such as the Defendant, to be particularly damaging to investors, to our capital markets and to the Commission’s investigative mission.”

GUILLEN and Horna were arrested by FBI special agents on March 3, 2011, in Florida. On May 4, 2011, GUILLEN pleaded guilty to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission. Horna pleaded guilty to the same charge on May 19, 2011.

On March 7, 2011, Illarramendi pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC.

Illarramendi and Horna await sentencing.

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Hedge Fund Portfolio Manager Ward Onsa, Pleads Guilty to Securities Fraud

Source-  http://www.fbi.gov/newyork/press-releases/2011/hedge-fund-portfolio-manager-pleads-guilty-to-securities-fraud 

Ward Onsa, the portfolio manager of New Century Hedge Fund Partners, LP, pleaded guilty today to securities fraud after soliciting more than $5 million as part of an investor Ponzi scheme. Onsa entered his plea before the Hon. Dora L. Irizarry, United States District Judge, at the United States Courthouse in Brooklyn.

The guilty plea was 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 indictment, the defendant operated the investment firm Ward Onsa & Company until 2005 when a series of trading losses and default judgments bankrupted the entity. Thereafter, Onsa organized the New Century Hedge Fund and, between 2005 and 2010, solicited and received over $5 million in investor funds, primarily from Individual Retirement Accounts. Onsa told the investors that their retirement funds would be used to purchase securities, futures contracts and options designed to profit when the Dow Jones Industrial Average reached 10,748. Onsa’s trading theory was that the market would not go above this level. As the market surged past 10,748, however, the investments that the defendant made with his investors’ retirement money plummeted into insolvency.

While the investors were losing their money, the defendant funneled money from the Fund to himself and the defunct Ward Onsa & Company. Onsa further agreed to loan his early investors in New Century $2.6 million from newer investors’ money. Instead of disclosing the losses, the payments to Ward Onsa & Company or the $2.6 million loan, Onsa issued fake statements to investors showing consistent and steady earnings in the market. Onsa continued to solicit additional money from investors through 2010 and used that new capital to pay back the losses of the early investors.

“Retirement accounts represent hard earned dollars set aside for an uncertain future. Through a web of lies and deceit, the defendant targeted those funds to line his own pockets and prop up his failed investments. The defendant’s criminal decision to tap investors’ IRA accounts as part of his Ponzi scheme reaffirms this Office’s resolve to vigorously investigate and prosecute fraud in the securities and commodities markets,” stated United States Attorney Lynch.

FBI Assistant Director in Charge Fedarcyk stated, “The defendant continued to solicit investors by showing fictitious gains, both while the fund was losing money and after he had ceased to invest at all. Luring new investors to pay off earlier ones is the classic Ponzi.”

 The defendant faces a maximum sentence of 20 years’ imprisonment on the securities fraud charge.

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SEC Halts Father-Son Ponzi Scheme in Utah Involving Purported Real Estate Investments

Source- http://www.sec.gov/news/press/2011/2011-266.htm

Washington, D.C., Dec. 15, 2011 — The Securities and Exchange Commission today charged a father and son in Utah with securities fraud for selling purported investments in their real estate business that turned out to be nothing more than a wide-scale $220 million Ponzi scheme.

The SEC alleges that Wendell A. Jacobson and his son Allen R. Jacobson operate from a base in Fountain Green, Utah, and offer investors the opportunity to invest in limited liability companies (LLCs) in order to share ownership of large apartment communities in eight states. The Jacobsons solicit investors personally and through word of mouth, and appear to be using their memberships in the Church of Jesus Christ of Latter-Day Saints to make connections and win over the trust of prospective investors.

The SEC alleges that the Jacobsons represent that they buy apartment complexes with low occupancy rates at significantly discounted prices. They then renovate them and improve their management, and aim to resell them within five years. Investors are said to share in the profits derived from rental income at the apartment complexes as well as the eventual sales. But in reality, the LLCs are suffering significant losses and the Jacobsons are merely pooling the money raised from investors into large bank accounts from which they are siphoning money to pay family expenses and the operating expenses of their various companies. They also are paying earlier investors with funds received from new investors in classic Ponzi scheme fashion.

After filing its complaint today in federal court in Salt Lake City, the SEC obtained an emergency court order freezing the assets of the Jacobsons and their companies.

“Wendell and Allen Jacobson misled investors to believe they were financially supporting what was portrayed as a widespread and reputable operation to revamp apartment communities and turn a significant profit,” said Ken Israel, Director of the SEC’s Salt Lake Regional Office. “Their promises were anything but truthful.”

According to the SEC’s complaint, the Jacobsons raised more than $220 million from approximately 225 investors through a complex web of entities under the umbrella of Management Solutions, Inc. They have operated the fraudulent scheme since at least 2008. They sold the securities in the form of investment contracts without filing any registration statement with the SEC as required under the federal securities laws. Wendell and Allen Jacobson are acting as unregistered brokers in connection with their offers and sales of membership interests in LLCs.

The SEC alleges that the Jacobsons falsely assure investors that the principal amount of their investment will be safe, and their funds will be used to acquire, rehabilitate, and manage certain identified properties. Investors are promised annual returns ranging from 5 to 8 percent per year depending upon the particular apartment complexes pertaining to their LLC, with additional profits promised when the properties are sold. Wendell and Allen Jacobson tell investors that their funds are designated for a particular LLC. Wendell Jacobson has told investors that only one time has he ever lost money on a property, and on that occasion he covered the loss personally so that investor returns would not be reduced.

According to the SEC’s complaint, investor funds are never held and used exclusively to acquire, rehabilitate, and operate rental properties as represented by the Jacobsons. In fact, the LLCs are experiencing significant net losses. Nevertheless, the LLCs continue to pay returns to investors, falsely leading those investors to believe their LLCs are operating at a profit. When investor funds are received, they are almost always transferred or pooled immediately in accounts of various Jacobson-owned entities, most commonly in the account of Thunder Bay Mortgage Company. Investor funds are then used for a variety of purposes that have not been disclosed to investors.

The SEC further alleges that on numerous occasions since Jan. 1, 2010, investors have been told that the property owned in their LLC has been sold, and that they have realized a profit on the sale. In fact, those properties were not sold, and the Jacobsons used the alleged “sales” as a means of shifting investors into and out of certain properties. They have essentially been operating a shell game intended to raise additional funds from new or existing investors in order to meet the rapidly growing financial obligations of their operation.

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SEC Charges Seven Former Siemens Executives with Bribing Leaders in Argentina

Source- http://www.sec.gov/news/press/2011/2011-263.htm

Washington, D.C., Dec. 13, 2011 — The Securities and Exchange Commission today charged seven former Siemens executives with violating the Foreign Corrupt Practices Act (FCPA) for their involvement in the company's decade-long bribery scheme to retain a $1 billion government contract to produce national identity cards for Argentine citizens.

Siemens was previously charged with FCPA violations and paid $1.6 billion to resolve the charges with the SEC, U.S. Department of Justice, and Office of the Prosecutor General in Munich.

The SEC alleges that the executives who perpetuated the scheme worked at Siemens and its regional company Siemens Argentina. One of the executives had left Siemens and acted as a payment intermediary in the scheme. Siemens paid more than $100 million in bribes to such high-ranking officials as two former Argentine presidents and former cabinet members. The executives falsified documents including invoices and sham consulting contracts, and participated in meetings in the United States to negotiate the terms of bribe payments. They used U.S. bank accounts to pay some of the bribes.

"Business should flow to the company with the best product and the best price, not the best bribe," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Corruption erodes public trust and the transparency of our commercial markets, and undermines corporate governance."

In a parallel criminal action, the Department of Justice announced charges against former executives and agents of Siemens. They are charged with conspiracy to violate the FCPA and the wire fraud statute, money laundering conspiracy and wire fraud.

According to the SEC's complaint filed in U.S. District Court in Manhattan, the scheme lasted from approximately 1996 to early 2007. Initially, the bribes were paid to secure a $1 billion contract to produce national identity cards known as Documentos Nacionales de Identidad (DNI) for every Argentine citizen. After a change in Argentine political administrations resulted in the DNI contract being suspended and then canceled, Siemens paid additional bribes in a failed effort to revive the DNI contract. When the company later instituted an arbitration proceeding to recover its costs and expected profits from the canceled contract, Siemens paid additional bribes to suppress evidence that the contract originally had been obtained through corruption.

The former Siemens and Siemens Argentina executives charged by the SEC each had a role in authorizing, negotiating, facilitating, or concealing bribe payments in connection with the DNI contract:

Uriel Sharef – A former managing board member at Siemens from July 2000 to December 2007. He met in the United States with payment intermediaries and agreed to pay $27 million in bribes to Argentine officials in connection with the DNI contract.

Ulrich Bock – Former Commercial Head of Major Projects for Siemens Business Services (SBS) from October 1995 to 2001. As the officer responsible for the DNI contract, he authorized bribe payments to Argentine government officials.

Stephan Signer –Replaced Bock as Commercial Head of Major Projects for SBS and later became Head of Business Operations and Finance at Siemens IT Solutions and Services. He authorized the payment of bribes to government officials in Argentina.

Herbert Steffen –CEO of Siemens Argentina from 1983 to 1989 and again in 1991, and Group President of Siemens Transportation Systems from 1996 to 2003. Due to his longstanding connections in Argentina and Latin America, Steffen was recruited by Sharef and met directly with Argentine officials and offered bribe payments on behalf of Siemens.

Andres Truppel –CFO of Siemens Argentina from 1996 to 2002. He regularly communicated with Argentine government officials regarding illicit bribe payments and participated in U.S.-based meetings where bribes were negotiated and promised.

Carlos Sergi –A former board member of Siemens Argentina and a business consultant for Siemens Argentina. His primary role was to serve as a payment intermediary between Siemens and Argentine government officials in connection with the DNI contract.

Bernd Regendantz –CFO of SBS from February 2002 to 2004. He authorized two bribe payments totaling approximately $10 million on Siemens' behalf.

According to the SEC's complaint, approximately $31.3 million of the $100 million in bribes paid were made after March 12, 2001, when Siemens became a U.S. issuer subject to U.S. securities laws. As a result of the bribe payments it made, Siemens received an arbitration award in 2007 against the government of Argentina of more than $217 million plus interest for the DNI contract. In August 2009, after settling bribery charges with the U.S. and Germany, Siemens waived the arbitration award.

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