BANK AND TOP EXECUTIVE CHARGED BY SEC WITH MISLEADING INVESTORS

The following excerpt is from an SEC e-mail: 

"Washington, D.C., Jan. 18, 2012 — The Securities and Exchange Commission today charged the holding company for one of Florida’s largest banks and its top executive with misleading investors about growing problems in one of its significant loan portfolios early in the financial crisis.

The SEC alleges that BankAtlantic Bancorp and its CEO and chairman Alan Levan made misleading statements in public filings and earnings calls in order to hide the deteriorating state of a large portion of the bank’s commercial residential real estate land acquisition and development portfolio in 2007. BankAtlantic and Levan then committed accounting fraud when they schemed to minimize BankAtlantic’s losses on their books by improperly recording loans they were trying to sell from this portfolio in late 2007.

“BankAtlantic and Levan used accounting gimmicks to conceal from investors the losses in a critical loan portfolio," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This is exactly the type of information that is important to investors, and corporate executives who fail to make that required disclosure will face severe consequences."

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, BankAtlantic and Levan knew that a large portion of the loan portfolio — which consisted primarily of loans on large tracts of lands intended for development into single family housing and condominiums — was deteriorating in early 2007 because many of the loans had required extensions due to borrowers’ inability to meet their loan obligations. Some loans were kept current only by extending the loan terms or replenishing the interest reserves from an increase in the loan principal. Levan knew this negative information in part from participating in the bank’s Major Loan Committee that approved the extensions and principal increases. BankAtlantic and Levan also were aware that many of the loans had been internally downgraded to non-passing status, indicating the bank was deeply concerned about those loans.

“BankAtlantic and Levan publicly minimized the risks in the bank’s commercial residential loan portfolio when in reality, they had significant concerns about the borrowers’ ability to pay,” said Eric I. Bustillo, Miami Regional Office Director. “Investors had a right to know this key information.”

The SEC alleges that despite this knowledge, BankAtlantic’s public filings in the first two quarters of 2007 made only generic warnings of what may occur in the future if Florida’s real estate downturn continued. BankAtlantic failed to disclose the downward trend already occurring in its own portfolio. The steady deterioration of this portfolio constituted a known trend that should have been disclosed in the Management’s Discussion and Analysis (MD&A) section of BankAtlantic’s filings, which were signed by Levan. During earnings calls in the same time period, Levan made further misleading statements to investors about the portfolio. BankAtlantic finally acknowledged the problems in the third quarter of 2007 by announcing a large unexpected loss. The investing public did not expect a loss of that magnitude, and BankAtlantic’s share price immediately dropped 37 percent.

According to the SEC’s complaint, BankAtlantic and Levan attempted to sell some of the deteriorating loans after this announcement. However, they failed to account for them properly as being “held for sale,” which is required by Generally Accepted Accounting Principles (GAAP). BankAtlantic concealed the attempted sales from auditors and investors alike, because proper accounting would have required BankAtlantic to write them down and incur immediate additional losses. Instead, BankAtlantic schemed to understate its net loss by more than 10 percent in its 2007 annual report.

The SEC’s complaint seeks financial penalties and permanent injunctive relief against BankAtlantic and Levan to enjoin them from future violations of the federal securities laws. The complaint also seeks an officer and director bar against Levan.

The SEC’s investigation was conducted by Senior Counsel Brian P. Knight and Senior Accountant Fernando Torres under the supervision of Assistant Regional Director Thierry Olivier Desmet in the Miami Regional Office. C. Ian Anderson and Adam L. Schwartz will lead the SEC’s litigation efforts."

SEC ALLEGES INDIVIDUALS AT DEFUNCT ELECTRONICS COMPANY COOKED THE BOOKS

The following excerpt is from the SEC website: December 2, 2011 “The Securities and Exchange Commission (“Commission”) announced today that it filed charges against three individuals who participated in a securities fraud scheme at Soyo Group, Inc. (“Soyo”), a now defunct California-based consumer electronics and computer parts company. The Commission’s civil injunctive complaint, filed in the U.S. District Court for the Central District of California on November 29, 2011, alleges that between January 2007 and November 2008, Soyo, through the actions of its chief financial officer, Nancy Shao Wen Chu, and members of her accounting staff, Elizabeth Tsang and Eric Jon Strasser, misled Soyo’s investors, primary lending bank, and auditor by materially overstating Soyo’s net revenues and understating its liabilities. According to the complaint, Chu and Tsang caused Soyo to book over $47 million in fraudulent sales revenues arising from at least 120 fictitious transactions with 21 customers, resulting in Soyo materially overstating its net revenues in its periodic filings by amounts ranging from 14.4 to 76.8 percent. The complaint also alleges that in order to obtain additional bank financing for Soyo and keep its existing line of credit from defaulting, Chu misled Soyo’s investors, primary lending bank, and auditor regarding a $6 million debt-for-equity transaction with a Soyo vendor that was never completed. The complaint further alleges that Strasser, a consultant who prepared Soyo’s filings with the Commission, was alerted to the falsity of the debt-for-equity transaction disclosures, but he failed to correct the misstatements or inform Soyo’s auditor prior to the next quarter’s filing. The Commission’s complaint alleges that, as a result of their conduct, Chu and Tsang violated, and unless enjoined, will continue to violate, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Strasser aided and abetted an antifraud violation. The complaint also alleges that Chu violated, and unless enjoined, will continue to violate Section 17(a) of the Securities Act of 1933, and is liable as a control person for Soyo’s antifraud violations. As part of this action, the Commission seeks against each of the defendants an injunction against future violations of the provisions set forth above, disgorgement, pre-judgment interest, third tier civil money penalties and, as to Chu, an officer and director bar.”

FORMER CEO AGREES TO RETURN BONUS MONEY RECEIVED WHILE HIS COMPANY WAS COOKING THE BOOKS

(RARE AND/OR WELL DONE!) The following excerpt is from the SEC website: “Washington, D.C., Nov. 15, 2011 –The Securities and Exchange Commission today announced that the former chief executive officer and chairman of CSK Auto Corporation has agreed to return $2.8 million in bonus compensation and stock profits that he received while the company was committing accounting fraud. Maynard L. Jenkins of Scottsdale, Ariz., was not personally charged by the SEC for the company’s misconduct, however he is still required under Section 304 of the Sarbanes-Oxley Act (SOX) to reimburse CSK Auto for incentive-based compensation and stock sale profits that he received during the company’s fraudulent period. The SEC filed court papers against Jenkins in July 2009 saying he violated the SOX “clawback” provision by failing to reimburse the company. It marked the agency’s first SOX clawback case against an individual who was not alleged to have otherwise violated the securities laws. "CEOs should know that they can be deprived of bonuses or stock profits they received while accounting fraud was occurring on their watch," said Robert Khuzami, Director of the SEC's Division of Enforcement. Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office, added, “Jenkins received incentive-based pay while CSK Auto was fraudulently overstating its income to shareholders. His bonuses and stock profits are now being rightfully returned to the company for the benefit of the shareholders.” The settlement with Jenkins is subject to court approval. Jenkins has agreed to reimburse $2,796,467 to O’Reilly Automotive Inc., which has since acquired CSK Auto. The SEC previously charged four former CSK Auto executives who perpetrated the accounting fraud, and separately charged the company for filing false financial statements for fiscal years 2002 to 2004. The company settled the charges, and the litigation against three of the former executives is continuing (CSK’s former chief operating officer has since died). The U.S. Department of Justice brought a criminal indictment against those same executives, who have pleaded guilty to various charges. CSK Auto recently entered into a non-prosecution agreement with the DOJ in which it agreed to pay a $20.9 million penalty. The SEC’s investigation was conducted by Dabney O’Riordan, Robert Conrrad, Rhoda Chang, Spencer Bendell, and Lorraine Echavarria in the Los Angeles Regional Office. The litigation effort was led by Donald Searles. The SEC thanks the Department of Justice, Federal Bureau of Investigation, Internal Revenue Service, and U.S. Postal Service for their substantial assistance in the investigation.”

SEC SETTLES WITH FORER CEO OF VERITAS SOFTWARE CORP.

The following excerpt is from the SEC website: “The U.S. Securities and Exchange Commission today announced that, on October 21, 2011, the United States District Court for the Northern District of California entered a settled final judgment against Mark Leslie, the former Chief Executive Officer of Veritas Software Corporation, in SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton, Civil Action No. 07 CV 3444 (JF) (PSG) (N.D. Cal. filed July 2, 2007). The final judgment resolves the Commission's case against Leslie. The Commission's amended complaint alleges that Leslie and the remaining defendants in this action inflated Veritas' reported revenues by approximately $20 million in connection with a software sale to AOL. The complaint further alleges that Leslie failed to disclose material information to Veritas' independent auditors in violation of the federal securities laws. Without admitting or denying the allegations in the complaint, Leslie consented to entry of a final judgment permanently enjoining him from future violations of Rule 13b2-2(a)(2)of the Securities Exchange Act of 1934 and ordering him to pay disgorgement and prejudgment interest of $1,550,000 and a civil penalty of $25,000. Kenneth E. Lonchar and Paul A. Sallaberry remain as defendants in the Commission's action.”

SEC SAYS FORMER BANK EXECUTIVES COOKED THE BOOKS DURING FINANCIAL CRISIS

The following excerpt is from the SEC website: “Washington, D.C., Oct. 11, 2011 – The Securities and Exchange Commission today charged former bank executives with misleading investors about mounting loan losses at San Francisco-based United Commercial Bank during the height of the financial crisis in 2008 and 2009. The SEC alleges that the bank’s former chief executive officer Thomas Wu, chief operating officer Ebrahim Shabudin, and senior officer Thomas Yu concealed losses on loans and other assets from the bank’s auditors, causing the bank’s public holding company UCBH Holdings Inc. (UCBH) to understate 2008 operating losses by at least $65 million (approximately 50 percent). A few months later, continued declines in the value of the bank’s loans led the bank to fail, and the California Department of Financial Institutions closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. United Commercial Bank was one of the 10 largest bank failures of the recent financial crisis, causing a loss of $2.5 billion to the FDIC’s insurance fund. “Today’s charges reflect an all too familiar pattern – corporate executives once seen as rising stars embrace deception to avoid losses and conceal negative news, with investors and the FDIC insurance fund left to pick up the pieces,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “But accountability for these executives begins today.” Marc Fagel, Director of the SEC’s San Francisco Regional Office, added, “This investigation shows how federal regulators can work together to ferret out fraud by the guardians of financial institutions entrusted to deal honestly with public investors.” According to the SEC’s complaint filed in federal court in San Francisco, UCBH and its subsidiary United Commercial Bank grew rapidly, doubling in size after an initial public offering in 1998. It was the first U.S. bank to acquire a bank in the People’s Republic of China, and Wu was considered a rising star in the banking industry. By 2009, however, Wu found himself at the helm of a bank on the brink of failure. The SEC alleges that Wu, Shabudin, and Yu deliberately delayed the proper recording of loan losses, and each committed securities fraud by making false and misleading statements to investors and UCBH’s independent auditors. During December 2008 and the first three months of 2009 as the company prepared its 2008 financial statements, Wu, Shabudin, and Yu were aware of significant losses on several large loans. Among other things, these executives allegedly learned about dramatically reduced property appraisals and worthless collateral securing the loans, yet they repeatedly hid this information from UCBH’s auditors and investors. The SEC’s complaint also alleges that the bank’s former chief financial officer Craig On acted negligently by misleading the company’s outside auditors and aiding the filing of false financial statements. On agreed to settle the SEC charges without admitting or denying the allegations. He will be permanently enjoined from violating certain antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws and will pay a $150,000 penalty. On also consented to an administrative order suspending him from appearing or practicing before the SEC as an accountant, with a right to apply for reinstatement after five years. The litigation against the other defendants is ongoing. Lloyd Farnham, Michael Fortunato, Jason Habermeyer, and Cary Robnett of the SEC’s San Francisco Regional Office conducted the SEC’s investigation. The SEC’s litigation will be handled by Lloyd Farnham and Robert Mitchell. The U.S. Attorney for the Northern District of California today announced parallel criminal charges against former employees of the bank, and the FDIC announced enforcement actions against 13 individuals for violations of federal banking regulations. The SEC acknowledges the assistance of the FDIC, U.S. Attorney’s Office for the Northern District of California, Federal Bureau of Investigation, Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), FDIC’s Office of Inspector General, and Office of Inspector General for the Board of Governors of the Federal Reserve System.”

JUDGMENT ENTERED AGAINST FORMER CFO OF INTERNATIONAL COMMERCIAL TELEVISION INC.

The following is an excerpt from the SEC website: August 4, 2011 The United States Securities and Exchange Commission (“Commission”) announced that on July 26, 2011, the Honorable Ronald B. Leighton, United States District Court Judge for the Western District of Washington, entered a judgment of permanent injunction against Defendant Karlheinz Redekopp. The final judgment enjoins Redekopp from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13a-14 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Additionally, the final judgment bars Redekopp from serving as an officer or director of a public company for five years pursuant to Section 21(d)(2) of the Exchange Act. On August 9, 2010, the Commission filed its complaint against Redekopp, who lives in Vancouver, B.C. The complaint alleges that Redekopp, the former CFO of International Commercial Television Inc. (“ICTV”), turned millions of dollars of quarterly losses into profits by falsely accounting for ICTV’s sales of the Derma Wand, a skin care appliance that purports to reduce wrinkles and improve skin appearance. Redekopp improperly recognized revenue before the Home Shopping Network had actually sold or delivered the product to viewers. The complaint also alleges that Redekopp recorded “sales” of products that had not been shipped or that the customer was not obligated to pay for. Redekopp’s fraudulent accounting resulted in ICTV adjusting net sales by more than $3.7 million over a five-quarter period in 2007 and 2008, negating all originally reported net income for those periods to restated net losses. In addition to the relief described above, Redekopp consented to the entry of an order, without admitting or denying any of the findings in the Order, in a separate Commission administrative proceedings suspending him, pursuant to Rule 102(e) of the Commission's Rules of Practice, from appearing or practicing as an accountant before the Commission with the right to apply for reinstatement after three years.”