SEC CHARGED FORMER TECHNOLOGY CEO WITH USING CORPORATE FUNDS FOR PERSONAL PURPOSES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
03/31/2015 01:00 PM EDT

The Securities and Exchange Commission charged the former CEO of Silicon Valley-based technology firm Polycom Inc. with using nearly $200,000 in corporate funds for personal perks that were not disclosed to investors.

The SEC alleges that Andrew Miller created hundreds of false expense reports with bogus business descriptions for his personal use of company dollars to pay for meals, entertainment, and gifts.  Furthermore, he used Polycom funds to travel with his friends and girlfriend to luxurious international resorts while falsely claiming the trips were business-related site inspections in advance of company sales retreats.  Miller hid the costs by directing a travel agent to bury them in fake budget line items.  In 2012 alone, Miller charged Polycom for more than $115,000 in personal expenses despite publicly reporting that he received less than $35,000 in perks that year.

The SEC separately charged Polycom in an administrative order finding that the company had inadequate internal controls and failed to report Miller’s perks to investors.  Polycom agreed to pay $750,000 to settle the SEC’s charges, without admitting or denying the SEC’s findings as to the company.  The case against Miller continues in federal court.

“CEOs are stewards of corporate assets and must be held to the highest standard of honesty and integrity,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “We will not hesitate to charge executives with fraud when they allegedly use a public company as a personal expense account and hide it from investors.”

According to the SEC’s complaint filed in the San Francisco Division of U.S. District Court for the Northern District of California, Miller’s undisclosed use of company funds for personal perks was wide-ranging:

More than $80,000 for personal travel and entertainment that Miller hid in falsified invoices or passed off as legitimate business expenses
More than $10,000 for clothing and accessories and more than $5,000 worth of spa gift cards that Miller falsely claimed to have given as gifts to customers and employees.

More than $10,000 for tickets to professional baseball and football games that Miller falsely claimed to have attended with clients.

More than $5,000 for plants and a plant-watering service at Miller’s apartment that he falsely claimed were for the company’s San Francisco office
The SEC’s complaint against Miller alleges that he violated the antifraud, proxy solicitation, periodic reporting, books and records and internal controls provisions of the federal securities laws.  The complaint also alleges that he falsely certified the accuracy of Polycom’s annual reports, which incorporated its proxy statements.

The SEC’s order against Polycom found that its internal controls over Miller’s expenses were inadequate.   For example, Polycom allowed Miller to approve his own expenses that were charged on his assistants’ credit cards, and the company allowed him to book and charge airline flights without providing any descriptions of their purpose.  As a result of Miller’s misconduct, Polycom’s proxy statements contained false compensation information and failed to accurately describe Miller’s perks as required.

“Public companies are required to implement and maintain effective controls over executive compensation and expenses,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Miller allegedly exploited weaknesses in Polycom’s controls to steer himself a series of perks to the detriment of shareholders.”

The SEC’s investigation was conducted by David Berman and John Roscigno of the San Francisco office, and the case was supervised by Tracy Davis.  The SEC’s litigation against Miller will be led by Susan LaMarca and David Johnson.

SEC CHARGES FLORIDA FUND MANAGER WITH DEFRAUDING INVESTORS IN A PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a Sarasota, Fla.-based private fund manager with defrauding investors in a Ponzi scheme that ensued after he squandered their money on bad investments and personal expenses.

The SEC alleges that Gaeton “Guy” S. Della Penna raised $3.8 million from investors in three private investment funds that he operated.  Investors were told their funds would be used to trade securities or invest in small companies.  Despite depicting himself as a distinguished trader and profit-maker, Della Penna lost nearly all of their money by making unsuccessful investments and diverting more than a million dollars to himself for mortgage payments and money for his girlfriend.  In an effort to cover up his fraud as it unraveled, Della Penna began operating a Ponzi scheme by using money from newer investors to pay fake returns to prior investors.  He provided some investors with false account statements to mislead them into believing they were profiting by investing their money with him.

In a parallel action, the U.S. Attorney’s Office for the Middle District of Florida today announced criminal charges against Della Penna.

“Della Penna lied to investors about his trading track record in order to gain their trust and pocket their investments,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “He fostered a false sense of security by creating bogus account statements showing positive returns when, in reality, he was operating a Ponzi scheme and stealing investor money.”

According to the SEC’s complaint filed in the U.S. District Court for the Middle District of Florida, many of the investors in Della Penna’s scheme were acquaintances who he met through his church.  He solicited investors to purchase notes in his private investment funds from 2008 to 2013, often promising 5 percent annual returns along with 80 percent of the trading profits generated with their investments.  He later promised some investors 10 percent returns on their money to be used for investing in small companies. All the while, Della Penna was siphoning away investor funds to the tune of about $1.1 million to make mortgage payments on his 10,000-square-foot home and make payments to his girlfriend who lived with him there.  Della Penna also transferred some investor funds into accounts at Gaeton Capital Advisors LLC, an entity that is named as a relief defendant in the SEC’s complaint for the purpose of recovering any investor funds in its possession.

 The SEC’s complaint alleges that Della Penna violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8(a). The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and a permanent injunction against Della Penna.

The SEC’s investigation was conducted by Raynette R. Nicoleau and supervised by Chedly C. Dumornay in the Miami Regional Office.  The SEC’s litigation will be led by Andrew Schiff.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Middle District of Florida and the Tampa division of the U.S. Secret Service.

MASSACHUSETTS RESIDENT SENTENCED FOR DEFRAUDING RARE COIN INVESTMENT CUSTOMERS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Defendant in SEC Action Sentenced On Related Criminal Charges, Receives 17 Year Sentence

The Securities and Exchange Commission announced today that on April 26, 2013, Arnett L. Waters of Milton, Massachusetts, a principal of a broker-dealer and investment adviser who is a defendant in a securities fraud action filed by the Commission in May 2012, was sentenced to 17 years in federal prison in a separate criminal action for orchestrating a securities fraud and for defrauding rare coin investment customers. Waters was also sentenced to three years of supervised release and $9,025,691 in restitution and forfeiture. The criminal charges were brought by the U.S. Attorney for the District of Massachusetts. Waters' guilty plea to securities fraud and other charges occurred on November 29, 2012, and followed an earlier guilty plea by Waters in October 2012 to criminal contempt charges for violating a preliminary injunction order obtained by the Commission in its case. The Commission's Order barring Waters from the securities industry was issued on December 3, 2012.

The Commission filed an emergency enforcement action against Waters on May 1, 2012, alleging that he and two companies under his control, broker-dealer A.L. Waters Capital, LLC and investment adviser Moneta Management, LLC, defrauded investors from at least 2009-2012 by, among other things, misappropriating investor funds and spending it on personal expenses. On May 3, 2012, the Court entered a preliminary injunction order that, among other things, froze Waters' assets and required him to provide an accounting of all his assets to the Commission. On August 7, 2012, the Commission filed a civil contempt motion against Waters, alleging that he had violated the court's preliminary injunction order by establishing an undisclosed bank account, transferring funds to that account, dissipating assets, and failing to disclose the bank account to the Commission, as required by the Court's order. On August 9, 2012, the U.S. Attorney for the District of Massachusetts filed a separate criminal contempt action against Waters based on the same allegations. On October 2, 2012, Waters pleaded guilty to the criminal contempt charges, and the Court ordered him detained pending sentencing.

On December 3, 2012, the Commission barred Waters from the securities industry, based on his October 2, 2012 guilty plea to criminal contempt. The Order bars Waters from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.

The U.S. Attorney for the District of Massachusetts charged Waters with an array of securities fraud and other violations on October 17, 2012. On November 29, 2012, Waters pleaded guilty to sixteen counts of securities fraud, mail fraud, money laundering, and obstruction of justice. The counts of the criminal information to which Waters pleaded guilty alleged that, from at least 2007 through 2012, he used fictitious investment-related partnerships to draw in investors, misappropriate their investment money, and spend the vast majority of it on personal and business expenses and debts. Waters raised at least $839,000 from at least thirteen investors, including $500,000 from his church in March 2012. Waters also pleaded guilty to engaging in a criminal scheme to defraud clients of his rare coin business. Under this scheme, Waters defrauded coin customers out of as much as $7.8 million by selling coins at prices inflated, on average, by 600% and by inducing coin purchasers to return coins to him, on the false representation that he would sell those coins on the customers' behalf, when, in fact, he sold most or all of the coins and kept the proceeds for himself. The criminal information to which Waters pleaded guilty further alleged that he engaged in money laundering through two transactions totaling $77,000. Finally, Waters pleaded guilty to allegations that he made multiple misrepresentations to Commission staff, including that there were no investors in his investment-related partnerships, in order to conceal the fact that investor money was misappropriated in a fraudulent scheme. Waters was charged with obstruction of justice related to this conduct.

The Commission acknowledges the assistance of the United States Attorney's Office for the District of Massachusetts, the Federal Bureau of Investigation and FINRA in this matter.