SEC CHARGES FORMER MADOFF EMPLOYEE WITH CREATING FAKE TRADES

The following excerpt is from the SEC website: “Washington, D.C., Nov. 21, 2011 – The Securities and Exchange Commission today charged a longtime Bernie Madoff employee with fraud for his role in creating fake trades to facilitate the massive Ponzi scheme. The SEC alleges that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, was asked by Madoff to provide the firm’s investment advisory operations with backdated arbitrage trade information to be formulated into fictitious trading on investors’ account statements. Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years. "Kugel helped Madoff maintain the elaborate and enduring facade that his clients were engaged in actual trading when in fact no such trading occurred," said George S. Canellos, Director of the SEC's New York Regional Office. "Kugel withdrew millions of dollars of phony profits that he knew weren't from actual trading activity." The SEC previously charged two other longtime Madoff employees Annette Bongiorno and JoAnn Crupi for their roles in producing phony account statements that were sent to Madoff investors. According to the SEC’s complaint against Kugel filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory (IA) operations used the information provided by Kugel to formulate fictitious trades to appear on investor account statements. The SEC alleges that sometime in the early 1970s after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that BMIS managed money for outside clients. He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of these trades replicated successful trades that Kugel had actually made for BMIS proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers. According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount. These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well. The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008. The U.S. Attorney’s Office for the Southern District of New York has filed parallel criminal charges against Kugel, who has pled guilty and also agreed to settle the SEC’s civil charges. Subject to court approval, the civil case will result in a permanent injunction against Kugel, who must forfeit his ill-gotten monetary gains upon entry of a criminal forfeiture order in the criminal case. The SEC’s complaint against Kugel alleges that by engaging in this conduct, Kugel violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; aided and abetted violations of Sections 204, 206(1) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2 thereunder, and Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3 and 17a-3 thereunder. The SEC’s investigation was conducted by Kristine M. Zaleskas and Aaron P. Arnzen of the New York Regional Office. The Commission thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for its coordination and assistance. The SEC’s investigation is continuing.”

SECURITY COMPANY ALLEGEDLY SOLD FAKE SECURITIES

The following is an excerpt from the SEC website: “On October 7, 2011, United States District Judge John G. Koeltl entered an order, consistent with a stipulated agreement between the Commission and Defendants, preliminarily enjoining Murdoch Security & Investigations, Inc. (“Murdoch”) and its two principal officers, Robert Goldstein and William Vassell from continuing an allegedly illegal, unregistered offering and sale of securities that the Commission alleges raised more than $1 million from noteholders, who were promised 22% annual interest on their investments. Judge Koeltl’s order also preliminarily enjoined Defendants Murdoch and Goldstein from further violations of certain anti-fraud provisions of the federal securities laws and froze certain of Defendants’ assets pending final disposition of the case. The Commission’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Defendants, beginning in approximately October 2010, offered and sold notes to investors by placing advertisements in the Wall Street Journal and other financial press. The Commission further alleges that Murdoch, through Goldstein, misrepresented material facts to investors about the security company, including boasts of highly lucrative overseas operations when, in fact, Murdoch lacked any international business whatsoever. According to the Commission’s complaint, Murdoch told investors that capital was needed to finance acquisitions of additional security companies that would enhance Murdoch’s overall revenues and fund 22% interest payments to noteholders. In reality, the Commission alleges, money from new investors has been used primarily to fund interest payments to earlier investors and to pay the salaries of Defendants Goldstein and Vassell. The Commission’s complaint charges each Defendant with violations of Sections 5(a) and 5(c) of the Securities Act of 1933, and Defendants Murdoch and Goldstein with violations of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking permanent injunctions against the defendants, and to have them return their allegedly ill-gotten gains with prejudgment interest, and pay civil monetary penalties. The Commission acknowledges the assistance of the New York District Attorney’s Office in connection with this matter.”

SEC CHARGED BANC OF AMERICA SECUITIES WITH SECURITIES FRAUD

The following is a breaking story which alleged that Banc of America Securities committed fraud in it’s dealings with municipal bonds. BAS was part of Bank of America and was merged with Merril Lynch when Bank of America took over that firm. The following excerpt from the SEC web page shows in detail the case which the SEC laid out against BAS:

"Washington, D.C., Dec. 7, 2010 — The Securities and Exchange Commission today charged Banc of America Securities, LLC (BAS) with securities fraud for its part in an effort to rig bids in connection with the investment of proceeds of municipal securities.

To settle the SEC's charges, BAS has agreed to pay more than $36 million in disgorgement and interest. In addition, BAS and its affiliates have agreed to pay another $101 million to other federal and state authorities for its conduct.
"This ongoing investigation has helped to expose wide-spread corruption in the municipal reinvestment industry," said Robert Khuzami, Director of the SEC's Division of Enforcement. "The conduct was egregious — in return for business, the company repeatedly paid undisclosed gratuitous payments and kickbacks and affirmatively misrepresented that the bidding process was proper."
When investors purchase municipal securities, the municipalities generally invest the proceeds temporarily in reinvestment products before the money is used for the intended purposes. Under relevant IRS regulations, the proceeds of tax-exempt municipal securities must generally be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process, whereby bidding agents search for the appropriate investment vehicle for a municipality.
In its Order, the SEC found that the bidding process was not competitive because it was tainted by undisclosed consultations, agreements, or payments and, therefore, could not be used to establish the fair market value of the reinvestment instruments. As a result, these improper bidding practices affected the prices of the reinvestment products and jeopardized the tax-exempt status of the underlying municipal securities, the principal amounts of which totaled billions of dollars.
According to the Commission's Order, certain bidding agents steered business from municipalities to BAS through a variety of mechanisms. In some cases, the agents gave BAS information on competing bids (last looks), and deliberately obtained off-market "courtesy" bids or purposefully non-winning bids so that BAS could win the transaction (set-ups). As a result, BAS won the bids for 88 affected reinvestment instruments, such as guaranteed investment contracts (GICs), repurchase agreements (Repos) and forward purchase agreements (FPAs).
In return, BAS steered business to those bidding agents and submitted courtesy and purposefully non-winning bids upon request. In addition, those bidding agents were at times rewarded with, among other things, undisclosed gratuitous payments and kickbacks. The Commission also found that former officers of BAS participated in, and condoned, these improper bidding practices.
BAS is now known as Merrill Lynch, Pierce, Fenner & Smith Incorporated following a merger.
Elaine C. Greenberg, Chief of the SEC's Municipal Securities and Public Pensions Unit, added "This conduct threatened the integrity of the municipal marketplace, affecting not only the municipal issuers who were directly defrauded, but also the thousands of investors nationwide who purchased their tax-exempt municipal securities."
Without admitting or denying the SEC's findings, BAS consented to the entry of a Commission Order which censures BAS, requires it to cease-and-desist from committing or causing any violations and any future violations of Section 15(c)(1)(A) of the Exchange Act of 1934, and to pay disgorgement plus prejudgment interest totaling $36,096,442 directly to the affected entities.
In determining to accept BAS' offer, which does not include the imposition of a civil penalty, the Commission considered the cooperation of and remedial actions undertaken by BAS in connection with the Commission's investigation as well as investigations conducted by other law enforcement agencies. Among other things, BAS self-reported the bidding practices to the Antitrust Division of the Department of Justice.
In a related action, the Commission barred Douglas Lee Campbell, a former officer of BAS, from association with any broker, dealer or investment adviser, based upon his guilty plea to a criminal information on Sept. 9, 2010, in United States v. Douglas Lee Campbell (Criminal Action No. 10-cr-803) charging him with two counts of conspiracy and one count of wire fraud. The criminal information charged, among other things, that Campbell engaged in fraudulent misconduct in connection with the competitive bidding process involving the investment of proceeds of tax-exempt municipal bonds. The Commission is not imposing a civil penalty against Campbell based on his cooperation in the Commission's investigation.

Deputy Chief Mark R. Zehner and Assistant Municipal Securities Counsel Denise D. Colliers of the SEC's Municipal Securities and Public Pensions Unit conducted the investigation out of the agency's Philadelphia Regional Office under the leadership of Unit Chief Elaine C. Greenberg, Regional Director Daniel M. Hawke and Assistant Regional Director Mary P. Hansen.
The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter. The SEC is bringing this action in coordination with the Internal Revenue Service, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and 20 State Attorney Generals.
The SEC's investigation is continuing."

The above is an ongoing story and it may be possible that several other
institutions might be involved in similar schemes. Maybe other institutions should be feeling nervous with the SEC's current dedication to giving the corpses of financial institutions very detailed autopsies.

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.

SOMETIMES GOVERNMENT OFFICIALS ARE FRAUDSTERS

All to often business is blamed for crimes which government officials routinely commit. The following excerpt from a recent case brought by the SEC is a good example of a case of government bureaucrats run amok:

Washington, D.C., Oct. 27, 2010 — The Securities and Exchange Commission today announced that four former San Diego officials have agreed to pay financial penalties for their roles in misleading investors in municipal bonds about the city's fiscal problems related to its pension and retiree health care obligations.

It's the first time that the SEC has secured financial penalties against city officials in a municipal bond fraud case.

The SEC settlement with the four former city officials requires the approval of U.S. District Judge Dana M. Sabraw in the Southern District of California.

The SEC filed charges in April 2008 against former San Diego City Manager Michael Uberuaga, former Auditor & Comptroller Edward Ryan, former Deputy City Manager for Finance Patricia Frazier, and former City Treasurer Mary Vattimo. The SEC alleged that the officials knew the city had been intentionally under-funding its pension obligations so that it could increase pension benefits but defer the costs. They also were aware that the city would face severe difficulty funding its future pension and retiree health care obligations unless new revenues were obtained, benefits were reduced, or city services were cut. However, despite this extensive knowledge, they failed to inform municipal investors about the severe funding problems in 2002 and 2003 bond disclosure documents.

"Municipal officials have a personal obligation to ensure that investors are provided with complete and accurate information about the issuer's financial condition," said Rosalind Tyson, Director of the SEC's Los Angeles Regional Office. "These former San Diego officials are paying a price for their actions that jeopardized the interests of investors and put the city's current and future retirees at risk."

The four former officials agreed to settle the SEC's charges without admitting or denying the allegations and consented to the entry of final judgments that permanently enjoin them from future violations of Securities Act of 1933 Section 17(a)(2). Under the settlement terms, Uberuaga, Ryan, and Frazier each pay a penalty of $25,000 and Vattimo pays a penalty of $5,000.

The SEC's charges against a fifth former city official — Assistant Auditor & Comptroller Teresa Webster — are still pending."

Honesty is something our society depends upon for it to function. When people lie about investments then soon potential investors will stop contemplating investing their money and will keep it in safe places which, causes an economic and societal downturn for all of us. The problem we have in America today is that many politicians and businessmen think that being dishonest is just a type of acceptable business practice which has no long term consequences for society and a very positive outcome for building personal riches.

HEDGE FUND ADVISOR PAYS TO SETTLE SEC CHARGES OF MARKET MANIPULATION

Making money can be very difficult if you work within our system of extremely volatile securities and commodities prices. One way to easily make money in such a system is to rig the system so that no matter what happens you will get someone else’s money out of their pocket and into yours.

It is common knowledge that many large investment firms will try to manipulate the prices of stocks sometimes on the upside but, usually it is toward the downside because when a stock price plunges small investors fear being wiped out and may also have margin calls to cover. (A margin call is when an investor is forced to sell stock because the value of his securities falls below the required total asset value to borrow money to buy on margin.) By instilling fear in the market for a stock the institutional short seller can get a stock price to tumble a lot without putting up a lot of money. It is legitimate to try to drive the price of a stock unless you have insider knowledge that diminishes or eliminates your own risk.

The following excerpt from the SEC web page is an illustration of a company that allegedly drove stock prices lower just prior to a public offering and then bought the stocks up very cheap:

“Washington, D.C., Sept. 23, 2010 — The Securities and Exchange Commission today charged Dallas-based hedge fund adviser Carlson Capital, L.P. with improperly participating in four public stock offerings after selling short those same stocks.

Carlson agreed to pay more than $2.6 million to settle the SEC's charges.
The SEC's Rule 105 of Regulation M helps prevent short selling that can reduce proceeds received by companies and shareholders by artificially depressing the market price shortly before the company prices its public offering. Rule 105 ensures that offering prices are set by natural forces of supply and demand rather than manipulative activity by prohibiting the short sale of an equity security during a restricted period — generally five business days before a public offering — and the purchase of that same security through the offering. The rule applies regardless of the trader's intent in selling short the stock.

According to the SEC's order, Carlson violated Rule 105 on four occasions and had policies and procedures that were insufficient to prevent the firm from participating in the relevant offerings. For one of those occasions, the SEC found a Rule 105 violation even though the portfolio manager who sold short the stock and the portfolio manager who bought the offering shares were different.

"Investment advisers must recognize that combined trading by different portfolio managers can still constitute a clear violation of Rule 105 when short selling takes place during a restricted period," said Antonia Chion, Associate Director of the SEC's Division of Enforcement. "This is true even when the portfolio managers have different investment approaches and generally make their own trading decisions."

In its order, the SEC found that the "separate accounts" exception to Rule 105 did not apply to Carlson's participation in that offering. If certain conditions are met, this exception allows the purchase of an offered security in an account that is "separate" from the account through which the same security was sold short. The Commission found that the combined activities of Carlson's portfolio managers violated Rule 105 and did not qualify for the separate accounts exception because the firm's portfolio managers:

Could access each others' trading positions and trade reports, and could consult with each other about companies of interest.
Reported to a single chief investment officer who supervised the firm's portfolios and had authority over the firm's positions.
Were not prohibited from coordinating with each other with respect to trading.

The SEC further found that the portfolio manager who sold short the particular stock during the restricted period received information — before the short sales were made — that indicated the other portfolio manager intended to buy offering shares.

Without admitting or denying the SEC's findings, Carlson agreed to pay a total of $2,653,234, which includes $2,256,386 in disgorgement of improper gains or avoided losses, a $260,000 penalty, and pre-judgment interest of $136,848. Carlson also consented to an order that imposes a censure and requires the firm to cease and desist from committing or causing any violations and any future violations of Rule 105. During the SEC's investigation, the adviser took remedial measures including implementation of an automated system that helps review the firm's prior short sales before it participates in offerings.”

In the above case there were two separate individuals involved that worked for the same firm. One sold the stock short while the other went long on the stock. The SEC suspected that there was collusion between the two individuals and the investment fund advisor agreed to pay back what it earned on the transaction and an additional penalty. The investment firm admitted to no wrongdoing.

It would be nice if the FBI would investigate the illegal acts of large corporations but,in truth FBI stands for For Big Institutions. In other words the FBI will investigate corparate fraud just like the SS would investigate the mental illness of Adolph Hitler.

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.

SEC ALLEGES MORTGAGE AND TARP FRAUD OF 1.5 BILLION DOLLARS

The SEC has found yet another head of a Mortgage company that not only committed mortgage fraud but, decided to defraud the government out of tarp funds (Known commonly as bank bail-out money). Although financial professionals and politicians alike tout the case that no one in particular is to blame for the financial melt-down it would seem that, the SEC keeps finding a few of the people who are to blame and benefited greatly from the financial meltdown. What is interesting is that the same fraudsters who committed mortgage securities fraud turned right around to defraud the government out of bank bail-out money. The following is an excerpt from the SEC sites which gives the details of this case:

“The SEC alleges that Lee B. Farkas through his company Taylor, Bean & Whitaker Mortgage Corp. (TBW) sold more than $1.5 billion worth of fabricated or impaired mortgage loans and securities to Colonial Bank. Those loans and securities were falsely reported to the investing public as high-quality, liquid assets. Farkas also was responsible for a bogus equity investment that caused Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for TARP funds. When Colonial Bank's parent company — Colonial BancGroup, Inc. — issued a press release announcing it had obtained preliminary approval to receive $550 million in TARP funds, its stock price jumped 54 percent in the remaining two hours of trading, representing its largest one-day price increase since 1983.

As the country's mortgage markets began to falter, Farkas arranged the sale of more than one billion dollars worth of mortgage loans and securities he knew to be fictitious or impaired," said Lorin Reisner, Deputy Director of the SEC's Division of Enforcement. "Farkas also lied about a sham equity investment he engineered to defraud U.S. taxpayers and the U.S. Treasury's Troubled Asset Relief Program."

According to the SEC's complaint, filed in U.S. District Court for the Eastern District of Virginia, Farkas executed the fraudulent scheme from March 2002 until August 2009, when TBW — a privately-held company headquartered in Ocala, Fla. — 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.
According to the SEC's complaint, TBW began to experience liquidity problems and overdrew its then-limited warehouse line of credit with Colonial Bank by approximately $15 million each day. The SEC alleges that Farkas pressured an officer at Colonial Bank to assist in concealing TBW's overdraws through a pattern of "kiting" whereby certain debits to TBW's warehouse line of credit were not entered until after credits due to the warehouse line of credit for the following day were entered. As this kiting activity increased in scope, TBW was overdrawing its accounts with Colonial Bank by approximately $150 million per day.

The SEC alleges that in order to conceal this initial fraudulent conduct, Farkas devised a plan for TBW to create and submit fictitious loan information to Colonial Bank. Farkas also directed the creation of 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. As a direct result of Farkas's misconduct, 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, Farkas caused BancGroup to misstate to investors and TARP officials that it had obtained commitments for a $300 million capital infusion, which would qualify Colonial Bank for TARP funding. Farkas falsely told BancGroup that a foreign-held investment bank had committed to financing TBW's equity investment in Colonial Bank. Contrary to his representations to BancGroup and the investing public, Farkas never secured financing or sufficient investors to fund the capital infusion. When BancGroup and TBW later mutually announced the termination of their stock purchase agreement, essentially signaling the end of Colonial Bank's pursuit of TARP funds, BancGroup's stock declined 20 percent.

The SEC's complaint charges Farkas with violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The SEC also seeks an officer-and-director bar against Farkas as well as an equitable order prohibiting him from serving in a senior management or control position at any mortgage-related company or other financial institution and from holding any position involving financial reporting or disclosure at a public company.”

The department of justice and FBI along with other government agencies has been noted to be involved with this case as members of the Financial Fraud Enforcement Task Force. Too often these cases result at best in just destroying the criminal careers of fraudsters by banning them from doing business in the securities markets. Financial crimes committed against the public seem to be the only crimes that have no personal consequences for the fraudsters. Perhaps Bernie Madoff would be spending his golden years living in the Cayman Islands had his son’s not turned him in for financial fraud. No doubt he is thinking that now as he sees how his peers are walking away very rich and very free as their criminals enterprises burn down behind them.

BROKERS ACCUSED OF HELPING TO SELL PENNY STOCKS UNLAWFULLY

The sale of penny stocks are often looked upon as controversial way to raise capital. Many investors will not purchase stocks that sell for under $10.00 for fear the company may not have the financial ability to survive. However, sometimes a stock may be undervalued by the market and becomes a really good value at really low prices.

Of course anyone with a copy machine can print off stock certificates and anyone with a computer can set up bogus securities to sell to the public. Most people remember all the anecdotal stories of Internet companies being formed and then raising capital on the basis of just an idea with no real business behind the issued securities. This type of behaviour is something the SEC is mandated to investigate.

Because companies who engage in security sales are required to make sure that bogus the securities they sell are legitimate; the SEC brought the following action against Leeb Brokerage Services:


"Washington, D.C., April 27, 2010 — The Securities and Exchange Commission today announced administrative proceedings against five securities professionals accused of facilitating unlawful sales of penny stocks to investors and failing to act as "gatekeepers" as required under the federal securities laws.

The SEC's Division of Enforcement alleges that three registered representatives and two supervisors at Leeb Brokerage Services allowed customers to routinely deliver large blocks of privately obtained shares of penny stocks into their accounts at the firm. The customers would then sell them to the public in transactions that were not registered with the SEC under the securities laws. The accused securities professionals allowed these sales without sufficiently investigating whether they were facilitating illegal underwriting, and they also caused the firm's failure to file Suspicious Activity Reports (SARs) as required under the Bank Secrecy Act to report potential misconduct by their customers.

-"Firms whose customers repeatedly bring in large blocks of microcap securities for sale to the public have an obligation to ensure they are not facilitating wrongdoing," said George S. Canellos, Director of the SEC's New York Regional Office. "Securities professionals who turn a blind eye to suspicious customer conduct are not fulfilling their duties as gatekeepers and risk violating the securities laws themselves."

The SEC's Division of Enforcement alleges that Leeb registered representatives Ronald Bloomfield, John Earl Martin, Sr., and Victor Labi failed to conduct a reasonable inquiry before allowing the public sales of the large blocks of penny stocks in violation of the registration provisions of the federal securities laws. The Enforcement Division further alleges that the firm's president Eugene Miller and its chief compliance officer Robert Gorgia failed to reasonably supervise the conduct of these representatives. All five individuals are accused of aiding and abetting the firm's failure to file SARs. These events occurred between 2005 and 2007. Leeb is no longer in business.

According to the Commission's order instituting administrative proceedings, the Leeb representatives ignored obvious red flags indicating that their customers were violating securities laws by engaging in illegal distributions of securities through their Leeb accounts. One group of customer accounts was affiliated with an individual who had previously been involved in a pump-and-dump scheme, and with a stock promoter who routinely received shares in compensation for promotional services for penny stock companies. The accounts earned more than $20 million in proceeds while repeatedly depositing privately obtained shares and then selling them to the public, raising the constant specter that Leeb was facilitating "scalping." Another Leeb customer wired more than $30 million in penny stock proceeds to a bank in Liechtenstein, a tax haven.

The SEC's Division of Enforcement alleges that despite these and other suspicious activities of their customers, the accused Leeb representatives and supervisors ignored their obligation to report the possible misconduct to authorities. Such disregard of the firm's reporting requirements under the Bank Secrecy Act enabled Leeb's customer activity, and the commissions it generated, to continue unfettered. And the public was exposed to repeated risk of unlawful distributions of penny stocks.

A hearing will be scheduled before an administrative law judge to determine whether the accused individuals committed the alleged violations and provide them an opportunity to defend the allegations. The hearing also will determine what sanctions, if any, are appropriate in the public interest."

The above was quoted from the SEC official web page. The possibility of fraud is great in an unregulated industry and it is good that there are regulations to help protect the public from being victims of heinous crimes. The unfortunate thing is that too many politicians believe that it is alright that people loose their life savings to fraudsters. These politicians believe that stealing from people is just one very legitimate form of capitalism that should be protected from governmental intervention. This form of capitalism only works if the public is allowed to exact vengeance upon fraudsters the same way vengeance was enacted upon horse thieves in the old west. "Horse Thief Capitalism" only works if you have a "Horse Thief Justice System" otherwise, it is important to have strong aggressive governmental institutions to protect the public from fraud and the fraudsters from "Horse Thief Justice".

GETTING SEMINAR PONZIED BY FAKE ESTATE PLANNERS

Below is an excerpt from the SEC web site which outlines an alleged Ponzi Scheme committed by some very smooth operators. This story has the real smell of a con complete wining and dining potential victims and with lying about investments and even about having an MBA. Please read the following excerpt regarding the Estate Planning Seminar Con:

"SEC Halts Ponzi Scheme Preying on Retirees Attending Estate Planning Seminars
FOR IMMEDIATE RELEASE
2010-37
Washington, D.C., March 10, 2010 — The Securities and Exchange Commission has obtained an emergency court order to shut down a Ponzi scheme targeting retirees in California and Illinois by inviting them to estate planning seminars and later coaxing them to buy promissory notes for purported Turkish investments.

The SEC alleges that USA Retirement Management Services (USARMS) and managing partners Francois E. Durmaz and Robert C. Pribilski mass-mailed promotional materials to prospective investors and invited them to estate planning seminars held at country clubs and banquet halls. They gained retirees' confidence in follow-up meetings and portrayed themselves as educated and experienced in foreign investments specifically tailored to the needs of seniors. Durmaz and Pribilski then pitched what they represented as safe, guaranteed investments in "Turkish Eurobonds" through the purchase of USARMS promissory notes that would earn annual returns between 8 and 11 percent.

The SEC alleges that USARMS raised at least $20 million from more than 120 investors, but did not actually invest the money in Turkish Eurobonds as promised. Instead, returns were paid to earlier investors with funds received from new investors in Ponzi-like fashion. Durmaz and Pribilski further misused investor funds to finance their other businesses and purchase such things as luxury automobiles, homes, vacations, and web-based pornography. They also wired investor money into bank accounts belonging to individuals living in Turkey who are named as relief defendants in the SEC's case.

"Durmaz and Pribilski used estate planning seminars as a means to elicit investor trust and lure retirees into investing in a classic Ponzi scheme," said Rosalind R. Tyson, Director of the SEC's Los Angeles Regional Office.

USARMS and its securities are not registered with the SEC. USARMS is incorporated in Illinois and has offices in Los Angeles; Irvine, Calif.; and Oakbrook Terrace, Ill. Durmaz resides in Los Angeles and Streamwood, Ill., and Pribilski resides in Lisle, Ill. Neither of them is registered with the SEC in any capacity nor do they hold any securities licenses.

According to the SEC's complaint, filed on March 9 in U.S. District Court for the Central District of California, Durmaz and other USARMS employees provided seminar attendees a general presentation on estate planning and later sent them a letter inviting them to their offices for a personal consultation "to explain the amazing steps you must take when you set up a Living Trust or Will."

The SEC alleges that once seminar attendees went to their estate planning appointments, Durmaz examined their personal financial information and told prospective investors that they had issued hundreds of millions of dollars in USARMS promissory notes. In addition, Durmaz falsely claimed that he held a Masters of Business Administration (MBA) and was a Certified Senior Advisor (CSA). Thus, prospective investors were led to believe that Durmaz was educated and experienced in investments specifically tailored to the needs of seniors and retirees."

The above allegations of the SEC demonstrates again how widespread fraud exists all over the investment community. Ponzi schemes have been around for generations but, crooks seem to love to use them over and over again.