Credit rating agencies caused a great deal of harm to the world economy because of their poor performance in rating the credit worthiness of various securities related to mortgages. Many times these credit rating agencies worked for the companies selling the securities. This might be like having a used car dealer use one of the mechanics they employ to inform customers as to the condition of cars the dealer is selling. In the end the customers of broker/dealers of mortgage backed securities lost a great deal of money because they relied on the ratings of the credit rating agencies. There was of course another element that directly caused the economy to seize up.
The element that placed much of the economy at immediate risk was the inability for broker-dealers to have liquidity because the true credit worthiness of the mortgage backed securities they held was far less than what the credit rating agencies had determined. Because the liquid assets required to be maintained by broker-dealers was determined in part by the value of mortgage related securities when the true value of the mortgage related securities was determined by market forces many institutions became illiquid. The following changes are designed to deal with this issue and others relatng to credit rating agencies. The details below are an excerpt from the SEC web site:
“ Washington, D.C., April 27, 2011 — The Securities and Exchange Commission today voted unanimously to propose amendments that would remove references to credit ratings in several rules under the Exchange Act.
These proposals represent the next step in a series of actions taken under the Dodd-Frank Wall Street Reform and Consumer Protection Act to remove references to credit ratings within agency rules and, where appropriate, replace them with alternative criteria.
Proposed Rule Release No. 34-64352
Under Dodd-Frank, federal agencies must review how their existing regulations rely on credit ratings as an assessment of creditworthiness. At the conclusion of this review, each agency is required to report to Congress on how the agency modified these references to replace them with alternative standards that the agency determined to be appropriate.
Public comments on the rule amendments should be received within 60 days after they are published in the Federal Register.
Credit rating agencies are organizations that rate the credit-worthiness of a company or a financial product, such as a debt security or money market instrument. These credit ratings are often considered by investors evaluating whether to purchase securities.
In passing the Dodd-Frank Act, Congress included a provision in Section 939A that requires every federal agency to review rules that use credit ratings as an assessment of credit-worthiness. At the conclusion of this review, each agency is required to report to Congress on how the agency modified these references and replaced them with alternative standards that the agency determined to be appropriate.
The SEC is one such agency that has adopted rules over the years that reference credit ratings in assessing the credit-worthiness of a security. Among other things, the SEC’s net capital rule requires broker-dealers to maintain certain amounts of liquid assets (net capital) in the event that the broker-dealer fails. In computing this “net capital” amount, existing rules rely on credit ratings to determine the value of certain securities that broker-dealers are holding.
In addition, in Section 939(e) of the Dodd-Frank Act, Congress required credit rating references to be removed from certain sections of the Exchange Act that define the terms “mortgage related security,” and “small business related security.” In place of the credit rating references, Congress added language stating that a mortgage related security and a small business related security instead will need to satisfy “standards of credit-worthiness as established by the Commission.” This replacement language will go into effect on July 21, 2012.
The Commission today proposed rules that would replace such references in certain existing rules and would request comment on how to implement Section 939(e) of the Act.
Earlier this year, the SEC proposed rules that would change existing rules related to money market funds that allowed such funds to only invest in securities that have received one of the two highest categories of short-term credit ratings. Additionally, the SEC proposed amendments to its rules that would remove credit ratings as one of the conditions for companies seeking to use short-form registration when registering securities for public sale.
The Proposals
Removing References to Credit Ratings in the SEC’s Net Capital Rule for Broker-Dealers
Current rule: Rule 15c3-1, the “net capital rule,” requires broker-dealers to maintain specified minimum levels of liquid assets, or net capital. The rule is designed to protect the customers of a broker-dealer from losses upon the broker-dealer’s failure. Among other things, the net capital rule requires that broker-dealers, when computing net capital, apply a lower net capital deduction (or “haircut”) to certain proprietary securities positions in commercial paper, nonconvertible debt, and preferred stock if the securities are rated in higher rating categories by at least two Nationally Recognized Statistical Rating Organizations (NRSROs). That is, broker-dealers do not have to deduct as much from their net capital with respect to these securities because these securities typically are more liquid and less volatile in price than securities that are rated in lower rating categories or are unrated.
Proposed rule: The SEC is proposing to remove from the net capital rule all references to credit ratings and substitute an alternative standard of creditworthiness. Under the proposal, a broker-dealer would be required to take a 15 percent haircut on its proprietary positions in commercial paper, nonconvertible debt, and preferred stock unless the broker-dealer has a process for determining creditworthiness that satisfies the criteria described below. However, as is the requirement in the current rule, if these types of securities do not trade in a ready market as defined in the rule, they would be subject to a 100 percent haircut – meaning that the broker-dealers cannot include the value of these securities in their net capital. The 15 percent haircut is derived from the catchall haircut amount that applies to securities not specifically identified in the net capital rule as having an asset-class specific haircut, provided the security is otherwise deemed to have a ready market. It is also the haircut applicable to most equity securities.
If a broker-dealer establishes, maintains, and enforces written policies and procedures for determining creditworthiness under the proposed amendments, the broker-dealer would be permitted to apply the lesser haircut requirement currently specified in the net capital rule for commercial paper (between zero and ½ of 1 percent), nonconvertible debt (between 2 and 9 percent), and preferred stock (10 percent) when the creditworthiness standard is satisfied. Under this proposal, in order to use these lower haircut percentages for commercial paper, nonconvertible debt, and preferred stock, a broker-dealer would be required to establish, maintain, and enforce written policies and procedures designed to assess the credit and liquidity risks applicable to a security, and based on this process, would have to determine that the investment has only a “minimal amount of credit risk.”
Under the proposed amendments, a broker-dealer could consider the following factors to the extent appropriate when assessing credit risk for purposes of the net capital rule: (1) credit spreads; (2) securities-related research; (3) internal or external credit risk assessments; (4) default statistics; (5) inclusion on an index; (6) priorities and enhancements; (7) price, yield and/or volume; and (8) asset class-specific factors. The range and type of specific factors considered would vary depending on the particular securities that are reviewed.
Each broker-dealer would be required to preserve, for a period of not less than three years, the written policies and procedures that the broker-dealer establishes, maintains, and enforces for assessing credit risk for commercial paper, nonconvertible debt, and preferred stock. Broker-dealers would be subject to this requirement in the SEC’s broker-dealer record retention rule, Exchange Act Rule 17a-4.
Removing References to Credit Ratings in the Definition of “Major Market Foreign Currency”
Current rule: Appendix A to Rule 15c3-1 allows broker-dealers to employ theoretical option pricing models in determining net capital requirements for listed options and related positions. Broker-dealers also may elect a strategy-based methodology. The purpose of Appendix A is to simplify the net capital treatment of options and accurately reflect the risk inherent in options and related positions. Under Appendix A, broker-dealers’ proprietary positions in “major market foreign currency” options receive more favorable treatment than options for all other currencies when using theoretical option pricing models to compute net capital deductions. The term “major market foreign currency” is defined to mean “the currency of a sovereign nation whose short term debt is rated in one of the two highest categories by at least two nationally recognized statistical rating organizations and for which there is a substantial inter-bank forward currency market.”
Proposed rule: With respect to the definition of the term “major market foreign currency,” the SEC is proposing to remove from that definition the phrase “whose short-term debt is rated in one of the two highest categories by at least two nationally recognized statistical rating organizations.” The change would modify the definition of that term to include foreign currencies only “for which there is a substantial inter-bank forward currency market.” The SEC is also proposing to eliminate the specific reference in the rule to the European Currency Unit (ECU), which is identified by the rule as the only major market foreign currency under Appendix A. Because of the establishment of the euro as the official currency of the euro-zone, a specific reference to the ECU is no longer needed. A specific reference to the euro also is not necessary, as it is a foreign currency with a substantial inter-bank forward currency market.
Removing References to Credit Ratings When Determining Net Capital Charges for Credit Risk
Current rule: A broker-dealer may apply to the SEC for authorization to use the alternative method for computing capital (the alternative net capital, or “ANC,” computation) contained in Appendix E to the net capital rule. Under Appendix E, firms that have been determined to have robust internal risk management practices may utilize the mathematical modeling methods they use to manage their own business risk, including value-at-risk (VaR) models and scenario analysis, to compute deductions from net capital for market and credit risks arising from OTC derivatives transactions. OTC derivatives dealers may also apply to the SEC to use VaR models to calculate capital charges for market risk and to take alternative charges for credit risk under Appendix F.
Proposed rule: Under Appendix E and Appendix F to the net capital rule, broker-dealers subject to the ANC computation and OTC derivatives dealers, respectively, are required to deduct from their net capital credit risk charges that take counterparty risk into consideration. This counterparty risk determination is currently based on either NRSRO ratings or a dealer’s internal counterparty credit rating. To comply with Section 939A of the Dodd-Frank Act, the SEC is proposing to remove references to NRSRO ratings from Appendices E and F to Rule 15c3-1 and to make conforming changes to Appendix G and the form that OTC derivatives dealers periodically file with the SEC, Form X-17A-5, Part IIB.
Removing References to Credit Ratings in Rule 15c3-3
Current rule: Rule 15c3-3 under the Exchange Act protects customer funds and securities held by broker-dealers. In general, Rule 15c3-3 has two parts.
The first part requires a broker-dealer to have possession or control of all fully paid and excess margin securities of its customers. In this regard, a broker-dealer must make a daily determination in order to comply with this aspect of the rule.
The second part covers customer funds and requires broker-dealers subject to the rule to make a periodic computation to determine how much money it is holding that is either customer money or money obtained from the use of customer securities (credits). From that figure, the broker-dealer subtracts the amount of money that it is owed by customers or by other broker-dealers relating to customer transactions (debits). If the credits exceed debits after this “reserve formula” computation, the broker-dealer must deposit the excess in a “Special Reserve Bank Account for the Exclusive Benefit of Customers” (a Reserve Account). If the debits exceed credits, no deposit is necessary. Funds deposited in a Reserve Account cannot be withdrawn until the broker-dealer completes another computation that shows that the broker-dealer has on deposit more funds than the reserve formula requires.
Exhibit A to Rule 15c3-3 contains the formula that a broker-dealer must use to determine its reserve requirement.
Under Note G to Exhibit A, a broker-dealer may include required customer margin for transactions in security futures products as a debit in its reserve formula computation if:
That margin is required.
That margin is on deposit at a clearing agency or derivatives clearing organization that either:
Maintains the highest investment-grade rating from an NRSRO.
Maintains security deposits from clearing members in connection with regulated options or futures transactions and assessment power over member firms that equal a combined total of at least $2 billion, at least $500 million of which must be in the form of security deposits.
Maintains at least $3 billion in margin deposits.
Obtains an exemption from the Commission.
Proposed rule: The SEC is proposing to remove the first criterion described above (the highest investment-grade rating from an NRSRO). The criteria are disjunctive and, therefore, a clearing agency or derivatives clearing organization needs to satisfy only one criterion to permit a broker-dealer to treat customer margin as a reserve formula debit. While one potential criterion would be removed, there is only one clearing agency for security futures products (namely, the Options Clearing Corporation) and that clearing agency would continue to qualify under each of the other applicable criteria. If a new registered clearing agency or derivatives clearing organization could not meet one of the remaining criteria, a broker-dealer may request an exemption for the clearing agency or organization under the rule.
Removing References to Credit Ratings in Rules 101 and 102 of Regulation M
Current rule: Regulation M is a set of anti-manipulation rules designed to preserve the integrity of the securities market by prohibiting activities that could artificially influence the market for an offered security. Rules 101 and 102 of Regulation M specifically prohibit certain persons, such as issuers and underwriters from directly or indirectly bidding for, purchasing, or attempting to induce another person to bid for or purchase a “covered security” for a specified period of time. In particular the rules currently include an exception for “investment grade nonconvertible and asset-backed securities.” These exceptions apply to nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities that are rated by at least one NRSRO in one of its generic rating categories that signifies investment grade.
Proposed rule: The SEC’s proposal would instead provide an exception for nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities from Rules 101 and 102 if they: (1) are liquid relative to the market for that asset class; (2) trade in relation to general market interest rates and yield spreads; and (3) are relatively fungible with securities of similar characteristics and interest rate yield spreads. The proposed standards are an attempt to identify the subset of trading characteristics of these securities that make them less prone to the type of manipulation that Regulation M seeks to prevent. Under the proposal, a person seeking to rely on the exception would make the determination that the security in question meets the proposed standards. The determination would be required to be made utilizing reasonable factors of evaluation and would be required to be subsequently verified by an independent third party.
Removing References to Credit Ratings in Rule 10b-10
Current rule: Rule 10b-10, the Commission’s customer confirmation rule, generally requires that broker-dealers effecting securities transactions on behalf of customers provide to their customers, at or before completion of the securities transaction, a written notification with certain basic transaction terms. Under Rule 10b-10(a)(8), broker-dealers must disclose to customers in debt security transactions if the debt security is unrated by an NRSRO.
Proposed rule: When paragraph (a)(8) of Rule 10b-10 was adopted in 1994, the SEC indicated that this additional disclosure was not intended to suggest that an unrated security was riskier than a rated security; rather, it was intended to prompt a dialogue between the customer and the broker-dealer in the event that the customer was not aware of the unrated status prior to the transaction. Although the disclosure required by Rule 10b-10(a)(8) may not necessarily come within the mandate of Section 939A, the SEC is proposing to delete this reference in light of the SEC’s prior proposals to do so and because it would be consistent with the broader efforts under the Dodd-Frank Act to reduce direct, and in this case, indirect, reliance on NRSRO ratings.
Requests for Comment on Section 939(e) of the Dodd-Frank Act
Section 939(e) of the Dodd-Frank Act deleted Exchange Act references to credit ratings by NRSROs in Exchange Act Section 3(a)(41), which defines the term “mortgage related security,” and in Exchange Act Section 3(a)(53), which defines the term “small business related security.” The credit rating references in Sections 3(a)(41) and 3(a)(53) effectively exclude from the respective definitions securities that otherwise meet the definitions but are not rated by at least one NRSRO in the top two credit rating categories in the case of mortgage related securities or in the top four credit rating categories in the case of small business related securities.
In place of the credit rating references, Congress added language stating that a mortgage related security and a small business related security will need to satisfy “standards of credit-worthiness as established by the Commission.” This replacement language will go into effect on July 21, 2012. Before that time, the Commission will need to establish a new standard of creditworthiness for each Exchange Act definition. To assist the Commission in considering how to implement Section 939(e) of the Dodd-Frank Act, the Commission is requesting comment on potential “standards of credit-worthiness” for purposes of Sections 3(a)(41) and 3(a)(53)”
This is a photo of the National Register of Historic Places listing with reference number 7000063
Friday, April 29, 2011
Sunday, April 24, 2011
SEC CHARGES HEDGE FUND MANAGERS WITH DEFRAUDING CLIENTS
The following case brought by the SEC against two hedge fund managers alleges a “scheme” to defraud clients. Pleas read the following excerpt from the SEC web site for details of this case:
“Washington, D.C., March 15, 2011 – The Securities and Exchange Commission today charged a hedge fund investment advisory firm and its two founders with orchestrating a multi-faceted scheme to defraud clients and failing to comply with fiduciary obligations.
The SEC alleges that Eugenio Verzili and Arturo Rodriguez through their firm Juno Mother Earth Asset Management LLC misappropriated client assets, inflated assets under management, and filed false information with the SEC. Juno, Verzili and Rodriguez looted approximately $1.8 million of assets from a hedge fund they manage, misusing it to pay Juno’s operating costs related to payroll, rent, travel, meals, and entertainment. They issued promissory notes to conceal a substantial portion of their misappropriation. Juno, Verzili and Rodriguez also misrepresented the amount of capital that some Juno partners had invested in one of its funds, claiming they had invested millions of dollars when they actually had invested nothing in the funds.
“Verzili, Rodriguez and their firm violated the most fundamental duties of an investment adviser by lying to their clients and misappropriating the money entrusted to their care,” said George S. Canellos, Director of the SEC’s New York Regional Office. “They compounded their wrongdoing by providing false information in filings with the SEC that are designed to ensure that registered investment advisers make full disclosure to investors.”
Bruce Karpati, Co-Chief of the Asset Management Unit in the SEC’s Division of Enforcement, said, “Hedge fund investors derive comfort from knowing the fund’s adviser has so-called ‘skin in the game’ by investing its own money side-by-side with investors and sharing the same risks and rewards. These managers deliberately distorted their skin in the game.”
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of New York, Juno sold securities in client brokerage and commodity accounts and directed 41 separate transfers of cash to Juno’s bank account, claiming falsely that the transfers were reimbursements for expenses Juno had incurred on behalf of the client fund. Verzili and Rodriguez later fabricated and issued nine promissory notes to make it appear that the client fund had invested the money in Juno. But they concealed the so-called investment from the independent directors of the client fund.
The SEC’s complaint further alleges that Juno, Verzili and Rodriguez marketed investments in the Juno-advised fund and failed to disclose Juno’s precarious financial condition to investors. They also failed to disclose that Juno owed a client fund a minimum of $1.2 million, which represented the proceeds of the promissory notes. While offering and selling securities in the client fund, Juno repeatedly inflated and misrepresented the amount of assets that Juno managed and claimed at one point that Juno had as much as $200 million under management. Verzili also represented falsely to investors that Juno’s partners had up to $3 million of their own capital invested in a client fund. Juno’s partners had never actually invested any of their own money.
The SEC alleges that Juno filed false Forms ADV with the SEC in order to avoid deregistration with the Commission, claiming in those filings that Juno managed $40 million more than it actually did. Verzili and Rodriguez also caused Juno to provide a number of false filings to the SEC that failed to disclose that Juno had engaged in principal transactions with its client and had custody of client assets.
The SEC’s complaint charges Juno, Verzili and Rodriguez with violations of the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940, as well as additional regulatory-based violations of the Advisers Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties.”
In the above case the SEC alleges that the hedge fund managers lied. This is a relatively small case involving a few million dollars. Nevertheless, if most of the people in the business world lie then the society they work in will simply breakdown. Most people over time get tired of businessmen stealing from them and sooner or later will stop doing any business transactions at all. No society can exist if productive enterprise is replaced as the main philosophy of business with who can be the biggest thief?
“Washington, D.C., March 15, 2011 – The Securities and Exchange Commission today charged a hedge fund investment advisory firm and its two founders with orchestrating a multi-faceted scheme to defraud clients and failing to comply with fiduciary obligations.
The SEC alleges that Eugenio Verzili and Arturo Rodriguez through their firm Juno Mother Earth Asset Management LLC misappropriated client assets, inflated assets under management, and filed false information with the SEC. Juno, Verzili and Rodriguez looted approximately $1.8 million of assets from a hedge fund they manage, misusing it to pay Juno’s operating costs related to payroll, rent, travel, meals, and entertainment. They issued promissory notes to conceal a substantial portion of their misappropriation. Juno, Verzili and Rodriguez also misrepresented the amount of capital that some Juno partners had invested in one of its funds, claiming they had invested millions of dollars when they actually had invested nothing in the funds.
“Verzili, Rodriguez and their firm violated the most fundamental duties of an investment adviser by lying to their clients and misappropriating the money entrusted to their care,” said George S. Canellos, Director of the SEC’s New York Regional Office. “They compounded their wrongdoing by providing false information in filings with the SEC that are designed to ensure that registered investment advisers make full disclosure to investors.”
Bruce Karpati, Co-Chief of the Asset Management Unit in the SEC’s Division of Enforcement, said, “Hedge fund investors derive comfort from knowing the fund’s adviser has so-called ‘skin in the game’ by investing its own money side-by-side with investors and sharing the same risks and rewards. These managers deliberately distorted their skin in the game.”
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of New York, Juno sold securities in client brokerage and commodity accounts and directed 41 separate transfers of cash to Juno’s bank account, claiming falsely that the transfers were reimbursements for expenses Juno had incurred on behalf of the client fund. Verzili and Rodriguez later fabricated and issued nine promissory notes to make it appear that the client fund had invested the money in Juno. But they concealed the so-called investment from the independent directors of the client fund.
The SEC’s complaint further alleges that Juno, Verzili and Rodriguez marketed investments in the Juno-advised fund and failed to disclose Juno’s precarious financial condition to investors. They also failed to disclose that Juno owed a client fund a minimum of $1.2 million, which represented the proceeds of the promissory notes. While offering and selling securities in the client fund, Juno repeatedly inflated and misrepresented the amount of assets that Juno managed and claimed at one point that Juno had as much as $200 million under management. Verzili also represented falsely to investors that Juno’s partners had up to $3 million of their own capital invested in a client fund. Juno’s partners had never actually invested any of their own money.
The SEC alleges that Juno filed false Forms ADV with the SEC in order to avoid deregistration with the Commission, claiming in those filings that Juno managed $40 million more than it actually did. Verzili and Rodriguez also caused Juno to provide a number of false filings to the SEC that failed to disclose that Juno had engaged in principal transactions with its client and had custody of client assets.
The SEC’s complaint charges Juno, Verzili and Rodriguez with violations of the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940, as well as additional regulatory-based violations of the Advisers Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties.”
In the above case the SEC alleges that the hedge fund managers lied. This is a relatively small case involving a few million dollars. Nevertheless, if most of the people in the business world lie then the society they work in will simply breakdown. Most people over time get tired of businessmen stealing from them and sooner or later will stop doing any business transactions at all. No society can exist if productive enterprise is replaced as the main philosophy of business with who can be the biggest thief?
Thursday, April 21, 2011
SEC ALLEGES SUBPRIME AUTO LENDER WITH FRAUD
The Securities and Exchange Commission has found fraud in the sub prime housing market and this next case involves alleged fraud in the sub prime auto loan industry. The following case is an excerpt from the SEC web site:
“ Washington, D.C., April 14, 2011 — The Securities and Exchange Commission today charged Massachusetts-based sub prime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.
The SEC alleges that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But unbeknownst to investors, starting in 2004 approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.
Inofin is not registered with the SEC to offer securities to investors.
“Whether selling stock or notes, public and private companies alike must play it straight with investors or be held accountable for their misconduct,” said David Bergers, Director of the SEC’s Boston Regional Office. “Inofin and some top executives violated investors’ trust by misusing their funds to bankroll their personal business ventures.”
According to the SEC’s complaint filed in federal court in Boston, Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing to 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.
The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — allege that they promoted the offering and sale of Inofin’s unregistered securities. They were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The SEC appreciates the assistance of the Secretary of the Commonwealth of Massachusetts William F. Galvin, who today filed charges against Inofin, Cuomo, Mann, George, Affeldt, Kevin Keough, and Nancy Keough based on the same conduct. The SEC also appreciates the assistance of the Massachusetts Division of Banks, which previously took action requiring Inofin to surrender its license to operate as a subprime auto lender in Massachusetts.”
Although it is difficult to find many sub prime mortgage loans being offered today it there are still sub prime auto loans being promoted. Of course repossessing an automobile is much less time consuming than repossessing a house: that is if the automobile can be located and the delinquent purchaser is literally not gunning for a fight.
The Securities and Exchange Commission has found fraud in the sub prime housing market and this next case involves alleged fraud in the sub prime auto loan industry. The following case is an excerpt from the SEC web site:
“ Washington, D.C., April 14, 2011 — The Securities and Exchange Commission today charged Massachusetts-based sub prime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.
The SEC alleges that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But unbeknownst to investors, starting in 2004 approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.
Inofin is not registered with the SEC to offer securities to investors.
“Whether selling stock or notes, public and private companies alike must play it straight with investors or be held accountable for their misconduct,” said David Bergers, Director of the SEC’s Boston Regional Office. “Inofin and some top executives violated investors’ trust by misusing their funds to bankroll their personal business ventures.”
According to the SEC’s complaint filed in federal court in Boston, Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing to 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.
The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — allege that they promoted the offering and sale of Inofin’s unregistered securities. They were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The SEC appreciates the assistance of the Secretary of the Commonwealth of Massachusetts William F. Galvin, who today filed charges against Inofin, Cuomo, Mann, George, Affeldt, Kevin Keough, and Nancy Keough based on the same conduct. The SEC also appreciates the assistance of the Massachusetts Division of Banks, which previously took action requiring Inofin to surrender its license to operate as a subprime auto lender in Massachusetts.”
Although it is difficult to find many sub prime mortgage loans being offered today it there are still sub prime auto loans being promoted. Of course repossessing an automobile is much less time consuming than repossessing a house: that is if the automobile can be located and the delinquent purchaser is literally not gunning for a fight.
Monday, April 18, 2011
FDIC: DODD-FRANK COULD HELP A LEHMAN BROTHERS RESOLUTION
The following excerpt comes from the FDIC web site and discusses how the Dodd-Frank Act could have theoretically made the Lehman Brothers Holdings Inc. more orderly and less of a fiasco:
“FDIC Report Examines How an Orderly Resolution of Lehman Brothers Could Have Been Structured Under the Dodd-Frank Act
The FDIC on Monday released a report examining how the FDIC could have structured an orderly resolution of Lehman Brothers Holdings Inc. under the orderly liquidation authority of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act had that law been in effect in advance of Lehman's failure.
The report concludes that the powers provided to the FDIC under the Dodd-Frank Act to act decisively to preserve asset value and structure a transaction to sell Lehman's valuable operations to interested buyers -- which are drawn from those long used by the FDIC in resolving failing banks -- could have promoted systemic stability while recovering substantially more for creditors than the bankruptcy proceedings -- and at no cost to taxpayers. The report estimates that given the substantial, though declining, equity and subordinated debt of Lehman in September 2008 and the power for the FDIC to implement a prompt structured sale while providing short-term liquidity to continue value-adding operations, general unsecured creditors could have recovered 97 cents on every $1 of claims, compared to the estimated 21 cents on claims estimated in the most recent bankruptcy plan of reorganization. While there remains no doubt that the orderly liquidation of Lehman would have been incredibly complex and difficult, report concludes that it would have been vastly superior for creditors and systemic stability in all respects to the bankruptcy process as it was applied.
FDIC Chairman Sheila C. Bair said, "This new report is an important step in ensuring that the public and market participants understand how the FDIC's new resolution authority for large systemic firms works. The powers to implement a FDIC liquidation of a systemic financial company during a future crisis give us the tools to end Too Big to Fail and eliminate future bailouts. Much work remains to be done, and we look forward to working with key stakeholders to ensure that this process is effective in achieving its goals. The Lehman failure provides an excellent model to contrast the tools available to the FDIC to effectuate an orderly resolution of a large financial institution against the process used in bankruptcy which, unlike our process, is not specifically designed to deal with the failure of a financial entity. I commend the professional staff for completing this comprehensive and rigorous analysis. It will add tremendous value to the public understanding of the FDIC's resolution process under Dodd-Frank."
Lehman's bankruptcy filing on September 15, 2008, was a signal event of the financial crisis. The disorderly and costly nature of the bankruptcy -- the largest financial bankruptcy in U.S. history -- contributed to the massive financial disruption of late 2008. The lengthy bankruptcy proceeding has allocated resources elsewhere that could have otherwise been used to pay creditors. Through February 2011, more than $1.2 billion in fees have been charged by attorneys and other professionals principally for administration of the debtor's estate.
The FDIC report concludes that Title II of the Dodd-Frank Act could have been used to resolve Lehman by effectuating a rapid, orderly and transparent sale of the company's assets. This sale would have been completed through a competitive bidding process and likely would have incorporated either loss-sharing to encourage higher bids or a form of good firm-bad firm structure in which some troubled assets would be left in the receivership for later disposition. Both approaches would have achieved a seamless transfer and continuity of valuable operations under the powers provided in the Dodd-Frank Act to the benefit of market stability and improved recoveries for creditors. As required by the Dodd-Frank Act, there would be no exposure to taxpayers for losses from Lehman's failure.
The powers provided under the Dodd-Frank Act are critical to these results. Among the critical powers highlighted in the report are the following:
Advance resolution planning: The resolution plans, or living wills, mandated under Title I of the Dodd-Frank Act would have required Lehman to analyze and take action to improve its resolvability and would have permitted the FDIC, working with its fellow regulators, to collect and analyze information for resolution planning purposes in advance of Lehman's impending failure.
Domestic and International Pre-planning: The Lehman resolution plan would have helped the FDIC and other domestic regulators better understand Lehman's business and how it could be resolved. This would have laid the groundwork for continuing development of improved Lehman-specific cross-border planning with foreign regulators to reduce impediments to crisis coordination.
Source of Liquidity: A vital element in preserving continuity of systemically important operations is the availability of funding for those operations. The FDIC could have provided liquidity necessary to fund Lehman's critical operations to promote stability and preserve valuable assets and operations pending the consummation of a sale. These funds are to be repaid from the receivership estate with the shareholders and creditors bearing any loss. By law, taxpayers will not bear any risk of loss.
Speed of Execution: The FDIC would conduct due diligence, identify potential acquirer and troubled assets, determine a transaction structure and conduct sealed bidding -- all before Lehman ever failed and was put into receivership under Title II. A suitable acquirer would be ready to complete the acquisition at the time of Lehman's failure. A critical element in quickly completing a transaction is the power, provided by the Dodd-Frank Act, to require contract parties to continue to perform under contracts with the failed financial company so long as the receiver continues to perform. This is particularly critical to avoid the lost value, as exemplified in the Lehman bankruptcy, when counterparties immediately terminate and net financial contracts and liquidate valuable collateral.
Flexible transactions: The FDIC's bidding structure would provide potential acquirers with the flexibility to bid on troubled assets (e.g., questionable real estate loans) or leave them behind in the receivership. Similarly, creditors could receive advance dividends (i.e., partial payment on their claims) to help move money back out into the market and further promote financial stability. Advance dividends would not be provided if they would expose the receivership to loss.
These powers would enable the FDIC to act to preserve the financial stability of the United States and to maximize value for creditors by preserving franchise value and by rapidly moving proceeds into creditors' hands.
The very availability of a comprehensive resolution system, which sets forth in advance the rules under which the government will act following the appointment of a receiver, could have helped to prevent a 'run on the bank' and the resulting financial instability.
The report was prepared using publically available information about the events leading up to and following the filing of the Lehman bankruptcy petition. The report was prepared by FDIC staff from the Division of Insurance and Research, Office of Complex Financial Institutions, and the Legal Division.
# # #
Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 7,760 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.”
Under Dodd-Frank the FDIC may have more powers to deal with failing institutions but, without a DOJ (Department of Justice) that is dedicated to find and prosecute fraudsters, the underlying problems will come back to haunt the financial future of us all.
“FDIC Report Examines How an Orderly Resolution of Lehman Brothers Could Have Been Structured Under the Dodd-Frank Act
The FDIC on Monday released a report examining how the FDIC could have structured an orderly resolution of Lehman Brothers Holdings Inc. under the orderly liquidation authority of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act had that law been in effect in advance of Lehman's failure.
The report concludes that the powers provided to the FDIC under the Dodd-Frank Act to act decisively to preserve asset value and structure a transaction to sell Lehman's valuable operations to interested buyers -- which are drawn from those long used by the FDIC in resolving failing banks -- could have promoted systemic stability while recovering substantially more for creditors than the bankruptcy proceedings -- and at no cost to taxpayers. The report estimates that given the substantial, though declining, equity and subordinated debt of Lehman in September 2008 and the power for the FDIC to implement a prompt structured sale while providing short-term liquidity to continue value-adding operations, general unsecured creditors could have recovered 97 cents on every $1 of claims, compared to the estimated 21 cents on claims estimated in the most recent bankruptcy plan of reorganization. While there remains no doubt that the orderly liquidation of Lehman would have been incredibly complex and difficult, report concludes that it would have been vastly superior for creditors and systemic stability in all respects to the bankruptcy process as it was applied.
FDIC Chairman Sheila C. Bair said, "This new report is an important step in ensuring that the public and market participants understand how the FDIC's new resolution authority for large systemic firms works. The powers to implement a FDIC liquidation of a systemic financial company during a future crisis give us the tools to end Too Big to Fail and eliminate future bailouts. Much work remains to be done, and we look forward to working with key stakeholders to ensure that this process is effective in achieving its goals. The Lehman failure provides an excellent model to contrast the tools available to the FDIC to effectuate an orderly resolution of a large financial institution against the process used in bankruptcy which, unlike our process, is not specifically designed to deal with the failure of a financial entity. I commend the professional staff for completing this comprehensive and rigorous analysis. It will add tremendous value to the public understanding of the FDIC's resolution process under Dodd-Frank."
Lehman's bankruptcy filing on September 15, 2008, was a signal event of the financial crisis. The disorderly and costly nature of the bankruptcy -- the largest financial bankruptcy in U.S. history -- contributed to the massive financial disruption of late 2008. The lengthy bankruptcy proceeding has allocated resources elsewhere that could have otherwise been used to pay creditors. Through February 2011, more than $1.2 billion in fees have been charged by attorneys and other professionals principally for administration of the debtor's estate.
The FDIC report concludes that Title II of the Dodd-Frank Act could have been used to resolve Lehman by effectuating a rapid, orderly and transparent sale of the company's assets. This sale would have been completed through a competitive bidding process and likely would have incorporated either loss-sharing to encourage higher bids or a form of good firm-bad firm structure in which some troubled assets would be left in the receivership for later disposition. Both approaches would have achieved a seamless transfer and continuity of valuable operations under the powers provided in the Dodd-Frank Act to the benefit of market stability and improved recoveries for creditors. As required by the Dodd-Frank Act, there would be no exposure to taxpayers for losses from Lehman's failure.
The powers provided under the Dodd-Frank Act are critical to these results. Among the critical powers highlighted in the report are the following:
Advance resolution planning: The resolution plans, or living wills, mandated under Title I of the Dodd-Frank Act would have required Lehman to analyze and take action to improve its resolvability and would have permitted the FDIC, working with its fellow regulators, to collect and analyze information for resolution planning purposes in advance of Lehman's impending failure.
Domestic and International Pre-planning: The Lehman resolution plan would have helped the FDIC and other domestic regulators better understand Lehman's business and how it could be resolved. This would have laid the groundwork for continuing development of improved Lehman-specific cross-border planning with foreign regulators to reduce impediments to crisis coordination.
Source of Liquidity: A vital element in preserving continuity of systemically important operations is the availability of funding for those operations. The FDIC could have provided liquidity necessary to fund Lehman's critical operations to promote stability and preserve valuable assets and operations pending the consummation of a sale. These funds are to be repaid from the receivership estate with the shareholders and creditors bearing any loss. By law, taxpayers will not bear any risk of loss.
Speed of Execution: The FDIC would conduct due diligence, identify potential acquirer and troubled assets, determine a transaction structure and conduct sealed bidding -- all before Lehman ever failed and was put into receivership under Title II. A suitable acquirer would be ready to complete the acquisition at the time of Lehman's failure. A critical element in quickly completing a transaction is the power, provided by the Dodd-Frank Act, to require contract parties to continue to perform under contracts with the failed financial company so long as the receiver continues to perform. This is particularly critical to avoid the lost value, as exemplified in the Lehman bankruptcy, when counterparties immediately terminate and net financial contracts and liquidate valuable collateral.
Flexible transactions: The FDIC's bidding structure would provide potential acquirers with the flexibility to bid on troubled assets (e.g., questionable real estate loans) or leave them behind in the receivership. Similarly, creditors could receive advance dividends (i.e., partial payment on their claims) to help move money back out into the market and further promote financial stability. Advance dividends would not be provided if they would expose the receivership to loss.
These powers would enable the FDIC to act to preserve the financial stability of the United States and to maximize value for creditors by preserving franchise value and by rapidly moving proceeds into creditors' hands.
The very availability of a comprehensive resolution system, which sets forth in advance the rules under which the government will act following the appointment of a receiver, could have helped to prevent a 'run on the bank' and the resulting financial instability.
The report was prepared using publically available information about the events leading up to and following the filing of the Lehman bankruptcy petition. The report was prepared by FDIC staff from the Division of Insurance and Research, Office of Complex Financial Institutions, and the Legal Division.
# # #
Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 7,760 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.”
Under Dodd-Frank the FDIC may have more powers to deal with failing institutions but, without a DOJ (Department of Justice) that is dedicated to find and prosecute fraudsters, the underlying problems will come back to haunt the financial future of us all.
Sunday, April 17, 2011
SEC ALLEGES MORTGAGE SECURITIES FRAUD AND TARP SCAM
Many of the worldwide economic woes over the last decade are as a result of fantastical frauds perpetrated by many bankers and securities dealers in the United States. If the SEC is correct in its allegations, the following might be a prime example of just exactly what went on at many U.S. financial institutions over the past 10 years or more. Take a look at the following excerpt from the SEC web site for an understanding of this particular case.
“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.
The SEC's complaint charges Brown with violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. Without admitting or denying the SEC's allegations, Brown consented to the entry of a judgment permanently enjoining her from violation of Rule 13b2-1 of the Securities Exchange Act of 1934 and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The proposed preliminary settlement, under which the SEC's requests for financial penalties against Brown would remain pending, is subject to court approval.
The SEC acknowledges the assistance of the Fraud Section of the U.S. Department of Justice's Criminal Division, the Federal Bureau of Investigation, the Office of the Special Inspector General for the TARP, the Federal Deposit Insurance Corporation's Office of the Inspector General, the Office of the Inspector General for the U.S. Department of Housing and Urban Development, and the U.S. Attorney's Office for the Eastern District of Virginia, Civil Division. The SEC brought its enforcement action in coordination with these other members of the Financial Fraud Enforcement Task Force.
The SEC's investigation is continuing.”
The SEC may be able to get a small amount of money back from Wall Street Fraudsters. However, it is still unclear just how pervasive the fraud has been in the United States. The only thing that is known is that the financial consequences to Americans and others have been devastating in many cases.
“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.
The SEC's complaint charges Brown with violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. Without admitting or denying the SEC's allegations, Brown consented to the entry of a judgment permanently enjoining her from violation of Rule 13b2-1 of the Securities Exchange Act of 1934 and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The proposed preliminary settlement, under which the SEC's requests for financial penalties against Brown would remain pending, is subject to court approval.
The SEC acknowledges the assistance of the Fraud Section of the U.S. Department of Justice's Criminal Division, the Federal Bureau of Investigation, the Office of the Special Inspector General for the TARP, the Federal Deposit Insurance Corporation's Office of the Inspector General, the Office of the Inspector General for the U.S. Department of Housing and Urban Development, and the U.S. Attorney's Office for the Eastern District of Virginia, Civil Division. The SEC brought its enforcement action in coordination with these other members of the Financial Fraud Enforcement Task Force.
The SEC's investigation is continuing.”
The SEC may be able to get a small amount of money back from Wall Street Fraudsters. However, it is still unclear just how pervasive the fraud has been in the United States. The only thing that is known is that the financial consequences to Americans and others have been devastating in many cases.
Saturday, April 16, 2011
MICHAEL MOORE E-MAIL ON CORPORATE TAXES
The following e-mail was sent out by film maker Michael Moore regarding corporate taxes. It is important to note that although avoiding income taxes is not corporate fraud however, the way in which tax loopholes are obtained from government legislatures might have something to do with bribery. Although prosecuting corporations and public officials in the United States is never done when powerful people are involved, perhaps it should be.
"This Tax Day, Make THEM Pay ...a letter about April 18th from Michael Moore
Friday, April 15th, 2011
Friends,
Do you wonder (like I do) what the tax accountants and executives are doing over at GE this weekend? Frantically rushing to fill out their IRS returns like the rest of us?
Hardly. They're taking the weekend off to throw themselves a big party and have a hearty laugh at all of us. It must really crack them up to see us like suckers scurrying around to make sure we report everything to Uncle Sam -- and even send him a check, if necessary.
The joke's on us, folks. GE and tons of other corporations will have a tax bill for 2010 of ZERO. GE had $14.2 billion in profits in 2010. Yet they will contribute NOTHING to the federal government while every last dime is soaked from us.
In the latest budget deal, our politicians could have tackled the deficit by stopping the flow of these ill-gotten billions to corporations. Instead they cut billions from "wasteful" programs that do "wasteful" things, like create new jobs, drive economic growth, and help the needy and our nation's children. It's Democracy in reverse and it sickens me.
GE spends $20 million a year to lobby Congress to throw themselves this party. But do you know what speaks louder than $20 million? 20 million votes! 20 million people, and more, standing together and taking to the streets. That starts now, with you.
This coming Monday, April 18th is Tax Day -- and that's the day when "we the people" will demand our country back from these corporations in events all across the country. You can find the nearest event to you here.
MoveOn members -- along with union, community, and environmental allies -- will gather outside the headquarters and local offices of the biggest corporate tax dodgers to deliver tax bills from the American people. And we'll demand that our leaders make these corporate deadbeats pay.
We're doing this because we don't buy into the Big Lie: that greedy teachers caused the crash on Wall Street! That the selfish firefighters sent millions of jobs overseas! That pregnant woman, infants, and children are sending us into deficit!
No, it was the big corporations that did this. It was the CEOs and the top 1% of the country. THEY brought on the mortgage crisis. THEY made off with trillions of dollars from our economy. THEY are systematically destroying the middle class. And THEY have bought and sold the very people elected to represent us!
On Monday, we will have something to say to Exxon, Chevron, and the big banks that crashed our economy and got billions in bailouts, like Citigroup and Bank of America, who pay little or no federal income tax. In fact, the IRS will likely give them a tax REBATE. If that doesn't boggle your mind then nothing will.
The Tax Day events are about sending this message: We are coming after you, we are stopping you and we are going to return the money, jobs, and homes you stole from the people. This is your tipping point, Corporate America. And I, for one, am glad it's going to happen this Monday.
If you've never been to an event like this before, this is the time. And don't go alone, because none of us can win this fight by ourselves. Plus, it's more fun and exciting to go along with friends and family to be part of real democracy in action -- not the store-bought kind Big Business gets on Capitol Hill.
I really hope you can make it. This is our chance, my friends. Take the time on Monday to make your voice heard. I can guarantee you I will. Please join me.
Yours,
Michael Moore
MMFlint@aol.com
MichaelMoore.com"
Mr. Moore seems to have some serious issues regarding large corporations that pay little if any income tax. As a shareholder in GE along with other companies I have to agree that top management at many firms are mostly concerned about their own bonuses. I have always found that the way a company treats its employees is the same way it treats its shareholders, customers, vendors and the nation which spends billions of dollars protecting the assets of said corporations here and abroad. The adage that "there is no honor among thieves", is extremely true in the world of business.
Whether it is Mr. Moore on the left or Congressman Ron Paul on the right, many have observed the way that many corporate executives seem to be able to easily influence all branches of government and all agencies of government from the local to the federal level. Those who are Wall Street Fraudsters practice their dark arts throughout the entire economy.
"This Tax Day, Make THEM Pay ...a letter about April 18th from Michael Moore
Friday, April 15th, 2011
Friends,
Do you wonder (like I do) what the tax accountants and executives are doing over at GE this weekend? Frantically rushing to fill out their IRS returns like the rest of us?
Hardly. They're taking the weekend off to throw themselves a big party and have a hearty laugh at all of us. It must really crack them up to see us like suckers scurrying around to make sure we report everything to Uncle Sam -- and even send him a check, if necessary.
The joke's on us, folks. GE and tons of other corporations will have a tax bill for 2010 of ZERO. GE had $14.2 billion in profits in 2010. Yet they will contribute NOTHING to the federal government while every last dime is soaked from us.
In the latest budget deal, our politicians could have tackled the deficit by stopping the flow of these ill-gotten billions to corporations. Instead they cut billions from "wasteful" programs that do "wasteful" things, like create new jobs, drive economic growth, and help the needy and our nation's children. It's Democracy in reverse and it sickens me.
GE spends $20 million a year to lobby Congress to throw themselves this party. But do you know what speaks louder than $20 million? 20 million votes! 20 million people, and more, standing together and taking to the streets. That starts now, with you.
This coming Monday, April 18th is Tax Day -- and that's the day when "we the people" will demand our country back from these corporations in events all across the country. You can find the nearest event to you here.
MoveOn members -- along with union, community, and environmental allies -- will gather outside the headquarters and local offices of the biggest corporate tax dodgers to deliver tax bills from the American people. And we'll demand that our leaders make these corporate deadbeats pay.
We're doing this because we don't buy into the Big Lie: that greedy teachers caused the crash on Wall Street! That the selfish firefighters sent millions of jobs overseas! That pregnant woman, infants, and children are sending us into deficit!
No, it was the big corporations that did this. It was the CEOs and the top 1% of the country. THEY brought on the mortgage crisis. THEY made off with trillions of dollars from our economy. THEY are systematically destroying the middle class. And THEY have bought and sold the very people elected to represent us!
On Monday, we will have something to say to Exxon, Chevron, and the big banks that crashed our economy and got billions in bailouts, like Citigroup and Bank of America, who pay little or no federal income tax. In fact, the IRS will likely give them a tax REBATE. If that doesn't boggle your mind then nothing will.
The Tax Day events are about sending this message: We are coming after you, we are stopping you and we are going to return the money, jobs, and homes you stole from the people. This is your tipping point, Corporate America. And I, for one, am glad it's going to happen this Monday.
If you've never been to an event like this before, this is the time. And don't go alone, because none of us can win this fight by ourselves. Plus, it's more fun and exciting to go along with friends and family to be part of real democracy in action -- not the store-bought kind Big Business gets on Capitol Hill.
I really hope you can make it. This is our chance, my friends. Take the time on Monday to make your voice heard. I can guarantee you I will. Please join me.
Yours,
Michael Moore
MMFlint@aol.com
MichaelMoore.com"
Mr. Moore seems to have some serious issues regarding large corporations that pay little if any income tax. As a shareholder in GE along with other companies I have to agree that top management at many firms are mostly concerned about their own bonuses. I have always found that the way a company treats its employees is the same way it treats its shareholders, customers, vendors and the nation which spends billions of dollars protecting the assets of said corporations here and abroad. The adage that "there is no honor among thieves", is extremely true in the world of business.
Whether it is Mr. Moore on the left or Congressman Ron Paul on the right, many have observed the way that many corporate executives seem to be able to easily influence all branches of government and all agencies of government from the local to the federal level. Those who are Wall Street Fraudsters practice their dark arts throughout the entire economy.
Thursday, April 14, 2011
SENATORS ACCUSE GOLDMAN SACHS AND OTHERS OF WIDESPREAD FRAUD
The following release was from the web site of Senator Carl Levin, Chairman on the Senate Permanent Subcommittee on Investigations. It reveals widespread fraud and misrepresentations at various wall street firms during the financial meltdown which has led us to the current great recession:
" WASHINGTON – Concluding a two-year bipartisan investigation, Senator Carl Levin, D-Mich., and Senator Tom Coburn M.D., R-Okla., Chairman and Ranking Republican on the Senate Permanent Subcommittee on Investigations, today released a 635-page final report (PDF, 6MB) on their inquiry into key causes of the financial crisis. The report catalogs conflicts of interest, heedless risk-taking and failures of federal oversight that helped push the country into the deepest recession since the Great Depression.
“Using emails, memos and other internal documents, this report tells the inside story of an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets,” said Levin. “High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets. Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them. Rampant conflicts of interest are the threads that run through every chapter of this sordid story.”
“The free market has helped make America great, but it only functions when people deal with each other honestly and transparently. At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest,” said Dr. Coburn. “Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.”
The Levin-Coburn report expands on evidence gathered at four Subcommittee hearings in April 2010, examining four aspects of the crisis through detailed case studies: high-risk mortgage lending, using the case of Washington Mutual Bank, a $300 billion thrift that became the largest bank failure in U.S. history; regulatory inaction, focusing on the Office of Thrift Supervision’s failed oversight of Washington Mutual; inflated credit ratings that misled investors, examining the actions of the nation’s two largest credit rating agencies, Moody’s and Standard & Poor’s; and the role played by investment banks, focusing primarily on Goldman Sachs, creating and selling structured finance products that foisted billions of dollars of losses on investors, while the bank itself profited from betting against the mortgage market.
New Evidence. Today’s report presents new facts, new findings and recommendations, with more than 700 new documents totaling over 5,800 pages. It recounts how Washington Mutual aggressively issued and sold high-risk mortgages to Wall Street, Fannie Mae, and Freddie Mac, even as its executives predicted a housing bubble that would burst, and offers new detail about how its regulator deferred to the bank’s management. New documents show how Goldman used net short positions to benefit from the downturn in the mortgage market, and designed, marketed, and sold CDOs in ways that created conflicts of interest with the firm’s clients and at times led to the bank’s profiting from the same products that caused substantial losses for its clients. Other new information provides additional detail about how credit rating agencies rushed to rate new mortgage-backed securities and collect lucrative rating fees before issuing mass ratings downgrades that shocked the financial markets and triggered a collapse in the value of mortgage related securities. Over 120 new documents provide insights into how Deutsche Bank contributed to the mortgage mess.
“Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing,” said Levin. Among the report’s highlights are the following.
High Risk Lending. With an eye on short term profits, Washington Mutual launched a strategy of high-risk mortgage lending in early 2005, even as the bank’s own top executives stated that the condition of the housing market “signifies a bubble” with risks that “will come back to haunt us.” Executives forged ahead despite repeated warnings from inside and outside the bank that the risks were excessive, its lending standards and risk management systems were deficient, and many of its loans were tainted by fraud or prone to early default. WaMu’s chief credit officer complained at one point that “[a]ny attempts to enforce [a] more disciplined underwriting approach were continuously thwarted by an aggressive, and often times abusive group of Sales employees within the organization.” From 2003 to 2006, WaMu shifted its loan originations from low risk, fixed rate mortgages, which fell from 64% to 25% of its loan originations, to high risk loans, which jumped from 19% to 55% of its originations. WaMu and its subprime lender, Long Beach Mortgage, securitized hundreds of billions of dollars in high risk, poor quality, sometimes fraudulent mortgages, at times without full disclosure to investors, weakening U.S. financial markets. New analysis shows how WaMu sold some of its high risk loans to Fannie Mae and Freddie Mac, and played one off the other to make more money.
Regulatory Failures. The Office of Thrift Supervision (OTS), Washington Mutual’s primary regulator, repeatedly failed to correct WaMu’s unsafe and unsound lending practices, despite logging nearly 500 serious deficiencies at the bank over five years, from 2003 to 2008. New information details the regulator’s deference to bank management and how it used the bank’s short term profits to excuse high risk activities. Although WaMu recorded increasing problems from its high risk loans, including delinquencies that doubled year after year in its risky Option Adjustable Rate Mortgage (ARM) portfolio, OTS examiners failed to clamp down on WaMu’s high risk lending. OTS did not even consider bringing an enforcement action against the bank until it began losing substantial sums in 2008. OTS also failed until 2008, to lower the bank’s overall high rating or the rating awarded to WaMu’s management, despite the bank’s ongoing failure to correct serious deficiencies. When the Federal Deposit Insurance Corporation (FDIC) advocated taking tougher action, OTS officials not only refused, but impeded FDIC oversight of the bank. When the New York State Attorney General sued two appraisal firms for colluding with WaMu to inflate property values, OTS took nearly a year to conduct its own investigation and finally recommended taking action -- a week after the bank had failed. The OTS Director treated WaMu, which was its largest thrift and supplied 15% of the agency’s budget, as a “constituent” and struck an apologetic tone when informing WaMu’s CEO of its decision to take an enforcement action. When diligent oversight conflicted with OTS officials’ desire to protect their “constituent” and the agency’s own turf, they ignored their oversight responsibilities.
Inflated Credit Ratings. The Report concludes that the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody’s and Standard & Poor’s that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed to be as safe as Treasury bills. The result was a collapse in the value of mortgage related securities that devastated investors. Internal emails show that credit rating agency personnel knew their ratings would not “hold” and delayed imposing tougher ratings criteria to “massage the … numbers to preserve market share.” Even after they finally adjusted their risk models to reflect the higher risk mortgages being issued, the firms often failed to apply the revised models to existing securities, and helped investment banks rush risky investments to market before tougher rating criteria took effect. They also continued to pull in lucrative fees of up to $135,000 to rate a mortgage backed security and up to $750,000 to rate a collateralized debt obligation (CDO) – fees that might have been lost if they angered issuers by providing lower ratings. The mass rating downgrades they finally initiated were not an effort to come clean, but were necessitated by skyrocketing mortgage delinquencies and securities plummeting in value. In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006. When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees.
Investment Banks and Structured Finance. Investment banks reviewed by the Subcommittee assembled and sold billions of dollars in mortgage-related investments that flooded financial markets with high-risk assets. They charged $1 to $8 million in fees to construct, underwrite, and market a mortgage-backed security, and $5 to $10 million per CDO. New documents detail how Deutsche Bank helped assembled a $1.1 billion CDO known as Gemstone 7, stood by as it was filled it with low-quality assets that its top CDO trader referred to as “crap” and “pigs,” and rushed to sell it “before the market falls off a cliff.” Deutsche Bank lost $4.5 billion when the mortgage market collapsed, but would have lost even more if it had not cut its losses by selling CDOs like Gemstone. When Goldman Sachs realized the mortgage market was in decline, it took actions to profit from that decline at the expense of its clients. New documents detail how, in 2007, Goldman’s Structured Products Group twice amassed and profited from large net short positions in mortgage related securities. At the same time the firm was betting against the mortgage market as a whole, Goldman assembled and aggressively marketed to its clients poor quality CDOs that it actively bet against by taking large short positions in those transactions. New documents and information detail how Goldman recommended four CDOs, Hudson, Anderson, Timberwolf, and Abacus, to its clients without fully disclosing key information about those products, Goldman’s own market views, or its adverse economic interests. For example, in Hudson, Goldman told investors that its interests were “aligned” with theirs when, in fact, Goldman held 100% of the short side of the CDO and had adverse interests to the investors, and described Hudson’s assets were “sourced from the Street,” when in fact, Goldman had selected and priced the assets without any third party involvement. New documents also reveal that, at one point in May 2007, Goldman Sachs unsuccessfully tried to execute a “short squeeze” in the mortgage market so that Goldman could scoop up short positions at artificially depressed prices and profit as the mortgage market declined.
Recommendations. The Report offers 19 recommendations to address the conflicts of interest and abuses exposed in the Report. The recommendations advocate, for example, strong implementation of the new restrictions on proprietary trading and conflicts of interest; and action by the SEC to rank credit rating agencies according to the accuracy of their ratings. Other recommendations seek to advance low risk mortgages, greater transparency in the marketplace, and more protective capital, liquidity, and loss reserves."
The above review of the certain banking businesses came from the web site of Senator Carl Levin. If these allegations are true then, the United States has a really big problem with several major financial institutions. Hopefully, the department of justice will work to enforce the laws that exist to protect the public from the monsters in the banking sector who embrace fraud for personal gains.
" WASHINGTON – Concluding a two-year bipartisan investigation, Senator Carl Levin, D-Mich., and Senator Tom Coburn M.D., R-Okla., Chairman and Ranking Republican on the Senate Permanent Subcommittee on Investigations, today released a 635-page final report (PDF, 6MB) on their inquiry into key causes of the financial crisis. The report catalogs conflicts of interest, heedless risk-taking and failures of federal oversight that helped push the country into the deepest recession since the Great Depression.
“Using emails, memos and other internal documents, this report tells the inside story of an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets,” said Levin. “High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets. Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them. Rampant conflicts of interest are the threads that run through every chapter of this sordid story.”
“The free market has helped make America great, but it only functions when people deal with each other honestly and transparently. At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest,” said Dr. Coburn. “Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.”
The Levin-Coburn report expands on evidence gathered at four Subcommittee hearings in April 2010, examining four aspects of the crisis through detailed case studies: high-risk mortgage lending, using the case of Washington Mutual Bank, a $300 billion thrift that became the largest bank failure in U.S. history; regulatory inaction, focusing on the Office of Thrift Supervision’s failed oversight of Washington Mutual; inflated credit ratings that misled investors, examining the actions of the nation’s two largest credit rating agencies, Moody’s and Standard & Poor’s; and the role played by investment banks, focusing primarily on Goldman Sachs, creating and selling structured finance products that foisted billions of dollars of losses on investors, while the bank itself profited from betting against the mortgage market.
New Evidence. Today’s report presents new facts, new findings and recommendations, with more than 700 new documents totaling over 5,800 pages. It recounts how Washington Mutual aggressively issued and sold high-risk mortgages to Wall Street, Fannie Mae, and Freddie Mac, even as its executives predicted a housing bubble that would burst, and offers new detail about how its regulator deferred to the bank’s management. New documents show how Goldman used net short positions to benefit from the downturn in the mortgage market, and designed, marketed, and sold CDOs in ways that created conflicts of interest with the firm’s clients and at times led to the bank’s profiting from the same products that caused substantial losses for its clients. Other new information provides additional detail about how credit rating agencies rushed to rate new mortgage-backed securities and collect lucrative rating fees before issuing mass ratings downgrades that shocked the financial markets and triggered a collapse in the value of mortgage related securities. Over 120 new documents provide insights into how Deutsche Bank contributed to the mortgage mess.
“Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing,” said Levin. Among the report’s highlights are the following.
High Risk Lending. With an eye on short term profits, Washington Mutual launched a strategy of high-risk mortgage lending in early 2005, even as the bank’s own top executives stated that the condition of the housing market “signifies a bubble” with risks that “will come back to haunt us.” Executives forged ahead despite repeated warnings from inside and outside the bank that the risks were excessive, its lending standards and risk management systems were deficient, and many of its loans were tainted by fraud or prone to early default. WaMu’s chief credit officer complained at one point that “[a]ny attempts to enforce [a] more disciplined underwriting approach were continuously thwarted by an aggressive, and often times abusive group of Sales employees within the organization.” From 2003 to 2006, WaMu shifted its loan originations from low risk, fixed rate mortgages, which fell from 64% to 25% of its loan originations, to high risk loans, which jumped from 19% to 55% of its originations. WaMu and its subprime lender, Long Beach Mortgage, securitized hundreds of billions of dollars in high risk, poor quality, sometimes fraudulent mortgages, at times without full disclosure to investors, weakening U.S. financial markets. New analysis shows how WaMu sold some of its high risk loans to Fannie Mae and Freddie Mac, and played one off the other to make more money.
Regulatory Failures. The Office of Thrift Supervision (OTS), Washington Mutual’s primary regulator, repeatedly failed to correct WaMu’s unsafe and unsound lending practices, despite logging nearly 500 serious deficiencies at the bank over five years, from 2003 to 2008. New information details the regulator’s deference to bank management and how it used the bank’s short term profits to excuse high risk activities. Although WaMu recorded increasing problems from its high risk loans, including delinquencies that doubled year after year in its risky Option Adjustable Rate Mortgage (ARM) portfolio, OTS examiners failed to clamp down on WaMu’s high risk lending. OTS did not even consider bringing an enforcement action against the bank until it began losing substantial sums in 2008. OTS also failed until 2008, to lower the bank’s overall high rating or the rating awarded to WaMu’s management, despite the bank’s ongoing failure to correct serious deficiencies. When the Federal Deposit Insurance Corporation (FDIC) advocated taking tougher action, OTS officials not only refused, but impeded FDIC oversight of the bank. When the New York State Attorney General sued two appraisal firms for colluding with WaMu to inflate property values, OTS took nearly a year to conduct its own investigation and finally recommended taking action -- a week after the bank had failed. The OTS Director treated WaMu, which was its largest thrift and supplied 15% of the agency’s budget, as a “constituent” and struck an apologetic tone when informing WaMu’s CEO of its decision to take an enforcement action. When diligent oversight conflicted with OTS officials’ desire to protect their “constituent” and the agency’s own turf, they ignored their oversight responsibilities.
Inflated Credit Ratings. The Report concludes that the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody’s and Standard & Poor’s that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed to be as safe as Treasury bills. The result was a collapse in the value of mortgage related securities that devastated investors. Internal emails show that credit rating agency personnel knew their ratings would not “hold” and delayed imposing tougher ratings criteria to “massage the … numbers to preserve market share.” Even after they finally adjusted their risk models to reflect the higher risk mortgages being issued, the firms often failed to apply the revised models to existing securities, and helped investment banks rush risky investments to market before tougher rating criteria took effect. They also continued to pull in lucrative fees of up to $135,000 to rate a mortgage backed security and up to $750,000 to rate a collateralized debt obligation (CDO) – fees that might have been lost if they angered issuers by providing lower ratings. The mass rating downgrades they finally initiated were not an effort to come clean, but were necessitated by skyrocketing mortgage delinquencies and securities plummeting in value. In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006. When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees.
Investment Banks and Structured Finance. Investment banks reviewed by the Subcommittee assembled and sold billions of dollars in mortgage-related investments that flooded financial markets with high-risk assets. They charged $1 to $8 million in fees to construct, underwrite, and market a mortgage-backed security, and $5 to $10 million per CDO. New documents detail how Deutsche Bank helped assembled a $1.1 billion CDO known as Gemstone 7, stood by as it was filled it with low-quality assets that its top CDO trader referred to as “crap” and “pigs,” and rushed to sell it “before the market falls off a cliff.” Deutsche Bank lost $4.5 billion when the mortgage market collapsed, but would have lost even more if it had not cut its losses by selling CDOs like Gemstone. When Goldman Sachs realized the mortgage market was in decline, it took actions to profit from that decline at the expense of its clients. New documents detail how, in 2007, Goldman’s Structured Products Group twice amassed and profited from large net short positions in mortgage related securities. At the same time the firm was betting against the mortgage market as a whole, Goldman assembled and aggressively marketed to its clients poor quality CDOs that it actively bet against by taking large short positions in those transactions. New documents and information detail how Goldman recommended four CDOs, Hudson, Anderson, Timberwolf, and Abacus, to its clients without fully disclosing key information about those products, Goldman’s own market views, or its adverse economic interests. For example, in Hudson, Goldman told investors that its interests were “aligned” with theirs when, in fact, Goldman held 100% of the short side of the CDO and had adverse interests to the investors, and described Hudson’s assets were “sourced from the Street,” when in fact, Goldman had selected and priced the assets without any third party involvement. New documents also reveal that, at one point in May 2007, Goldman Sachs unsuccessfully tried to execute a “short squeeze” in the mortgage market so that Goldman could scoop up short positions at artificially depressed prices and profit as the mortgage market declined.
Recommendations. The Report offers 19 recommendations to address the conflicts of interest and abuses exposed in the Report. The recommendations advocate, for example, strong implementation of the new restrictions on proprietary trading and conflicts of interest; and action by the SEC to rank credit rating agencies according to the accuracy of their ratings. Other recommendations seek to advance low risk mortgages, greater transparency in the marketplace, and more protective capital, liquidity, and loss reserves."
The above review of the certain banking businesses came from the web site of Senator Carl Levin. If these allegations are true then, the United States has a really big problem with several major financial institutions. Hopefully, the department of justice will work to enforce the laws that exist to protect the public from the monsters in the banking sector who embrace fraud for personal gains.
FDIC LIST OF FAILED BANKS JANUARY 2010-APRIL 2011
The following excerpt came from the FDIC web site. This is a list of failed banks and the acquiring bank by date. The dates range from January 2010-April 2011 and are arranged from most recent to oldest:
Bank Name City State CERT # Acquiring Institution Closing Date Updated Date:
Nevada Commerce Bank Las Vegas NV 35418 City National Bank April 8, 2011 April 11, 2011
Western Springs National Bank and Trust Western Springs IL 10086 Heartland Bank and Trust Company April 8, 2011 April 11, 2011
The Bank of Commerce Wood Dale IL 34292 Advantage National Bank Group March 25, 2011 March 29, 2011
Legacy Bank Milwaukee WI 34818 Seaway Bank and Trust Company March 11, 2011 March 15, 2011
First National Bank of Davis Davis OK 4077 The Pauls Valley National Bank March 11, 2011 March 31, 2011
Valley Community Bank St. Charles IL 34187 First State Bank February 25, 2011 March 02, 2011
San Luis Trust Bank, FSB San Luis Obispo CA 34783 First California Bank February 18, 2011 March 4, 2011
Charter Oak Bank Napa CA 57855 Bank of Marin February 18, 2011 March 4, 2011
Citizens Bank of Effingham Springfield GA 34601 Heritage Bank of the South February 18, 2011 February 23, 2011
Habersham Bank Clarkesville GA 151 SCBT National Association February 18, 2011 February 23, 2011
Canyon National Bank Palm Springs CA 34692 Pacific Premier Bank February 11, 2011 March 4, 2011
Badger State Bank Cassville WI 13272 Royal Bank February 11, 2011 February 18, 2011
Peoples State Bank Hamtramck MI 14939 First Michigan Bank February 11, 2011 February 18, 2011
Sunshine State Community Bank Port Orange FL 35478 Premier American Bank, N.A. February 11, 2011 March 3, 2011
Community First Bank Chicago Chicago IL 57948 Northbrook Bank & Trust February 4, 2011 February 10, 2011
North Georgia Bank Watkinsville GA 35242 BankSouth February 4, 2011 February 11, 2011
American Trust Bank Roswell GA 57432 Renasant Bank February 4, 2011 February 11, 2011
First Community Bank Taos NM 12261 U.S. Bank, National Association January 28, 2011 February 10, 2011
FirsTier Bank Louisville CO 57646 No Acquirer January 28, 2011 February 2, 2011
Evergreen State Bank Stoughton WI 5328 McFarland State Bank January 28, 2011 February 10, 2011
The First State Bank Camargo OK 2303 Bank 7 January 28, 2011 February 10, 2011
United Western Bank Denver CO 31293 First-Citizens Bank & Trust Co. January 21, 2011 February 10, 2011
The Bank of Asheville Asheville NC 34516 First Bank January 21, 2011 February 10, 2011
CommunitySouth Bank & Trust Easley SC 57868 CertusBank, National Association January 21, 2011 February 10, 2011
Enterprise Banking Company McDonough GA 19758 No Acquirer January 21, 2011 January 27, 2011
Oglethorpe Bank Brunswick GA 57440 Bank of the Ozarks January 14, 2011 January 20, 2011
Legacy Bank Scottsdale AZ 57820 Enterprise Bank & Trust January 7, 2011 February 11, 2011
First Commercial Bank of Florida Orlando FL 34965 First Southern Bank January 7, 2011 January 11, 2011
Community National Bank Lino Lakes MN 23306 Farmers & Merchants Savings Bank December 17, 2010 March 8, 2011
First Southern Bank Batesville AR 58052 Southern Bank December 17, 2010 March 8, 2011
United Americas Bank, N.A. Atlanta GA 35065 State Bank and Trust Company December 17, 2010 March 8, 2011
Appalachian Community Bank, FSB McCaysville GA 58495 Peoples Bank of East Tennessee December 17, 2010 March 8, 2011
Chestatee State Bank Dawsonville GA 34578 Bank of the Ozarks December 17, 2010 March 8, 2011
The Bank of Miami,N.A. Coral Gables FL 19040 1st United Bank December 17, 2010 March 8, 2011
Earthstar Bank Southampton PA 35561 Polonia Bank December 10, 2010 March 8, 2011
Paramount Bank Farmington Hills MI 34673 Level One Bank December 10, 2010 March 8, 2011
First Banking Center Burlington WI 5287 First Michigan Bank November 19, 2010 March 8, 2011
Allegiance Bank of North America Bala Cynwyd PA 35078 VIST Bank November 19, 2010 March 8, 2011
Gulf State Community Bank Carrabelle FL 20340 Centennial Bank November 19, 2010 March 8, 2011
Copper Star Bank Scottsdale AZ 35463 Stearns Bank, N.A. November 12, 2010 March 8, 2011
Darby Bank & Trust Co. Vidalia GA 14580 Ameris Bank November 12, 2010 March 8, 2011
Tifton Banking Company Tifton GA 57831 Ameris Bank November 12, 2010 March 8, 2011
First Vietnamese American Bank
In Vietnamese Westminster CA 57885 Grandpoint Bank November 5, 2010 March 8, 2011
Pierce Commercial Bank Tacoma WA 34411 Heritage Bank November 5, 2010 March 8, 2011
Western Commercial Bank Woodland Hills CA 58087 First California Bank November 5, 2010 March 8, 2011
K Bank Randallstown MD 31263 Manufacturers and Traders Trust Company November 5, 2010 March 8, 2011
First Arizona Savings, A FSB Scottsdale AZ 32582 No Acquirer October 22, 2010 March 8, 2011
Hillcrest Bank Overland Park KS 22173 Hillcrest Bank, N.A. October 22, 2010 March 8, 2011
First Suburban National Bank Maywood IL 16089 Seaway Bank and Trust Company October 22, 2010 March 8, 2011
The First National Bank of Barnesville Barnesville GA 2119 United Bank, Zebulon October 22, 2010 March 8, 2011
The Gordon Bank Gordon GA 33904 Morris Bank October 22, 2010 March 8, 2011
Progress Bank of Florida Tampa FL 32251 Bay Cities Bank October 22, 2010 March 8, 2011
First Bank of Jacksonville Jacksonville FL 27573 Ameris Bank October 22, 2010 March 8, 2011
Premier Bank Jefferson City MO 34016 Providence Bank October 15, 2010 March 8, 2011
WestBridge Bank and Trust Company Chesterfield MO 58205 Midland States Bank October 15, 2010 March 8, 2011
Security Savings Bank, F.S.B. Olathe KS 30898 Simmons First National Bank October 15, 2010 March 8, 2011
Shoreline Bank Shoreline WA 35250 GBC International Bank October 1, 2010 March 8, 2011
Wakulla Bank Crawfordville FL 21777 Centennial Bank October 1, 2010 March 8, 2011
North County Bank Arlington WA 35053 Whidbey Island Bank September 24, 2010 March 8, 2011
Haven Trust Bank Florida Ponte Vedra Beach FL 58308 First Southern Bank September 24, 2010 March 8, 2011
Maritime Savings Bank West Allis WI 28612 North Shore Bank, FSB September 17, 2010 March 8, 2011
Bramble Savings Bank Milford OH 27808 Foundation Bank September 17, 2010 March 8, 2011
The Peoples Bank Winder GA 182 Community & Southern Bank September 17, 2010 March 8, 2011
First Commerce Community Bank Douglasville GA 57448 Community & Southern Bank September 17, 2010 March 8, 2011
Bank of Ellijay Ellijay GA 58197 Community & Southern Bank September 17, 2010 March 8, 2011
ISN Bank Cherry Hill NJ 57107 Customers Bank September 17, 2010 March 8, 2011
Horizon Bank Bradenton FL 35061 Bank of the Ozarks September 10, 2010 March 8, 2011
Sonoma Valley Bank Sonoma CA 27259 Westamerica Bank August 20, 2010 March 8, 2011
Los Padres Bank Solvang CA 32165 Pacific Western Bank August 20, 2010 March 16, 2011
Butte Community Bank Chico CA 33219 Rabobank, N.A. August 20, 2010 March 8, 2011
Pacific State Bank Stockton CA 27090 Rabobank, N.A. August 20, 2010 March 8, 2011
ShoreBank Chicago IL 15640 Urban Partnership Bank August 20, 2010 March 7, 2011
Imperial Savings and Loan Association Martinsville VA 31623 River Community Bank, N.A. August 20, 2010 March 7, 2011
Independent National Bank Ocala FL 27344 CenterState Bank of Florida, N.A. August 20, 2010 March 7, 2011
Community National Bank at Bartow Bartow FL 25266 CenterState Bank of Florida, N.A. August 20, 2010 March 7, 2011
Palos Bank and Trust Company Palos Heights IL 17599 First Midwest Bank August 13, 2010 March 7, 2011
Ravenswood Bank Chicago IL 34231 Northbrook Bank and Trust Company August 6, 2010 March 7, 2011
LibertyBank Eugene OR 31964 Home Federal Bank July 30, 2010 March 7, 2011
The Cowlitz Bank Longview WA 22643 Heritage Bank July 30, 2010 March 7, 2011
Coastal Community Bank Panama City Beach FL 9619 Centennial Bank July 30, 2010 March 7, 2011
Bayside Savings Bank Port Saint Joe FL 57669 Centennial Bank July 30, 2010 March 7, 2011
Northwest Bank & Trust Acworth GA 57658 State Bank and Trust Company July 30, 2010 March 7, 2011
Home Valley Bank Cave Junction OR 23181 South Valley Bank & Trust July 23, 2010 March 7, 2011
SouthwestUSA Bank Las Vegas NV 35434 Plaza Bank July 23, 2010 March 7, 2011
Community Security Bank New Prague MN 34486 Roundbank July 23, 2010 March 7, 2011
Thunder Bank Sylvan Grove KS 10506 The Bennington State Bank July 23, 2010 March 7, 2011
Williamsburg First National Bank Kingstree SC 17837 First Citizens Bank and Trust Company, Inc. July 23, 2010 March 7, 2011
Crescent Bank and Trust Company Jasper GA 27559 Renasant Bank July 23, 2010 March 7, 2011
Sterling Bank Lantana FL 32536 IBERIABANK July 23, 2010 March 7, 2011
Mainstreet Savings Bank, FSB Hastings MI 28136 Commercial Bank July 16, 2010 March 7, 2011
Olde Cypress Community Bank Clewiston FL 28864 CenterState Bank of Florida July 16, 2010 March 7, 2011
Turnberry Bank Aventura FL 32280 NAFH National Bank July 16, 2010 March 7, 2011
Metro Bank of Dade County Miami FL 25172 NAFH National Bank July 16, 2010 March 7, 2011
First National Bank of the South Spartanburg SC 35383 NAFH National Bank July 16, 2010 March 7, 2011
Woodlands Bank Bluffton SC 32571 Bank of the Ozarks July 16, 2010 March 7, 2011
Home National Bank Blackwell OK 11636 RCB Bank July 9, 2010 March 16, 2011
USA Bank Port Chester NY 58072 New Century Bank July 9, 2010 March 7, 2011
Ideal Federal Savings Bank Baltimore MD 32456 No Acquirer July 9, 2010 March 7, 2011
Bay National Bank Baltimore MD 35462 Bay Bank, FSB July 9, 2010 March 7, 2011
High Desert State Bank Albuquerque NM 35279 First American Bank June 25, 2010 November 1, 2010
First National Bank Savannah GA 34152 The Savannah Bank, N.A. June 25, 2010 October 21, 2010
Peninsula Bank Englewood FL 26563 Premier American Bank, N.A. June 25, 2010 September 22, 2010
Nevada Security Bank Reno NV 57110 Umpqua Bank June 18, 2010 October 22, 2010
Washington First International Bank Seattle WA 32955 East West Bank June 11, 2010 November 30, 2010
TierOne Bank Lincoln NE 29341 Great Western Bank June 4, 2010 March 24, 2010
Arcola Homestead Savings Bank Arcola IL 31813 No Acquirer June 4, 2010 August 26, 2010
First National Bank Rosedale MS 15814 The Jefferson Bank June 4, 2010 August 26, 2010
Sun West Bank Las Vegas NV 34785 City National Bank May 28, 2010 November 1, 2010
Granite Community Bank, NA Granite Bay CA 57315 Tri Counties Bank May 28, 2010 November 1, 2010
Bank of Florida - Tampa Tampa FL 57814 EverBank May 28, 2010 August 26, 2010
Bank of Florida - Southwest Naples FL 35106 EverBank May 28, 2010 August 26, 2010
Bank of Florida - Southeast Fort Lauderdale FL 57360 EverBank May 28, 2010 August 26, 2010
Pinehurst Bank Saint Paul MN 57735 Coulee Bank May 21, 2010 August 26, 2010
Midwest Bank and Trust Company Elmwood Park IL 18117 FirstMerit Bank, N.A. May 14, 2010 August 26, 2010
Southwest Community Bank Springfield MO 34255 Simmons First National Bank May 14, 2010 October 28, 2010
New Liberty Bank Plymouth MI 35586 Bank of Ann Arbor May 14, 2010 August 26, 2010
Satilla Community Bank Saint Marys GA 35114 Ameris Bank May 14, 2010 August 26, 2010
1st Pacific Bank of California San Diego CA 35517 City National Bank May 7, 2010 August 26, 2010
Towne Bank of Arizona Mesa AZ 57697 Commerce Bank of Arizona May 7, 2010 August 26, 2010
Access Bank Champlin MN 16476 PrinsBank May 7, 2010 August 26, 2010
The Bank of Bonifay Bonifay FL 14246 First Federal Bank of Florida May 7, 2010 August 26, 2010
Frontier Bank Everett WA 22710 Union Bank, N.A. April 30, 2010 August 26, 2010
BC National Banks Butler MO 17792 Community First Bank April 30, 2010 November 4, 2010
Champion Bank Creve Coeur MO 58362 BankLiberty April 30, 2010 August 26, 2010
CF Bancorp Port Huron MI 30005 First Michigan Bank April 30, 2010 March 24, 2010
Westernbank Puerto Rico
En Español Mayaguez PR 31027 Banco Popular de Puerto Rico April 30, 2010 August 26, 2010
R-G Premier Bank of Puerto Rico
En Español Hato Rey PR 32185 Scotiabank de Puerto Rico April 30, 2010 August 26, 2010
Eurobank
En Español San Juan PR 27150 Oriental Bank and Trust April 30, 2010 March 16, 2010
Wheatland Bank Naperville IL 58429 Wheaton Bank & Trust April 23, 2010 August 26, 2010
Peotone Bank and Trust Company Peotone IL 10888 First Midwest Bank April 23, 2010 August 26, 2010
Lincoln Park Savings Bank Chicago IL 30600 Northbrook Bank and Trust Company April 23, 2010 August 26, 2010
New Century Bank Chicago IL 34821 MB Financial Bank, N.A. April 23, 2010 August 26, 2010
Citizens Bank and Trust Company of Chicago Chicago IL 34658 Republic Bank of Chicago April 23, 2010 November 4, 2010
Broadway Bank Chicago IL 22853 MB Financial Bank, N.A. April 23, 2010 November 3, 2010
Amcore Bank, National Association Rockford IL 3735 Harris N.A. April 23, 2010 March 10, 2011
City Bank Lynnwood WA 21521 Whidbey Island Bank April 16, 2010 November 29, 2010
Tamalpais Bank San Rafael CA 33493 Union Bank, N.A. April 16, 2010 August 26, 2010
Innovative Bank Oakland CA 23876 Center Bank April 16, 2010 August 26, 2010
Butler Bank Lowell MA 26619 People's United Bank April 16, 2010 November 4, 2010
Riverside National Bank of Florida Fort Pierce FL 24067 TD Bank, N.A. April 16, 2010 August 26, 2010
AmericanFirst Bank Clermont FL 57724 TD Bank, N.A. April 16, 2010 November 8, 2010
First Federal Bank of North Florida Palatka FL 28886 TD Bank, N.A. April 16, 2010 August 27, 2010
Lakeside Community Bank Sterling Heights MI 34878 No Acquirer April 16, 2010 August 27, 2010
Beach First National Bank Myrtle Beach SC 34242 Bank of North Carolina April 9, 2010 August 27, 2010
Desert Hills Bank Phoenix AZ 57060 New York Community Bank March 26, 2010 August 27, 2010
Unity National Bank Cartersville GA 34678 Bank of the Ozarks March 26, 2010 August 27, 2010
Key West Bank Key West FL 34684 Centennial Bank March 26, 2010 November 3, 2010
McIntosh Commercial Bank Carrollton GA 57399 CharterBank March 26, 2010 August 27, 2010
State Bank of Aurora Aurora MN 8221 Northern State Bank March 19, 2010 August 27, 2010
First Lowndes Bank Fort Deposit AL 24957 First Citizens Bank March 19, 2010 November 3, 2010
Bank of Hiawassee Hiawassee GA 10054 Citizens South Bank March 19, 2010 August 27, 2010
Appalachian Community Bank Ellijay GA 33989 Community & Southern Bank March 19, 2010 August 27, 2010
Advanta Bank Corp. Draper UT 33535 No Acquirer March 19, 2010 September 16, 2010
Century Security Bank Duluth GA 58104 Bank of Upson March 19, 2010 August 27, 2010
American National Bank Parma OH 18806 The National Bank and Trust Company March 19, 2010 November 4, 2010
Statewide Bank Covington LA 29561 Home Bank March 12, 2010 August 27, 2010
Old Southern Bank Orlando FL 58182 Centennial Bank March 12, 2010 August 27, 2010
The Park Avenue Bank New York NY 27096 Valley National Bank March 12, 2010 August 27, 2010
LibertyPointe Bank New York NY 58071 Valley National Bank March 11, 2010 August 27, 2010
Centennial Bank Ogden UT 34430 No Acquirer March 5, 2010 August 27, 2010
Waterfield Bank Germantown MD 34976 No Acquirer March 5, 2010 August 27, 2010
Bank of Illinois Normal IL 9268 Heartland Bank and Trust Company March 5, 2010 August 27, 2010
Sun American Bank Boca Raton FL 27126 First-Citizens Bank & Trust Company March 5, 2010 August 27, 2010
Rainier Pacific Bank Tacoma WA 38129 Umpqua Bank February 26, 2010 August 27, 2010
Carson River Community Bank Carson City NV 58352 Heritage Bank of Nevada February 26, 2010 August 27, 2010
La Jolla Bank, FSB La Jolla CA 32423 OneWest Bank, FSB February 19, 2010 August 27, 2010
George Washington Savings Bank Orland Park IL 29952 FirstMerit Bank, N.A. February 19, 2010 August 27, 2010
The La Coste National Bank La Coste TX 3287 Community National Bank February 19, 2010 November 3, 2010
Marco Community Bank Marco Island FL 57586 Mutual of Omaha Bank February 19, 2010 August 27, 2010
1st American State Bank of Minnesota Hancock MN 15448 Community Development Bank, FSB February 5, 2010 November 8, 2010
American Marine Bank Bainbridge Island WA 16730 Columbia State Bank January 29, 2010 August 26, 2010
First Regional Bank Los Angeles CA 23011 First-Citizens Bank & Trust Company January 29, 2010 August 26, 2010
Community Bank and Trust Cornelia GA 5702 SCBT National Association January 29, 2010 August 26, 2010
Marshall Bank, N.A. Hallock MN 16133 United Valley Bank January 29, 2010 August 26, 2010
Florida Community Bank Immokalee FL 5672 Premier American Bank, N.A. January 29, 2010 March 24, 2010
First National Bank of Georgia Carrollton GA 16480 Community and Southern Bank January 29, 2010 November 3, 2010
Columbia River Bank The Dalles OR 22469 Columbia State Bank January 22, 2010 November 2, 2010
Evergreen Bank Seattle WA 20501 Umpqua Bank January 22, 2010 August 26, 2010
Charter Bank Santa Fe NM 32498 Charter Bank January 22, 2010 August 26, 2010
Bank of Leeton Leeton MO 8265 Sunflower Bank, N.A. January 22, 2010 August 26, 2010
Premier American Bank Miami FL 57147 Premier American Bank, N.A. January 22, 2010 August 26, 2010
Barnes Banking Company Kaysville UT 1252 No Acquirer January 15, 2010 August 26, 2010
St. Stephen State Bank St. Stephen MN 17522 First State Bank of St. Joseph January 15, 2010 November 2, 2010
Town Community Bank & Trust Antioch IL 34705 First American Bank January 15, 2010 August 26, 2010
Horizon Bank Bellingham WA 22977 Washington Federal Savings and Loan Association January 8, 2010 November 4, 2010
Bank Name City State CERT # Acquiring Institution Closing Date Updated Date:
Nevada Commerce Bank Las Vegas NV 35418 City National Bank April 8, 2011 April 11, 2011
Western Springs National Bank and Trust Western Springs IL 10086 Heartland Bank and Trust Company April 8, 2011 April 11, 2011
The Bank of Commerce Wood Dale IL 34292 Advantage National Bank Group March 25, 2011 March 29, 2011
Legacy Bank Milwaukee WI 34818 Seaway Bank and Trust Company March 11, 2011 March 15, 2011
First National Bank of Davis Davis OK 4077 The Pauls Valley National Bank March 11, 2011 March 31, 2011
Valley Community Bank St. Charles IL 34187 First State Bank February 25, 2011 March 02, 2011
San Luis Trust Bank, FSB San Luis Obispo CA 34783 First California Bank February 18, 2011 March 4, 2011
Charter Oak Bank Napa CA 57855 Bank of Marin February 18, 2011 March 4, 2011
Citizens Bank of Effingham Springfield GA 34601 Heritage Bank of the South February 18, 2011 February 23, 2011
Habersham Bank Clarkesville GA 151 SCBT National Association February 18, 2011 February 23, 2011
Canyon National Bank Palm Springs CA 34692 Pacific Premier Bank February 11, 2011 March 4, 2011
Badger State Bank Cassville WI 13272 Royal Bank February 11, 2011 February 18, 2011
Peoples State Bank Hamtramck MI 14939 First Michigan Bank February 11, 2011 February 18, 2011
Sunshine State Community Bank Port Orange FL 35478 Premier American Bank, N.A. February 11, 2011 March 3, 2011
Community First Bank Chicago Chicago IL 57948 Northbrook Bank & Trust February 4, 2011 February 10, 2011
North Georgia Bank Watkinsville GA 35242 BankSouth February 4, 2011 February 11, 2011
American Trust Bank Roswell GA 57432 Renasant Bank February 4, 2011 February 11, 2011
First Community Bank Taos NM 12261 U.S. Bank, National Association January 28, 2011 February 10, 2011
FirsTier Bank Louisville CO 57646 No Acquirer January 28, 2011 February 2, 2011
Evergreen State Bank Stoughton WI 5328 McFarland State Bank January 28, 2011 February 10, 2011
The First State Bank Camargo OK 2303 Bank 7 January 28, 2011 February 10, 2011
United Western Bank Denver CO 31293 First-Citizens Bank & Trust Co. January 21, 2011 February 10, 2011
The Bank of Asheville Asheville NC 34516 First Bank January 21, 2011 February 10, 2011
CommunitySouth Bank & Trust Easley SC 57868 CertusBank, National Association January 21, 2011 February 10, 2011
Enterprise Banking Company McDonough GA 19758 No Acquirer January 21, 2011 January 27, 2011
Oglethorpe Bank Brunswick GA 57440 Bank of the Ozarks January 14, 2011 January 20, 2011
Legacy Bank Scottsdale AZ 57820 Enterprise Bank & Trust January 7, 2011 February 11, 2011
First Commercial Bank of Florida Orlando FL 34965 First Southern Bank January 7, 2011 January 11, 2011
Community National Bank Lino Lakes MN 23306 Farmers & Merchants Savings Bank December 17, 2010 March 8, 2011
First Southern Bank Batesville AR 58052 Southern Bank December 17, 2010 March 8, 2011
United Americas Bank, N.A. Atlanta GA 35065 State Bank and Trust Company December 17, 2010 March 8, 2011
Appalachian Community Bank, FSB McCaysville GA 58495 Peoples Bank of East Tennessee December 17, 2010 March 8, 2011
Chestatee State Bank Dawsonville GA 34578 Bank of the Ozarks December 17, 2010 March 8, 2011
The Bank of Miami,N.A. Coral Gables FL 19040 1st United Bank December 17, 2010 March 8, 2011
Earthstar Bank Southampton PA 35561 Polonia Bank December 10, 2010 March 8, 2011
Paramount Bank Farmington Hills MI 34673 Level One Bank December 10, 2010 March 8, 2011
First Banking Center Burlington WI 5287 First Michigan Bank November 19, 2010 March 8, 2011
Allegiance Bank of North America Bala Cynwyd PA 35078 VIST Bank November 19, 2010 March 8, 2011
Gulf State Community Bank Carrabelle FL 20340 Centennial Bank November 19, 2010 March 8, 2011
Copper Star Bank Scottsdale AZ 35463 Stearns Bank, N.A. November 12, 2010 March 8, 2011
Darby Bank & Trust Co. Vidalia GA 14580 Ameris Bank November 12, 2010 March 8, 2011
Tifton Banking Company Tifton GA 57831 Ameris Bank November 12, 2010 March 8, 2011
First Vietnamese American Bank
In Vietnamese Westminster CA 57885 Grandpoint Bank November 5, 2010 March 8, 2011
Pierce Commercial Bank Tacoma WA 34411 Heritage Bank November 5, 2010 March 8, 2011
Western Commercial Bank Woodland Hills CA 58087 First California Bank November 5, 2010 March 8, 2011
K Bank Randallstown MD 31263 Manufacturers and Traders Trust Company November 5, 2010 March 8, 2011
First Arizona Savings, A FSB Scottsdale AZ 32582 No Acquirer October 22, 2010 March 8, 2011
Hillcrest Bank Overland Park KS 22173 Hillcrest Bank, N.A. October 22, 2010 March 8, 2011
First Suburban National Bank Maywood IL 16089 Seaway Bank and Trust Company October 22, 2010 March 8, 2011
The First National Bank of Barnesville Barnesville GA 2119 United Bank, Zebulon October 22, 2010 March 8, 2011
The Gordon Bank Gordon GA 33904 Morris Bank October 22, 2010 March 8, 2011
Progress Bank of Florida Tampa FL 32251 Bay Cities Bank October 22, 2010 March 8, 2011
First Bank of Jacksonville Jacksonville FL 27573 Ameris Bank October 22, 2010 March 8, 2011
Premier Bank Jefferson City MO 34016 Providence Bank October 15, 2010 March 8, 2011
WestBridge Bank and Trust Company Chesterfield MO 58205 Midland States Bank October 15, 2010 March 8, 2011
Security Savings Bank, F.S.B. Olathe KS 30898 Simmons First National Bank October 15, 2010 March 8, 2011
Shoreline Bank Shoreline WA 35250 GBC International Bank October 1, 2010 March 8, 2011
Wakulla Bank Crawfordville FL 21777 Centennial Bank October 1, 2010 March 8, 2011
North County Bank Arlington WA 35053 Whidbey Island Bank September 24, 2010 March 8, 2011
Haven Trust Bank Florida Ponte Vedra Beach FL 58308 First Southern Bank September 24, 2010 March 8, 2011
Maritime Savings Bank West Allis WI 28612 North Shore Bank, FSB September 17, 2010 March 8, 2011
Bramble Savings Bank Milford OH 27808 Foundation Bank September 17, 2010 March 8, 2011
The Peoples Bank Winder GA 182 Community & Southern Bank September 17, 2010 March 8, 2011
First Commerce Community Bank Douglasville GA 57448 Community & Southern Bank September 17, 2010 March 8, 2011
Bank of Ellijay Ellijay GA 58197 Community & Southern Bank September 17, 2010 March 8, 2011
ISN Bank Cherry Hill NJ 57107 Customers Bank September 17, 2010 March 8, 2011
Horizon Bank Bradenton FL 35061 Bank of the Ozarks September 10, 2010 March 8, 2011
Sonoma Valley Bank Sonoma CA 27259 Westamerica Bank August 20, 2010 March 8, 2011
Los Padres Bank Solvang CA 32165 Pacific Western Bank August 20, 2010 March 16, 2011
Butte Community Bank Chico CA 33219 Rabobank, N.A. August 20, 2010 March 8, 2011
Pacific State Bank Stockton CA 27090 Rabobank, N.A. August 20, 2010 March 8, 2011
ShoreBank Chicago IL 15640 Urban Partnership Bank August 20, 2010 March 7, 2011
Imperial Savings and Loan Association Martinsville VA 31623 River Community Bank, N.A. August 20, 2010 March 7, 2011
Independent National Bank Ocala FL 27344 CenterState Bank of Florida, N.A. August 20, 2010 March 7, 2011
Community National Bank at Bartow Bartow FL 25266 CenterState Bank of Florida, N.A. August 20, 2010 March 7, 2011
Palos Bank and Trust Company Palos Heights IL 17599 First Midwest Bank August 13, 2010 March 7, 2011
Ravenswood Bank Chicago IL 34231 Northbrook Bank and Trust Company August 6, 2010 March 7, 2011
LibertyBank Eugene OR 31964 Home Federal Bank July 30, 2010 March 7, 2011
The Cowlitz Bank Longview WA 22643 Heritage Bank July 30, 2010 March 7, 2011
Coastal Community Bank Panama City Beach FL 9619 Centennial Bank July 30, 2010 March 7, 2011
Bayside Savings Bank Port Saint Joe FL 57669 Centennial Bank July 30, 2010 March 7, 2011
Northwest Bank & Trust Acworth GA 57658 State Bank and Trust Company July 30, 2010 March 7, 2011
Home Valley Bank Cave Junction OR 23181 South Valley Bank & Trust July 23, 2010 March 7, 2011
SouthwestUSA Bank Las Vegas NV 35434 Plaza Bank July 23, 2010 March 7, 2011
Community Security Bank New Prague MN 34486 Roundbank July 23, 2010 March 7, 2011
Thunder Bank Sylvan Grove KS 10506 The Bennington State Bank July 23, 2010 March 7, 2011
Williamsburg First National Bank Kingstree SC 17837 First Citizens Bank and Trust Company, Inc. July 23, 2010 March 7, 2011
Crescent Bank and Trust Company Jasper GA 27559 Renasant Bank July 23, 2010 March 7, 2011
Sterling Bank Lantana FL 32536 IBERIABANK July 23, 2010 March 7, 2011
Mainstreet Savings Bank, FSB Hastings MI 28136 Commercial Bank July 16, 2010 March 7, 2011
Olde Cypress Community Bank Clewiston FL 28864 CenterState Bank of Florida July 16, 2010 March 7, 2011
Turnberry Bank Aventura FL 32280 NAFH National Bank July 16, 2010 March 7, 2011
Metro Bank of Dade County Miami FL 25172 NAFH National Bank July 16, 2010 March 7, 2011
First National Bank of the South Spartanburg SC 35383 NAFH National Bank July 16, 2010 March 7, 2011
Woodlands Bank Bluffton SC 32571 Bank of the Ozarks July 16, 2010 March 7, 2011
Home National Bank Blackwell OK 11636 RCB Bank July 9, 2010 March 16, 2011
USA Bank Port Chester NY 58072 New Century Bank July 9, 2010 March 7, 2011
Ideal Federal Savings Bank Baltimore MD 32456 No Acquirer July 9, 2010 March 7, 2011
Bay National Bank Baltimore MD 35462 Bay Bank, FSB July 9, 2010 March 7, 2011
High Desert State Bank Albuquerque NM 35279 First American Bank June 25, 2010 November 1, 2010
First National Bank Savannah GA 34152 The Savannah Bank, N.A. June 25, 2010 October 21, 2010
Peninsula Bank Englewood FL 26563 Premier American Bank, N.A. June 25, 2010 September 22, 2010
Nevada Security Bank Reno NV 57110 Umpqua Bank June 18, 2010 October 22, 2010
Washington First International Bank Seattle WA 32955 East West Bank June 11, 2010 November 30, 2010
TierOne Bank Lincoln NE 29341 Great Western Bank June 4, 2010 March 24, 2010
Arcola Homestead Savings Bank Arcola IL 31813 No Acquirer June 4, 2010 August 26, 2010
First National Bank Rosedale MS 15814 The Jefferson Bank June 4, 2010 August 26, 2010
Sun West Bank Las Vegas NV 34785 City National Bank May 28, 2010 November 1, 2010
Granite Community Bank, NA Granite Bay CA 57315 Tri Counties Bank May 28, 2010 November 1, 2010
Bank of Florida - Tampa Tampa FL 57814 EverBank May 28, 2010 August 26, 2010
Bank of Florida - Southwest Naples FL 35106 EverBank May 28, 2010 August 26, 2010
Bank of Florida - Southeast Fort Lauderdale FL 57360 EverBank May 28, 2010 August 26, 2010
Pinehurst Bank Saint Paul MN 57735 Coulee Bank May 21, 2010 August 26, 2010
Midwest Bank and Trust Company Elmwood Park IL 18117 FirstMerit Bank, N.A. May 14, 2010 August 26, 2010
Southwest Community Bank Springfield MO 34255 Simmons First National Bank May 14, 2010 October 28, 2010
New Liberty Bank Plymouth MI 35586 Bank of Ann Arbor May 14, 2010 August 26, 2010
Satilla Community Bank Saint Marys GA 35114 Ameris Bank May 14, 2010 August 26, 2010
1st Pacific Bank of California San Diego CA 35517 City National Bank May 7, 2010 August 26, 2010
Towne Bank of Arizona Mesa AZ 57697 Commerce Bank of Arizona May 7, 2010 August 26, 2010
Access Bank Champlin MN 16476 PrinsBank May 7, 2010 August 26, 2010
The Bank of Bonifay Bonifay FL 14246 First Federal Bank of Florida May 7, 2010 August 26, 2010
Frontier Bank Everett WA 22710 Union Bank, N.A. April 30, 2010 August 26, 2010
BC National Banks Butler MO 17792 Community First Bank April 30, 2010 November 4, 2010
Champion Bank Creve Coeur MO 58362 BankLiberty April 30, 2010 August 26, 2010
CF Bancorp Port Huron MI 30005 First Michigan Bank April 30, 2010 March 24, 2010
Westernbank Puerto Rico
En Español Mayaguez PR 31027 Banco Popular de Puerto Rico April 30, 2010 August 26, 2010
R-G Premier Bank of Puerto Rico
En Español Hato Rey PR 32185 Scotiabank de Puerto Rico April 30, 2010 August 26, 2010
Eurobank
En Español San Juan PR 27150 Oriental Bank and Trust April 30, 2010 March 16, 2010
Wheatland Bank Naperville IL 58429 Wheaton Bank & Trust April 23, 2010 August 26, 2010
Peotone Bank and Trust Company Peotone IL 10888 First Midwest Bank April 23, 2010 August 26, 2010
Lincoln Park Savings Bank Chicago IL 30600 Northbrook Bank and Trust Company April 23, 2010 August 26, 2010
New Century Bank Chicago IL 34821 MB Financial Bank, N.A. April 23, 2010 August 26, 2010
Citizens Bank and Trust Company of Chicago Chicago IL 34658 Republic Bank of Chicago April 23, 2010 November 4, 2010
Broadway Bank Chicago IL 22853 MB Financial Bank, N.A. April 23, 2010 November 3, 2010
Amcore Bank, National Association Rockford IL 3735 Harris N.A. April 23, 2010 March 10, 2011
City Bank Lynnwood WA 21521 Whidbey Island Bank April 16, 2010 November 29, 2010
Tamalpais Bank San Rafael CA 33493 Union Bank, N.A. April 16, 2010 August 26, 2010
Innovative Bank Oakland CA 23876 Center Bank April 16, 2010 August 26, 2010
Butler Bank Lowell MA 26619 People's United Bank April 16, 2010 November 4, 2010
Riverside National Bank of Florida Fort Pierce FL 24067 TD Bank, N.A. April 16, 2010 August 26, 2010
AmericanFirst Bank Clermont FL 57724 TD Bank, N.A. April 16, 2010 November 8, 2010
First Federal Bank of North Florida Palatka FL 28886 TD Bank, N.A. April 16, 2010 August 27, 2010
Lakeside Community Bank Sterling Heights MI 34878 No Acquirer April 16, 2010 August 27, 2010
Beach First National Bank Myrtle Beach SC 34242 Bank of North Carolina April 9, 2010 August 27, 2010
Desert Hills Bank Phoenix AZ 57060 New York Community Bank March 26, 2010 August 27, 2010
Unity National Bank Cartersville GA 34678 Bank of the Ozarks March 26, 2010 August 27, 2010
Key West Bank Key West FL 34684 Centennial Bank March 26, 2010 November 3, 2010
McIntosh Commercial Bank Carrollton GA 57399 CharterBank March 26, 2010 August 27, 2010
State Bank of Aurora Aurora MN 8221 Northern State Bank March 19, 2010 August 27, 2010
First Lowndes Bank Fort Deposit AL 24957 First Citizens Bank March 19, 2010 November 3, 2010
Bank of Hiawassee Hiawassee GA 10054 Citizens South Bank March 19, 2010 August 27, 2010
Appalachian Community Bank Ellijay GA 33989 Community & Southern Bank March 19, 2010 August 27, 2010
Advanta Bank Corp. Draper UT 33535 No Acquirer March 19, 2010 September 16, 2010
Century Security Bank Duluth GA 58104 Bank of Upson March 19, 2010 August 27, 2010
American National Bank Parma OH 18806 The National Bank and Trust Company March 19, 2010 November 4, 2010
Statewide Bank Covington LA 29561 Home Bank March 12, 2010 August 27, 2010
Old Southern Bank Orlando FL 58182 Centennial Bank March 12, 2010 August 27, 2010
The Park Avenue Bank New York NY 27096 Valley National Bank March 12, 2010 August 27, 2010
LibertyPointe Bank New York NY 58071 Valley National Bank March 11, 2010 August 27, 2010
Centennial Bank Ogden UT 34430 No Acquirer March 5, 2010 August 27, 2010
Waterfield Bank Germantown MD 34976 No Acquirer March 5, 2010 August 27, 2010
Bank of Illinois Normal IL 9268 Heartland Bank and Trust Company March 5, 2010 August 27, 2010
Sun American Bank Boca Raton FL 27126 First-Citizens Bank & Trust Company March 5, 2010 August 27, 2010
Rainier Pacific Bank Tacoma WA 38129 Umpqua Bank February 26, 2010 August 27, 2010
Carson River Community Bank Carson City NV 58352 Heritage Bank of Nevada February 26, 2010 August 27, 2010
La Jolla Bank, FSB La Jolla CA 32423 OneWest Bank, FSB February 19, 2010 August 27, 2010
George Washington Savings Bank Orland Park IL 29952 FirstMerit Bank, N.A. February 19, 2010 August 27, 2010
The La Coste National Bank La Coste TX 3287 Community National Bank February 19, 2010 November 3, 2010
Marco Community Bank Marco Island FL 57586 Mutual of Omaha Bank February 19, 2010 August 27, 2010
1st American State Bank of Minnesota Hancock MN 15448 Community Development Bank, FSB February 5, 2010 November 8, 2010
American Marine Bank Bainbridge Island WA 16730 Columbia State Bank January 29, 2010 August 26, 2010
First Regional Bank Los Angeles CA 23011 First-Citizens Bank & Trust Company January 29, 2010 August 26, 2010
Community Bank and Trust Cornelia GA 5702 SCBT National Association January 29, 2010 August 26, 2010
Marshall Bank, N.A. Hallock MN 16133 United Valley Bank January 29, 2010 August 26, 2010
Florida Community Bank Immokalee FL 5672 Premier American Bank, N.A. January 29, 2010 March 24, 2010
First National Bank of Georgia Carrollton GA 16480 Community and Southern Bank January 29, 2010 November 3, 2010
Columbia River Bank The Dalles OR 22469 Columbia State Bank January 22, 2010 November 2, 2010
Evergreen Bank Seattle WA 20501 Umpqua Bank January 22, 2010 August 26, 2010
Charter Bank Santa Fe NM 32498 Charter Bank January 22, 2010 August 26, 2010
Bank of Leeton Leeton MO 8265 Sunflower Bank, N.A. January 22, 2010 August 26, 2010
Premier American Bank Miami FL 57147 Premier American Bank, N.A. January 22, 2010 August 26, 2010
Barnes Banking Company Kaysville UT 1252 No Acquirer January 15, 2010 August 26, 2010
St. Stephen State Bank St. Stephen MN 17522 First State Bank of St. Joseph January 15, 2010 November 2, 2010
Town Community Bank & Trust Antioch IL 34705 First American Bank January 15, 2010 August 26, 2010
Horizon Bank Bellingham WA 22977 Washington Federal Savings and Loan Association January 8, 2010 November 4, 2010
Tuesday, April 12, 2011
CORPORATE ATTORNEY AND WALL STREET TRADER CHARGE BY SEC FOR INSIDER TARADING
Everyone who ever has traded very many stocks knows that insider trading and manipulated trading by large institutions goes on all the time. The following is a case that the SEC for whatever reason decided to prosecute. The case is from the SEC blog:
" Washington, D.C., April 6, 2011 – The Securities and Exchange Commission today charged a corporate attorney and a Wall Street trader with insider trading in advance of at least 11 merger and acquisition announcements involving clients of the law firm where the attorney worked.
The SEC alleges that Matthew H. Kluger, who formerly worked at Wilson Sonsini Goodrich & Rosati, and Garrett D. Bauer did not have a direct relationship with each other, but were linked only through a mutual friend who acted as a middleman to facilitate the illegal scheme. Kluger and Bauer communicated with the middleman using public telephones and prepaid disposable mobile phones in order to avoid detection. According to the SEC’s complaint, Kluger accessed information on 11 mergers and acquisitions involving the law firm’s clients and then tipped the middleman. In at least nine instances, the middleman passed the information on to Bauer, who illegally traded for illicit profits totaling nearly $32 million.
In a parallel criminal action, the U.S. Attorney’s Office for the District of New Jersey today announced the arrests of Kluger and Bauer.
“They plotted to fly under law enforcement radar by using disposable phones to hide their communications, cash withdrawals to obscure the flow of tainted money, and a middleman to conceal Kluger as the secret source of inside information,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Now, those same schemes and devices serve only to make it clear beyond any doubt that Kluger and Bauer were involved in an illegal scheme.”
Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit and Director of its Philadelphia Regional Office, added “This was a brazen and deplorable scheme in which Kluger, a lawyer, repeatedly abused his access to confidential client information. As this and recent cases demonstrate, the Division of Enforcement is working aggressively to root out and identify hard-to-detect insider trading by connecting patterns of trading to sources of material non-public information - whether those sources are law firms or others who are under a duty to keep such information confidential.”
According to the SEC’s complaint filed in federal court in Newark, N.J., Kluger, Bauer and the middleman deliberately structured their communications and trading so that Kluger and the middleman could share in the insider trading proceeds while Bauer could illegally trade and profit without being connected to Kluger as a possible source of information. Bauer withdrew cash from his bank accounts and kicked back hundreds of thousands of dollars to the middleman, who in turn delivered at least $500,000 to Kluger for his role in the scheme.
According to the SEC’s complaint, over the past five years Kluger accessed and then tipped confidential information in advance of the following 11 mergers and acquisitions between April 2006 and March 2011:
The acquisition of Advanced Digital Information Corp. by Quantum Corp., announced May 2, 2006.
The acquisition of Acxiom Corp. by multiple entities, announced on May 17, 2007.
The strategic recapitalization of Palm Inc. with Elevation Partners LP, announced June 4, 2007.
The planned acquisition of 3Com Corp. by Bain Capital LLC, announced Sept. 28, 2007.
The acquisition of Visual Sciences Inc. by Omniture Inc., announced Oct. 25, 2007.
The acquisition of Ansoft Corp. by Ansys Inc., announced March 31, 2008.
The acquisition of Sun Microsystems Inc. by Oracle Corp., announced April 20, 2009.
The acquisition of Omniture Inc. by Adobe Systems Inc., announced Sept. 15, 2009.
The acquisition of 3Com Corp. by Hewlett-Packard Co., announced Nov. 11, 2009.
The acquisition of McAfee Inc. by Intel Corp., announced Aug. 19, 2010.
The acquisition of Zoran Corp. by CSR PLC, announced Feb. 20, 2011.
The middleman traded in two deals on the basis of information that he received from Kluger and profited at least $690,000.
The SEC alleges that Kluger and Bauer violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.”
" Washington, D.C., April 6, 2011 – The Securities and Exchange Commission today charged a corporate attorney and a Wall Street trader with insider trading in advance of at least 11 merger and acquisition announcements involving clients of the law firm where the attorney worked.
The SEC alleges that Matthew H. Kluger, who formerly worked at Wilson Sonsini Goodrich & Rosati, and Garrett D. Bauer did not have a direct relationship with each other, but were linked only through a mutual friend who acted as a middleman to facilitate the illegal scheme. Kluger and Bauer communicated with the middleman using public telephones and prepaid disposable mobile phones in order to avoid detection. According to the SEC’s complaint, Kluger accessed information on 11 mergers and acquisitions involving the law firm’s clients and then tipped the middleman. In at least nine instances, the middleman passed the information on to Bauer, who illegally traded for illicit profits totaling nearly $32 million.
In a parallel criminal action, the U.S. Attorney’s Office for the District of New Jersey today announced the arrests of Kluger and Bauer.
“They plotted to fly under law enforcement radar by using disposable phones to hide their communications, cash withdrawals to obscure the flow of tainted money, and a middleman to conceal Kluger as the secret source of inside information,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Now, those same schemes and devices serve only to make it clear beyond any doubt that Kluger and Bauer were involved in an illegal scheme.”
Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit and Director of its Philadelphia Regional Office, added “This was a brazen and deplorable scheme in which Kluger, a lawyer, repeatedly abused his access to confidential client information. As this and recent cases demonstrate, the Division of Enforcement is working aggressively to root out and identify hard-to-detect insider trading by connecting patterns of trading to sources of material non-public information - whether those sources are law firms or others who are under a duty to keep such information confidential.”
According to the SEC’s complaint filed in federal court in Newark, N.J., Kluger, Bauer and the middleman deliberately structured their communications and trading so that Kluger and the middleman could share in the insider trading proceeds while Bauer could illegally trade and profit without being connected to Kluger as a possible source of information. Bauer withdrew cash from his bank accounts and kicked back hundreds of thousands of dollars to the middleman, who in turn delivered at least $500,000 to Kluger for his role in the scheme.
According to the SEC’s complaint, over the past five years Kluger accessed and then tipped confidential information in advance of the following 11 mergers and acquisitions between April 2006 and March 2011:
The acquisition of Advanced Digital Information Corp. by Quantum Corp., announced May 2, 2006.
The acquisition of Acxiom Corp. by multiple entities, announced on May 17, 2007.
The strategic recapitalization of Palm Inc. with Elevation Partners LP, announced June 4, 2007.
The planned acquisition of 3Com Corp. by Bain Capital LLC, announced Sept. 28, 2007.
The acquisition of Visual Sciences Inc. by Omniture Inc., announced Oct. 25, 2007.
The acquisition of Ansoft Corp. by Ansys Inc., announced March 31, 2008.
The acquisition of Sun Microsystems Inc. by Oracle Corp., announced April 20, 2009.
The acquisition of Omniture Inc. by Adobe Systems Inc., announced Sept. 15, 2009.
The acquisition of 3Com Corp. by Hewlett-Packard Co., announced Nov. 11, 2009.
The acquisition of McAfee Inc. by Intel Corp., announced Aug. 19, 2010.
The acquisition of Zoran Corp. by CSR PLC, announced Feb. 20, 2011.
The middleman traded in two deals on the basis of information that he received from Kluger and profited at least $690,000.
The SEC alleges that Kluger and Bauer violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.”
DODD-FRANK: RULES FOR SWAPS TO BE DISCUSSED IN MAY
The following excerpt is from the SEC web site and involves Dodd-Frank implementation of rules on Swaps under the Wall Street Reform and Protection Act:
" Washington, D.C. April 12, 2011 — The staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) today announced that they intend to hold a two-day joint public roundtable on May 2-3, 2011, to discuss the schedule for implementing final rules for swaps and security-based swaps under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act gives the CFTC and SEC certain flexibility to set effective dates and a schedule for compliance with rules implementing Title VII of the Act, which involves oversight of swaps and security-based swaps, so that market participants have time to develop the policies, procedures, systems and processes needed to comply with the new regulatory requirements.
Public comments on Title VII have helped inform the Commissions as to what requirements can be met sooner and which ones will take more time. The roundtable is intended to supplement the comments received to date and help inform the Commissions as they proceed with rulemaking. The order in which the Commissions finalize the rules need not determine the order in which the rules become effective or the applicable compliance dates.
The roundtable will provide the public with the opportunity to comment on whether to phase implementation of the new requirements based on factors such as: the type of swap or security-based swap, including by asset class; the type of market participants that engage in such trades; the speed with which market infrastructures can meet the new requirements; and whether registered market infrastructures or participants might be required to have policies and procedures in place ahead of compliance with such policies and procedures by non-registrants.
The roundtable is expected to include panel discussions of (1) compliance dates for new rules for existing trading platforms and clearinghouses and the registration and compliance with rules for new platforms, such as swap and security-based swap execution facilities, and data repositories for swaps and security-based swaps; (2) compliance dates for new requirements for dealers and major participants in swaps and security-based swaps; (3) implementation of clearing mandates; (4) compliance dates for financial entities such as hedge funds, asset managers, insurance companies and pension funds subject to a clearing mandate and other requirements; and (5) considerations with regard to non-financial end users.
The roundtable will be held from 9:30 am to 4:00 pm each day in the Conference Center at the CFTC’s Headquarters, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC. The discussion will be open to the public with seating on a first-come, first-served basis."
" Washington, D.C. April 12, 2011 — The staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) today announced that they intend to hold a two-day joint public roundtable on May 2-3, 2011, to discuss the schedule for implementing final rules for swaps and security-based swaps under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act gives the CFTC and SEC certain flexibility to set effective dates and a schedule for compliance with rules implementing Title VII of the Act, which involves oversight of swaps and security-based swaps, so that market participants have time to develop the policies, procedures, systems and processes needed to comply with the new regulatory requirements.
Public comments on Title VII have helped inform the Commissions as to what requirements can be met sooner and which ones will take more time. The roundtable is intended to supplement the comments received to date and help inform the Commissions as they proceed with rulemaking. The order in which the Commissions finalize the rules need not determine the order in which the rules become effective or the applicable compliance dates.
The roundtable will provide the public with the opportunity to comment on whether to phase implementation of the new requirements based on factors such as: the type of swap or security-based swap, including by asset class; the type of market participants that engage in such trades; the speed with which market infrastructures can meet the new requirements; and whether registered market infrastructures or participants might be required to have policies and procedures in place ahead of compliance with such policies and procedures by non-registrants.
The roundtable is expected to include panel discussions of (1) compliance dates for new rules for existing trading platforms and clearinghouses and the registration and compliance with rules for new platforms, such as swap and security-based swap execution facilities, and data repositories for swaps and security-based swaps; (2) compliance dates for new requirements for dealers and major participants in swaps and security-based swaps; (3) implementation of clearing mandates; (4) compliance dates for financial entities such as hedge funds, asset managers, insurance companies and pension funds subject to a clearing mandate and other requirements; and (5) considerations with regard to non-financial end users.
The roundtable will be held from 9:30 am to 4:00 pm each day in the Conference Center at the CFTC’s Headquarters, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC. The discussion will be open to the public with seating on a first-come, first-served basis."
5 AGENCIES ASK FOR COMMENTS ON SWAP MARGIN AND CAPITAL REQUIREMENTS
The following was found on the FDIC blog site:
"Five federal agencies are seeking comment on a proposed rule to establish margin and capital requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The rule is proposed by the Federal Reserve Board, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency. The proposed rule would require swap entities regulated by the five agencies to collect minimum amounts of initial margin and variation margin from counterparties to non-cleared swaps and non-cleared, security-based swaps
The amount of margin that would be required under the proposed rule would vary based on the relative risk of the counterparty and of the swap or security-based swap. A swap entity would not be required to collect margin from a commercial end user as long as its margin exposure is below an appropriate credit exposure limit established by the swap entity. A swap entity would also not be required to collect margin from low-risk financial end users as long as its margin exposure does not exceed a specific threshold. The proposed margin requirements would apply to new, non-cleared swaps or security-based swaps entered into after the proposed rule's effective date. The proposal also seeks comment on several alternative approaches to establishing margin requirements.
Provisions in the Dodd-Frank Act also require the agencies to establish capital requirements for regulated swap entities. The proposed rule would implement these provisions by requiring swap entities to comply with the existing capital standards that apply to those entities as part of their prudential regulation, as those capital standards already address non-cleared swaps and non-cleared, security-based swaps.
Staff of the agencies consulted with staff of the Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission in developing the proposed rule.
The agencies request comments on the proposed rule by June 24, 2011."
"Five federal agencies are seeking comment on a proposed rule to establish margin and capital requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The rule is proposed by the Federal Reserve Board, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency. The proposed rule would require swap entities regulated by the five agencies to collect minimum amounts of initial margin and variation margin from counterparties to non-cleared swaps and non-cleared, security-based swaps
The amount of margin that would be required under the proposed rule would vary based on the relative risk of the counterparty and of the swap or security-based swap. A swap entity would not be required to collect margin from a commercial end user as long as its margin exposure is below an appropriate credit exposure limit established by the swap entity. A swap entity would also not be required to collect margin from low-risk financial end users as long as its margin exposure does not exceed a specific threshold. The proposed margin requirements would apply to new, non-cleared swaps or security-based swaps entered into after the proposed rule's effective date. The proposal also seeks comment on several alternative approaches to establishing margin requirements.
Provisions in the Dodd-Frank Act also require the agencies to establish capital requirements for regulated swap entities. The proposed rule would implement these provisions by requiring swap entities to comply with the existing capital standards that apply to those entities as part of their prudential regulation, as those capital standards already address non-cleared swaps and non-cleared, security-based swaps.
Staff of the agencies consulted with staff of the Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission in developing the proposed rule.
The agencies request comments on the proposed rule by June 24, 2011."
Sunday, April 10, 2011
BODY ARMOR COMPANY ACCUSED OF ACCOUNTING FRAUD
The following is an excerpt from the SEC website. In this case officials at a maker of body armor were accused of misleading investors:
“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.”
It is hopeful that if the above charges are true that, purchasers of body armor from this company were not also lied to regarding the usefulness of the body armor. In business if someone cheats one group of people they will cheat another group. If someone steals from their employees then they will also steal from their vendors and customers and cheat on their taxes. Criminal minds never stop thinking of ways to steal.
“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.”
It is hopeful that if the above charges are true that, purchasers of body armor from this company were not also lied to regarding the usefulness of the body armor. In business if someone cheats one group of people they will cheat another group. If someone steals from their employees then they will also steal from their vendors and customers and cheat on their taxes. Criminal minds never stop thinking of ways to steal.
EXECUTIVES AT FAIR FINANCIAL COMPANY OF OHIO CHARGED WITH FRAUD
The following was obtained from the Department of Justice web site and involves charges of investment fraud against executives at Fair Financial Company:
“Wednesday, March 16, 2011
Three Former Executives Charged in $200 Million Fraud Scheme Involving Fair Financial Company Investors
WASHINGTON – Three former executives of Fair Financial Company, an Ohio financial services business, were arrested today and charged in an indictment filed in the Southern District of Indiana for their roles in a scheme to defraud approximately 5,000 investors of more than $200 million, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; Timothy M. Morrison, First Assistant U.S. Attorney for the Southern District of Indiana; and Special Agent in Charge Michael E. Welch of the FBI in Indiana.
The indictment, returned by a federal grand jury on March 15, 2011, and unsealed today, charges Timothy S. Durham, 48; James F. Cochran, 55; and Rick D. Snow, 47, with one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. Durham was arrested in Los Angeles, and Cochran and Snow were arrested in Indianapolis.
According to the indictment, Durham and Cochran purchased Fair, whose headquarters were in Akron, Ohio, in 2002. Durham was the chief executive officer of Fair and a member of the board of directors, Cochran was the chairman of the board of Fair, and Snow, a certified public accountant, served as the chief financial officer of Fair.
The indictment alleges that between approximately February 2005 through the end of November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The indictment further alleges that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises, and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money.
According to the indictment, when Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. The indictment alleges that in November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled, which they claimed were worth approximately $240 million, and finance receivables of approximately $24 million.
“These former executives are charged with engaging in fraudulent and deceptive business practices to hide from investors and regulators Fair’s true financial condition and their misuse of the company’s funds,” said Assistant Attorney General Breuer. “As alleged in the indictment, by using investors’ money to fund their failing business ventures and personal lifestyles, they perpetrated a $200 million fraud. Today’s charges and arrests reflect that investigating and prosecuting financial fraud is a Justice Department priority.”
“This has been an arduous journey, as are most large white collar cases,” said First Assistant U.S. Attorney Morrison. “But we now welcome the opportunity to prove the indictment’s allegations against these three men beyond a reasonable doubt.”
“These arrests follow the largest corporate fraud investigation in the history of the FBI in Indiana which resulted in over 5,000 victims and an estimated loss of $200 million dollars,” said Special Agent in Charge Welch.
According to the indictment, when Durham and Cochran bought Fair in 2002 its primary business was purchasing and collecting finance receivables. Fair financed its purchase of finance receivables by selling investment certificates to investors. Investors who purchased investment certificates were promised regular interest payments for a set period of time, at the end of which they were entitled to the return of their principal investment.
In order to sell its investment certificates, Fair was required to register the investment certificates with the State of Ohio Division of Securities. Fair did so by submitting registration documents and a proposed “offering circular” to the Division of Securities that was required to contain truthful and accurate disclosures about Fair’s business.
The indictment alleges that after Durham and Cochran acquired Fair, they changed the manner in which the company operated and used its funds. Rather than using the funds Fair raised from investors primarily for the purpose of purchasing finance receivables, Durham and Cochran caused Fair to extend loans to themselves, their associates and businesses they owned or controlled, which caused a steady and substantial deterioration in Fair’s financial condition.
According to the indictment, companies owned or controlled by Durham and Cochran, including DC Investments LLC (DCI) and Obsidian Enterprises Inc., as well as other businesses controlled through Obsidian and DCI, were among the primary beneficiaries of the loans Durham and Cochran made with Fair investor money. Durham and Cochran allegedly loaned money through Obsidian and DCI to a variety of struggling businesses and start-up ventures, including a car magazine, restaurants, a surgery center, trailer manufacturers, internet companies, a race car team, a replica vintage car manufacturer, a rubber reclaiming plant and a luxury bus leasing business. The indictment further alleges that after receiving loans from Fair, many of these businesses failed and were never able to repay the money they borrowed, while others, with the benefit of continued loans from Fair, struggled as unprofitable entities for years. In addition, Durham and Cochran allegedly took loans of Fair investor money for themselves, and used a significant portion of the proceeds of the loans to maintain their lifestyles and to pay for personal expenses.
According to the indictment, Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral. The indictment alleges that after firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009. The indictment further alleges that with independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.
The indictment also alleges that Durham, Cochran and Snow falsely represented, in registration documents and offering circulars submitted to the Division of Securities and in offering circulars distributed to investors, that the loans on Fair’s books were assets that could support Fair’s sale of investment certificates. According to the indictment, the defendants knew that in reality, the loans were worthless or grossly overvalued; producing little or no cash proceeds; supported by insufficient or non-existent collateral to assure repayment; and in part advances, salaries, bonuses and lines of credit for Durham and Cochran’s personal expenses.
The indictment alleges that the defendants engaged in a variety of other fraudulent activities to conceal from the Division of Securities and from investors Fair’s true financial health and cash flow problems, including making false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health, and directing employees of Fair not to pay investors who were owed interest or principal payments on their certificates. According to the indictment, even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.
An indictment is only a charge and is not evidence of guilt. A defendant is presumed innocent and is entitled to a fair trial at which the government must prove guilt beyond a reasonable doubt.
Also today, the U.S. Securities and Exchange Commission filed civil securities charges against Durham, Cochran and Snow.
This case is being prosecuted by Assistant U.S. Attorneys Winfield D. Ong and Joe H. Vaughn of the Southern District of Indiana and Assistant Chief Robertson Park and Trial Attorney Henry P. Van Dyck of the Fraud Section of the Criminal Division. The investigation was led by the FBI in Indianapolis.
Durham, Cochran and Snow each face a maximum of five years in prison for the conspiracy count, 20 years in prison for each wire fraud count and 20 years in prison for the securities fraud count. Additionally, each defendant could be fined $250,000 for each count of conviction. An initial hearing was held today in Indianapolis before a U.S. Magistrate Judge Kennard Foster for Cochran and Snow, and an initial hearing for Durham will be held in Los Angeles.
This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. 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.”
“Wednesday, March 16, 2011
Three Former Executives Charged in $200 Million Fraud Scheme Involving Fair Financial Company Investors
WASHINGTON – Three former executives of Fair Financial Company, an Ohio financial services business, were arrested today and charged in an indictment filed in the Southern District of Indiana for their roles in a scheme to defraud approximately 5,000 investors of more than $200 million, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; Timothy M. Morrison, First Assistant U.S. Attorney for the Southern District of Indiana; and Special Agent in Charge Michael E. Welch of the FBI in Indiana.
The indictment, returned by a federal grand jury on March 15, 2011, and unsealed today, charges Timothy S. Durham, 48; James F. Cochran, 55; and Rick D. Snow, 47, with one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. Durham was arrested in Los Angeles, and Cochran and Snow were arrested in Indianapolis.
According to the indictment, Durham and Cochran purchased Fair, whose headquarters were in Akron, Ohio, in 2002. Durham was the chief executive officer of Fair and a member of the board of directors, Cochran was the chairman of the board of Fair, and Snow, a certified public accountant, served as the chief financial officer of Fair.
The indictment alleges that between approximately February 2005 through the end of November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The indictment further alleges that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises, and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money.
According to the indictment, when Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. The indictment alleges that in November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled, which they claimed were worth approximately $240 million, and finance receivables of approximately $24 million.
“These former executives are charged with engaging in fraudulent and deceptive business practices to hide from investors and regulators Fair’s true financial condition and their misuse of the company’s funds,” said Assistant Attorney General Breuer. “As alleged in the indictment, by using investors’ money to fund their failing business ventures and personal lifestyles, they perpetrated a $200 million fraud. Today’s charges and arrests reflect that investigating and prosecuting financial fraud is a Justice Department priority.”
“This has been an arduous journey, as are most large white collar cases,” said First Assistant U.S. Attorney Morrison. “But we now welcome the opportunity to prove the indictment’s allegations against these three men beyond a reasonable doubt.”
“These arrests follow the largest corporate fraud investigation in the history of the FBI in Indiana which resulted in over 5,000 victims and an estimated loss of $200 million dollars,” said Special Agent in Charge Welch.
According to the indictment, when Durham and Cochran bought Fair in 2002 its primary business was purchasing and collecting finance receivables. Fair financed its purchase of finance receivables by selling investment certificates to investors. Investors who purchased investment certificates were promised regular interest payments for a set period of time, at the end of which they were entitled to the return of their principal investment.
In order to sell its investment certificates, Fair was required to register the investment certificates with the State of Ohio Division of Securities. Fair did so by submitting registration documents and a proposed “offering circular” to the Division of Securities that was required to contain truthful and accurate disclosures about Fair’s business.
The indictment alleges that after Durham and Cochran acquired Fair, they changed the manner in which the company operated and used its funds. Rather than using the funds Fair raised from investors primarily for the purpose of purchasing finance receivables, Durham and Cochran caused Fair to extend loans to themselves, their associates and businesses they owned or controlled, which caused a steady and substantial deterioration in Fair’s financial condition.
According to the indictment, companies owned or controlled by Durham and Cochran, including DC Investments LLC (DCI) and Obsidian Enterprises Inc., as well as other businesses controlled through Obsidian and DCI, were among the primary beneficiaries of the loans Durham and Cochran made with Fair investor money. Durham and Cochran allegedly loaned money through Obsidian and DCI to a variety of struggling businesses and start-up ventures, including a car magazine, restaurants, a surgery center, trailer manufacturers, internet companies, a race car team, a replica vintage car manufacturer, a rubber reclaiming plant and a luxury bus leasing business. The indictment further alleges that after receiving loans from Fair, many of these businesses failed and were never able to repay the money they borrowed, while others, with the benefit of continued loans from Fair, struggled as unprofitable entities for years. In addition, Durham and Cochran allegedly took loans of Fair investor money for themselves, and used a significant portion of the proceeds of the loans to maintain their lifestyles and to pay for personal expenses.
According to the indictment, Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral. The indictment alleges that after firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009. The indictment further alleges that with independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.
The indictment also alleges that Durham, Cochran and Snow falsely represented, in registration documents and offering circulars submitted to the Division of Securities and in offering circulars distributed to investors, that the loans on Fair’s books were assets that could support Fair’s sale of investment certificates. According to the indictment, the defendants knew that in reality, the loans were worthless or grossly overvalued; producing little or no cash proceeds; supported by insufficient or non-existent collateral to assure repayment; and in part advances, salaries, bonuses and lines of credit for Durham and Cochran’s personal expenses.
The indictment alleges that the defendants engaged in a variety of other fraudulent activities to conceal from the Division of Securities and from investors Fair’s true financial health and cash flow problems, including making false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health, and directing employees of Fair not to pay investors who were owed interest or principal payments on their certificates. According to the indictment, even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.
An indictment is only a charge and is not evidence of guilt. A defendant is presumed innocent and is entitled to a fair trial at which the government must prove guilt beyond a reasonable doubt.
Also today, the U.S. Securities and Exchange Commission filed civil securities charges against Durham, Cochran and Snow.
This case is being prosecuted by Assistant U.S. Attorneys Winfield D. Ong and Joe H. Vaughn of the Southern District of Indiana and Assistant Chief Robertson Park and Trial Attorney Henry P. Van Dyck of the Fraud Section of the Criminal Division. The investigation was led by the FBI in Indianapolis.
Durham, Cochran and Snow each face a maximum of five years in prison for the conspiracy count, 20 years in prison for each wire fraud count and 20 years in prison for the securities fraud count. Additionally, each defendant could be fined $250,000 for each count of conviction. An initial hearing was held today in Indianapolis before a U.S. Magistrate Judge Kennard Foster for Cochran and Snow, and an initial hearing for Durham will be held in Los Angeles.
This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. 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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