In the following case the SEC alleges that a hedge fund manager profited from insider information. The case below is an excerpt from the SEC web site:
April 13, 2011
“The SEC alleges that Dr. Joseph F. “Chip” Skowron, a former portfolio manager for six health care-related hedge funds affiliated with FrontPoint Partners LLC, sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on a tip he received unlawfully from a medical researcher overseeing the drug trial. HGSI’s stock fell 44 percent after it publicly announced negative results from the trial of Albumin Interferon Alfa 2-a (Albuferon), and the hedge funds avoided at least $30 million in losses.
The SEC previously charged the medical researcher – Dr. Yves M. Benhamou – who illegally tipped Skowron with the non-public information and received envelopes of cash in return according to the SEC’s amended complaint filed today in federal court in Manhattan to additionally charge Skowron. The hedge funds, which have been charged as relief defendants in the SEC’s amended complaint, have agreed to pay back $33 million in ill-gotten gains.
In a parallel action today, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Skowron.
According to the SEC’s amended complaint, Benhamou served on the Steering Committee overseeing HGSI’s trial for Albuferon, a potential drug to treat Hepatitis C. While serving on the Steering Committee, Benhamou provided consulting services to Skowron through an expert networking firm. But over time, he and Skowron developed a friendship. By April 2007, many of their communications were independent of the expert networking firm. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred during Phase 3 of the trial.
The SEC alleges that Skowron acted on confidential information he received from Benhamou prior to the public announcement and ordered the sale of the entire position in HGSI stock – approximately six million shares held by the six health-care related funds that Skowron co-managed. These sales occurred during the six-week period prior to HGSI’s public announcement. Skowron caused the hedge funds to sell two million shares in a block trade just before the markets closed Jan. 22, 2008. Changes to the trial resulting from the negative developments were announced publicly on Jan. 23, 2008. When HGSI’s share price dropped 44 percent by the end of the day, the hedge funds avoided losses of at least $30 million.
According to the SEC’s amended complaint, Skowron gave Benhamou an envelope of containing 5,000 Euros while they were attending a medical conference in Barcelona, Spain in April 2007. The cash was in appreciation for Benhamou’s work as a consultant. In February 2008, after the illegal HGSI trades were completed, Skowron asked Benhamou to lie about his communications with Skowron, which he did. In late February 2008, Skowron met Benhamou in Boston and attempted to hand him a bag containing cash in appreciation for his tips on the Albuferon trial and his continued silence. Benhamou refused the cash. However, while attending a medical conference in Milan, Italy in April 2008, Skowron gave Benhamou another envelope containing $10,000 to $20,000 in cash that Benhamou accepted.
The SEC charged Skowron and Benhamou with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 and seeks permanent injunctions, disgorgement of any ill-gotten gains with prejudgment interest, and financial penalties against them.
Simultaneous with the filing of the SEC’s amended complaint, the six hedge funds named as relief defendants agreed to settle with the Commission and pay disgorgement of $29,017,156.00 plus prejudgment interest of $4,003,669.00 without admitting or denying the allegations. The proposed settlement is subject to court approval. The six hedge funds are FrontPoint Healthcare Flagship Fund, L.P., FrontPoint Healthcare Horizons Fund, L.P., FrontPoint Healthcare I Fund, L.P., FrontPoint Healthcare Flagship Enhanced Fund, L.P., FrontPoint Healthcare Long Horizons Fund, L.P., and FrontPoint Healthcare Centennial Fund, L.P.”
Unfortunately, insider trading is just the way things have been done on Wall Street. If capitalism is just about who is the best at swindling others then the way the entire world economy is organized may have to be rethought. For if there are no rules then investors today need to try to gauge how a security is going to be manipulated by the unscrupulous and pay little attention at all to the fundamental health of a companies earnings growth. Perhaps the SEC is the institution riding a pale horse and bringing an apocalypse to the forces of financial thievery and thus saving capitalism.
This is a photo of the National Register of Historic Places listing with reference number 7000063
Thursday, May 26, 2011
TWO SEATTLE ATTORNEYS CAUGHT UP IN PUMP AND DUMP SECURITIES SCHEME
Selling products that don’t exist is certainly a very creative way to avoid both fixed and variable overhead costs. Of course selling stock in a company that makes products that don’t exist can be incredibly lucrative. The following is an excerpt from the SEC web site which harkens back to the days of the dot.com bubble. Many dot.com companies had soaring stock prices and never developed any kind of revenue stream because there was never any viable product or service to sell.
“The United States Securities and Exchange Commission (“Commission”) announced that on April 11, 2011, the Honorable Richard A. Jones, United States District Court Judge for the Western District of Washington, entered judgments of permanent injunction and other relief against Defendants David M. Otto, Todd Van Siclen, Charles Bingham and Wall Street PR, Inc.
The final judgment against Otto enjoins the Seattle attorney from violating Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), and Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 16a-13 promulgated thereunder. In addition to the injunctive relief, the final judgment against Otto orders him to pay $180,000 in civil penalties, $38,610.18 in disgorgement together with $6,751.15 in prejudgment interest and bars him from participating in an offering of penny stock for five years. Otto consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Seattle attorney Van Siclen enjoins him from violating Sections 5 and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Van Siclen orders him to pay $10,000 in civil penalties and bars him from participating in an offering of penny stock for three years. Van Siclen consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Texas stock promoter Bingham and his company Wall Street PR enjoins them from violating Sections 5 and 17(a)(2) and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Bingham orders him to pay $50,000 in civil penalties, $80,153 in disgorgement together with $15,608.43 in prejudgment interest. Bingham and Wall Street PR consented to the entry of the judgments without admitting or denying the allegations in the complaint.
On July 13, 2009, the Commission filed its complaint against the Defendants alleging that they violated the anti-fraud and registration provisions of the federal securities laws by, among other things, conducting a “pump-and-dump” scheme in which the defendants used a false and misleading public relations campaign to tout their client MitoPharm Corporation’s products. In reality, the products did not exist. Otto sold MitoPharm stock at a profit before its stock price plunged after the close of the promotional campaign.
In addition to the relief described above, Otto and Van Siclen each consented to the entry of an order in separate Commission administrative proceedings suspending them, pursuant to Rule 102(e) of the Commission's Rules of Practice, from appearing or practicing as attorneys before the Commission with the right to apply for reinstatement after three years and one year, respectively.”
This case describes some pretty incredible actions taken by officers of the court. Based upon this case and other similar cases, I question what law schools are teaching now days.
“The United States Securities and Exchange Commission (“Commission”) announced that on April 11, 2011, the Honorable Richard A. Jones, United States District Court Judge for the Western District of Washington, entered judgments of permanent injunction and other relief against Defendants David M. Otto, Todd Van Siclen, Charles Bingham and Wall Street PR, Inc.
The final judgment against Otto enjoins the Seattle attorney from violating Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), and Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 16a-13 promulgated thereunder. In addition to the injunctive relief, the final judgment against Otto orders him to pay $180,000 in civil penalties, $38,610.18 in disgorgement together with $6,751.15 in prejudgment interest and bars him from participating in an offering of penny stock for five years. Otto consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Seattle attorney Van Siclen enjoins him from violating Sections 5 and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Van Siclen orders him to pay $10,000 in civil penalties and bars him from participating in an offering of penny stock for three years. Van Siclen consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Texas stock promoter Bingham and his company Wall Street PR enjoins them from violating Sections 5 and 17(a)(2) and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Bingham orders him to pay $50,000 in civil penalties, $80,153 in disgorgement together with $15,608.43 in prejudgment interest. Bingham and Wall Street PR consented to the entry of the judgments without admitting or denying the allegations in the complaint.
On July 13, 2009, the Commission filed its complaint against the Defendants alleging that they violated the anti-fraud and registration provisions of the federal securities laws by, among other things, conducting a “pump-and-dump” scheme in which the defendants used a false and misleading public relations campaign to tout their client MitoPharm Corporation’s products. In reality, the products did not exist. Otto sold MitoPharm stock at a profit before its stock price plunged after the close of the promotional campaign.
In addition to the relief described above, Otto and Van Siclen each consented to the entry of an order in separate Commission administrative proceedings suspending them, pursuant to Rule 102(e) of the Commission's Rules of Practice, from appearing or practicing as attorneys before the Commission with the right to apply for reinstatement after three years and one year, respectively.”
This case describes some pretty incredible actions taken by officers of the court. Based upon this case and other similar cases, I question what law schools are teaching now days.
SEC CHARGES TWO SOUTH FLORIDA COMPANIES WITH COMMODITIES FRAUD
The following case involves the hot topic of commodities. Commodity price ran up for several months but have been softening recently. Fraud in securities, commodities, real estate etc., usually is not looked into by the public while prices are falling. It is more usual that it is when prices fall that people start taking an interest in any possible fraud cases. The case below is an excerpt from the SEC web site:
April 21, 2011
‘The Securities and Exchange Commission obtained the appointment of a receiver over two South Florida companies and permanent injunctions on April 1, 2011 and April 8, 2011, respectively, for conducting a fraudulent $27.5 million investment scheme with funds raised by offering and selling unregistered securities to investors nationwide from January 2010 until March 2011.
In its Complaint the SEC alleges that Commodities Online, LLC (“Commodities Online”) and Commodities Online Management, LLC (“Commodities Management,” and together, the “Defendants”), beginning in January 2010, represented to investors that Commodities Online was in the business of arranging and funding commodities contracts. The SEC further alleges that the Defendants represented to potential investors that Commodities Online purchased commodities only after arranging for a buyer and a seller. Defendants claimed that Commodities Online made money based on the price spread and told investors they would “earn 5% or more per month without price speculation.” Commodities Online sold participation units in such contracts and claimed to have invested at least $24 million raised from investors. Commodities Online also claimed to have raised at least $2.4 million from investors who invested in membership units in Commodities Online. Neither the participation units nor the membership units were registered with the Commission.
In its Complaint, the Commission alleges that Defendants made numerous material misrepresentations in connection with the offering and sale of the participation units and membership units. Although Commodities Online claimed on its website that, as of March 14, 2011, it had offered and paid a total of 48 contracts and that all completed contracts had returned the promised level of profits to the investors, the Commission alleges that in fact all completed contracts did not return the promised level of profit to investors and Commodities Online performed only a limited percentage of the commodities transactions it promised investors. Instead, according to the Complaint, Commodities Online dissipated investor funds by sending millions of dollars to companies controlled by its co-founder and former managing member and to one of its vice presidents. Further, Commodities Online held itself out as providing a viable, profitable investment vehicle to prospective investors, but, the Commission alleges, in reality it did not earn any net profits from entities it dealt with in connection with the purported commodities contracts. In addition, Commodities Online failed to disclose to prospective investors that its co-founder and former managing member is a convicted felon and failed to disclose that a vice president pled guilty to federal bank fraud and other felonies and is currently serving a term of supervised release.
The SEC’s Complaint charges Commodities Online and Commodities Management with violating 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. The Defendants consented to the appointment of a Receiver, to the entry of permanent injunctions against future violations of the provisions of the securities laws with which they were charged, and to disgorgement, prejudgment interest, and civil money penalties in amounts to be determined by the Court.
The Court appointed David Mandel, an attorney with the law firm of Mandel & Mandel LLP of Miami, Florida, as a receiver over the Defendants. Among other things, the receiver is responsible for marshaling and safeguarding assets held by these entities.”
April 21, 2011
‘The Securities and Exchange Commission obtained the appointment of a receiver over two South Florida companies and permanent injunctions on April 1, 2011 and April 8, 2011, respectively, for conducting a fraudulent $27.5 million investment scheme with funds raised by offering and selling unregistered securities to investors nationwide from January 2010 until March 2011.
In its Complaint the SEC alleges that Commodities Online, LLC (“Commodities Online”) and Commodities Online Management, LLC (“Commodities Management,” and together, the “Defendants”), beginning in January 2010, represented to investors that Commodities Online was in the business of arranging and funding commodities contracts. The SEC further alleges that the Defendants represented to potential investors that Commodities Online purchased commodities only after arranging for a buyer and a seller. Defendants claimed that Commodities Online made money based on the price spread and told investors they would “earn 5% or more per month without price speculation.” Commodities Online sold participation units in such contracts and claimed to have invested at least $24 million raised from investors. Commodities Online also claimed to have raised at least $2.4 million from investors who invested in membership units in Commodities Online. Neither the participation units nor the membership units were registered with the Commission.
In its Complaint, the Commission alleges that Defendants made numerous material misrepresentations in connection with the offering and sale of the participation units and membership units. Although Commodities Online claimed on its website that, as of March 14, 2011, it had offered and paid a total of 48 contracts and that all completed contracts had returned the promised level of profits to the investors, the Commission alleges that in fact all completed contracts did not return the promised level of profit to investors and Commodities Online performed only a limited percentage of the commodities transactions it promised investors. Instead, according to the Complaint, Commodities Online dissipated investor funds by sending millions of dollars to companies controlled by its co-founder and former managing member and to one of its vice presidents. Further, Commodities Online held itself out as providing a viable, profitable investment vehicle to prospective investors, but, the Commission alleges, in reality it did not earn any net profits from entities it dealt with in connection with the purported commodities contracts. In addition, Commodities Online failed to disclose to prospective investors that its co-founder and former managing member is a convicted felon and failed to disclose that a vice president pled guilty to federal bank fraud and other felonies and is currently serving a term of supervised release.
The SEC’s Complaint charges Commodities Online and Commodities Management with violating 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. The Defendants consented to the appointment of a Receiver, to the entry of permanent injunctions against future violations of the provisions of the securities laws with which they were charged, and to disgorgement, prejudgment interest, and civil money penalties in amounts to be determined by the Court.
The Court appointed David Mandel, an attorney with the law firm of Mandel & Mandel LLP of Miami, Florida, as a receiver over the Defendants. Among other things, the receiver is responsible for marshaling and safeguarding assets held by these entities.”
SEC ADOPTS RULES FOR A WHISTLEBLOWER PROGRAM
The following excerpt is from the SEC web site and discusses rules of the whistleblower program as prescribed by the Dodd-Frank Act:
“Washington, D.C., May 25, 2011 – The Securities and Exchange Commission today adopted rules to create a whistleblower program that rewards individuals who provide the agency with high-quality tips that lead to successful enforcement actions.
The new SEC whistleblower program, implemented under Section 922 of the Dodd-Frank Act, is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases.
To be considered for an award, the SEC’s rules require that a whistleblower must voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.
“For an agency with limited resources like the SEC, it is critical to be able to leverage the resources of people who may have first-hand information about violations of the securities laws,” said SEC Chairman Mary L. Schapiro. “While the SEC has a history of receiving a high volume of tips and complaints, the quality of the tips we have received has been better since Dodd-Frank became law. We expect this trend to continue, and these final rules map out simplified and transparent procedures for whistleblowers to provide us critical information.”
The SEC’s rules will be effective 60 days after they are submitted to Congress or published in the Federal Register.
# # #
FACT SHEET
Establishing a Whistleblower Program
SEC Open Meeting
May 25, 2011
Background
Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the SEC to pay rewards to individuals who provide the Commission with original information that leads to successful SEC enforcement actions and certain related actions.
In passing the Dodd-Frank Act, Congress substantially expanded the agency’s authority to compensate individuals who provide the SEC with information about violations of the federal securities laws. Prior to the Act, the agency’s bounty program was limited to insider trading cases and the amount of an award was capped at 10 percent of the penalties collected in the action.
Rules Requirements
The final rules define a whistleblower as a person who provides information to the SEC relating to a possible violation of the securities laws that has occurred, is ongoing or is about to occur.
To be considered for an award, the final rules require that a whistleblower must:
Voluntarily provide the SEC …
In general, a whistleblower is deemed to have provided information voluntarily if the whistleblower has provided information before the government, a self-regulatory organization or the Public Company Accounting Oversight Board asks for it directly from the whistleblower or the whistleblower’s representative.
… with original information …
Original information must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the Commission and not derived exclusively from certain public sources.
… that leads to the successful enforcement by the SEC of a federal court or administrative action …
A whistleblower’s information can be deemed to have led to a successful enforcement action if:
The information is sufficiently specific, credible and timely to cause the Commission to open a new examination or investigation, reopen a closed investigation, or open a new line inquiry in an existing examination or investigation.
The conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action.
The whistleblower reports original information through his or her employer’s internal whistleblower, legal, or compliance procedures before or at the same time it is passed along to the Commission; the employer provides the whistleblower’s information (and any subsequently-discovered information) to the Commission; and the employer’s report satisfies prongs (1) or (2) above.
… in which the SEC obtains monetary sanctions totaling more than $1 million.
The rules permit aggregation of multiple Commission cases that arise out of a common nucleus of operative facts as a single action. These may include proceedings involving the same or similar parties, factual allegations, alleged violations of the federal securities laws, or transactions or occurrences.
The final rules further define and explain these requirements.
Key Concepts
Avoiding Unintended Consequences:
Certain people generally will not be considered for whistleblower awards under the final rules.
These include:
People who have a pre-existing legal or contractual duty to report their information to the Commission.
Attorneys (including in-house counsel) who attempt to use information obtained from client engagements to make whistleblower claims for themselves (unless disclosure of the information is permitted under SEC rules or state bar rules).
People who obtain the information by means or in a manner that is determined by a U.S. court to violate federal or state criminal law.
Foreign government officials.
Officers, directors, trustees or partners of an entity who are informed by another person (such as by an employee) of allegations of misconduct, or who learn the information in connection with the entity’s processes for identifying, reporting and addressing possible violations of law (such as through the company hotline).
Compliance and internal audit personnel.
Public accountants working on SEC engagements, if the information relates to violations by the engagement client.
However, in certain circumstances, compliance and internal audit personnel as well as public accountants could become whistleblowers when:
The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.
The whistleblower believes that the entity is engaging in conduct that will impede an investigation.
At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that these people are already aware of the information.
Certain other people – such as employees of certain agencies and people who are criminally convicted in connection with the conduct – are already excluded by Dodd-Frank.
Under the final rules, the Commission also will not pay culpable whistleblowers awards that are based upon either:
The monetary sanctions that such culpable individuals themselves pay in the resulting SEC action.
The monetary sanctions paid by entities whose liability is based substantially on conduct that the whistleblower directed, planned or initiated.
The purpose of this provision is to prevent wrongdoers from benefitting by, in effect, blowing the whistle on themselves.
Providing Information to the Commission and Seeking a Reward:
The rules also describe the procedures for submitting information to the SEC and for making a claim for an award after an action is brought. The claim procedures provide opportunities for whistleblowers to fairly present their claim before the Commission makes a final award determination.
Under the final rules, the SEC also will pay an award based on amounts collected in related actions brought by certain agencies that are based upon the same original information that led to a successful SEC action.
Clarifying Anti-Retaliation Protection:
Under the rules, a whistleblower who provides information to the Commission is protected from employment retaliation if the whistleblower possesses a reasonable belief that the information he or she is providing relates to a possible securities law violation that has occurred, is ongoing, or is about to occur. In addition, the rules make it unlawful for anyone to interfere with a whistleblower’s efforts to communicate with the Commission, including threatening to enforce a confidentiality agreement.
Supporting Internal Compliance Programs:
The final rules do not require that employee whistleblowers report violations internally in order to qualify for an award. However, the rules strengthen incentives that had been proposed and add certain additional incentives intended to encourage employees to utilize their own company’s internal compliance programs when appropriate to do so.
For instance, the rules:
Make a whistleblower eligible for an award if the whistleblower reports internally and the company informs the SEC about the violations.
Treat an employee as a whistleblower, under the SEC program, as of the date that employee reports the information internally – as long as the employee provides the same information to the SEC within 120 days. Through this provision, employees are able to report their information internally first while preserving their “place in line” for a possible award from the SEC.
Provide that a whistleblower’s voluntary participation in an entity’s internal compliance and reporting systems is a factor that can increase the amount of an award, and that a whistleblower’s interference with internal compliance and reporting is a factor that can decrease the amount of an award.
Other Recent Actions
Office of the Whistleblower:
In addition to whistleblower rules, the Dodd-Frank Act called upon the SEC to create an Office of the Whistleblower. That office, now headed by Sean McKessy, works with whistleblowers, handles their tips and complaints, and helps the Commission determine the awards for each whistleblower. The initial staffing of the office has been completed and the Investor Protection Fund, which will be used to pay awards to eligible whistleblowers, has been fully funded.”
“Washington, D.C., May 25, 2011 – The Securities and Exchange Commission today adopted rules to create a whistleblower program that rewards individuals who provide the agency with high-quality tips that lead to successful enforcement actions.
The new SEC whistleblower program, implemented under Section 922 of the Dodd-Frank Act, is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases.
To be considered for an award, the SEC’s rules require that a whistleblower must voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.
“For an agency with limited resources like the SEC, it is critical to be able to leverage the resources of people who may have first-hand information about violations of the securities laws,” said SEC Chairman Mary L. Schapiro. “While the SEC has a history of receiving a high volume of tips and complaints, the quality of the tips we have received has been better since Dodd-Frank became law. We expect this trend to continue, and these final rules map out simplified and transparent procedures for whistleblowers to provide us critical information.”
The SEC’s rules will be effective 60 days after they are submitted to Congress or published in the Federal Register.
# # #
FACT SHEET
Establishing a Whistleblower Program
SEC Open Meeting
May 25, 2011
Background
Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the SEC to pay rewards to individuals who provide the Commission with original information that leads to successful SEC enforcement actions and certain related actions.
In passing the Dodd-Frank Act, Congress substantially expanded the agency’s authority to compensate individuals who provide the SEC with information about violations of the federal securities laws. Prior to the Act, the agency’s bounty program was limited to insider trading cases and the amount of an award was capped at 10 percent of the penalties collected in the action.
Rules Requirements
The final rules define a whistleblower as a person who provides information to the SEC relating to a possible violation of the securities laws that has occurred, is ongoing or is about to occur.
To be considered for an award, the final rules require that a whistleblower must:
Voluntarily provide the SEC …
In general, a whistleblower is deemed to have provided information voluntarily if the whistleblower has provided information before the government, a self-regulatory organization or the Public Company Accounting Oversight Board asks for it directly from the whistleblower or the whistleblower’s representative.
… with original information …
Original information must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the Commission and not derived exclusively from certain public sources.
… that leads to the successful enforcement by the SEC of a federal court or administrative action …
A whistleblower’s information can be deemed to have led to a successful enforcement action if:
The information is sufficiently specific, credible and timely to cause the Commission to open a new examination or investigation, reopen a closed investigation, or open a new line inquiry in an existing examination or investigation.
The conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action.
The whistleblower reports original information through his or her employer’s internal whistleblower, legal, or compliance procedures before or at the same time it is passed along to the Commission; the employer provides the whistleblower’s information (and any subsequently-discovered information) to the Commission; and the employer’s report satisfies prongs (1) or (2) above.
… in which the SEC obtains monetary sanctions totaling more than $1 million.
The rules permit aggregation of multiple Commission cases that arise out of a common nucleus of operative facts as a single action. These may include proceedings involving the same or similar parties, factual allegations, alleged violations of the federal securities laws, or transactions or occurrences.
The final rules further define and explain these requirements.
Key Concepts
Avoiding Unintended Consequences:
Certain people generally will not be considered for whistleblower awards under the final rules.
These include:
People who have a pre-existing legal or contractual duty to report their information to the Commission.
Attorneys (including in-house counsel) who attempt to use information obtained from client engagements to make whistleblower claims for themselves (unless disclosure of the information is permitted under SEC rules or state bar rules).
People who obtain the information by means or in a manner that is determined by a U.S. court to violate federal or state criminal law.
Foreign government officials.
Officers, directors, trustees or partners of an entity who are informed by another person (such as by an employee) of allegations of misconduct, or who learn the information in connection with the entity’s processes for identifying, reporting and addressing possible violations of law (such as through the company hotline).
Compliance and internal audit personnel.
Public accountants working on SEC engagements, if the information relates to violations by the engagement client.
However, in certain circumstances, compliance and internal audit personnel as well as public accountants could become whistleblowers when:
The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.
The whistleblower believes that the entity is engaging in conduct that will impede an investigation.
At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that these people are already aware of the information.
Certain other people – such as employees of certain agencies and people who are criminally convicted in connection with the conduct – are already excluded by Dodd-Frank.
Under the final rules, the Commission also will not pay culpable whistleblowers awards that are based upon either:
The monetary sanctions that such culpable individuals themselves pay in the resulting SEC action.
The monetary sanctions paid by entities whose liability is based substantially on conduct that the whistleblower directed, planned or initiated.
The purpose of this provision is to prevent wrongdoers from benefitting by, in effect, blowing the whistle on themselves.
Providing Information to the Commission and Seeking a Reward:
The rules also describe the procedures for submitting information to the SEC and for making a claim for an award after an action is brought. The claim procedures provide opportunities for whistleblowers to fairly present their claim before the Commission makes a final award determination.
Under the final rules, the SEC also will pay an award based on amounts collected in related actions brought by certain agencies that are based upon the same original information that led to a successful SEC action.
Clarifying Anti-Retaliation Protection:
Under the rules, a whistleblower who provides information to the Commission is protected from employment retaliation if the whistleblower possesses a reasonable belief that the information he or she is providing relates to a possible securities law violation that has occurred, is ongoing, or is about to occur. In addition, the rules make it unlawful for anyone to interfere with a whistleblower’s efforts to communicate with the Commission, including threatening to enforce a confidentiality agreement.
Supporting Internal Compliance Programs:
The final rules do not require that employee whistleblowers report violations internally in order to qualify for an award. However, the rules strengthen incentives that had been proposed and add certain additional incentives intended to encourage employees to utilize their own company’s internal compliance programs when appropriate to do so.
For instance, the rules:
Make a whistleblower eligible for an award if the whistleblower reports internally and the company informs the SEC about the violations.
Treat an employee as a whistleblower, under the SEC program, as of the date that employee reports the information internally – as long as the employee provides the same information to the SEC within 120 days. Through this provision, employees are able to report their information internally first while preserving their “place in line” for a possible award from the SEC.
Provide that a whistleblower’s voluntary participation in an entity’s internal compliance and reporting systems is a factor that can increase the amount of an award, and that a whistleblower’s interference with internal compliance and reporting is a factor that can decrease the amount of an award.
Other Recent Actions
Office of the Whistleblower:
In addition to whistleblower rules, the Dodd-Frank Act called upon the SEC to create an Office of the Whistleblower. That office, now headed by Sean McKessy, works with whistleblowers, handles their tips and complaints, and helps the Commission determine the awards for each whistleblower. The initial staffing of the office has been completed and the Investor Protection Fund, which will be used to pay awards to eligible whistleblowers, has been fully funded.”
Wednesday, May 25, 2011
ASSISTANT A.G. BREUER ADDRESSES THE WORLD BANK ON CORRUPTION
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."
"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."
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."
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