The SEC has caught two more individuals that were illegally shorting stocks. This is the first enforcement actions brought under rule 105. Rule 105 is meant to help stop the malicious market manipulations which has caused harm to the markets and has driven many retail (individual) investors away. Short selling when used as a hedge against sharp losses is a good thing. Short selling as a method of gambling is a dangerous thing to do for the short seller. The only time it is not dangerous is if the short seller has taken his own risk from the gamble via manipulating the market so that the stock will go down. It is like playing with a loaded deck of cards and that is perhaps a greater threat to capitalism than communism, fascism or any other ism.
The following is an excerpt from the SEC internet site. The SEC is at least finding some of the miscreants. It is too bad The Department of Justice does not take a keener interest in what may be the greatest threat to our national survival since WWII.
“Washington, D.C., May 11, 2010 — The Securities and Exchange Commission today charged two Boca Raton, Fla., residents for engaging in illegal short selling of securities in advance of participating in numerous secondary offerings to make illicit profits.
These mark the first enforcement actions brought by the SEC under Rule 105 of Regulation M against individuals with no securities industry background. Rule 105 helps prevent abusive short selling and market manipulation by ensuring that offering prices are set by natural forces of supply and demand for the securities in a secondary offering rather than by manipulative activity.
In separate orders issued by the Commission, Peter G. Grabler was charged with repeatedly violating Rule 105 over a period of more than two years for gains of $636,123. Leonard Adams was charged with similarly violating Rule 105 for gains of $331,387. According to the orders, Grabler and Adams engaged in a strategy of participating in numerous secondary offerings of stock in public companies in order to improve their access to initial public offerings underwritten by the same broker-dealers through which they participated in the secondary offerings.
Grabler and Adams, who both lived in Massachusetts during the period of the wrongdoing, agreed to pay a combined total of more than $1.5 million to settle the SEC's charges.
"Rule 105 applies just as much to individuals trading in their own accounts as it does to investment advisers and their related funds, which have been the subject of prior SEC enforcement actions," said David P. Bergers, Director of the SEC's Boston Regional Office. "Grabler and Adams engaged in a trading strategy that by its very nature violates the SEC's rules."
Short selling ahead of offerings can reduce the proceeds received by public companies and their shareholders by artificially depressing the market price shortly before the company prices its offering. The SEC amended Rule 105 effective October 2007 to prevent this trading practice known as "shorting into the deal." The revised rule generally prohibits the purchase of offering shares by any person who sold short the same securities within five business days before the pricing of the offering.
According to the SEC's orders, Grabler engaged in transactions prohibited by Rule 105 on at least 119 occasions between February 2006 and November 2008, involving secondary offerings by at least 102 issuers. Adams engaged in illegal transactions on at least 94 occasions between March 2006 and November 2008, involving secondary offerings by at least 86 issuers. The SEC found that Grabler opened or controlled at least 52 brokerage accounts at more than a dozen broker-dealers and that Adams opened or controlled at least 32 brokerages accounts also at more than a dozen broker-dealers.
In settling the SEC's charges without admitting or denying the SEC's findings, Grabler and Adams separately consented to cease and desist from violating Rule 105. Grabler will pay more than $988,000 to settle the SEC's charges, and Adams will pay more than $514,000”
Well, the SEC has caught and fined more crooks. As a long time investor in securities and commodities I have seen a lot of market manipulation. In this case the criminals were stealing a relative small amount of money but, they did get a just fine and perhaps they should get some criminal charges brought against them but unfortunately, the SEC cannot try people and put them away.
One thing that should be noted in this case is how much trouble a couple of guys can cause through illegal short sales. It would be good if the SEC would look into a lot of the shenanigans that went on in the 2007-2008 melt down. Several major brokerages have been rumored to have made a tremendous fortune shorting stocks so far down that the underlying businesses could not get loans to stay in business. Some of these short sellers may have been such large institutions that they created the short selling market for these stocks which wiped a lot of retail investors out and forced good companies to lay off employees. The aforesaid happens if the collapsing price of a stock of a business causes that business to have problems getting loans to fund day to day operations.
This is a photo of the National Register of Historic Places listing with reference number 7000063
Sunday, May 16, 2010
Monday, May 10, 2010
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".
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".
Saturday, May 1, 2010
SEC CHARGES DETROIT FIRM WITH FRAUD
It seems the penchant for securities dealers to steal pensions never ends. The Detroit area is one of the most economically ravaged areas of the U.S. and then to have some Wall Street fraudsters come along and rub salt in the wounds of this ancient French Fort City is just unconscionable. At any rate, the SEC feels it can go ahead and get some of the money back. The following excerpt was taken from the SEC site and explains in pretty good detail the crimes that were committed:
"Washington, D.C., April 22, 2010 — The Securities and Exchange Commission today charged a private equity firm, a money manager and his friend with participating in a fraudulent scheme through which they stole more than $3 million invested by three Detroit-area public pension funds.
Detroit-based Onyx Capital Advisors LLC and its founder Roy Dixon, Jr., raised $23.8 million from the three pension funds for a start-up private equity fund created to invest in small and medium-sized private companies. Often to cover overdrafts in his bank accounts, Dixon illegally withdrew money invested by the pension funds from the bank accounts of the private equity fund. Assisting in the scheme was Dixon’s friend Michael A. Farr, who controls three companies in which the Onyx fund invested millions of dollars. Farr diverted money invested in these entities to another company he owned, withdrew the money from that bank account, and gave the cash to Dixon. Farr also kept some money for himself, and used investor funds to make payments to contractors building a multi-million dollar house for Dixon, who lives primarily in Atlanta.
The SEC’s complaint, filed in federal district court in Detroit, also alleges that Dixon and Onyx Capital made a number of false and misleading statements to defraud the three pension funds about the private equity fund and the investments they were making.
“These public pension funds provided seed capital to the Onyx fund, and Dixon betrayed their trust by stealing their money,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Farr assisted Dixon by making large bank withdrawals of money ostensibly invested in Farr’s companies, and together they treated the pension funds’ investments as their own pot of cash.”
According to the SEC’s complaint, shortly after the three pension funds made their first contributions to the Onyx fund in early 2007, Dixon and Onyx Capital began illegally siphoning money. Dixon and Onyx Capital took more than $2.06 million under the guise of management fees, and Farr assisted in diverting approximately $1.05 million through the Onyx fund’s purported investments in companies Farr controlled. Dixon used the money to pay personal and business expenses, including construction of his house in Atlanta and mortgage payments on more than 40 rental properties Dixon owns in Detroit and Pontiac, Mich.
Under the partnership agreement for the Onyx fund, Onyx Capital was entitled to receive an annual management fee of 2 percent of the committed capital within the fund, or $500,000 per year, payable on a quarterly basis. The SEC alleges that instead of deducting management fees on a quarterly basis, Dixon withdrew money whenever he desired from the Onyx fund’s bank accounts under his control.
According to the SEC’s complaint, Onyx Capital invested more than $15 million from the Onyx fund in three related entities controlled by Farr – Second Chance Motors, SCM Credit LLC, and SCM Finance LLC. Farr diverted a portion of the pension fund investments in Farr’s companies to 1097 Sea Jay LLC, another entity that Farr controlled. Farr then withdrew large sums of cash and provided most of it to Dixon while retaining at least $229,000 for his own benefit. Farr also used Sea Jay’s bank accounts to make at least $522,000 in payments to construction companies performing work on Dixon’s house in Atlanta.
The SEC further alleges that Dixon and Onyx Capital made numerous false and misleading statements to Onyx Capital’s public pension fund clients. For example, one pension fund had concerns about Dixon’s inexperience in private equity. To allay the concerns and ultimately convince the pension fund to fund the investment, Dixon sent a letter falsely stating that a purported joint owner of Onyx Capital with substantial experience evaluating private equity investments would devote all of his efforts to the Onyx fund. The letter contained a forged signature of that individual, who had reviewed certain investment opportunities for the Onyx fund during his spare time, but has never owned or been employed by Onyx Capital. He instead had been working full-time for another company since 1996.
As alleged in the SEC’s complaint, Dixon and Onyx Capital violated and Farr aided and abetted violations of the antifraud provisions of the federal securities laws. The SEC is seeking a court order for emergency relief, including temporary restraining orders, asset freezes and accountings. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains and financial penalties."
It is just too bad the SEC can't prosecute these individuals as real criminals and send them off to prison. It seems Congress made sure many years ago that the most that can happen to Wall Street fraudsters is that they might have to give back at least some of the money they stole. People who steal candy bars at convenience stores get greater punishments. The Department of Justice is supposed to handle criminal prosecutions of Wall Street fraudsters but, they don't seem to have the accountants who can find the fraud or the lawyers who can understand the fraud once it is found.
It might be noted that a fraud of just a few million dollars is not that big however, these frauds are being perpetrated by perhaps the hundreds or even thousands across the United States. Of course with the penalty of being caught being no greater than giving back what was stolen then "why not steal?" In this country it seems we have banks too big to fail and Wall Street bankers too rich to go to jail.
"Washington, D.C., April 22, 2010 — The Securities and Exchange Commission today charged a private equity firm, a money manager and his friend with participating in a fraudulent scheme through which they stole more than $3 million invested by three Detroit-area public pension funds.
Detroit-based Onyx Capital Advisors LLC and its founder Roy Dixon, Jr., raised $23.8 million from the three pension funds for a start-up private equity fund created to invest in small and medium-sized private companies. Often to cover overdrafts in his bank accounts, Dixon illegally withdrew money invested by the pension funds from the bank accounts of the private equity fund. Assisting in the scheme was Dixon’s friend Michael A. Farr, who controls three companies in which the Onyx fund invested millions of dollars. Farr diverted money invested in these entities to another company he owned, withdrew the money from that bank account, and gave the cash to Dixon. Farr also kept some money for himself, and used investor funds to make payments to contractors building a multi-million dollar house for Dixon, who lives primarily in Atlanta.
The SEC’s complaint, filed in federal district court in Detroit, also alleges that Dixon and Onyx Capital made a number of false and misleading statements to defraud the three pension funds about the private equity fund and the investments they were making.
“These public pension funds provided seed capital to the Onyx fund, and Dixon betrayed their trust by stealing their money,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Farr assisted Dixon by making large bank withdrawals of money ostensibly invested in Farr’s companies, and together they treated the pension funds’ investments as their own pot of cash.”
According to the SEC’s complaint, shortly after the three pension funds made their first contributions to the Onyx fund in early 2007, Dixon and Onyx Capital began illegally siphoning money. Dixon and Onyx Capital took more than $2.06 million under the guise of management fees, and Farr assisted in diverting approximately $1.05 million through the Onyx fund’s purported investments in companies Farr controlled. Dixon used the money to pay personal and business expenses, including construction of his house in Atlanta and mortgage payments on more than 40 rental properties Dixon owns in Detroit and Pontiac, Mich.
Under the partnership agreement for the Onyx fund, Onyx Capital was entitled to receive an annual management fee of 2 percent of the committed capital within the fund, or $500,000 per year, payable on a quarterly basis. The SEC alleges that instead of deducting management fees on a quarterly basis, Dixon withdrew money whenever he desired from the Onyx fund’s bank accounts under his control.
According to the SEC’s complaint, Onyx Capital invested more than $15 million from the Onyx fund in three related entities controlled by Farr – Second Chance Motors, SCM Credit LLC, and SCM Finance LLC. Farr diverted a portion of the pension fund investments in Farr’s companies to 1097 Sea Jay LLC, another entity that Farr controlled. Farr then withdrew large sums of cash and provided most of it to Dixon while retaining at least $229,000 for his own benefit. Farr also used Sea Jay’s bank accounts to make at least $522,000 in payments to construction companies performing work on Dixon’s house in Atlanta.
The SEC further alleges that Dixon and Onyx Capital made numerous false and misleading statements to Onyx Capital’s public pension fund clients. For example, one pension fund had concerns about Dixon’s inexperience in private equity. To allay the concerns and ultimately convince the pension fund to fund the investment, Dixon sent a letter falsely stating that a purported joint owner of Onyx Capital with substantial experience evaluating private equity investments would devote all of his efforts to the Onyx fund. The letter contained a forged signature of that individual, who had reviewed certain investment opportunities for the Onyx fund during his spare time, but has never owned or been employed by Onyx Capital. He instead had been working full-time for another company since 1996.
As alleged in the SEC’s complaint, Dixon and Onyx Capital violated and Farr aided and abetted violations of the antifraud provisions of the federal securities laws. The SEC is seeking a court order for emergency relief, including temporary restraining orders, asset freezes and accountings. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains and financial penalties."
It is just too bad the SEC can't prosecute these individuals as real criminals and send them off to prison. It seems Congress made sure many years ago that the most that can happen to Wall Street fraudsters is that they might have to give back at least some of the money they stole. People who steal candy bars at convenience stores get greater punishments. The Department of Justice is supposed to handle criminal prosecutions of Wall Street fraudsters but, they don't seem to have the accountants who can find the fraud or the lawyers who can understand the fraud once it is found.
It might be noted that a fraud of just a few million dollars is not that big however, these frauds are being perpetrated by perhaps the hundreds or even thousands across the United States. Of course with the penalty of being caught being no greater than giving back what was stolen then "why not steal?" In this country it seems we have banks too big to fail and Wall Street bankers too rich to go to jail.
Sunday, April 25, 2010
The following pargraphs were sent out via e-mail to subscribers of The Washington Post. It was sent out late Friday night April 23, 2010. It reads as follows:
"Goldman Sachs is preparing its most detailed defense yet to allegations that it misled clients in its mortgage securities business, arguing that it was unsure whether housing prices would rise or fall and did not take any action at odds with the interests of its clients.
An internal Goldman document, prepared for senior executives and obtained by The Washington Post, addresses the criticism that the bank invested its own money betting against the housing market while simultaneously urging clients to invest in securities that would increase in value only if the housing market did."
This article did not indicate whether or not Goldman is mounting a vigorous defence against allegations of misconduct in order to avoid prosecution, the paying of fines or, loss of reputation and hence, clints. I suspect all three motives might be behind Goldman's insistance that it has done nothing wrong.
"Goldman Sachs is preparing its most detailed defense yet to allegations that it misled clients in its mortgage securities business, arguing that it was unsure whether housing prices would rise or fall and did not take any action at odds with the interests of its clients.
An internal Goldman document, prepared for senior executives and obtained by The Washington Post, addresses the criticism that the bank invested its own money betting against the housing market while simultaneously urging clients to invest in securities that would increase in value only if the housing market did."
This article did not indicate whether or not Goldman is mounting a vigorous defence against allegations of misconduct in order to avoid prosecution, the paying of fines or, loss of reputation and hence, clints. I suspect all three motives might be behind Goldman's insistance that it has done nothing wrong.
CEO CHARGED WITH STEALING
It is sad that we have so many businessmen that are just pure thieves. This makes us all look bad and undermines our cherrished free enterprise system. These very successful fraudsters also set a bad example for the kids. Hard work does not pay off nearly as well as being a Wall Street Fraudster. The following is another exerpt from the SEC web site that shows how very bad many executives behave:
"Washington, D.C., March 15, 2010 — The Securities and Exchange Commission today charged three former senior executives and a former director of an Omaha-based database compilation company for their roles in a scheme in which the CEO funneled illegal compensation to himself in the form of perks worth millions of dollars.
The SEC alleges that Vinod Gupta, the former CEO and Chairman of infoUSA Inc. and infoGROUP Inc. (Info), fraudulently used corporate funds to pay almost $9.5 million in personal expenses to support his lavish lifestyle. He additionally caused the company to enter into $9.3 million of undisclosed business transactions between Info and other companies in which he had a personal stake.
The SEC also charged the former chairman of Info's audit committee, Vasant H. Raval, and two of the company's former chief financial officers, Rajnish K. Das and Stormy L. Dean, for enabling Gupta to carry out the scheme.
"Gupta stole millions of dollars from Info shareholders by treating the company like it was his personal ATM," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Other corporate officers also abused their positions of trust by looking the other way instead of standing up for investors and bringing the scheme to a halt."
Donald M. Hoerl, Director of the SEC's Denver Regional Office, added, "Officers and directors must ensure that shareholders receive accurate and complete disclosure of all compensation paid to executives. Raval, as chairman of the audit committee, neglected these duties and allowed the money to flow to Gupta unbeknownst to investors."
The SEC's complaints, filed in federal district court in Nebraska, allege that from 2003 to 2007, Gupta improperly used corporate funds for more than $3 million worth of personal jet travel for himself, family, and friends to such destinations as South Africa, Italy, and Cancun. He also used investor money to pay $2.8 million in expenses related to his yacht; $1.3 million in personal credit card expenses; and other costs associated with 28 club memberships, 20 automobiles, homes around the country, and three personal life insurance policies. The SEC also alleges that Gupta failed to inform Info's other board members of the material fact that he had purchased shares of an Info acquisition target for his own ill-gotten financial benefit.
The SEC alleges that Raval failed to respond appropriately to various red flags concerning Gupta's expenses and Info's related party transactions with Gupta's other entities. Two Info internal auditors raised concerns to Raval that Gupta was submitting requests for reimbursement of personal expenses, yet Raval failed to take meaningful action to further investigate the matter and he omitted critical facts in a report to the board concerning Gupta's expenses.
The SEC further alleges that Das and Dean allowed Gupta to support his lavish lifestyle by rubber-stamping hundreds of his expense reimbursement requests. Das and Dean approved Gupta's expense reimbursement requests despite the fact that the requests lacked sufficient explanation of business purpose and supporting documentation, even in the face of concerns raised by several Info employees. Das and Dean also signed management representation letters to Info's outside auditor falsely representing that all related party transactions with Gupta's entities had been properly recorded and disclosed in Info's financial statements.
Gupta, Raval, and Info agreed to settle the SEC's charges without admitting or denying the allegations against them.
Gupta agreed to pay disgorgement of $4,045,000, prejudgment interest of $1,145,400, and a penalty of $2,240,700. He consented to an order barring him from serving as an officer or director of a public company, and placing restrictions on the voting of his Info common stock. Gupta consented to a final judgment enjoining him from violations of Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9 and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1, 13a-13, and 12b-20.
Raval agreed to pay a $50,000 penalty and consented to an order barring him from serving as an officer or director of a public company for five years. He also consented to a final judgment enjoining him from violations of Exchange Act Sections 10(b) and 14(a) and Rules 10b-5, 14a-3, and 14a-9, and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20 and 13a-1.
Info consented to the issuance of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order without admitting or denying any of the findings in the SEC's order. The Order orders Info to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 14a-3, and 14a-9.
The SEC's case against Das and Dean is ongoing. They are charged with violating Exchange Act Sections 10(b), 13(b)(5), and 14(a), and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9, and for aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 12b-20 and 13a-1. Additionally, Das is charged with violating Exchange Act Rule 13a-13. The Commission's complaint seeks permanent injunctions, financial penalties, prejudgment interest, and an officer and director bar against both defendants."
"Washington, D.C., March 15, 2010 — The Securities and Exchange Commission today charged three former senior executives and a former director of an Omaha-based database compilation company for their roles in a scheme in which the CEO funneled illegal compensation to himself in the form of perks worth millions of dollars.
The SEC alleges that Vinod Gupta, the former CEO and Chairman of infoUSA Inc. and infoGROUP Inc. (Info), fraudulently used corporate funds to pay almost $9.5 million in personal expenses to support his lavish lifestyle. He additionally caused the company to enter into $9.3 million of undisclosed business transactions between Info and other companies in which he had a personal stake.
The SEC also charged the former chairman of Info's audit committee, Vasant H. Raval, and two of the company's former chief financial officers, Rajnish K. Das and Stormy L. Dean, for enabling Gupta to carry out the scheme.
"Gupta stole millions of dollars from Info shareholders by treating the company like it was his personal ATM," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Other corporate officers also abused their positions of trust by looking the other way instead of standing up for investors and bringing the scheme to a halt."
Donald M. Hoerl, Director of the SEC's Denver Regional Office, added, "Officers and directors must ensure that shareholders receive accurate and complete disclosure of all compensation paid to executives. Raval, as chairman of the audit committee, neglected these duties and allowed the money to flow to Gupta unbeknownst to investors."
The SEC's complaints, filed in federal district court in Nebraska, allege that from 2003 to 2007, Gupta improperly used corporate funds for more than $3 million worth of personal jet travel for himself, family, and friends to such destinations as South Africa, Italy, and Cancun. He also used investor money to pay $2.8 million in expenses related to his yacht; $1.3 million in personal credit card expenses; and other costs associated with 28 club memberships, 20 automobiles, homes around the country, and three personal life insurance policies. The SEC also alleges that Gupta failed to inform Info's other board members of the material fact that he had purchased shares of an Info acquisition target for his own ill-gotten financial benefit.
The SEC alleges that Raval failed to respond appropriately to various red flags concerning Gupta's expenses and Info's related party transactions with Gupta's other entities. Two Info internal auditors raised concerns to Raval that Gupta was submitting requests for reimbursement of personal expenses, yet Raval failed to take meaningful action to further investigate the matter and he omitted critical facts in a report to the board concerning Gupta's expenses.
The SEC further alleges that Das and Dean allowed Gupta to support his lavish lifestyle by rubber-stamping hundreds of his expense reimbursement requests. Das and Dean approved Gupta's expense reimbursement requests despite the fact that the requests lacked sufficient explanation of business purpose and supporting documentation, even in the face of concerns raised by several Info employees. Das and Dean also signed management representation letters to Info's outside auditor falsely representing that all related party transactions with Gupta's entities had been properly recorded and disclosed in Info's financial statements.
Gupta, Raval, and Info agreed to settle the SEC's charges without admitting or denying the allegations against them.
Gupta agreed to pay disgorgement of $4,045,000, prejudgment interest of $1,145,400, and a penalty of $2,240,700. He consented to an order barring him from serving as an officer or director of a public company, and placing restrictions on the voting of his Info common stock. Gupta consented to a final judgment enjoining him from violations of Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9 and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1, 13a-13, and 12b-20.
Raval agreed to pay a $50,000 penalty and consented to an order barring him from serving as an officer or director of a public company for five years. He also consented to a final judgment enjoining him from violations of Exchange Act Sections 10(b) and 14(a) and Rules 10b-5, 14a-3, and 14a-9, and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20 and 13a-1.
Info consented to the issuance of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order without admitting or denying any of the findings in the SEC's order. The Order orders Info to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 14a-3, and 14a-9.
The SEC's case against Das and Dean is ongoing. They are charged with violating Exchange Act Sections 10(b), 13(b)(5), and 14(a), and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9, and for aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 12b-20 and 13a-1. Additionally, Das is charged with violating Exchange Act Rule 13a-13. The Commission's complaint seeks permanent injunctions, financial penalties, prejudgment interest, and an officer and director bar against both defendants."
Sunday, April 18, 2010
JP MORGAN CAUGHT UP IN PAY-TO-PLAY MUNI BOND SCHEME
The following is an excerpt from the SEC web page in regards to a recent action taken by the SEC. It seems that a JP Morgan executive gave a campaign contribution to a politician responsible for the issuance of Municipal bonds. Such contributions are not legal under MSRB Rule G-37. The SEC explains the rule in the following:
"Washington, D.C., March 18, 2010 — The Securities and Exchange Commission today issued a report warning firms that municipal securities rules prohibiting pay-to-play apply to affiliated financial professionals, not just a firm's employees.
The pay-to-play rule, MSRB Rule G-37, generally prohibits firms from underwriting municipal bonds for an issuer for two years after a municipal finance professional (MFP) involved with that firm makes a campaign contribution to an elected official of that municipality.
In the Report of Investigation, the Commission makes clear that an executive who supervises the activities of a broker, dealer, or municipal securities dealer is not exempt from the MSRB's pay-to-play rule just because he or she may be outside the firm's corporate governance structure. As such, an executive may be deemed an MFP if he or she is not part of a broker-dealer, but oversees the broker-dealer from the vantage of the holding company.
“Firms and associated persons must adhere strictly to municipal securities pay-to-play rules,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Firms cannot rely solely upon titles or organizational charts in determining whether a person is subject to those rules.”
When the Commission approved the rule in 1994, it indicated that banks and bank holding companies affiliated with brokers, dealers and municipal securities dealers were excluded from the rule. Since then, the Commission has not directly addressed whether directors, officers or employees of such banks and bank holding companies are MFPs if they supervise the public finance activities of brokers, dealers and municipal securities dealers or serve on executive committees that engage in such supervision.
The Commission's Report of Investigation stems from an Enforcement Division inquiry into whether JP Morgan Securities Inc. (JPMSI) violated the MSRB Rule. According to the Report, JPMSI underwrote municipal bonds issued by the state of California within two years after a then-Vice Chairman of JPMSI's parent bank holding company (JP Morgan Chase) gave a $1,000 contribution to a California elected official.
Under Section 21(a) of the Securities Exchange Act, the Commission may investigate violations of the federal securities laws and at its discretion "publish information concerning any such violations." JPMSI consented to the issuance of the Report without admitting or denying any of the statements or conclusions."
It is apparent from the above that some corporations bribe public officials for government business. Many in this nation state that the government should keep it's nose out of the way businesses are run. Maybe big business should keep its checkbook closed instead of trying bribe the government to send the peoples money into the coffers of big firms.
"Washington, D.C., March 18, 2010 — The Securities and Exchange Commission today issued a report warning firms that municipal securities rules prohibiting pay-to-play apply to affiliated financial professionals, not just a firm's employees.
The pay-to-play rule, MSRB Rule G-37, generally prohibits firms from underwriting municipal bonds for an issuer for two years after a municipal finance professional (MFP) involved with that firm makes a campaign contribution to an elected official of that municipality.
In the Report of Investigation, the Commission makes clear that an executive who supervises the activities of a broker, dealer, or municipal securities dealer is not exempt from the MSRB's pay-to-play rule just because he or she may be outside the firm's corporate governance structure. As such, an executive may be deemed an MFP if he or she is not part of a broker-dealer, but oversees the broker-dealer from the vantage of the holding company.
“Firms and associated persons must adhere strictly to municipal securities pay-to-play rules,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Firms cannot rely solely upon titles or organizational charts in determining whether a person is subject to those rules.”
When the Commission approved the rule in 1994, it indicated that banks and bank holding companies affiliated with brokers, dealers and municipal securities dealers were excluded from the rule. Since then, the Commission has not directly addressed whether directors, officers or employees of such banks and bank holding companies are MFPs if they supervise the public finance activities of brokers, dealers and municipal securities dealers or serve on executive committees that engage in such supervision.
The Commission's Report of Investigation stems from an Enforcement Division inquiry into whether JP Morgan Securities Inc. (JPMSI) violated the MSRB Rule. According to the Report, JPMSI underwrote municipal bonds issued by the state of California within two years after a then-Vice Chairman of JPMSI's parent bank holding company (JP Morgan Chase) gave a $1,000 contribution to a California elected official.
Under Section 21(a) of the Securities Exchange Act, the Commission may investigate violations of the federal securities laws and at its discretion "publish information concerning any such violations." JPMSI consented to the issuance of the Report without admitting or denying any of the statements or conclusions."
It is apparent from the above that some corporations bribe public officials for government business. Many in this nation state that the government should keep it's nose out of the way businesses are run. Maybe big business should keep its checkbook closed instead of trying bribe the government to send the peoples money into the coffers of big firms.
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