ASSISTANT AG SUNG-HEE SUH'S REMARKS REGARDING SECURITIES REGULATION IN EUROPE

FROM:  U.S. JUSTICE DEPARTMENT 

Tuesday, January 20, 2015

Deputy Assistant Attorney General Sung-Hee Suh Speaks at the PLI’s 14th Annual Institute on Securities Regulation in Europe: Implications for U.S. Law on EU Practice

Remarks As Prepared for Delivery

Thank you, Rob, for that kind introduction.  I am honored to be invited to speak on this panel with esteemed colleagues from the SEC, FCA, SFO, and the private sector.

As brief background, I am a Deputy Assistant Attorney General in the Department of Justice’s Criminal Division.  I oversee several sections, but most relevant to my remarks today is the Fraud Section, which has principal responsibility for the prosecution of complex securities and other white-collar matters for the Criminal Division.

I would like to speak briefly this morning about the Criminal Division’s white-collar criminal enforcement priorities now and in the coming year.

We are focused on fighting corruption, cyber crime, and financial fraud, all of which present unique dangers to American citizens, as well as individuals overseas.

We are prioritizing the fight against financial fraud of all stripes—particularly at publicly traded corporations and large financial institutions—and we will follow the evidence of fraud wherever it leads, be that within or outside U.S. borders.  

The prosecution of individuals—including corporate executives—for criminal wrongdoing continues to be a high priority for the department.  That is not to say that we will be looking to charge individuals to the exclusion of corporations.

However, corporations do not act criminally, but for the actions of individuals.  And, the Criminal Division intends to prosecute those individuals, whether they are sitting on a sales desk or in a corporate suite.

It is within this framework that we are also seeking to reshape the conversation about corporate cooperation to some extent.

Corporations too often overlook a key consideration that the department has long expressed in our Principles of Federal Prosecution, which guide our prosecutorial decisions:  That is a corporation’s willingness to cooperate in the investigation of its culpable executives.

Of course, corporations—like individuals—are not required to cooperate.  A corporation may make a business or strategic decision not to cooperate.  However, if a corporation does elect to cooperate with the department, it should be mindful of the fact that the department does not view voluntary disclosure as true cooperation, if the company avoids identifying the individuals who are criminally responsible for the corporate misconduct.

Even the identification of culpable individuals is not true cooperation, if the company intentionally fails to locate and provide facts and evidence at their disposal that implicate those individuals.  The Criminal Division will be looking long and hard at corporations who purport to cooperate, but fail to provide timely and full information about the criminal misconduct of their executives.

In the past year, the Criminal Division has demonstrated its continued commitment to the prosecution of individual wrongdoers in the corporate context.  I will highlight a few examples.

On the FCPA front, since 2009, we have convicted 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against 59 companies with penalties and forfeiture of almost $4 billion.  Within the last two years alone, we have charged, resolved by plea, or unsealed cases against 26 individuals, and 14 corporations have resolved FCPA violations with combined penalties and forfeiture of more than $1.6 billion.

As just one example, the department unsealed charges against the former co-CEOs and general counsel of PetroTiger Ltd., a BVI oil and gas company with offices in New Jersey, for allegedly paying bribes to an official in Colombia in exchange for assistance in securing approval for an oil services contract worth $39 million.

The general counsel and one of the CEOs already pleaded guilty to bribery and fraud charges, and the other former CEO is headed for trial.

This case was brought to the attention of the department through voluntary disclosure by PetroTiger, which cooperated with the department’s investigation.  Notably, no charges of any kind were filed against PetroTiger.

An example on the flip side is the Alstom case, an FCPA investigation stemming from a widespread scheme involving tens of millions of dollars in bribes spanning the globe, including Indonesia, Saudi Arabia, Egypt, and the Bahamas.

When the Criminal Division learned of the misconduct and launched an investigation, Alstom opted not to cooperate at the outset.  What ensued was an extensive multi-tool investigation involving recordings, interviews, subpoenas, MLAT requests, the use of cooperating witnesses, and more.

As of today, four individual Alstom executives have been charged; three of them have pleaded guilty; Alstom’s consortium partner, Marubeni, was charged and pleaded guilty; and Alstom pleaded guilty and agreed to pay a record $772 million fine.  And that only accounts for the charges in the United States.

As I have said, we want corporations to cooperate, and will provide appropriate incentives.  But, we will not rely exclusively upon corporate cooperation to make our cases against the individual wrongdoers.

On the securities and commodities fraud front, protecting the integrity of our global financial markets continues to be a priority for the Criminal Division.  Our investigations into the manipulation of the LIBOR and FX at global financial institutions have received substantial publicity.

So far, five banks have resolved the LIBOR investigation with the department, paying more than $1.2 billion to the department alone.  And 11 individuals have been charged, two of whom have pleaded guilty.  And again, that only accounts for the charges in the United States.  We expect both the LIBOR and FX investigations to continue to develop, both against the financial institutions themselves, as well as culpable individual executives.

To do these complex, international investigations, we are increasingly coordinating with domestic and foreign regulators and law enforcement counterparts, some of whom are on this panel today.

In working with our foreign counterparts, we have developed growing sophistication and experience in a variety of areas, including analyzing foreign data privacy laws and corporations’ claims that overseas documents cannot be provided to investigators in the United States.

We are also building and relying upon on our relationships with our foreign counterparts to gather evidence, locate individuals overseas, conduct parallel investigations of similar conduct, and, when appropriate, coordinate the timing and scope of resolutions.

Yes, just as we are coordinating our investigations, we are likewise willing to coordinate our resolutions, including accounting for the corporate monetary penalties paid in other jurisdictions when appropriate.

This is all to say that you should expect to see these meaningful, multinational investigations and prosecutions of corporations and individuals to continue.

With that, I am looking forward to hearing the remarks of my fellow panelists and discussing these important issues with you in more detail.

FORMER EXECUTIVE PLEADS GUILTY TO PART IN $400 MILLION SECURITIES FRAUD SCHEME

FROM:  U.S. DEPARTMENT OF JUSTICE 
Tuesday, July 23, 2013
Former Senior Executive of ArthroCare Corp. Pleads Guilty in $400 Million Securities Fraud Scheme

A former senior executive of ArthroCare Corp., a publicly traded medical device company based in Austin, Texas, pleaded guilty for his role in a scheme to defraud the company’s shareholders and members of the investing public by falsely inflating ArthroCare’s earnings, announced Acting Assistant Attorney Mythili Raman of the Department of Justice’s Criminal Division and U.S. Attorney Robert Pitman of the Western District of Texas. The plea was taken under seal on June 24, 2013, and unsealed late yesterday.

John Raffle, 45, of Austin, pleaded guilty before U.S. Magistrate Judge Mark Lane in Austin to conspiracy to commit securities, mail and wire fraud and two false statements violations.  Raffle was the senior vice president of Strategic Business Units at ArthroCare, overseeing all sales and marketing staff at the company.  Raffle admitted that he and other co-conspirators falsely inflated ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors and that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 and Form 10-Q for the first quarter of 2008 with the U.S. Securities and Exchange Commission that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings.  As part of his plea, Raffle agreed that his conduct and the conduct of his co-conspirators caused more than $400 million in losses to shareholders.

According to court documents, Raffle and others determined the type and amount of product to be shipped to distributors – notably ArthroCare’s largest distributor, DiscoCare Inc. –  based on ArthroCare’s need to meet sales forecasts, rather than the distributors’ actual orders. Raffle and others then caused ArthroCare to “park” millions of dollars worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter. ArthroCare would then report these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to meet or exceed internal and external earnings forecasts.

According to the superseding information, DiscoCare agreed to accept shipment of approximately $37 million of product in exchange for substantial, upfront cash commissions, extended payment terms and the ability to return product, as well as other special conditions, allowing ArthroCare to falsely inflate its revenue by tens of millions of dollars.  To conceal the fact that DiscoCare owed ArthroCare a substantial amount of money on the unused inventory, Raffle and others caused ArthroCare to acquire DiscoCare on Dec. 31, 2007.

According to court documents, between December 2005 and December 2008, ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock.  On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share.  The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.

Raffle faces a maximum prison sentence of five years in prison for each charge.  A sentencing date has yet to be scheduled.  Raffle’s co-defendant David Applegate pleaded guilty on May 9, 2013.  ArthroCare’s Chief Executive Officer, Michael Baker, and Chief Financial Officer, Michael Gluk, were indicted as part of the same alleged securities fraud scheme on July 16, 2013.  An indictment is merely a charge, and the defendants are presumed innocent until proven guilty.

This case was investigated by the FBI’s Austin office.  The case is being prosecuted by Deputy Chief Benjamin D. Singer and Trial Attorneys Henry P. Van Dyck and William Chang of the Criminal Division’s Fraud Section.  The Department recognizes the substantial assistance of the U.S. Securities and Exchange Commission.

PRESIDENT OF TECH COMPANY SENTENCED FOR DEFRAUDING E-RATE PROGRAM

The following is an excerpt from the Department Of Justice website:

“MONDAY, JULY 18, 2011

WASHINGTON — The president and part owner of a Michigan-based Internet and technology services company was sentenced today to serve 15 months in prison for defrauding the federal E-Rate program, the Department of Justice announced.
Jeremy R. Sheets was also sentenced by Judge Paul L. Maloney of U. S. District Court in Kalamazoo, Mich., to pay a $12,000 criminal fine and to pay $115,534 in restitution for engaging in wire fraud in connection with the E-Rate applications of two school districts his company serviced in western Michigan. Sheets was charged with wire fraud on Dec. 9, 2010, and pleaded guilty on Jan. 24, 2011.
As a result of the Antitrust Division's investigation into fraud and anticompetitive conduct in the E-Rate program, a total of seven companies and 24 individuals have pleaded guilty, been convicted at trial or entered civil settlements. Those companies and individuals have been sentenced to pay criminal fines and restitution totaling more than $40 million. Eighteen individuals, including Sheets, have been sentenced to serve prison time.
According to the charge, Sheets violated E-Rate program rules by compensating two school districts for their share of E-Rate expenses. In addition, Sheets utilized E-Rate funds to purchase undisclosed items, some of which were not eligible for E-Rate funding. Sheets concealed his violation of E-Rate program rules from the E-Rate program by fraudulently misrepresenting that the schools had been billed for their E-Rate expenses when, in fact, Sheets had reimbursed the schools for their share of expenses. The department said Sheets engaged in the wire fraud beginning in or about December 2001 and continuing until about December 2007.
The E-Rate program was created by Congress in the Telecommunications Act of 1996 and is administered by the Universal Service Administrative Company, under the auspices of the Federal Communications Commission (FCC). The program provides subsidies to economically disadvantaged schools and libraries. Depending on the financial needs of the applicant schools, the program pays 20 to 90 percent of the cost for Internet access and telecommunications services, as well as internal computer and communications networks.
Today's sentencing resulted from an investigation by the Department of Justice Antitrust Division's Chicago Field Office, with the assistance of the U.S. Attorney's Office in Grand Rapids, the FBI's Grand Rapids Office of its Detroit Division and the FCC's Office of Inspector General. “

JPMORGAN CHASE AGREES TO PAY $228 MILLION FOR ANTICOMPETITIVE CONDUCT

Market manipulation is not a victimless crime. Many of the painful choices federal, state and, local governments have to make now are a direct result of large Wall Street companies manipulating markets. It would be the right thing to do if each company that is guilty of such crimes was to apologize to the people of America and the world for ever entertaining such criminal actions. Instead, only by threat of prosecution do large institutions admit to crimes and agree to pay some fine or other penalty. Meanwhile, societies crumble. The following excerpt is from the Department of Justice website from July 7, 2011:

“WASHINGTON — JPMorgan Chase & Co. has entered into an agreement with the Department of Justice to resolve the company’s role in anticompetitive activity in the municipal bond investments market and has agreed to pay a total of $228 million in restitution, penalties and disgorgement to federal and state agencies, the Department of Justice announced today.
As part of its agreement with the department, JPMorgan admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former employees. According to the non-prosecution agreement, from 2001 through 2006, certain former JPMorgan employees at its municipal derivatives desk, entered into unlawful agreements to manipulate the bidding process and rig bids on municipal investment and related contracts. These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other public entities.

“By entering into illegal agreements to rig bids on certain investment contracts, JPMorgan and its former executives deprived municipalities of the competitive process to which they were entitled,” said Assistant Attorney General Christine Varney in charge of the Department of Justice’s Antitrust Division. “Today’s agreements ensure that JPMorgan will pay restitution to the municipalities harmed by its anticompetitive conduct, disgorge its profits from the illegal activity and pay penalties for the criminal conduct. We are committed to rooting out anticompetitive activity in the financial markets and our investigation into the municipal bond derivatives industry, which has led to criminal charges against 18 former executives, remains active and ongoing.”

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

The Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Fed) and 25 state attorneys general also entered into agreements with JPMorgan requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of restitution to the victims harmed by the manipulation and bid rigging by JPMorgan employees, as well as other remedial measures.

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

In May 2011, UBS AG agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies for its participation in anticompetitive conduct in the municipal bond derivatives market.

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

INVESTORS PLEAD GUILTY TO BID RIGGING FORCLOSURE AUCTIONS

The following is from the Department of Justice website:

WASHINGTON — Eight California real estate investors have agreed to plead guilty for their roles in two separate conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.

Charges were filed today in U.S. District Court for the Northern District of California in Oakland, Calif., against Thomas Franciose of San Francisco; William Freeborn of Alamo, Calif.; Robert Kramer of Oakland, Calif.; Thomas Legault of Clayton, Calif.; David Margen of Berkeley, Calif.; Brian McKinzie of Hayward, Calif.; Jaime Wong of Dublin, Calif.; and Jorge Wong of San Leandro, Calif.

According to the felony charges, the real estate investors participated in a conspiracy to rig bids by agreeing to refrain from bidding against one another at public real estate foreclosure auctions in Contra Costa County and Alameda County, Calif. While some of the conspirators participated in the conspiracies in both Alameda and Contra Costa Counties, the collusive activity occurred independently in each county, and some individuals only participated in the conspiracy in one county.

“While the country faces unprecedented home foreclosure rates, the collusion taking place at these auctions is artificially driving down foreclosed home prices and is lining the pockets of the colluding real estate investors,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The Antitrust Division will vigorously pursue these kinds of collusive schemes that eliminate competition from the marketplace.”

The department said that the primary purpose of the conspiracies was to suppress and restrain competition to obtain selected real estate offered at Alameda and Contra Costa County public foreclosure auctions at noncompetitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.

“Through the hard work and partnership between the FBI and the Antitrust Division, we have been able to secure a victory in our fight against bid-rigging and anticompetitive practices in foreclosure auctions,” said FBI Special Agent in Charge Stephanie Douglas of the San Francisco Field Office. “We continue to ask for the public’s assistance in identifying and reporting those engaged in this type of activity.”

According to the court documents, the real estate investors conspired with others not to bid against one another at public real estate foreclosure auctions in Northern California, participating in a conspiracy in various lengths of time between May 2008 and January 2011. After the conspirators’ designated bidder bought a property, the conspirators would hold a secret, private auction at which each participant would bid the amount above the public auction price he was willing to pay. The department said that the secret, private auctions took place at or near the courthouse steps where the public auctions were held. The highest bidder at the private auction won the property. According to the court documents, the difference between the public auction price and that at the second auction was the group’s illicit profit, and it was divided among the conspirators, often in cash.

In addition, the eight conspirators were charged with using the U.S. mail in carrying out their conspiracy to defraud financial institutions by paying potential competitors not to bid competitively in the public auctions for foreclosed properties, according to court filings.

Franciose, Jaime Wong and Jorge Wong were charged with one count each of bid rigging to obtain selected real estate at foreclosure auctions in Alameda County and one count each of conspiracy to commit mail fraud. Freeborn and Legault were charged with one count each of bid rigging to obtain selected real estate at foreclosure auctions in Contra Costa County and one count each of conspiracy to commit mail fraud. Kramer, Margen and McKinzie were each charged with two counts of bid rigging to obtain selected real estate at foreclosure auctions in Alameda and Contra Costa Counties and two counts each of conspiracy to commit mail fraud.

Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. Each count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.

The Antitrust Division and the FBI have identified a pattern of collusive schemes among real estate investors aimed at eliminating competition at real estate foreclosure auctions, and today’s charges are part of the department’s ongoing effort to combat this conduct and restore competition to public auctions. The investigation into fraud and bid rigging at certain real estate foreclosure auctions in Northern California is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm, or call the FBI tip line at 415-553-7400.

Today’s charges are part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force (FFETF). 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. For more information on the task force, visit www.StopFraud.gov."

INTERNATIONAL MONEY LAUNDERER PLEADS GUILTY

Crime is now an international affair and no one government in the near future may have the ability to investigate let alone prosecute, the new world order of criminals. The following is an excerpt from the Department of Justice website:


Office of Public Affairs
FOR IMMEDIATE RELEASE
Thursday, June 9, 2011
Foreign National Pleads Guilty for Role in International Money Laundering Scheme Involving $1.4 Million in Losses to Victims
WASHINGTON – A Romanian national pleaded guilty today in U.S. District Court in the District of Columbia for leading a money laundering network for a transnational criminal group based in Eastern Europe, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division. According to court documents, in less than one year, the criminal conspiracy netted approximately $1.4 million from U.S. victims.
Roman Teodor, 36, a resident of Romania, pleaded guilty before U.S. District Court Judge Paul L. Friedman to conspiracy to commit money laundering. Teodor voluntarily surrendered to U.S. authorities on April 10, 2011. At sentencing, scheduled for Aug. 29, 2011, Teodor faces a maximum of 20 years in prison.
According to court documents, Teodor participated in a scheme that operated from July 2005 through November 2006, and involved the posting of fraudulent advertisements on eBay and other websites offering expensive vehicles and boats for sale that the conspirators did not possess. When the U.S. victims expressed interest in the merchandise, they were contacted directly by an email from a purported seller. According to court documents, the victims were then instructed to wire transfer payments through “eBay Secure Traders” — an entity which has no actual affiliation to eBay, but was used as a ruse to persuade the victims that they were sending money into a secure escrow account pending delivery and inspection of their purchases. Instead, the victims’ funds were wired directly into bank accounts in Hungary, Slovakia, the Czech Republic and Poland that were controlled by Teodor’s co-conspirators.
Teodor was originally charged on Jan. 9, 2008, along with five additional defendants: Georgi Vasilev Pletnyov, Ivaylo Vasilev Pletnyov, Nikolay Georgiev Minchev, Georgi Boychev Georgiev and Antoaneta Angelova Getova. On Dec. 2, 2009, Ivaylo Vasilev Pletnyov and Nikolay Georgiev Minchev were sentenced to 48 months and 30 months in prison, respectively, for their roles in the money laundering conspiracy. On Oct. 8, 2010, Georgi Boychev Georgiev was sentenced to 15 months in prison for his role in this scheme. On April 11, 2011, Georgi Vasilev Pletnyov pleaded guilty to one count of conspiracy to commit wire fraud and one count of conspiracy to commit money laundering. His sentencing is scheduled for Aug. 22, 2011. The United States continues to work with foreign counterparts in Bulgaria regarding Antoaneta Angelova Getova.
This investigation was conducted by the FBI – Hungarian National Bureau of Investigation Organized Crime Task Force located in Budapest, Hungary (Budapest Task Force). The Budapest Task Force was established by the FBI in April 2000 to address the increasing threat of Eurasian organized crime groups to the United States.
The case is being prosecuted by Trial Attorney Lisa Page of the Criminal Division’s Organized Crime and Gang Section. The Criminal Division’s Office of International Affairs provided significant assistance on this case.

FORMER NASDAQ MANAGING DIRECTOR FACES 20 YEARS IN PRISON

The following is an excerpt from the Department of Justice web site:

WASHINGTON – A former managing director of the NASDAQ Stock Market pleaded guilty today for his participation in an insider trading scheme in which he purchased and sold stock in NASDAQ-listed companies based on material, non-public information he obtained in his capacity as a NASDAQ executive, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Neil H. MacBride of the Eastern District of Virginia and Postal Inspector in Charge of Criminal Investigations Gerald O’Farrell of the U.S. Postal Inspection Service (USPIS).

Donald Johnson, 56, a resident of Ashburn, Va., pleaded guilty before U.S. District Judge Anthony J. Trenga in the Eastern District of Virginia to one count of securities fraud. In pleading guilty, he admitted that he purchased and sold stock in NASDAQ-listed companies based on material, non-public information, or inside information, on several different occasions from 2006 to 2009.

“Mr. Johnson was a fox in a hen-house,” said Assistant Attorney General Breuer. “NASDAQ-listed companies entrusted him with their sensitive, non-public information so that he could provide them with analyses about their stock. He then used that very information to cheat the system and make an illegal profit. Insider trading by a gatekeeper on a securities exchange is a shocking abuse of trust, and must be punished. The integrity of our securities markets is vital to the U.S. economy, and the Justice Department is determined to take on insider trading at every level.”
“Don Johnson used sensitive, confidential information as an executive at NASDAQ to pad his retirement by more than $600,000,” said U.S. Attorney MacBride. “He thought he could get away with it by using his wife’s account and inside information to make relatively small trades just a few times a year. But he learned what every other trader on Wall Street must now realize: We’re watching.”

“The U.S. Postal Inspection Service continues to identify and aggressively investigate those who commit securities fraud,” said Postal Inspector in Charge of Criminal Investigations O’Farrell. “The agency has placed a team of highly trained Postal Inspectors at the Department of Justice in Washington, D.C., working in partnership with Department of Justice attorneys, to assure that criminals who defraud innocent citizens are prosecuted to the fullest extent of the law.”

According to court documents, from 2006 to September 2009, Johnson was a managing director on NASDAQ’s market intelligence desk in New York. The market intelligence desk provides trading analysis and market information to the companies that list on NASDAQ. According to court documents, Johnson monitored the stock of companies traded on NASDAQ and offered NASDAQ-listed companies information and analyses concerning trading in their own stock. To enable him to perform these services, NASDAQ-listed companies routinely entrusted Johnson with material, non-public information about their stock, including advance notice of announcements concerning earnings, regulatory approvals and personnel changes. Johnson admitted that he repeatedly used this information to purchase or sell short stock in various NASDAQ-listed companies shortly before the information was made public. He would then generate substantial gains by reversing those positions soon after the announcement. According to court documents, to conceal his illegal trading, Johnson executed these trades in a brokerage account in his wife’s name. Johnson failed to disclose this account to NASDAQ in violation of NASDAQ rules.

Johnson admitted that he made illegal purchases and sales of stock in NASDAQ-listed companies on at least eight different occasions, generating gains totaling more than $640,000. The companies whose securities he traded were Central Garden and Pet Co.; Digene Corporation; Idexx Laboratories Inc.; Pharmaceutical Product Development Inc.; and United Therapeutics Corporation. According to court documents, in November 2007, Johnson used inside information related to successful trial results for United Therapeutics’ drug Viveta (now called Tyvaso) to purchase shares of United Therapeutics before the trial results were announced. Soon after the announcement, Johnson sold the shares and gained more than $175,000 in profits. According to court documents, in July 2009, Johnson used inside information about the approval of its drug Tyvaso to purchase shares of United Therapeutics before the approval was announced. He sold the shares after the announcement and gained more than $110,000 in profits.
Johnson is scheduled to be sentenced on Aug. 12, 2011. The maximum penalty for securities fraud is 20 years in prison and a fine of $5 million.
In a related action, the Securities and Exchange Commission today filed a civil enforcement action against Johnson in the Southern District of New York.

This case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Raymond E. Patricco Jr., of the Eastern District of Virginia. The case was investigated by USPIS. The Financial Industry Regulatory Authority provided assistance. Brigham Cannon, formerly a Trial Attorney of the Criminal Division, also assisted with the investigation.
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. “

NEED TAX DEDUCTIONS? TRY MAKING THEM UP

Many years ago I remember that in an episode of the “Three Stooges” the boys came up with some fraudulent tax dodges that they sold to clients. The Stooges became rich selling their scheme to clients. Of course at the end of the short film the IRS came calling and of course the boys were in trouble. Well, it seems that a couple of modern day stooges have been caught. The case below is an excerpt from the Department of Justice web site:

“Federal Court Bars Ohio Accountant and Former Business Partner from Promoting Oil-and-Gas Tax Fraud Scheme
Government Estimates Alleged Tax Loss of $5.7 Million to $6.9 Million

WASHINGTON – A federal court has permanently barred two men from promoting an alleged tax fraud scheme involving interests in purported oil and gas wells, the Justice Department announced today. Judge James L. Graham of the U.S. District Court for the Southern District of Ohio entered the permanent injunction orders against Daniel D. Weddington of Newark, Ohio, and James R. Earl of Heath, Ohio. Both men were preliminarily enjoined in 2008. A third defendant, Jeffrey L. Gaumer of Newark, N.J., was permanently enjoined in 2008. All three men agreed to the permanent injunctions without admitting to the government’s allegations against them in the amended complaint.
Weddington recently pleaded guilty in federal court to two counts of aiding and assisting the filing of false income tax returns and one count of obstructing the administration of the internal revenue laws in connection with his role in the oil-and-gas well scheme.
The amended complaint in the civil injunction case alleged that Weddington, Earl and Gaumer marketed a scheme to claim tax deductions for fictitious well-drilling costs to more than 200 customers across the country. Customers allegedly paid for their purported investments using sham notes that were supposedly paid off by fictitious gas royalty payments from fictitious wells. The amended complaint also alleged that the defendants used a shell corporation, Aurora Capital Group Inc., to issue sham letters of credit to customers in an attempt to make the customers’ sham notes appear legitimate, so as to deceive the Internal Revenue Service (IRS).
The amended complaint also asserted that Weddington is a public accountant, that Gaumer is a certified public accountant in the same accounting firm, and that they prepared tax returns for the majority of the scheme’s participants. According to the amended complaint, the IRS estimated that the scam caused tax revenue losses of $5.7 million to $6.9 million from 2001 to 2004.
In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions against tax return preparers and tax fraud promoters.”

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.

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.”

OIL SERVICE, FREIGHT COS. PAY FINES FOR ALLEGED BRIBES

The following excerpt from the SEC web site detaisl the settlement by several companies accused of bribing foreign officials:

"SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of Customs Officials
FOR IMMEDIATE RELEASE
2010-214
Washington, D.C., Nov. 4, 2010 — The Securities and Exchange Commission today announced sweeping settlements with global freight forwarding company Panalpina, Inc. and six other companies in the oil services industry that violated the Foreign Corrupt Practices Act (FCPA) by paying millions of dollars in bribes to foreign officials to receive preferential treatment and improper benefits during the customs process.

SEC Complaints:
Panalpina, Inc.
Pride International, Inc.
Tidewater Inc.
Transocean, Inc.
GlobalSantaFe Corp.
Noble Corporation
SEC Administrative Proceeding:
Royal Dutch Shell plc

The SEC alleges that the companies bribed customs officials in more than 10 countries in exchange for such perks as avoiding applicable customs duties on imported goods, expediting the importation of goods and equipment, extending drilling contracts, and lowering tax assessments. The companies also paid bribes to obtain false documentation related to temporary import permits for oil drilling rigs, and enable the release of drilling rigs and other equipment from customs officials.

The SEC's cases were coordinated with the U.S. Department of Justice's Fraud Section, and the sanctions to be paid by the companies under the settlements total $236.5 million. This is the first sweep of a particular industrial sector in order to crack down on public companies and third parties who are paying bribes abroad.

"Bribing customs officials is not only illegal but also bad for business, as the coordinated efforts of law enforcement increase the risk of detection every day," said Robert Khuzami, Director of the SEC's Division of Enforcement. "These companies resorted to lucrative arrangements behind the scenes to obtain phony paperwork and special favors, and they landed themselves squarely in investigators' crosshairs."

Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, added, "This investigation was the culmination of proactive work by the SEC and DOJ after detecting widespread corruption in the oil services industry. The FCPA Unit will continue to focus on industry-wide sweeps, and no industry is immune from investigation."

Without admitting or denying the allegations, the companies agreed to settle the SEC's charges against them by paying approximately $80 million in disgorgement, interest, and penalties. The companies agreed to pay fines of $156.5 million to settle the criminal proceedings with DOJ.

SEC charges against six companies were filed in federal court, and one company was charged in an SEC administrative proceeding. Among the SEC's allegations:

Panalpina, Inc. — A U.S. subsidiary of the Swiss freight forwarding giant Panalpina World Transport (Holding) Ltd. (PWT), Panalpina is charged with paying bribes to customs officials around the world from 2002 to 2007 on behalf of its customers, some of whom are included in these settlements. Panalpina bribed customs officials in Nigeria, Angola, Brazil, Russia and Kazakhstan to enable importation of goods into those countries and the provision of logistics services. The bribes were often authorized by Panalpina's customers and then inaccurately described in customer invoices as "local processing" or "special intervention" or "special handling" fees.

Panalpina agreed to an injunction and will pay disgorgement of $11,329,369 in the SEC case.
PWT and Panalpina agreed to pay a criminal fine of $70.56 million.
Pride International, Inc. — One of the world's largest offshore drilling companies, Pride and its subsidiaries paid approximately $2 million to foreign officials in eight countries from 2001 to 2006 in exchange for various benefits related to oil services. For example, Pride's former country manager in Venezuela authorized bribes of approximately $384,000 to a state-owned oil company official to secure extensions of drilling contracts, and a French subsidiary of Pride paid $500,000 in bribes intended for a judge to influence customs litigation relating to the importation of a drilling rig.

Pride agreed to an injunction and will pay disgorgement and prejudgment interest of $23,529,718 in the SEC case.
Pride and subsidiary Pride Forasol agreed to pay a criminal fine of $32.625 million.
Tidewater Inc. — The New Orleans-based shipping company through a subsidiary reimbursed approximately $1.6 million to its customs broker in Nigeria from 2002 to 2007 so the broker could make improper payments to Nigerian customs officials and induce them to disregard regulatory requirements related to the importation of Tidewater's vessels.

Tidewater agreed to an injunction and will pay $8,104,362 in disgorgement and a $217,000 penalty.
Tidewater Marine International agreed to pay a criminal fine of $7.35 million.
Transocean, Inc. — An international provider of offshore drilling services to oil companies throughout the world, Transocean made illicit payments from at least 2002 to 2007 through its customs agents to Nigerian government officials in order to extend the temporary importation status of its drilling rigs. Bribes also were paid to obtain false paperwork associated with its drilling rigs and obtain inward clearance authorizations for its rigs and a bond registration.

Transocean agreed to an injunction and will pay disgorgement and prejudgment interest of $7,265,080.
Transocean Ltd. and Transocean Inc. agreed to pay a criminal fine of $13.44 million.
GlobalSantaFe Corp. (GSF) A provider of offshore drilling services GSF made illegal payments through its customs brokers from approximately 2002 to 2007 to officials of the Nigerian Customs Service (NCS) to secure documentation showing that its rigs had left Nigerian waters. The rigs had in fact never moved. GSF also made other payments to government officials in Gabon, Angola, and Equatorial Guinea.

GSF agreed to an injunction and will pay disgorgement of $3,758,165 and a penalty of $2.1 million.
Noble Corporation — An offshore drilling services provider, Noble authorized payments by its Nigerian subsidiary to its custom agent to obtain false documentation from NCS officials to show export and re-import of its drilling rigs into Nigerian waters. From 2003 to 2007, Noble obtained eight temporary import permits with false documentation.

Noble agreed to an injunction and will pay disgorgement and prejudgment interest of $5,576,998.
Noble agreed to pay a criminal fine of $2.59 million.
Royal Dutch Shell plc — An oil company headquartered in the Netherlands, Shell and its indirect subsidiary called Shell International Exploration and Production, Inc. (SIEP) violated the FCPA by using a customs broker to make payments from 2002 to 2005 to officials at NCS to obtain preferential customs treatment related to a project in Nigeria.

SIEP and Shell agreed to a cease-and-desist order and will pay disgorgement and prejudgment interest of $18,149,459.
Shell Nigerian Exploration and Production Co. Ltd. will pay a criminal fine of $30 million. "

It should be noted that the SEC acknowledged that the Department of Justice and the FBI helped with the investigation.

The bribing of government officials and politicians is a problem in many countries of the world including the United States. It is hard to say whether the people in government or the people in business should be given the worse punishments. In America prosecuting for giving or receiving bribes in this country is rare because so many laws have been passed and court cases decided which pretty much legalizes bribery. Our politicians might be corrupt but they are not stupid. Bribery is looked upon as a victimless crime in the United States.

Of course the victims of bribery are obvious. First of all the citizens do not have a government operating in their best interest. Secondly, businesses that give bribes undermine the businesses of honest entrepreneurs who refuse to give payola to people in government. Bribery simply undermines the workings of capitalism and should simply be treated as a crime.

SEC CHARGES SKIN CARE COMPANY CFO WITH COOKING THE BOOKS

Fraud is so common in the American investment community that it is a wonder that the DJIA trades above 1,000 points. Financial statements are rendered worthless because so many accountants are willing to take bribes and falsely report income and losses (commonly known as cooking the books). So what is an investor to do? Well, based upon the performance of the stock market this year, most have choose to put their money under their mattress and wait and see if someone will ever get serious about stopping the rampant fraud throughout our economy. The following is an excerpt from the SEC blog which tells the tale of a company that allegedly defrauded investors with the help of an accounting firm:

“Washington, D.C., Aug. 9, 2010 — The Securities and Exchange Commission today charged the former chief financial officer of a Seattle-area skin care retailer with fraudulently boosting earnings by reporting sales of anti-aging products promoted through Home Shopping Network infomercials while the products still sat unsold in the company’s warehouse. The agency also separately settled charges against the company and began administrative proceedings against the company’s outside auditors for professional misconduct.

The SEC alleges that Karl 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 fraudulently recognized revenue before the Home Shopping Network had actually sold or delivered the product to viewers. He also improperly recognized revenue before a free trial period offered by the company had expired, and failed to reverse revenue from products that had been returned. Redekopp's misconduct caused the company to falsely report millions of dollars in excess revenue in 2007 and 2008.

"Redekopp violated fundamental principles of accounting to fraudulently boost ICTV's bottom line and conceal its true financial health from investors," said Marc J. Fagel, Director of the SEC's San Francisco Regional Office. "Unfortunately, ICTV's auditors turned a blind eye to the company's financial irregularities and failed to fulfill their role in investor protection."

The SEC's complaint against Redekopp, filed in federal district court in Tacoma, Wash., 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. For example, for year-end 2007 alone, ICTV restated its originally reported net income of $1.5 million to a net loss of $1.1 million after correcting the fraudulent reporting.

The SEC's complaint charges Redekopp, who lives in Vancouver, B.C., with violations of the antifraud, reporting, books and records and internal control provisions of the federal securities laws. The SEC seeks a permanent injunction, a financial penalty, and an order barring him from serving as an officer of a public company.

In a separate complaint, the SEC charged ICTV for its misleading financial statements. Without admitting or denying the allegations, ICTV agreed to settle the charges by consenting to a final judgment permanently enjoining the company from future violations of the reporting, books and records, and internal control provisions of the federal securities laws.
The SEC instituted administrative proceedings against ICTV's former outside auditors Steven H. Dohan, Nancy L. Brown and their Miami-area firm Dohan + Company CPAs as well as Erez Bahar, a Canadian Chartered Accountant who lives in Vancouver.

According to the SEC's order, Dohan, Brown, and Bahar were responsible for the issuance of an unqualified audit report stating that ICTV's financial statements were fairly reported in conformity with Generally Accepted Accounting Principles (GAAP) and that the audit had been conducted in accordance with Public Company Accounting Oversight Board (PCAOB) auditing standards. The SEC's Division of Enforcement alleges that the former auditors failed to identify the material accounting deficiencies and violations of GAAP that formed the basis of the SEC's enforcement action against Redekopp. The Division of Enforcement alleges that Dohan, Brown, Bahar, and Dohan + Company CPAs engaged in improper professional conduct under Rule 102(e) of the Commission's Rules of Practice. An administrative hearing will be scheduled to determine whether remedial sanctions are appropriate.”

This is another case where the SEC is taking action but, where is the Department of Justice? It seems that white collar crime is legal in the eyes of prosecutors. The theft of investment funds by fraudsters may well be recognized by historians as the reason for our current economic mess and also as the reason for our nation’s long term demise. Printing money to pour into the bottomless pit of Wall Street fraudster's pockets will cure nothing in the long run.

The government can only do so much to stimulate the economy. Before the economy can improve the general population must have a positive attitude toward business. For big business executives to simply blame the government for everything and then rail against any legislation that gets tough on fraudsters’ shows to the American public that business is not to be trusted any more than government. After all, if a business executive is not committing fraud then why is he against prosecuting those who are fraudsters? Perhaps “birds of a feather” do flock together.

For government and business to believe that doing nothing to clean up the horrific fraud in our economy caused by government and business, will somehow make things get better over time is ridiculous. Relying on luck or divine intervention to fix things will fix nothing because it was not a divinity or bad luck that caused this economic fiasco. To misquote Shakespeare, the economic problem that government and big business have isn’t in their stars, it’s in themselves.