SUBPRIME AUTO LOAN EXECUTIVES CHARGED WITH FRAUD

It seems like the allegations against sub-prime lenders will never stop. Although it might be a good thing that the SEC et. al. have been agresively pursuing these cases it is very sad that there are so many of them. The following is an alleged fraud scheme which has been excerpted fromt SEC web site:

April 14, 2011
"The Securities and Exchange Commission announced that it filed a civil injunctive action today in federal district court in Massachusetts charging Massachusetts-based subprime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.
The SEC alleges that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But unbeknownst to investors, and starting in 2004, approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.
Inofin is not registered with the SEC to offer securities to investors.
According to the SEC’s complaint filed in federal court in Boston, Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing through 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Nonetheless, Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.
The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — allege that they promoted the offering and sale of Inofin’s unregistered securities. They were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The Commission’s complaint alleges that Inofin, Cuomo, Mann, and George violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Kevin Keough, and David Affeldt violated Sections 5(a), and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The Commission seeks the entry of a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against Inofin, Cuomo, Mann, George, Kevin Keough, and David Affeldt. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The SEC appreciates the assistance of the Secretary of the Commonwealth of Massachusetts William F. Galvin, who today filed charges against Inofin, Cuomo, Mann, George, Affeldt, Kevin Keough, and Nancy Keough based on the same conduct. The SEC also appreciates the assistance of the Massachusetts Division of Banks, which previously took action requiring Inofin to surrender its license to operate as a subprime auto lender in Massachusetts.”

SEC CHARGES SIX FORMER EXECUTIVES WITH FRAUD

Executives of failing businesses will often misrepresent the condition of their business to investors. Enron was a prime example of a failing conglomerate that had executives lie about financial condition to shareholders. The following is an excerpt from the SEC web site which alleges that six executives hid information from investors :

“ Washington, D.C., May 4, 2011 – The Securities and Exchange Commission today charged six former leading executives affiliated with a Kansas-based financial corporation with hiding critical information from investors and conducting a financial fraud.
The SEC alleges that senior executives at Brooke Corporation and two subsidiaries – whose line of business was insurance agency franchising and providing loans to franchisees – misrepresented their deteriorating financial condition in filings to investors and other public statements in 2007 and 2008. Meanwhile, behind the scenes they engaged in various undisclosed schemes to meet almost weekly liquidity crises, and falsified reports and made accounting maneuvers to conceal the rapid deterioration of the loan portfolio.

Five of the six executives have agreed to settle the SEC’s charges against them. The Brooke companies are no longer in business.
“The unscrupulous senior corporate executives at Brooke Corporation orchestrated a massive scheme to conceal the company’s deteriorating financial condition through virtually any means necessary, including reporting inflated asset values, double-pledging collateral, and diverting funds for improper uses,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The fallout from their fraud had a devastating impact on the livelihood of hundreds of insurance franchisees that depended on Brooke and on the balance sheets of regional banks and other lenders, all of whom mistakenly relied on the good faith and honesty of these executives.”
The SEC’s complaint filed in federal court in Kansas charged two brothers and four other leading executives at Brooke Corporation and its two publicly-traded subsidiaries – Brooke Capital Corporation (insurance agency franchisor) and Aleritas Capital Corporation (lender to insurance agency franchises and other businesses).
Robert D. Orr – founder and former chairman of the board of Brooke Corporation, former CEO and chairman of the board of Brooke Capital, former CFO of Aleritas.
Leland G. Orr – former CEO, CFO, and vice chairman of the board of Brooke Corporation, and former CFO of Brooke Capital.
Kyle L. Garst – former CEO, president, and member of the board of Brooke Capital.
Michael S. Hess – former CEO and member of the board of Aleritas.
Michael S. Lowry – former CEO and member of the board of Aleritas.
Travis W. Vrbas – former CFO of Brooke Corporation and Brooke Capital.
According to the SEC’s complaint, Brooke Capital’s former management inflated the number of franchise locations by including failed and abandoned locations in company totals. They concealed that the financial assistance to franchisees was so burdensome that Robert and Leland Orr secretly borrowed funds received from Brooke insurance customers to pay company operating expenses. That money was supposed to be held in trust for payment of insurance premiums. They also hid Brooke Capital’s inability to timely pay funds owed to profitable franchisees and creditors. Aleritas’s former management hid the company’s inability to repurchase millions of dollars of short-term loans sold to its network of regional lenders. They sold or pledged the same loans as collateral to multiple lenders, and improperly diverted payments from borrowers for the company’s operating expenses. Aleritas’s former management concealed the deterioration of the company’s loan portfolio by falsifying loan performance reports to lenders, understating loan loss reserves, and failing to write-down its residual interests in securitization and credit facility assets.
In October 2008, Brooke Corporation declared Chapter 11 bankruptcy and suspended most of their operations. The companies were unable to reorganize in bankruptcy. The rapid collapse of the Brooke Companies had a devastating regional impact as hundreds of its franchisees failed. As a result of losses suffered on Aleritas loans, several regional banks also failed.
The SEC’s complaint charges violations of, among other things, the antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws. The complaint seeks permanent injunctions, officer and director bars, and monetary remedies against the Brooke executives.
Robert Orr, Leland Orr, Hess, Lowry, and Vrbas agreed to settle the charges against them without admitting or denying the SEC’s allegations. The settlements are subject to the approval of the U.S. District Court for the District of Kansas. The executives each consented to orders of permanent injunction and permanent officer and director bars. Lowry agreed to pay a disgorgement of $214,500, prejudgment interest of $24,004, and a $175,000 penalty. Hess agreed to pay a $250,000 penalty, and Vrbas agreed to pay a $130,000 penalty. Robert Orr and Leland Orr agreed to pay penalties and disgorgement in amounts to be determined by the court.
The SEC’s case against Garst continues in litigation.
The SEC acknowledges the assistance and cooperation of the Office of the Kansas Securities Commissioner, the Kansas City Field Office of the Federal Bureau of Investigation, and the U.S. Attorney's Office for the District of Kansas.”

SWISS TRADER SETTLES CHARGES OF INSIDER TRADING WITH SEC

The following insider trading case is an excerpt from the SEC web site:

"The United State Securities and Exchange Commission (“Commission”) today announced that on May 24, 2011, the United States District Court for the Southern District of New York entered a Final Judgment as to the Defendant Giuseppe Tullio Abatemarco, a Swiss resident.

The Commission’s previously filed amended complaint, Securities and Exchange Commission v. Giuseppe Tullio Abatemarco, Civil Action No. 10 Civ. 9527 (WHP) (S.D.N.Y. filed April 20, 2011), alleges that Abatemarco engaged in illegal insider trading in connection with his purchase of the securities of Martek Biosciences Corporation, a Delaware corporation headquartered in Columbia, Maryland. Abatemarco, age 40, is a Swiss resident and insurance salesman. On December 21, 2010, Martek and Royal DSM, N.V., a Dutch company, announced that DSM would commence a cash tender offer to acquire all the outstanding shares of the common stock of Martek. The price of Martek stock rose 35% after the announcement. The amended complaint further alleges that in the days preceding the announcement, Abatemarco purchased 2,616 Martek call options based on material nonpublic information about the impending tender offer that he learned from a colleague who is the common-law wife of a DSM employee who was working on the tender offer. Abatemarco knew or should have known that the information was material and nonpublic. He stood to profit by about $1.2 million from the sale of the call options. On the Commission’s motion, the court froze the sale proceeds on December 22, 2010.

The amended complaint alleges that Abatemarco violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rules 10b-5 and 14e-3. The complaint seeks a permanent injunction, disgorgement with prejudgment interest civil money penalties.

Abatemarco has consented, without admitting or denying the allegations in the amended complaint, to the entry of a proposed final judgment: (1) permanently enjoining him from violating Sections 10(b) and 14(e) of the Exchange Act, and Exchange Act Rules 10b-5 and 14e-3; (2) ordering him to disgorge his trading profits in the amount of $1,193,594, plus pay prejudgment interest of $1,438.85; and (3) ordering him to pay a civil penalty of $250,667.15 pursuant to Section 21A of the Exchange Act."

SEC ALLEGES uRGENT CORPORATION RAN A BOILER ROOM FRAUD

Many small investors dream of have a big payoff if they could just get in on the right deal at the right time. There are of course people who will target such investors with scams such as amazing real estate development deals or perhaps an initial public offering of a stock. Certainly, if you could have purchased some Microsoft stock before the company became public you could have become very wealthy. Unfortunately, such deals are usually reserved for investment bankers and small investors have very little chance of investing in any legitimate profitable company when it is on the verge of becoming public. I remember when a Mutual Savings and Loan company that I had an account with offered to sell stock to its staff and account holders just before the firm became a publicly traded entity. I did not buy stock because I thought the company had questionable loan practices. For sure the company went public and within two years it was insolvent. The stock price never moved much above the IPO price which was not much different than the price paid for the stock before the offering.

In the following case the SEC alleges that mUrgent Corporation ran a high pressure boiler room operation to sell stock in the company prior to an imminent initial public offering:

“On April 21, 2011, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against mUrgent Corporation, Vladislav Walter Bugarski (Walter), and his twin sons Vladimir Boris Bugarski (Boris) and Aleksander Negovan Bugarski (Aleks). The SEC alleges that the defendants defrauded investors in a $10 million boiler room scheme.

The SEC alleges that mUrgent, chief executive officer Boris Bugarski, chief financial officer Walter Bugarski, and chief operating officer Aleks Bugarski operated a boiler room at the company to sell mUrgent stock. Boiler room employees cold-called investors, used high pressure sales tactics, and misrepresented to investors that mUrgent had a prospering business and would imminently conduct an initial public offering (IPO). The SEC also alleges that mUrgent and the Bugarskis falsely told investors that stock sale proceeds would not be used to pay cash salaries to the Bugarskis.

According to the SEC’s complaint, mUrgent and the Bugarskis conducted two unregistered securities offerings beginning in 2008 that raised nearly $10 million from at least 130 investors nationwide. The Bugarskis misused investor money to fund more than $1.3 million in cash salary and bonuses for themselves. They also established a separate “slush fund” of more than $500,000, and used investor funds to pay for luxury cars and other personal expenses.

The SEC seeks permanent injunctions against mUrgent and the Bugarskis for violations of the antifraud, offering registration, and broker registration provisions of the federal securities laws, disgorgement, civil penalties, and an order prohibiting the Bugarskis from serving as officers or directors of any public company.
As alleged in the SEC’s complaint, the defendants violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.”

PONZI SCHEMER GOES TO PRISON

The following case an excerpt from the SEC web site:

“May 12 , 2011
COURT ENTERS JUDGMENT OF PERMANENT INJUNCTION AGAINST LUIS FELIPE PEREZ AND THE COMMISSION DISMISSES ITS MONEY CLAIMS AGAINST PEREZ IN LIGHT OF HIS 10-YEAR PRISON SENTENCE AND $14 MILLION RESTITUTION ORDERS IN PARALLEL CRIMINAL ACTION
SEC v. Luis Felipe Perez, Case No. 1:10-CV-21804-Martinez/McAliley (S.D. Fla.)
The Commission announced that on May 9, 2011, the Honorable Jose E. Martinez, United States District Court Judge for the Southern District of Florida, entered judgment of permanent injunction against Luis Felipe Perez. Perez consented to the entry of an injunction against future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, the Commission dismissed its claims for disgorgement, prejudgment interest, and a civil penalty against Perez based on his criminal sentences and restitution orders in Case Nos. 10-20584-CR and 10-20411-CR before the Southern District of Florida.
On June 2, 2010, the Commission filed its complaint against Perez alleging that he orchestrated a $40 million Ponzi scheme with funds primarily raised from investors in the Miami Hispanic community to purportedly support jewelry businesses and pawn shops.”

TWO ITALIAN CITIZENS SETTLE INSIDER TRADING CHARGES WITH SEC

The following is an excerpt from the SEC web site:

April 18, 2011
“The Securities and Exchange Commission today announced a proposed settlement with two Italian citizens, Oscar Ronzoni and Paolo Busardò, their investment vehicle, Tatus Corp. (“Tatus”), and another related entity, A-Round Investment SA (“A-Round”), for alleged insider trading in the securities of DRS Technologies, Inc. (“DRS”). In October 2010, the Commission amended its Complaint in its previously-filed action against unknown purchasers of DRS and American Power Conversion Corp. (“APCC”) call options to name these defendants, in addition to two others who have previously settled with the Commission. Ronzoni, Busardo, and their related entities have agreed to settle the Commission’s charges by, among other things, paying approximately $1.46 million in disgorgement and penalties.
In its October 2010 Amended Complaint, the Commission alleges that Ronzoni, Busardò, Tatus, and A-Round purchased DRS call options that were out-of-the-money and set to expire in the near term while in possession of material, nonpublic information concerning the acquisition of DRS. According to the Amended Complaint, the settling defendants purchased the DRS call options in advance of a May 8, 2008 Wall Street Journal article reporting advanced merger negotiations between Finmeccanica S.p.A. and DRS, and confirmation by DRS the same day that it was engaged in talks regarding a potential strategic transaction. On May 5 and 6, 2008, Ronzoni purchased a total of 340 DRS call options; on May 7, 2008, Ronzoni also purchased, through Tatus, 800 DRS call options; and, on May 7, 2008, Busardò through A-Round purchased a total of 130 DRS call options. Following the May 8th Wall Street Journal article, Ronzoni made a profit of $156,400, Tatus made a profit of $695,459.97, and Busardò, through A-Round, made a profit of $115,840 after liquidating their DRS call option stakes.

Under the terms of the proposed settlement, Ronzoni, Busardò, Tatus, and A-Round would consent, without admitting or denying the allegations of the Amended Complaint, to the entry of final judgments permanently enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordering them to be jointly and severally liable for the payment of $967,699.97 in disgorgement, $8,689 in prejudgment interest, and a civil penalty of $483,849.99. The settlement remains subject to the approval of the U.S. District Court for the Southern District of New York. If approved, the settlement would bring this litigation to a close and bring the total disgorgement and penalties collected in this civil action to approximately $4.4 million. For more information, please see Litigation Release Nos. 20654 (July 25, 2008) and 21687A (October 7, 2010).
The SEC acknowledges the assistance of the U.S. Department of Justice, the Options Regulatory Surveillance Authority, the Swiss Financial Market Supervisory Authority, and the Swiss Federal Office of Justice in this matter.”