The following is an excerpt from the Department of Justice web site and deals with corruption. This excerpt is a speech given by Assistant Attoney General Lanny A. Breuer to the World Bank. The Discussion Assistant Attorney General Breuer has relating to the Foreign Corupt Policies Act is pertinant to this Web Site which is dedicated to Corporate Fraud however, the rest of his speech does a nice job of setting forth the reasons corruption in the United States and other courtries should not and will not be tolerated:
"Assistant Attorney General Lanny A. Breuer of the Criminal Division Speaks at the Franz-Hermann Brüner Memorial Lecture at the World Bank
Washington, D.C. ~ Wednesday, May 25, 2011
Thank you, Leonard, for that generous introduction. I am delighted to be here today, and honored to join you all on the occasion of this important, 12th International Investigators Conference.
The World Bank is a historic institution. Founded at Bretton Woods, it is an engine of economic development throughout the world, and a shining light in the fabric of our international institutions. At the outset, I want to recognize Leonard McCarthy for his leadership as Integrity Vice President. The World Bank is a leader in the worldwide fight against corruption – an institution that others look to – and Leonard has been at the helm of the Institutional Integrity Department over the critical period of the past three years.
Last week, not far from here, President Barack Obama delivered a historic speech. He addressed the sweeping change that is occurring in North Africa and throughout the Middle East, and he explained why the United States must “speak to the broader aspirations of ordinary people,” and act in a way that “advances self-determination and opportunity” wherever they are in short supply.
As the Assistant Attorney General of the Criminal Division at the Department of Justice, I am privileged to lead nearly 600 lawyers who enforce the nation’s federal criminal laws and help to develop and implement our criminal law policy. Today, I want to speak with you about how the Criminal Division’s work – in particular, our comprehensive approach to fighting corruption – supports the goals set forth by President Obama last week, and forms a critical piece of our government’s collective effort to capitalize on this historic moment.
I am honored to have the occasion of the Franz-Hermann Brüner Memorial Lecture to place our role in this context, and to advance the anti-corruption aims to which Mr. Brüner was so committed. A prosecutor for nearly two decades; Director General of OLAF, the European Commission’s Anti-Fraud Office, from 2000 until his death in 2009; and a member of numerous international anti-corruption bodies, Mr. Brüner dedicated his life to battling corruption and fraud across the globe. And I know from members of the Criminal Division and the U.S. Attorney’s Office in Miami who have worked closely with OLAF on a series of cigarette smuggling cases, that Mr. Brüner was not only an exceptional public servant and inspirational leader, but he was also a delightful and lovely man.
By now, it is well understood that the uprisings taking place in North Africa and the Middle East began with the confiscation of Mohammed Bouazizi’s fruit cart in a small town in Tunisia in December, and his subsequent self-immolation. As the President said last week, Bouazizi’s “act of desperation tapped into the frustration felt throughout the country,” leading hundreds and then thousands of protesters to take to the streets and demand the ouster of a dictator who had held power for more than 20 years.
Why did Bouazizi and his countrymen and women feel so desperate? There were undoubtedly many reasons. The reason I want to focus on is the pervasive corruption they were up against.
Corruption is commonly defined as the “abuse of entrusted power for personal gain.” Bouazizi faced corruption at the most personal level; his fruit stand and his electronic scale – in other words, his livelihood – were arbitrarily taken from him by a municipal inspector, who also humiliated him with a slap across the face, and authorities who refused to give him back his property. Bouazizi’s tale is not unique across North Africa and the Middle East; and, of course, the problem of corruption is not limited to that region of the world.
Corruption corrodes the public trust in countries rich and poor, and has particularly negative effects on emerging economies. When a developing country’s public officials routinely abuse their power for personal gain, its people suffer tremendously. At a concrete level, roads are not built, schools lie in ruin, and basic public services go unprovided. At a more abstract, but no less important, level, political institutions lose legitimacy, threatening democratic stability and the rule of law, and people begin to lose hope that they will ever be able to improve their lot. As the President put it last week, you cannot reach your potential when you “cannot start a business without paying a bribe.”
There are of course many ways in which the U.S. government addresses the problem of corruption abroad. As the head of Criminal Division, I want to focus on three: our criminal prosecution efforts; our work to build the prosecutorial and law enforcement capacity of foreign nations; and our emerging focus on recovering and repatriating the proceeds of foreign official corruption.
Let me start with our prosecution of corrupt officials in the United States. In this country, we do not contend with the same, systemic corruption that Mohammed Bouazizi was facing. We have the right to choose our leaders through free and fair elections; we have a justice system designed to hold all people – whether rich or poor, powerful or not – accountable; and self-determination is a hallmark of the American way.
Nevertheless, corruption remains a serious problem here, and we treat it that way. At the Justice Department, we have a dedicated group of criminal prosecutors – in the Public Integrity Section – whose sole task, along with the nation’s 94 U.S. Attorneys’ Offices, is to prosecute corruption cases involving federal, state, and local officials. These are not easy cases. But they are absolutely essential to preserving the integrity of our democratic institutions.
Moreover, we could not be effective abroad if we did not lead by example here at home. And you can see from our cases that we do not shy away from prosecuting powerful people. Last week, we secured a five-year prison sentence for a former Senate Majority Leader in Puerto Rico who pleaded guilty to soliciting hundreds of thousands of dollars in exchange for proposing legislation, preventing legislative projects from being voted on, and other official acts. Earlier this year, a federal jury in San Juan convicted a second Puerto Rican Senator for engaging in another bribery scheme. Two weeks ago, a federal jury in Richmond, Virginia, convicted Phillip Hamilton, a former member of the Virginia House of Delegates, for attempting to secure a paid position at a university in exchange for introducing legislation to fund the position.
As we speak, the U.S. Attorney’s Office in Chicago is in trial against the former governor of Illinois on multiple corruption counts; and the Public Integrity Section is preparing for trial in the largest public corruption case ever prosecuted in Alabama, against four Alabama state legislators and several lobbyists and businessmen who allegedly engaged in a scheme to fix a specific piece of legislation, in exchange for millions of dollars.
I could give you literally dozens of other examples. But the bottom line is this: At home, we pursue corruption at every level. This is important for our domestic stability – it strengthens the legitimacy of our democratic institutions, and shows that no person here is above the law; and it is important for the work we do internationally – it shows the global community that we practice what we preach.
In the Criminal Division, we also investigate and prosecute corruption abroad – primarily through our enforcement of the Foreign Corrupt Practices Act. The FCPA was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the Watergate scandal, which led to the resignation of President Richard Nixon in 1974 and resulted in a dramatic plunge in Americans’ overall trust in government.
In 1976, following certain prosecutions for illegal use of corporate funds arising out of Watergate, the U.S. Securities and Exchange Commission issued a report in which it determined that foreign bribery by U.S. corporations was “serious and sufficiently widespread to be a cause for deep concern.” S.E.C. investigations revealed that hundreds of U.S. companies had made corrupt foreign payments involving hundreds of millions of dollars. With this background, the Senate concluded that there was a strong need for anti-bribery legislation in the United States. “Corporate bribery is bad business,” the Senate Banking Committee said in its report on the legislation. “In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate bribery is fundamentally destructive of this basic tenet.”
That was true then, and it’s true now. And over the two-plus years of this Administration, we have dramatically increased our enforcement of the FCPA. The numbers speak for themselves. In 2004, the Justice Department charged two individuals under the Act and collected around $11 million in criminal fines. In 2005, we charged five individuals and collected around $16½ million. By contrast, in 2009 and 2010 combined, we charged over 50 individuals and collected nearly $2 billion.
And we are only moving forward. Earlier this month, we secured the first jury conviction ever against a corporation in an FCPA case. The case, which also resulted in trial verdicts against the company’s president and its CFO, involved a scheme to pay bribes to Mexican government officials at CFE, a state-owned utility company.
Last week, the former CEO of a Miami-based telecommunications company pleaded guilty to conspiring to pay bribes to government officials in Honduras in connection with a scheme to secure contracts from Hondutel, the state-owned telecommunications authority. Last month, the former vice-president of sales for Europe, Africa, and the Middle East at the multi-national valve company Control Components Inc., or CCI, pleaded guilty to conspiring to bribe government officials in Saudi Arabia, Qatar, and other countries.
I could give you dozens of other examples, from countries across the world, including in Africa and the Middle East. But the point is this: FCPA enforcement matters. When U.S. businesspersons, foreign executives, and even foreign officials know that they risk liability under the FCPA and related statutes, behavior changes. In addition to motivating U.S. and foreign corporations to change the way they do business – something that I believe is already happening – the threat of liability can help corporations resist corrupt demands from foreign officials, which can lead the officials themselves to alter their practices. Beyond that, through our FCPA enforcement, we are also sending a signal to ordinary people – to Mohammed Bouazizis across the globe – that we stand with you: we support you in your desire to have fair and transparent institutions, and to have the chance to compete in marketplaces large and small.
Another important component of our efforts is the work we do in helping foreign countries build up the capacity to investigate and prosecute corruption cases on their own. Since 1991, in partnership with the U.S. Department of State, we have placed legal advisors in dozens of countries around the world, including throughout North and Sub-Saharan Africa and the Middle East, to work with foreign prosecutors and judges to develop and sustain effective criminal justice institutions. As just one example, until the recent unrest in Yemen forced us to evacuate, we had a legal advisor in Sanaa embedded with Yemen’s Supreme National Authority for Combating Corruption. And next month, we expect to deploy an Anti-Corruption Advisor to the emerging government of Southern Sudan, who will be embedded with the Anti-Corruption Commission there.
Since 1986, also in partnership with the State Department, we have also placed non-lawyer law enforcement professionals in dozens of countries abroad, in an effort to help foreign nations improve their capacity to investigate misconduct and corruption. In Iraq, for example, we assisted in building up the investigative capability of the Iraq Commission of Integrity, the governmental body tasked with investigating government corruption.
Last week, I visited Ghana and Liberia as part of a joint Justice and State Department mission to raise awareness of transnational illicit networks, and emphasize our partnership with West African nations to defeat those networks and the corrupting effect they have on democratic governments. As part of our commitment to this partnership, we will be sending a legal advisor to Ghana next month.
This capacity-building work is crucial – as crucial as our domestic prosecutions. It shows our faith in the rule of law; it helps countries that have the will to improve; and it forms part of the U.S. government’s multifaceted approach to improving the conditions for democracy abroad. That’s why, together with the Department of State, we devote as many resources to this work as we do.
There is one final aspect of our approach against corruption that I want to discuss with you today: our new Kleptocracy Asset Recovery Initiative. You heard President Obama say last week that the United States “will help newly democratic governments recover assets that were stolen.” In the Criminal Division’s Asset Forfeiture and Money Laundering Section, there is a dedicated group of prosecutors focused on doing exactly that.
The goal of the Kleptocracy Asset Recovery Initiative, which Attorney General Holder announced last July and which my team and I have been working to build over the past year, is to identify the proceeds of foreign official corruption, forfeit them, and repatriate the recouped funds for the benefit of the people harmed.
In the context of a criminal prosecution, a court can order forfeiture, upon conviction, as part of the defendant’s sentence. Thus, for example, if we were to bring a criminal case against a kleptocrat in the United States, we would be able to seek criminal forfeiture of his or her stolen assets.
Often, however, it may be impractical or impossible to bring a criminal prosecution against a kleptocrat. He or she may be immune from prosecution, beyond the jurisdiction of the United States, or otherwise unavailable. In these circumstances, the Kleptocracy Team can bring a civil forfeiture action to recover the stolen property. This is sometimes referred to internationally as non-conviction based confiscation.
The Kleptocracy Team recently brought its first cases, and we expect more to come in the near future. Let me provide a specific example. Diepreye Solomon Peter Alamieyeseigha, also known as DSP, was the elected governor of the oil-producing Bayelsa State in Nigeria from 1999 until his impeachment in 2005. According to court papers, DSP’s official salary for this entire period was approximately $81,000, and his declared income from all sources during the period was approximately $248,000. Nevertheless, as governor, DSP accumulated enormous wealth through corruption and other illegal activities. He acquired at least four properties in the United Kingdom worth approximately $8.8 million, he had money in bank accounts around the world, and he also acquired property in the United States. When he was ultimately arrested at Heathrow Airport in 2005, the Metropolitan Police Service in London found approximately $1.6 million in cash in his house.
In March and April of this year, we brought two separate civil forfeiture actions to recover over $1,000,000 in what we allege are DSP’s ill-gotten gains. In Maryland, we are seeking forfeiture of a private residence worth more than $600,000, and in Massachusetts we are seeking forfeiture of close to $400,000 in a Fidelity brokerage account.
We were able to bring these cases, even though DSP long ago absconded to Nigeria, because the law permits us to bring a civil action against the corrupt proceeds themselves rather than against the person to whom they belong.
At the World Bank, I know you understand the Kleptocracy Initiative’s importance, because you have been working hard to assist in the return of stolen assets and to promote non-conviction based confiscation abroad through the Stolen Asset Recovery Initiative, or StAR.
Like our criminal corruption prosecutions of domestic officials, our FCPA investigations, and our capacity-building efforts, our work to recover and repatriate the stolen assets of foreign corrupt officials sends the message that we believe in the dignity of every citizen, and stand against foreign leaders who steal from their people. The Kleptocracy Initiative cannot alone create hope where there is none, or bring respect to ordinary people who have not been shown enough. But we believe it is an extremely important building block in our approach to one of the world’s most intractable, and corrosive, problems.
Franz-Hermann Brüner was born in September 1945, weeks after the end of World WII. He knew about crucial moments in history. For the people of North Africa and the Middle East, this is one of those moments. The President last week called where we are today a moment of “historic opportunity,” comparing Mohammed Bouazizi’s fatal act of defiance with the Boston Tea Party and Rosa Parks’s refusal to give up her seat.
Prosecutors and law enforcement professionals in the Criminal Division of the Department of Justice are working hard to fight corruption at every level, at home and abroad. This work is one way in which we send the message loud and clear that public officials who abuse their power for personal gain – whether they are in the United States or the emerging democracies of North Africa and the Middle East or anywhere else around the world – are on the wrong side. And we will keep working and keep fighting to hold them to account. Thank you."
This is a photo of the National Register of Historic Places listing with reference number 7000063
Wednesday, May 25, 2011
Tuesday, May 24, 2011
SEC SUES STERLING GLOBAL FOR SECURITIES FRAUD
The following is an excerpt fromthe SEC online site:
SEC Sues Allen E. Weintraub and Sterling Global Holdings for Securities Fraud
The Securities and Exchange Commission announced today that it filed a Complaint alleging fraud and violations of a tender offer rule against AWMS Acquisition, Inc., d/b/a Sterling Global Holdings (Sterling Global), a shell company, and Allen E. Weintraub, Sterling Global’s sole owner, officer, director, and employee.
The Complaint, which was filed in U.S. District Court for the Southern District of Florida, alleges that Weintraub and Sterling Global deceived the public by making false and misleading statements regarding Sterling Global’s ability to purchase and operate two public companies–Eastman Kodak Company (Kodak) and AMR (AMR), the parent company of American Airlines. Specifically, the Complaint alleges:
On March 19, 2011, Weintraub, on behalf of Sterling Global, emailed a written tender offer to Kodak for all its “outstanding stock” at a total price of approximately $1.3 billion in cash. On March 29, 2011, Weintraub emailed substantially the same letter to AMR offering to purchase all AMR’s “outstanding stock” for approximately $3.25 billion in cash. These offer prices represented almost a 50% premium over each company's then current stock price.
In an effort to generate publicity, Weintraub emailed the purported tender offers to media outlets and financial investment research firms. In published media interviews, Weintraub boasted that he has 15 years experience buying distressed companies, that banks had agreed to finance the acquisitions, and that letters of credit could be readily provided.
Weintraub’s statements created the impression that Sterling Global's tender offers were legitimate and that the deals were capable of being completed; however, completion of either deal was impossible —Weintraub knew that neither he nor Sterling Global had any assets and that there were no agreements in place to finance the purported acquisitions.
Weintraub and Sterling Global also omitted to disclose the following material information about their backgrounds:
In a 2002 SEC enforcement action, SEC v. Florida Stock Transfer, Inc., et al., Lit. Rel. 17795 & 18021, the court entered a permanent injunction enjoining Weintraub from, among other things, violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (“Exchange Act”). The Court also barred him from acting as an officer and director of a public company and ordered him to pay disgorgement plus prejudgment interest of $930,000 and a civil penalty of $120,000.
Weintraub was convicted in Florida for fraud and grand larceny in 1992, 1998, and 2008. Weintraub is on probation for his 2008 conviction.
Weintraub filed for personal bankruptcy in 2007 and still owes a non-dischargeable prior judgment in favor of the SEC in the amount of approximately $1,050,000.
In September 2010, the State of Florida’s Division of Corporations administratively dissolved Sterling Global for failure to file its required annual report.
The Complaint charges Weintraub and Sterling Global with violations of Sections 10(b) and 14(e) of the Exchange Act and Exchange Act Rules 10b-5 and 14e-8. The Commission requests that the court permanently enjoin Weintraub and Sterling Global from violating the antifraud and tender offer provisions of the federal securities laws, order them to pay disgorgement plus prejudgment interest, and impose a civil money penalty against them."
SEC Sues Allen E. Weintraub and Sterling Global Holdings for Securities Fraud
The Securities and Exchange Commission announced today that it filed a Complaint alleging fraud and violations of a tender offer rule against AWMS Acquisition, Inc., d/b/a Sterling Global Holdings (Sterling Global), a shell company, and Allen E. Weintraub, Sterling Global’s sole owner, officer, director, and employee.
The Complaint, which was filed in U.S. District Court for the Southern District of Florida, alleges that Weintraub and Sterling Global deceived the public by making false and misleading statements regarding Sterling Global’s ability to purchase and operate two public companies–Eastman Kodak Company (Kodak) and AMR (AMR), the parent company of American Airlines. Specifically, the Complaint alleges:
On March 19, 2011, Weintraub, on behalf of Sterling Global, emailed a written tender offer to Kodak for all its “outstanding stock” at a total price of approximately $1.3 billion in cash. On March 29, 2011, Weintraub emailed substantially the same letter to AMR offering to purchase all AMR’s “outstanding stock” for approximately $3.25 billion in cash. These offer prices represented almost a 50% premium over each company's then current stock price.
In an effort to generate publicity, Weintraub emailed the purported tender offers to media outlets and financial investment research firms. In published media interviews, Weintraub boasted that he has 15 years experience buying distressed companies, that banks had agreed to finance the acquisitions, and that letters of credit could be readily provided.
Weintraub’s statements created the impression that Sterling Global's tender offers were legitimate and that the deals were capable of being completed; however, completion of either deal was impossible —Weintraub knew that neither he nor Sterling Global had any assets and that there were no agreements in place to finance the purported acquisitions.
Weintraub and Sterling Global also omitted to disclose the following material information about their backgrounds:
In a 2002 SEC enforcement action, SEC v. Florida Stock Transfer, Inc., et al., Lit. Rel. 17795 & 18021, the court entered a permanent injunction enjoining Weintraub from, among other things, violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (“Exchange Act”). The Court also barred him from acting as an officer and director of a public company and ordered him to pay disgorgement plus prejudgment interest of $930,000 and a civil penalty of $120,000.
Weintraub was convicted in Florida for fraud and grand larceny in 1992, 1998, and 2008. Weintraub is on probation for his 2008 conviction.
Weintraub filed for personal bankruptcy in 2007 and still owes a non-dischargeable prior judgment in favor of the SEC in the amount of approximately $1,050,000.
In September 2010, the State of Florida’s Division of Corporations administratively dissolved Sterling Global for failure to file its required annual report.
The Complaint charges Weintraub and Sterling Global with violations of Sections 10(b) and 14(e) of the Exchange Act and Exchange Act Rules 10b-5 and 14e-8. The Commission requests that the court permanently enjoin Weintraub and Sterling Global from violating the antifraud and tender offer provisions of the federal securities laws, order them to pay disgorgement plus prejudgment interest, and impose a civil money penalty against them."
Monday, May 23, 2011
SEC RULES FOR INDIVIDUAL STOCK CIRCUIT BREAKERS
The following is an excerpt from the SEC web page:
"The Securities and Exchange Commission approved rules on Sept. 10, 2010, to expand the existing circuit breaker program that currently is triggered by large, sudden price moves in an individual stock. The new rules follow changes adopted on June 10, 2010, that impose a uniform market-wide pause in trading in individual stocks whose price moves 10% or more in a five-minute period. The trading pause, which was proposed by U.S. exchanges and the Financial Industry Regulatory Authority (FINRA), initially was limited to stocks in the Standard & Poor’s 500 Index, but has been extended to stocks in the Russell 1000 Index and to certain exchange-traded products.
Why were stock-by-stock circuit breakers put in place?
The SEC staff asked U.S. exchanges and FINRA to propose rules in response to the unusually volatile trading that occurred on May 6, 2010. Although some stocks fell very sharply and quickly that afternoon, the downturn was not broad enough to trigger existing market-wide circuit breakers. Trading in some stocks was halted or slowed on some exchanges but continued on others, sometimes at drastically lower prices. Exchanges and FINRA later cancelled transactions at prices that moved 60% or more from prices just before the market drop, deeming these trades to be erroneous. The Commission is concerned that events such as these can seriously undermine the integrity of U.S. markets and is working to put policies in place to help prevent such events from recurring.
What do the new rules require?
Under the new rules, a U.S. stock exchange that lists a stock is required to issue a trading “pause” in a stock if the stock price moves up or down by 10% or more in a five-minute period. The same pause will be in effect on all other U.S. stock and stock option markets, and the single-stock futures market, resulting in a uniform halt. After five minutes, the exchange that issued the pause may extend it if there are still significant imbalances between orders to buy and sell shares of the affected stock. After a ten-minute pause, other exchanges are free to resume trading in the stock and once that occurs, trading may resume in the over-the-counter markets.
What securities are covered by the new rules?
The new rules first covered stocks in the S&P 500 Index. Starting the week of Sept. 13, the circuit breakers have been extended to stocks that are included in the Russell 1000 Index and to a list of exchange-traded products, including those that track broad-based stock indexes, such as the S&P 500. Some exchange-traded funds also experienced sharp price moves in trading on May 6.
Will the new stock-by-stock circuit breakers apply throughout the trading day? What about after-hours trading?
To avoid potential disruption to market openings and closings (which already have special procedures designed to maintain fair and orderly markets), the individual stock circuit-breakers are in effect from 9:45 a.m. Eastern Time until 3:35 p.m. Eastern Time. They do not apply to after-hours trading. On days when the markets close early, the individual stock circuit breakers are in effect until 25 minutes before the close of the markets, for example, until 1:35 p.m. if the markets are closing at 2:00 p.m.
Are these rules permanent?
The new rules were approved on a trial basis and are set to end on April 11, 2011, unless the industry self-regulatory organizations propose to extend the trial period or request permanent approval of the rules. Extending the trial period or giving permanent approval to the rules could only occur through the filing of proposed rule changes by the exchanges and FINRA.
How do these rules differ from what was in place?
Exchanges have had the ability to halt trading in stocks where there is a large imbalance between buy and sell orders, but those trading halts were not binding on other markets, which remained free to trade the stock. Under the new rules, once a trading pause in a stock is called, it applies to all U.S. stock markets, stock option markets and the single-stock futures market.
The new circuit breaker rules apply to individual stocks, unlike market-wide circuit breakers that were put into effect after market breaks in the 1980s. Market-wide circuit breakers halt trading in all stocks for between 30 minutes to several hours if the Dow Jones Industrial Average falls by 10%, 20% or 30% from preset levels during the course of a trading day. Under existing rules, the New York Stock Exchange sets the circuit breaker levels at the beginning of each calendar quarter based on the average closing level of the Dow Jones Industrial Average in the prior month.
Are other changes being considered?
The exchanges and FINRA may file additional proposed rule changes to expand the circuit breaker approach once more or modify the program in other ways. The SEC staff also has asked exchanges to revisit existing market-wide circuit breakers, which are set at a threshold that is rarely triggered. Other proposed changes may be forthcoming."
"The Securities and Exchange Commission approved rules on Sept. 10, 2010, to expand the existing circuit breaker program that currently is triggered by large, sudden price moves in an individual stock. The new rules follow changes adopted on June 10, 2010, that impose a uniform market-wide pause in trading in individual stocks whose price moves 10% or more in a five-minute period. The trading pause, which was proposed by U.S. exchanges and the Financial Industry Regulatory Authority (FINRA), initially was limited to stocks in the Standard & Poor’s 500 Index, but has been extended to stocks in the Russell 1000 Index and to certain exchange-traded products.
Why were stock-by-stock circuit breakers put in place?
The SEC staff asked U.S. exchanges and FINRA to propose rules in response to the unusually volatile trading that occurred on May 6, 2010. Although some stocks fell very sharply and quickly that afternoon, the downturn was not broad enough to trigger existing market-wide circuit breakers. Trading in some stocks was halted or slowed on some exchanges but continued on others, sometimes at drastically lower prices. Exchanges and FINRA later cancelled transactions at prices that moved 60% or more from prices just before the market drop, deeming these trades to be erroneous. The Commission is concerned that events such as these can seriously undermine the integrity of U.S. markets and is working to put policies in place to help prevent such events from recurring.
What do the new rules require?
Under the new rules, a U.S. stock exchange that lists a stock is required to issue a trading “pause” in a stock if the stock price moves up or down by 10% or more in a five-minute period. The same pause will be in effect on all other U.S. stock and stock option markets, and the single-stock futures market, resulting in a uniform halt. After five minutes, the exchange that issued the pause may extend it if there are still significant imbalances between orders to buy and sell shares of the affected stock. After a ten-minute pause, other exchanges are free to resume trading in the stock and once that occurs, trading may resume in the over-the-counter markets.
What securities are covered by the new rules?
The new rules first covered stocks in the S&P 500 Index. Starting the week of Sept. 13, the circuit breakers have been extended to stocks that are included in the Russell 1000 Index and to a list of exchange-traded products, including those that track broad-based stock indexes, such as the S&P 500. Some exchange-traded funds also experienced sharp price moves in trading on May 6.
Will the new stock-by-stock circuit breakers apply throughout the trading day? What about after-hours trading?
To avoid potential disruption to market openings and closings (which already have special procedures designed to maintain fair and orderly markets), the individual stock circuit-breakers are in effect from 9:45 a.m. Eastern Time until 3:35 p.m. Eastern Time. They do not apply to after-hours trading. On days when the markets close early, the individual stock circuit breakers are in effect until 25 minutes before the close of the markets, for example, until 1:35 p.m. if the markets are closing at 2:00 p.m.
Are these rules permanent?
The new rules were approved on a trial basis and are set to end on April 11, 2011, unless the industry self-regulatory organizations propose to extend the trial period or request permanent approval of the rules. Extending the trial period or giving permanent approval to the rules could only occur through the filing of proposed rule changes by the exchanges and FINRA.
How do these rules differ from what was in place?
Exchanges have had the ability to halt trading in stocks where there is a large imbalance between buy and sell orders, but those trading halts were not binding on other markets, which remained free to trade the stock. Under the new rules, once a trading pause in a stock is called, it applies to all U.S. stock markets, stock option markets and the single-stock futures market.
The new circuit breaker rules apply to individual stocks, unlike market-wide circuit breakers that were put into effect after market breaks in the 1980s. Market-wide circuit breakers halt trading in all stocks for between 30 minutes to several hours if the Dow Jones Industrial Average falls by 10%, 20% or 30% from preset levels during the course of a trading day. Under existing rules, the New York Stock Exchange sets the circuit breaker levels at the beginning of each calendar quarter based on the average closing level of the Dow Jones Industrial Average in the prior month.
Are other changes being considered?
The exchanges and FINRA may file additional proposed rule changes to expand the circuit breaker approach once more or modify the program in other ways. The SEC staff also has asked exchanges to revisit existing market-wide circuit breakers, which are set at a threshold that is rarely triggered. Other proposed changes may be forthcoming."
SEC TALKS ABOUT LIFE SETTLEMENTS
The following information has been excerpted from the SEC web site:
“The Office of Investor Education and Advocacy is issuing this Investor Bulletin to highlight information about life settlements and some of the risks these types of transactions may pose for investors. Individual investors considering a life settlement transaction may wish to keep the following points in mind and seek guidance from an unbiased financial professional who will not receive a commission or any other financial benefit from the transaction.
What is a life settlement?
In a “life settlement” transaction, a life insurance policy owner sells his or her policy to an investor in exchange for a lump sum payment. The amount of the payment from the investor to the policy owner is generally less than the death benefit on the policy, but more than its cash surrender value. The dollar amount offered by the investor usually takes into account the insured’s life expectancy (age and health) and the terms and conditions of the insurance policy.
Why would a policy owner wish to sell a life insurance policy?
Due to changed family or other circumstances, a life insurance policy owner may no longer need the insurance provided by the policy. A spouse may have died, children may have grown up, or a company with life insurance on a key officer may have been sold or gone out of business. Other policy owners may have difficulty making premium payments or simply need cash. In such circumstances, many policy owners surrender their policies or let their policies lapse by ceasing to make premium payments. Selling a policy to an investor may be another alternative. Such sales may be made through life settlement brokers who charge commissions.
How does a life settlement take place and who are the parties involved?
A policy owner may discuss a possible settlement with his or her insurance agent or financial adviser, who then contacts a life settlement broker. In some cases, the policy owner may be solicited directly by a life settlement broker. Life settlement brokers may also be life insurance agents or securities brokers. Depending on the requirements of the states in which they do business, life settlement brokers may be licensed.
The life settlement broker obtains the insured’s authorization to release medical records and forwards the policy owner’s application and medical information to one or more companies known as life settlement providers. Many, but not all, states regulate life settlement providers, who also charge a commission.
The life settlement provider obtains life expectancy estimates on the insured and bids on the application. Life expectancy underwriters (who are not the insured’s personal physician) evaluate the risk of mortality of the insured based on his or her personal characteristics. If the life settlement provider’s bid is accepted, the provider may add that policy to a large group of policies, interests in which may be offered to investors. Institutional investors analyze the information provided by the life settlement provider, often obtaining their own life expectancy estimates. Retail investors, on the other hand, may have to rely on life settlement personnel or other investment professionals to assess the advantages and disadvantages of the transaction. In either case, the investor makes a cash payment to the policy owner or policy owners and continues to pay premiums necessary to keep the policy or policies in effect. Upon the insured’s death, the investor receives the death benefit.
Considerations for investors in life settlements
Before investing in a life settlement, investors may wish to keep the following points in mind.
The return on a life settlement depends on the insured’s life expectancy and the date of the insured’s death. As a result, the accuracy of a life expectancy estimate is essential. If the insured dies before his or her estimated life expectancy, the investor may receive a higher return. If the insured lives longer than expected, the investor’s return will be lower. If the insured lives long enough or if life expectancy is miscalculated, additional premiums may need to be paid and the cost of the investment could be greater than anticipated.
In response to investors’ concerns about the uncertainty of life expectancy estimates, some companies have incorporated purported life expectancy guarantee bonds into their offerings. These companies claim that if the insured does not die by the life expectancy date, they will pay investors the amount they would have received had the insured died by that date. Investors should be aware that the Commission has recently brought enforcement action against a company alleging that it made fraudulent claims about these bonds.
Under certain circumstances, the investor may not receive the death benefit. For example, the life insurance company that issued the policy may refuse to pay out the death benefit if it believes the policy was sold under fraudulent circumstances. In addition, the heirs of the insured may challenge the life settlement or the insurance company may go out of business.
The competence of a life expectancy underwriter and the accuracy of the life expectancy estimate are critical to the return on a life settlement. For the most part, life expectancy underwriters are not licensed or registered by state insurance regulators, and information about the methodologies and review procedures that life expectancy underwriters use is not generally disclosed.
Life settlements can give rise to privacy issues. Insured individuals generally wish to keep their medical records and personal information confidential. Investors, on the other hand, want access to the insured’s medical and other personal information to assess the advisability of their investment and to monitor it on a continuing basis.”
“The Office of Investor Education and Advocacy is issuing this Investor Bulletin to highlight information about life settlements and some of the risks these types of transactions may pose for investors. Individual investors considering a life settlement transaction may wish to keep the following points in mind and seek guidance from an unbiased financial professional who will not receive a commission or any other financial benefit from the transaction.
What is a life settlement?
In a “life settlement” transaction, a life insurance policy owner sells his or her policy to an investor in exchange for a lump sum payment. The amount of the payment from the investor to the policy owner is generally less than the death benefit on the policy, but more than its cash surrender value. The dollar amount offered by the investor usually takes into account the insured’s life expectancy (age and health) and the terms and conditions of the insurance policy.
Why would a policy owner wish to sell a life insurance policy?
Due to changed family or other circumstances, a life insurance policy owner may no longer need the insurance provided by the policy. A spouse may have died, children may have grown up, or a company with life insurance on a key officer may have been sold or gone out of business. Other policy owners may have difficulty making premium payments or simply need cash. In such circumstances, many policy owners surrender their policies or let their policies lapse by ceasing to make premium payments. Selling a policy to an investor may be another alternative. Such sales may be made through life settlement brokers who charge commissions.
How does a life settlement take place and who are the parties involved?
A policy owner may discuss a possible settlement with his or her insurance agent or financial adviser, who then contacts a life settlement broker. In some cases, the policy owner may be solicited directly by a life settlement broker. Life settlement brokers may also be life insurance agents or securities brokers. Depending on the requirements of the states in which they do business, life settlement brokers may be licensed.
The life settlement broker obtains the insured’s authorization to release medical records and forwards the policy owner’s application and medical information to one or more companies known as life settlement providers. Many, but not all, states regulate life settlement providers, who also charge a commission.
The life settlement provider obtains life expectancy estimates on the insured and bids on the application. Life expectancy underwriters (who are not the insured’s personal physician) evaluate the risk of mortality of the insured based on his or her personal characteristics. If the life settlement provider’s bid is accepted, the provider may add that policy to a large group of policies, interests in which may be offered to investors. Institutional investors analyze the information provided by the life settlement provider, often obtaining their own life expectancy estimates. Retail investors, on the other hand, may have to rely on life settlement personnel or other investment professionals to assess the advantages and disadvantages of the transaction. In either case, the investor makes a cash payment to the policy owner or policy owners and continues to pay premiums necessary to keep the policy or policies in effect. Upon the insured’s death, the investor receives the death benefit.
Considerations for investors in life settlements
Before investing in a life settlement, investors may wish to keep the following points in mind.
The return on a life settlement depends on the insured’s life expectancy and the date of the insured’s death. As a result, the accuracy of a life expectancy estimate is essential. If the insured dies before his or her estimated life expectancy, the investor may receive a higher return. If the insured lives longer than expected, the investor’s return will be lower. If the insured lives long enough or if life expectancy is miscalculated, additional premiums may need to be paid and the cost of the investment could be greater than anticipated.
In response to investors’ concerns about the uncertainty of life expectancy estimates, some companies have incorporated purported life expectancy guarantee bonds into their offerings. These companies claim that if the insured does not die by the life expectancy date, they will pay investors the amount they would have received had the insured died by that date. Investors should be aware that the Commission has recently brought enforcement action against a company alleging that it made fraudulent claims about these bonds.
Under certain circumstances, the investor may not receive the death benefit. For example, the life insurance company that issued the policy may refuse to pay out the death benefit if it believes the policy was sold under fraudulent circumstances. In addition, the heirs of the insured may challenge the life settlement or the insurance company may go out of business.
The competence of a life expectancy underwriter and the accuracy of the life expectancy estimate are critical to the return on a life settlement. For the most part, life expectancy underwriters are not licensed or registered by state insurance regulators, and information about the methodologies and review procedures that life expectancy underwriters use is not generally disclosed.
Life settlements can give rise to privacy issues. Insured individuals generally wish to keep their medical records and personal information confidential. Investors, on the other hand, want access to the insured’s medical and other personal information to assess the advisability of their investment and to monitor it on a continuing basis.”
NEED TAX DEDUCTIONS? TRY MAKING THEM UP
Many years ago I remember that in an episode of the “Three Stooges” the boys came up with some fraudulent tax dodges that they sold to clients. The Stooges became rich selling their scheme to clients. Of course at the end of the short film the IRS came calling and of course the boys were in trouble. Well, it seems that a couple of modern day stooges have been caught. The case below is an excerpt from the Department of Justice web site:
“Federal Court Bars Ohio Accountant and Former Business Partner from Promoting Oil-and-Gas Tax Fraud Scheme
Government Estimates Alleged Tax Loss of $5.7 Million to $6.9 Million
WASHINGTON – A federal court has permanently barred two men from promoting an alleged tax fraud scheme involving interests in purported oil and gas wells, the Justice Department announced today. Judge James L. Graham of the U.S. District Court for the Southern District of Ohio entered the permanent injunction orders against Daniel D. Weddington of Newark, Ohio, and James R. Earl of Heath, Ohio. Both men were preliminarily enjoined in 2008. A third defendant, Jeffrey L. Gaumer of Newark, N.J., was permanently enjoined in 2008. All three men agreed to the permanent injunctions without admitting to the government’s allegations against them in the amended complaint.
Weddington recently pleaded guilty in federal court to two counts of aiding and assisting the filing of false income tax returns and one count of obstructing the administration of the internal revenue laws in connection with his role in the oil-and-gas well scheme.
The amended complaint in the civil injunction case alleged that Weddington, Earl and Gaumer marketed a scheme to claim tax deductions for fictitious well-drilling costs to more than 200 customers across the country. Customers allegedly paid for their purported investments using sham notes that were supposedly paid off by fictitious gas royalty payments from fictitious wells. The amended complaint also alleged that the defendants used a shell corporation, Aurora Capital Group Inc., to issue sham letters of credit to customers in an attempt to make the customers’ sham notes appear legitimate, so as to deceive the Internal Revenue Service (IRS).
The amended complaint also asserted that Weddington is a public accountant, that Gaumer is a certified public accountant in the same accounting firm, and that they prepared tax returns for the majority of the scheme’s participants. According to the amended complaint, the IRS estimated that the scam caused tax revenue losses of $5.7 million to $6.9 million from 2001 to 2004.
In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions against tax return preparers and tax fraud promoters.”
“Federal Court Bars Ohio Accountant and Former Business Partner from Promoting Oil-and-Gas Tax Fraud Scheme
Government Estimates Alleged Tax Loss of $5.7 Million to $6.9 Million
WASHINGTON – A federal court has permanently barred two men from promoting an alleged tax fraud scheme involving interests in purported oil and gas wells, the Justice Department announced today. Judge James L. Graham of the U.S. District Court for the Southern District of Ohio entered the permanent injunction orders against Daniel D. Weddington of Newark, Ohio, and James R. Earl of Heath, Ohio. Both men were preliminarily enjoined in 2008. A third defendant, Jeffrey L. Gaumer of Newark, N.J., was permanently enjoined in 2008. All three men agreed to the permanent injunctions without admitting to the government’s allegations against them in the amended complaint.
Weddington recently pleaded guilty in federal court to two counts of aiding and assisting the filing of false income tax returns and one count of obstructing the administration of the internal revenue laws in connection with his role in the oil-and-gas well scheme.
The amended complaint in the civil injunction case alleged that Weddington, Earl and Gaumer marketed a scheme to claim tax deductions for fictitious well-drilling costs to more than 200 customers across the country. Customers allegedly paid for their purported investments using sham notes that were supposedly paid off by fictitious gas royalty payments from fictitious wells. The amended complaint also alleged that the defendants used a shell corporation, Aurora Capital Group Inc., to issue sham letters of credit to customers in an attempt to make the customers’ sham notes appear legitimate, so as to deceive the Internal Revenue Service (IRS).
The amended complaint also asserted that Weddington is a public accountant, that Gaumer is a certified public accountant in the same accounting firm, and that they prepared tax returns for the majority of the scheme’s participants. According to the amended complaint, the IRS estimated that the scam caused tax revenue losses of $5.7 million to $6.9 million from 2001 to 2004.
In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions against tax return preparers and tax fraud promoters.”
Sunday, May 22, 2011
SEC HAS ASSETS FROZE AT CHINA VOICE HOLDING CORP.
Whenever rates of returns are offered to investors which are too good to be true guess what? Usually the investor is being set up to have his money stolen. After decades as both an investor and investment salesman I will always be amazed at how people who are really cautious about putting up money for an investment that earns a descent rate of return but, those same cautious investors will throw all into a game which promises rates of return which are more like gambling winnings than rates of return from an honest investment. In the following excerpt from the SEC web site the SEC alleges that a multi-million dollar Ponzi scheme was perpetrated on investors who thought they were going to earn a very large rate of return:
“Washington, D.C., April 29, 2011 — The Securities and Exchange Commission today announced that it has obtained a court order freezing the assets of China Voice Holding Corp., which trades in over-the-counter markets and has claimed to have a portfolio of telecommunications products and services in both the U.S. and China. The SEC alleges that China Voice's co-founder and his two associates are operating an $8.6 million Ponzi scheme and misusing its proceeds, in part, to help fund the company's operations.
The SEC alleges that David Ronald Allen, who also was China voice's chief financial officer, and his associates Alex Dowlatshahi and Christopher Mills promised investors in a series of offerings of limited partnerships that they would earn returns of at least 25 percent on their investments. Investors were falsely told that their money would be loaned to companies with a demonstrated track record and large profit margins. Instead, Allen and his cohorts used investor funds to pay back investors in earlier partnerships and funneled investor money to China Voice and a complicated web of other companies that Allen controls. Allen and his associates also siphoned investor money to enrich themselves and family members.
In order to maintain the scheme, Allen and his associates have increased the pace and size of the offerings to obtain a steady stream of proceeds from defrauded investors. They are planning or have begun to solicit funds from investors in at least two more limited partnerships in the ongoing fraud. The court order obtained late yesterday freezes the assets of Allen and several others in addition to China Voice. The court also temporarily enjoined these defendants from participating in the offering of securities like those used to perpetrate the fraudulent scheme as alleged by the SEC.
"These promoters falsely touted what they claimed to be a prudent investment with reliable returns through loans made to carefully selected businesses," said Stephen L. Cohen, Associate Director of the SEC's Division of Enforcement. "This fraud illustrates that when extraordinarily high returns are promised in a supposedly low-risk investment, that's a tell-tale sign that something likely is amiss."
In addition to the Ponzi scheme, the SEC's complaint filed in U.S. District Court for the Northern District of Texas (Dallas Division) charges China Voice, its former chairman and CEO William F. Burbank IV, and Allen, for a series of fraudulent company statements about its financial condition and business prospects. Among other things, the SEC alleges that China Voice greatly overstated the value of certain business relationships and misled investors by failing to disclose significant loans from related parties needed to fund its operations.
The SEC also alleges that beginning in at least September 2006, China Voice overstated its business in China by claiming to provide telephone and other communications software in China on a much more extensive basis than it actually did. Company press releases and public filings extensively publicized contracts signed by Chinese subsidiaries to provide services to the government and other entities in China, which would provide high levels of projected revenue to the company. But the company recanted in audited financial statements in June 2008, when it disclosed that the majority of the company's revenue came from its U.S. subsidiaries. Nevertheless, China Voice and its stock promotion campaigns continued to tout purported Chinese contracts.
The SEC's complaint additionally charges two China Voice shareholders, Gerald Patera and Ilya Drapkin, for helping Allen finance stock promotion campaigns to pump up the company's stock price. These campaigns included a blast fax campaign orchestrated by Robert Wilson, who also is charged in the SEC's complaint. The spam faxes were sent to thousands of people at once and contained false and misleading statements about China Voice and who was paying for the faxes. At the same time they were spending more than a million dollars on stock promotion, Patera and Drapkin dumped millions of shares of the company into the market.
The SEC's complaint charges Allen, Dowlatshahi, Mills, and various related companies with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks a temporary restraining order, preliminary and permanent injunctions, disgorgement of unlawful proceeds plus prejudgment interest, and a financial penalty. The SEC's complaint charges Burbank, Patera, Drapkin, and Wilson with violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder for their roles in the scheme. With regard to them, the SEC seeks a permanent injunction, disgorgement of unlawful proceeds plus prejudgment interest, and a financial penalty. The SEC's complaint also seeks penny stock bars against Allen, Burbank, Patera, Drapkin, and Wilson as well as officer and director bars against Allen and Burbank.”
“Washington, D.C., April 29, 2011 — The Securities and Exchange Commission today announced that it has obtained a court order freezing the assets of China Voice Holding Corp., which trades in over-the-counter markets and has claimed to have a portfolio of telecommunications products and services in both the U.S. and China. The SEC alleges that China Voice's co-founder and his two associates are operating an $8.6 million Ponzi scheme and misusing its proceeds, in part, to help fund the company's operations.
The SEC alleges that David Ronald Allen, who also was China voice's chief financial officer, and his associates Alex Dowlatshahi and Christopher Mills promised investors in a series of offerings of limited partnerships that they would earn returns of at least 25 percent on their investments. Investors were falsely told that their money would be loaned to companies with a demonstrated track record and large profit margins. Instead, Allen and his cohorts used investor funds to pay back investors in earlier partnerships and funneled investor money to China Voice and a complicated web of other companies that Allen controls. Allen and his associates also siphoned investor money to enrich themselves and family members.
In order to maintain the scheme, Allen and his associates have increased the pace and size of the offerings to obtain a steady stream of proceeds from defrauded investors. They are planning or have begun to solicit funds from investors in at least two more limited partnerships in the ongoing fraud. The court order obtained late yesterday freezes the assets of Allen and several others in addition to China Voice. The court also temporarily enjoined these defendants from participating in the offering of securities like those used to perpetrate the fraudulent scheme as alleged by the SEC.
"These promoters falsely touted what they claimed to be a prudent investment with reliable returns through loans made to carefully selected businesses," said Stephen L. Cohen, Associate Director of the SEC's Division of Enforcement. "This fraud illustrates that when extraordinarily high returns are promised in a supposedly low-risk investment, that's a tell-tale sign that something likely is amiss."
In addition to the Ponzi scheme, the SEC's complaint filed in U.S. District Court for the Northern District of Texas (Dallas Division) charges China Voice, its former chairman and CEO William F. Burbank IV, and Allen, for a series of fraudulent company statements about its financial condition and business prospects. Among other things, the SEC alleges that China Voice greatly overstated the value of certain business relationships and misled investors by failing to disclose significant loans from related parties needed to fund its operations.
The SEC also alleges that beginning in at least September 2006, China Voice overstated its business in China by claiming to provide telephone and other communications software in China on a much more extensive basis than it actually did. Company press releases and public filings extensively publicized contracts signed by Chinese subsidiaries to provide services to the government and other entities in China, which would provide high levels of projected revenue to the company. But the company recanted in audited financial statements in June 2008, when it disclosed that the majority of the company's revenue came from its U.S. subsidiaries. Nevertheless, China Voice and its stock promotion campaigns continued to tout purported Chinese contracts.
The SEC's complaint additionally charges two China Voice shareholders, Gerald Patera and Ilya Drapkin, for helping Allen finance stock promotion campaigns to pump up the company's stock price. These campaigns included a blast fax campaign orchestrated by Robert Wilson, who also is charged in the SEC's complaint. The spam faxes were sent to thousands of people at once and contained false and misleading statements about China Voice and who was paying for the faxes. At the same time they were spending more than a million dollars on stock promotion, Patera and Drapkin dumped millions of shares of the company into the market.
The SEC's complaint charges Allen, Dowlatshahi, Mills, and various related companies with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks a temporary restraining order, preliminary and permanent injunctions, disgorgement of unlawful proceeds plus prejudgment interest, and a financial penalty. The SEC's complaint charges Burbank, Patera, Drapkin, and Wilson with violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder for their roles in the scheme. With regard to them, the SEC seeks a permanent injunction, disgorgement of unlawful proceeds plus prejudgment interest, and a financial penalty. The SEC's complaint also seeks penny stock bars against Allen, Burbank, Patera, Drapkin, and Wilson as well as officer and director bars against Allen and Burbank.”
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