Misrepresentation of facts has always been a real problem in the securities field. I've misrepresentations made by real estate companies, insurance companies and securities firms. I certainly have been duped by misrepresentations of various companies both as a client and as an agent of such businesses. As an agent of one such business I sold hundreds of thousands of dollars of fraudulent single premium life insurance policies along with IRAs. When the company in question was shut down I was devastated because I had been acting I thought in the best interests of my clients however, the corporate managers did not have such a lofty ambition in regards to being a good fiduciary of other peoples money.
It is good to see some criminal charges being filed in this case by the U.S. Attorney's office. However, it is unfortunate to see that like most Wall Street fraud schemes, the crimes only come to light when a company fails and litigants get access to the real financial statements.
Although these traders, if guilty, are clearly at fault for the fraud investors also must share some blame for their own losses. Various schemes to make lots of money with little risk are out there and can be perpetuated by anyone but, the old motto "Too Good to Be True" should be the first thing that comes into the mind of an investor when a Wall Street person comes to call on you.
The following is a case brought by the SEC against two Forex currency trader who allegedly mislead investors as to the safety of their principal. In addition, the SEC alleged that investor funds were diverted for personal use by the two traders. The following is an excerpt from the SEC governmental posting:
"Washington, D.C., Oct. 28, 2010 — The Securities and Exchange Commission today charged two foreign currency traders and their Boston-based company with operating a fraudulent scheme in which they sent investors misleading account statements while stealing their funds and incurring major trading losses.
Litigation Release No. 21712
SEC Complaint
The SEC alleges that Craig Karlis of Hopkinton, Mass., and Ahmet Devrim Akyil formerly of Hingham, Mass., fraudulently raised approximately $40 million from approximately 750 investors in a purported foreign currency (Forex) trading venture through their firm Boston Trading and Research LLC (BTR). Investors were falsely promised that BTR had a system in place to limit trading losses. BTR also falsely claimed to investors that "we do not profit unless you do" while in reality Karlis and Akyil were illegally diverting investor money for their own personal use as well as to fund BTR's operations and pay expenses for other companies with which they were associated.
"The bait was the promise by Akyil and Karlis to limit investor risk, and the switch was the theft and unauthorized trading that cost investors 90 percent of the invested funds," said Robert Khuzami, Director of the SEC's Division of Enforcement. "If you don't deliver what you promise and violate the securities laws, we will hold you accountable."
David Bergers, Director of the SEC's Boston Regional Office, added, "Akyil and Karlis secretly enriched themselves while many of the defrauded investors lost their retirement savings and financial security."
According to the SEC's complaint filed in federal court in Boston, for a minimum investment of $10,000, investors could deposit money with the BTR program. BTR used a website, sales representatives and live presentations by Karlis and Akyil to solicit funds from investors around the world. Investors provided Akyil with a limited power of attorney that granted him the right to direct the trading of their funds in the Forex market.
The SEC alleges that BTR's misrepresentations to investors included the following:
Investors would have 100 percent transparency about what was going on in their accounts through daily and monthly account statements and 24-hour access to real-time information about the trading Akyil was doing on their behalf.
Investors, through draw-down agreements, could lose no more than an agreed-upon percentage (typically 30 percent) of their investment.
The BTR trading system included an automatic stop-loss program that would curtail losses once they reached a certain percentage.
BTR and its principals would be paid from profits only.
The SEC alleges that BTR, through Akyil and with Karlis's knowledge, traded funds differently from what was disclosed in daily account statements to investors. The balance and equity positions that BTR provided investors on their account statements did not show that their funds had been diminished through BTR's use of investor money for undisclosed purposes. Meanwhile, Akyil and Karlis depleted the investment pool through misappropriation and trading losses far past the stop loss limits promised to investors. BTR collapsed in September 2008 and ultimately distributed the remaining funds to investors, which amounted to approximately 10 percent of their account balances.
The SEC's complaint charges Akyil, Karlis, and BTR with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains, and financial penalties.
Separately, the U.S. Attorney's Office for the District of Massachusetts today unsealed an indictment charging Akyil and Karlis with criminal violations based on the same misconduct. The SEC also acknowledges the assistance of the Commodity Futures Trading Commission."
It is good to see some criminal charges being filed in this case by the U.S. Attorney's office. However, it is unfortunate to see that like most Wall Street fraud schemes, the crimes only come to light when a company fails and litigants get access to the real financial statements.
Although these traders, if guilty, are clearly at fault for the fraud investors also must share some blame for their own losses. Various schemes to make lots of money with little risk are out there and can be perpetuated by anyone but, the old motto "Too Good To Be True" should be the first thing that comes to mind of an investor when a Wall Street person comes to call on you.
This is a photo of the National Register of Historic Places listing with reference number 7000063
Sunday, November 7, 2010
Sunday, October 31, 2010
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.
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.
Sunday, October 24, 2010
HOME DEPOT & EXECUTIVES CHARGED WITH VIOLATION FAIR DISCLOSURE REGULATIONS
Below is an excerpt from the SEC website which exposes a case of insider trading brought against Home Depot. In this case two executives gave out information to only certain persons before the information was released to the general public. Insider information is a great way to make money and it is not as dangerous in terms of being caught as is a Ponzi scheme. Ponzi schemes are always found out because the money eventually runs out. Insider trading may be much harder to prove unless it is done in such an obvious way that an agency like the SEC has to notice. Take a look at the details in the following case and see how such details are common among many companies traded as public entities:
“The Securities and Exchange Commission today announced enforcement actions against Office Depot, Inc. and two executives for violating or causing violations of fair disclosure regulations when selectively conveying to analysts and institutional investors that the company would not meet analysts' earnings estimates. The SEC also charged Office Depot with unrelated accounting violations.
Regulation FD requires that when issuers disclose material nonpublic information, they must make broad public disclosure of that information. The SEC's orders find that as they neared the end of Office Depot's second quarter for 2007, CEO Stephen A. Odland and then-CFO Patricia A. McKay discussed how to encourage analysts to revisit their analysis of the company. Office Depot then made a series of one-on-one calls to analysts. The company did not directly state that it would not meet analysts' expectations, but rather this message was signaled with references to recent public statements of comparable companies about the impact of the slowing economy on their earnings. The analysts also were reminded of Office Depot's prior cautionary public statements. Analysts promptly lowered their estimates for the period in response to the calls. Office Depot did not regularly initiate these types of calls to all analysts covering the company.
Office Depot agreed to settle the SEC's charges without admitting or denying the findings and allegations, and will pay a $1 million penalty. Odland and McKay also agreed to settle the Regulation FD charges against them without admitting or denying the findings, and will pay $50,000 each.
"Office Depot executives selectively shared information with analysts and the company's largest shareholders in order to manage earnings expectations," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This gave an unfair advantage to favored investors at the expense of other investors and, as today's action shows, is illegal."
"Talking Wall Street down from its earnings projections whether done expressly or through signals is prohibited," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "Regulation FD is designed to level the playing field so that all investors receive the information at the same time."
The SEC's administrative orders find that Odland, in an attempt to get analysts to lower their estimates, proposed to McKay that the company talk to the analysts and refer them to recent public announcements by two comparable companies about their financial results being impacted by the slowing economy. Odland further suggested that Office Depot point out on its calls what the company had said in prior public conference calls in April and May 2007. McKay then assisted Office Depot's investor relations personnel in preparing talking points for the calls.
According to the SEC's orders, Odland and McKay were not present during the calls but were aware of the analysts' declining estimates while the company made the calls. They encouraged the calls to be completed. Office Depot continued to make the calls despite McKay being notified of some analysts' concerns about the lack of public disclosure among other things. Six days after the calls began, Office Depot filed a Form 8-K announcing that its sales and earnings would be negatively impacted due to a continued soft economy. Before that Form 8-K was filed, Office Depot's share price had significantly dropped on increased trading volume.
In addition to their $50,000 payments, Odland and McKay consented to the entry of administrative orders requiring them to cease and desist from causing any violations and any future violations of Regulation FD and Section 13(a) of the Exchange Act.
Unrelated to these Regulation FD violations, the SEC also charged Office Depot with overstating its net earnings in its financial statements for the third quarter of 2006 through the second quarter of 2007 as a result of accounting violations. Office Depot prematurely recognized approximately $30 million in funds received from vendors in exchange for the company's merchandising and marketing efforts instead of recognizing the funds over the relevant reporting periods in a manner consistent with Generally Accepted Accounting Principles. In November 2007, the company restated those financials and announced a material weakness in its internal controls over financial reporting that resulted from the failure of its personnel responsible for negotiating agreements with vendors to communicate all of the relevant information to financial accounting personnel. The SEC did not charge Odland or McKay with any issues in connection with the restatement.
Office Depot has agreed to settle the SEC's charges by consenting to the entry of an administrative order requiring it to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder, and Regulation FD. Office Depot also consented to the entry of a judgment in a separate civil action that requires it to pay the $1 million penalty.”
It would be nice to be on the receiving end of financial information regarding a publicly traded company before that information was given over to the public. The fact that this goes on all the time is a reflection of the lack of severe penalties given to these fraudsters. As long as fraud is considered an honest business practice by the media, government and citizenry then it will continue.
“The Securities and Exchange Commission today announced enforcement actions against Office Depot, Inc. and two executives for violating or causing violations of fair disclosure regulations when selectively conveying to analysts and institutional investors that the company would not meet analysts' earnings estimates. The SEC also charged Office Depot with unrelated accounting violations.
Regulation FD requires that when issuers disclose material nonpublic information, they must make broad public disclosure of that information. The SEC's orders find that as they neared the end of Office Depot's second quarter for 2007, CEO Stephen A. Odland and then-CFO Patricia A. McKay discussed how to encourage analysts to revisit their analysis of the company. Office Depot then made a series of one-on-one calls to analysts. The company did not directly state that it would not meet analysts' expectations, but rather this message was signaled with references to recent public statements of comparable companies about the impact of the slowing economy on their earnings. The analysts also were reminded of Office Depot's prior cautionary public statements. Analysts promptly lowered their estimates for the period in response to the calls. Office Depot did not regularly initiate these types of calls to all analysts covering the company.
Office Depot agreed to settle the SEC's charges without admitting or denying the findings and allegations, and will pay a $1 million penalty. Odland and McKay also agreed to settle the Regulation FD charges against them without admitting or denying the findings, and will pay $50,000 each.
"Office Depot executives selectively shared information with analysts and the company's largest shareholders in order to manage earnings expectations," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This gave an unfair advantage to favored investors at the expense of other investors and, as today's action shows, is illegal."
"Talking Wall Street down from its earnings projections whether done expressly or through signals is prohibited," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "Regulation FD is designed to level the playing field so that all investors receive the information at the same time."
The SEC's administrative orders find that Odland, in an attempt to get analysts to lower their estimates, proposed to McKay that the company talk to the analysts and refer them to recent public announcements by two comparable companies about their financial results being impacted by the slowing economy. Odland further suggested that Office Depot point out on its calls what the company had said in prior public conference calls in April and May 2007. McKay then assisted Office Depot's investor relations personnel in preparing talking points for the calls.
According to the SEC's orders, Odland and McKay were not present during the calls but were aware of the analysts' declining estimates while the company made the calls. They encouraged the calls to be completed. Office Depot continued to make the calls despite McKay being notified of some analysts' concerns about the lack of public disclosure among other things. Six days after the calls began, Office Depot filed a Form 8-K announcing that its sales and earnings would be negatively impacted due to a continued soft economy. Before that Form 8-K was filed, Office Depot's share price had significantly dropped on increased trading volume.
In addition to their $50,000 payments, Odland and McKay consented to the entry of administrative orders requiring them to cease and desist from causing any violations and any future violations of Regulation FD and Section 13(a) of the Exchange Act.
Unrelated to these Regulation FD violations, the SEC also charged Office Depot with overstating its net earnings in its financial statements for the third quarter of 2006 through the second quarter of 2007 as a result of accounting violations. Office Depot prematurely recognized approximately $30 million in funds received from vendors in exchange for the company's merchandising and marketing efforts instead of recognizing the funds over the relevant reporting periods in a manner consistent with Generally Accepted Accounting Principles. In November 2007, the company restated those financials and announced a material weakness in its internal controls over financial reporting that resulted from the failure of its personnel responsible for negotiating agreements with vendors to communicate all of the relevant information to financial accounting personnel. The SEC did not charge Odland or McKay with any issues in connection with the restatement.
Office Depot has agreed to settle the SEC's charges by consenting to the entry of an administrative order requiring it to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder, and Regulation FD. Office Depot also consented to the entry of a judgment in a separate civil action that requires it to pay the $1 million penalty.”
It would be nice to be on the receiving end of financial information regarding a publicly traded company before that information was given over to the public. The fact that this goes on all the time is a reflection of the lack of severe penalties given to these fraudsters. As long as fraud is considered an honest business practice by the media, government and citizenry then it will continue.
Sunday, October 17, 2010
RADIO HOST IN TROUBLE OVER INVESTMENT SCAM
Who would think that a talk radio host would lie let alone scam people? Well apparently they do. The following is a case brought by the SEC against a talk radio host and two of her accomplices:
“Washington, D.C., Oct. 7, 2010 — The Securities and Exchange Commission today charged a talk radio show host and two other executives at a Monterey, Calif.-based firm with misappropriating $2.5 million of approximately $7 million they raised through the fraudulent sale of interests in two real estate investment funds.
The SEC alleges that Barbra Alexander, the former president of APS Funding, used her status as host of an internationally-syndicated radio show for entrepreneurs called MoneyDots to lure investors who thought their money would be used to fund short-term loans secured by real estate. Alexander along with the firm's secretary/chief financial officer Beth Piña of Fairfield, Idaho, and vice president Michael E. Swanson of Seaside, Calif., instead stole investor money to pay themselves $1.2 million and finance MoneyDots and other unrelated businesses unbeknownst to investors. Alexander even used $200,000 of investor funds to remodel her kitchen.
"Alexander led investors to believe she would invest their money in secured real estate financing, but she and her cohorts merely used the money for their own benefit," said Marc J. Fagel, Director of the SEC's San Francisco Regional Office.
According to the SEC's complaint filed in federal district court in San Jose, Alexander, Piña and Swanson raised nearly $7 million from 50 investors for two investment funds managed by APS Funding. They claimed that the funds would make short-term secured loans to homeowners and yield 12 percent annual returns to investors. Contrary to what investors were told, $1.2 million of their money instead went directly to Alexander, Piña, and Swanson for personal use, and $1.3 million in investor funds was used to finance other businesses owned by Alexander and APS Funding, including MoneyDots.
The SEC further alleges that Alexander, Piña, and Swanson furthered the scheme by sending monthly account statements to investors reflecting fictitious profits and, in classic Ponzi scheme fashion, paying out purported returns that actually came from new investors.
The SEC's complaint charges Alexander, Piña, Swanson, and APS Funding with violating the antifraud provisions of the federal securities laws, and also charges Alexander, Swanson, and APS Funding with the unregistered sale of securities. The action seeks injunctive relief, disgorgement of ill-gotten gains, and monetary penalties.
In a related criminal proceeding announced today, the U.S. Attorney's Office for the Northern District of California filed criminal actions against Alexander, Piña, and Swanson based on the same alleged misconduct.
The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of California, the Federal Bureau of Investigation, and the Monterey County District Attorney's Office.”
What type of scheme will talk radio and TV hosts think of next? Maybe it will be investing in gold and silver. As an investor in gold and silver over the past 30 years I will tell you that most of the stuff sold on TV, Radio and through the want ads of publications is a scam. The best way to buy gold and silver is by buying proof coins directly from the government. That way you have some guarantee that the coins are not just gold or silver plated. I have purchased counterfeit coins from dealers and I was not very happy when I realized that they had stolen my money.
“Washington, D.C., Oct. 7, 2010 — The Securities and Exchange Commission today charged a talk radio show host and two other executives at a Monterey, Calif.-based firm with misappropriating $2.5 million of approximately $7 million they raised through the fraudulent sale of interests in two real estate investment funds.
The SEC alleges that Barbra Alexander, the former president of APS Funding, used her status as host of an internationally-syndicated radio show for entrepreneurs called MoneyDots to lure investors who thought their money would be used to fund short-term loans secured by real estate. Alexander along with the firm's secretary/chief financial officer Beth Piña of Fairfield, Idaho, and vice president Michael E. Swanson of Seaside, Calif., instead stole investor money to pay themselves $1.2 million and finance MoneyDots and other unrelated businesses unbeknownst to investors. Alexander even used $200,000 of investor funds to remodel her kitchen.
"Alexander led investors to believe she would invest their money in secured real estate financing, but she and her cohorts merely used the money for their own benefit," said Marc J. Fagel, Director of the SEC's San Francisco Regional Office.
According to the SEC's complaint filed in federal district court in San Jose, Alexander, Piña and Swanson raised nearly $7 million from 50 investors for two investment funds managed by APS Funding. They claimed that the funds would make short-term secured loans to homeowners and yield 12 percent annual returns to investors. Contrary to what investors were told, $1.2 million of their money instead went directly to Alexander, Piña, and Swanson for personal use, and $1.3 million in investor funds was used to finance other businesses owned by Alexander and APS Funding, including MoneyDots.
The SEC further alleges that Alexander, Piña, and Swanson furthered the scheme by sending monthly account statements to investors reflecting fictitious profits and, in classic Ponzi scheme fashion, paying out purported returns that actually came from new investors.
The SEC's complaint charges Alexander, Piña, Swanson, and APS Funding with violating the antifraud provisions of the federal securities laws, and also charges Alexander, Swanson, and APS Funding with the unregistered sale of securities. The action seeks injunctive relief, disgorgement of ill-gotten gains, and monetary penalties.
In a related criminal proceeding announced today, the U.S. Attorney's Office for the Northern District of California filed criminal actions against Alexander, Piña, and Swanson based on the same alleged misconduct.
The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of California, the Federal Bureau of Investigation, and the Monterey County District Attorney's Office.”
What type of scheme will talk radio and TV hosts think of next? Maybe it will be investing in gold and silver. As an investor in gold and silver over the past 30 years I will tell you that most of the stuff sold on TV, Radio and through the want ads of publications is a scam. The best way to buy gold and silver is by buying proof coins directly from the government. That way you have some guarantee that the coins are not just gold or silver plated. I have purchased counterfeit coins from dealers and I was not very happy when I realized that they had stolen my money.
Sunday, October 10, 2010
SEC CHARGES ABB Ltd FOR BRIBERY
Bribery is a common business practice in many parts of the world. The United States has a law called the Foreign Corrupt Practices Act which prohibits U.S. businesses from paying bribes to foreign officials.
The following is an excerpt from the SEC web page. It describes in detail the transactions that got ABB Ltd. in trouble.
“Recently the SEC charged ABB Ltd. With giving bribes to Mexican officials and to officials in IRAQ during the Oil for Food program. ABB agreed to pay nearly $40 dollars to settle the SEC charges and another $19 million in penalties to settle charges brought by the Department of Justice Washington, D.C., Sept. 29, 2010 — The Securities and Exchange Commission today charged ABB Ltd with violations of the Foreign Corrupt Practices Act (FCPA) for using subsidiaries to pay bribes to Mexican officials to obtain business with government-owned power companies, and to pay kickbacks to Iraq to obtain contracts under the U.N. Oil for Food Program.
The SEC alleges that ABB's subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB, a Swiss corporation that provides power and automation products and services worldwide.
ABB has agreed to pay more than $39.3 million to settle the SEC's charges.
"This investigation uncovered millions of dollars in bribes paid or promised to officials at Mexico's largest power company," said Scott W. Friestad, Associate Director of the SEC's Division of Enforcement. "As the sanctions in this case demonstrate, there are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials.
Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, added, "ABB's violations involved conduct at a U.S. subsidiary and six foreign-based subsidiaries. Multi-national companies that make illicit payments through layers of subsidiaries will be held accountable."
The SEC's complaint filed in federal court in Washington, D.C., alleges that from 1999 to 2004, ABB Network Management (ABB NM) — a business unit within ABB's U.S. subsidiary — bribed officials in Mexico to obtain and retain business with two government owned electric utilities, Comision Federal de Electricidad (CFE) and Luz y Fuerza del Centro (LyFZ). The bribes were funneled through ABB NM's agent and two other companies in Mexico. The SEC alleges that ABB failed to conduct due diligence on these payments and entities and improperly recorded the bribes on its books as payments for commissions and services on projects in Mexico. Illicit payments included checks and wire transfers to relatives of CFE officials, cash bribes to CFE officials, and a Mediterranean cruise vacation for CFE officials and their wives. As a result of this bribery scheme, ABB NM was awarded contracts with CFE and LyFZ that generated more than $90 million in revenues and $13 million in profits for ABB.
The SEC alleges that from approximately 2000 to 2004, ABB participated in the U.N. Oil for Food Program through six subsidiaries that developed various schemes to pay secret kickbacks to the former regime in Iraq to obtain contracts under the program. ABB's Jordanian subsidiary acted as a conduit for other ABB subsidiaries by making the kickback payments on their behalf. Some of the kickbacks were made in the form of bank guarantees and cash payments. ABB improperly recorded these kickbacks on its books as legitimate payments for after sales services, consultation costs, and commissions. Oil for Food contracts obtained as a result of the kickback schemes generated $13.5 million in revenues and $3.8 million in profits for ABB.
Without admitting or denying the allegations in the SEC's complaint, ABB consented to the entry of a final judgment that permanently enjoins the company from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, orders the company to pay $17,141,474 in disgorgement, $5,662,788 in prejudgment interest, and a $16,510,000 penalty. The order also requires the company to comply with certain undertakings regarding its FCPA compliance program.
In related criminal proceedings, ABB has reached a settlement with the U.S. Department of Justice in which ABB has agreed to pay $19 million in criminal penalties.”
As with almost all major felony cases involving a U.S. corporation; no one will go to jail. It seems that having Ltd. or Inc. in the name of a business is the same as a “get out of jail free” card in the game of Monopoly.
Shakespeare said “What is in a name? A rose by any other name would smell as sweet.” Well, in terms of businesses with letters like Ltd. or Inc. in their names, they do smell but, not sweet like a rose.
The following is an excerpt from the SEC web page. It describes in detail the transactions that got ABB Ltd. in trouble.
“Recently the SEC charged ABB Ltd. With giving bribes to Mexican officials and to officials in IRAQ during the Oil for Food program. ABB agreed to pay nearly $40 dollars to settle the SEC charges and another $19 million in penalties to settle charges brought by the Department of Justice Washington, D.C., Sept. 29, 2010 — The Securities and Exchange Commission today charged ABB Ltd with violations of the Foreign Corrupt Practices Act (FCPA) for using subsidiaries to pay bribes to Mexican officials to obtain business with government-owned power companies, and to pay kickbacks to Iraq to obtain contracts under the U.N. Oil for Food Program.
The SEC alleges that ABB's subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB, a Swiss corporation that provides power and automation products and services worldwide.
ABB has agreed to pay more than $39.3 million to settle the SEC's charges.
"This investigation uncovered millions of dollars in bribes paid or promised to officials at Mexico's largest power company," said Scott W. Friestad, Associate Director of the SEC's Division of Enforcement. "As the sanctions in this case demonstrate, there are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials.
Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, added, "ABB's violations involved conduct at a U.S. subsidiary and six foreign-based subsidiaries. Multi-national companies that make illicit payments through layers of subsidiaries will be held accountable."
The SEC's complaint filed in federal court in Washington, D.C., alleges that from 1999 to 2004, ABB Network Management (ABB NM) — a business unit within ABB's U.S. subsidiary — bribed officials in Mexico to obtain and retain business with two government owned electric utilities, Comision Federal de Electricidad (CFE) and Luz y Fuerza del Centro (LyFZ). The bribes were funneled through ABB NM's agent and two other companies in Mexico. The SEC alleges that ABB failed to conduct due diligence on these payments and entities and improperly recorded the bribes on its books as payments for commissions and services on projects in Mexico. Illicit payments included checks and wire transfers to relatives of CFE officials, cash bribes to CFE officials, and a Mediterranean cruise vacation for CFE officials and their wives. As a result of this bribery scheme, ABB NM was awarded contracts with CFE and LyFZ that generated more than $90 million in revenues and $13 million in profits for ABB.
The SEC alleges that from approximately 2000 to 2004, ABB participated in the U.N. Oil for Food Program through six subsidiaries that developed various schemes to pay secret kickbacks to the former regime in Iraq to obtain contracts under the program. ABB's Jordanian subsidiary acted as a conduit for other ABB subsidiaries by making the kickback payments on their behalf. Some of the kickbacks were made in the form of bank guarantees and cash payments. ABB improperly recorded these kickbacks on its books as legitimate payments for after sales services, consultation costs, and commissions. Oil for Food contracts obtained as a result of the kickback schemes generated $13.5 million in revenues and $3.8 million in profits for ABB.
Without admitting or denying the allegations in the SEC's complaint, ABB consented to the entry of a final judgment that permanently enjoins the company from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, orders the company to pay $17,141,474 in disgorgement, $5,662,788 in prejudgment interest, and a $16,510,000 penalty. The order also requires the company to comply with certain undertakings regarding its FCPA compliance program.
In related criminal proceedings, ABB has reached a settlement with the U.S. Department of Justice in which ABB has agreed to pay $19 million in criminal penalties.”
As with almost all major felony cases involving a U.S. corporation; no one will go to jail. It seems that having Ltd. or Inc. in the name of a business is the same as a “get out of jail free” card in the game of Monopoly.
Shakespeare said “What is in a name? A rose by any other name would smell as sweet.” Well, in terms of businesses with letters like Ltd. or Inc. in their names, they do smell but, not sweet like a rose.
Sunday, October 3, 2010
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.
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.
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