JPMORGAN CHASE AGREES TO PAY $228 MILLION FOR ANTICOMPETITIVE CONDUCT

Market manipulation is not a victimless crime. Many of the painful choices federal, state and, local governments have to make now are a direct result of large Wall Street companies manipulating markets. It would be the right thing to do if each company that is guilty of such crimes was to apologize to the people of America and the world for ever entertaining such criminal actions. Instead, only by threat of prosecution do large institutions admit to crimes and agree to pay some fine or other penalty. Meanwhile, societies crumble. The following excerpt is from the Department of Justice website from July 7, 2011:

“WASHINGTON — JPMorgan Chase & Co. has entered into an agreement with the Department of Justice to resolve the company’s role in anticompetitive activity in the municipal bond investments market and has agreed to pay a total of $228 million in restitution, penalties and disgorgement to federal and state agencies, the Department of Justice announced today.
As part of its agreement with the department, JPMorgan admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former employees. According to the non-prosecution agreement, from 2001 through 2006, certain former JPMorgan employees at its municipal derivatives desk, entered into unlawful agreements to manipulate the bidding process and rig bids on municipal investment and related contracts. These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other public entities.

“By entering into illegal agreements to rig bids on certain investment contracts, JPMorgan and its former executives deprived municipalities of the competitive process to which they were entitled,” said Assistant Attorney General Christine Varney in charge of the Department of Justice’s Antitrust Division. “Today’s agreements ensure that JPMorgan will pay restitution to the municipalities harmed by its anticompetitive conduct, disgorge its profits from the illegal activity and pay penalties for the criminal conduct. We are committed to rooting out anticompetitive activity in the financial markets and our investigation into the municipal bond derivatives industry, which has led to criminal charges against 18 former executives, remains active and ongoing.”

Under the terms of the agreement, JPMorgan agrees to pay restitution to victims of the anticompetitive conduct and to cooperate fully with the Justice Department’s Antitrust Division in its ongoing investigation into anticompetitive conduct in the municipal bond derivatives industry. To date, the ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation. One of these charged executives, James Hertz, is a former JPMorgan employee. Nine of the 18 executives charged have pleaded guilty, including Hertz.

The Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Fed) and 25 state attorneys general also entered into agreements with JPMorgan requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of restitution to the victims harmed by the manipulation and bid rigging by JPMorgan employees, as well as other remedial measures.

As a result of JPMorgan’s admission of conduct; its cooperation with the Department of Justice and other enforcement and regulatory agencies; its monetary and non-monetary commitments to the SEC, IRS, OCC, Fed and state attorneys general; and its remedial efforts to address the anticompetitive conduct, the department agreed not to prosecute JPMorgan for the manipulation and bid rigging of municipal investment and related contracts, provided that JPMorgan satisfies its ongoing obligations under the agreement.

In May 2011, UBS AG agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies for its participation in anticompetitive conduct in the municipal bond derivatives market.

The department’s ongoing investigation into the municipal bonds industry is being conducted by the Antitrust Division, the FBI and the IRS-Criminal Investigation. The department is coordinating its investigation with the SEC, the OCC and the Federal Reserve Bank of New York. The department thanks the SEC, IRS, OCC, Fed and state attorneys general for their cooperation and assistance in this matter."

COURT ORDERS DEFENDANTS TO PAY OVER 2.5 MILLION IN UNIVERSAL LEASES CASE

The following is an excerpt from the SEC website:

"June 28, 2011
SEC v. Michael E. Kelly, et al., Case No. 1:07-CV-4979 in the United States District Court for the Northern District of Illinois
Court Enters Final Judgment Against Georgia Resident William K. Boston, Jr., Texas Resident Warren T. Chambers And Their Business, Century Estate Planning, Inc.

The Securities and Exchange Commission announced today that on June 22, 2011, Judge Elaine Bucklo of the United States District Court for the Northern District of Illinois entered a final judgment against William K. Boston, Jr., of Canton, Georgia, Warren T. Chambers, of Leander, Texas, and Century Estate Planning, Inc. (Century Estate), their business. The final judgment: (1) enjoined Boston, Chambers and Century Estate from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-10 promulgated thereunder, and enjoined Boston and Chambers from aiding and abetting violations of Rule 10b-10 of the Exchange Act; (2) ordered Boston, Chambers and Century Estate to pay disgorgement in the amount of $1,347,601.44 plus prejudgment interest of $617,269.01, for a total of $1,964,870.45; and (3) ordered Boston and Chambers to each pay a civil penalty of $120,000,and Century Estate to pay a civil penalty in the amount of $600,000.

The SEC’s complaint in this matter charges that Michael E. Kelly and 25 other defendants, including Boston, Chambers and Century Estate, participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Leases. Universal Lease investments were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC’s complaint alleges that from 1999 until 2005, Kelly and others, including Boston, Chambers and Century Estate, raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts. The SEC further alleges that a nationwide network of unregistered salespeople who sold the Universal Leases, including Boston, Chambers and Century Estate, collected undisclosed commissions totaling more than $72 million. The SEC also alleges that Kelly and others ran the scheme from Cancun, Mexico, through a number of foreign entities in Mexico and Panama. According to the SEC's complaint, Kelly and others told investors that Universal Leases would generate guaranteed income through the leasing of investor timeshares by a large, independent leasing agent. In fact, the complaint alleges, the leasing agent was a small Panamanian travel agency controlled by Kelly, and for most of the scheme, its payments to investors came from accounts funded by money raised from new investors. Further, the complaint alleges that Kelly and the other defendants, including Boston, Chambers and Century Estate, failed to disclose key facts about the Universal Lease investment, including the risks of the investment and that Kelly was paying commissions as high as 27% to the selling brokers. The SEC’s action against the remaining defendants is pending."

TWO FORMER VICE PRESIDENTS OF ARTHROCARE CORPORATION SETTLE WITH THE SEC

The following is an excerpt from the SEC website:

"On June 27, 2011, the Securities and Exchange Commission filed a settled civil action in United States District Court in Austin, Texas against John Raffle and David Applegate, two former senior vice presidents of ArthroCare Corporation. The Commission alleges that, between 2006 and the first quarter of 2008, Raffle and Applegate caused ArthroCare to improperly record revenue from shipments of spine products to various distributors, even though the distributors often did not need the products or have the ability to pay for them. Most of the improper transactions occurred at or near the end of quarters and were intended to enable ArthroCare to satisfy external revenue and earnings targets. As a result of these transactions, ArthroCare's publicly reported revenue and earnings were materially misstated. The Commission further alleges that Raffle misled ArthroCare's accountants and auditor about aspects of these transactions.
Raffle and Applegate agreed to settle the Commission's charges, without admitting or denying the complaint's allegations. Under the settlement, Raffle consents to a judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The judgment also orders him to pay $1,782,742.43 in disgorgement plus prejudgment interest of $329,230.44, but waives payment of all but $175,000 of this amount, and does not impose a civil penalty, based upon his sworn financial statements.
Applegate has consented to a judgment permanently enjoining him from violating Section 17(a) of the Securities Act and aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The judgment orders him to pay $621,754.60 in disgorgement plus prejudgment interest of $106,469.70, but waives payment of all but $55,000 of this amount, and does not impose a civil penalty, based upon his sworn financial statements.
Under the settlement, Raffle and Applegate both will be barred from serving as officers or directors of public companies for five years.
The Commission also settled with Raffle's ex-wife, Kathy Raffle, to recover $200,000 of incentive compensation and profits from sales of ArthroCare stock John Raffle obtained during the course of the earnings management scheme, which Kathy Raffle received in a divorce agreement. The Commission does not allege any wrongdoing by Kathy Raffle.
The proposed judgments are subject to court approval."

INSIDE TRADER TO PAY FINE, PAY BACK MONEY ON PENNY STOCK DEAL

The following is from the SEC website:

"June 29, 2011
SEC v. Richard Verdiramo, Vincent L. Verdiramo, Edward Meyer, Jr., and Victoria Chen, Civil Action No. 10-CIV-1888 (S.D.N.Y.)
COURT ENTERS FINAL JUDGMENT AGAINST EDWARD MEYER, JR.
The U.S. Securities and Exchange Commission announced today that on June 27, 2011, the United States District Court for the Southern District of New York entered a Final Judgment that enjoins Edward Meyer, Jr. from violating the registration and antifraud provisions of the federal securities laws, orders him to disgorge $62,050 in ill-gotten gains, and requires him to pay civil penalties of $62,000. In addition, the Court barred Meyer from participating in any penny stock offering and from serving as an officer or director of any reporting company. Meyer consented to the entry of the Final Judgment without admitting or denying any of the allegations of the Commission’s Complaint.

In its Complaint, the SEC charged that Meyer violated the registration provisions of the federal securities laws when he sold shares of RECOV Energy Corporation between April and November 2005. According to the Complaint, RECOV issued these shares to Meyer after he and defendant Victoria Chen entered into a contract to buy a controlling interest in RECOV from RECOV’s principal, defendant Richard Verdiramo, and his father, defendant Vincent L. Verdiramo. The Complaint alleges that shortly after receiving the RECOV shares, Meyer began selling them on the open market. The SEC charged that Meyer violated Section 5(a) of the Securities Act of 1933 because his sales of RECOV shares were not registered with the SEC or subject to any exemptions from the registration provisions. The Final Judgment orders Meyer to disgorge his ill-gotten gains from these violations, which totaled approximately $48,000, and to pay a $48,000 penalty for these claims.

The SEC also charged Meyer with insider trading based on his sales of RECOV stock in August 2005. According to the Complaint, in October 2004, Meyer began working as a consultant for a private company that subsequently engaged in merger negotiations with RECOV. Meyer signed a confidentiality agreement in connection with his engagement as the private company’s consultant. The Complaint alleges that in July 2005, the private company’s principal told Meyer that he intended to terminate merger negotiations with RECOV. The Complaint alleges that Meyer sold RECOV shares after he learned of the principal’s intention to terminate merger negotiations and before the August 2005 public announcement that the parties had terminated merger negotiations. As a consequence of these trades, the Complaint alleges that Meyer avoided losses of $14,000. The SEC charged that the private company’s intention to terminate merger negotiations was material, non-public information, and that Meyer violated Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 when he sold RECOV stock while in possession of that information without disclosing his intention to trade. The Final Judgment orders Meyer to disgorge the $14,000 of ill-gotten gains from these violations and to pay a $14,000 penalty for these claims.

The Commission’s pending litigation against the other defendants in this matter is ongoing."

COURT ORDERS LOCKE CAPITAL MANAGEMENT, INC. AND OWNER TO PAY $5 MILLION PLUS

The following is an excerpt from the SEC website:

"July 1, 2011
SEC v. Locke Capital Management, Inc. and Leila C. Jenkins, Civil Action No. 09-CV-100-WES (D.R.I.)
COURT ORDERS INVESTMENT ADVISER LOCKE CAPITAL MANAGEMENT, INC. AND ITS OWNER LEILA JENKINS TO PAY OVER $5 MILLION
The Securities and Exchange Commission announced today that on June 30, 2011, a federal judge in Rhode Island granted the Commission's motion for summary judgment and entered final judgments against Locke Capital Management, Inc., an investment adviser based in Newport, Rhode Island and New York City, and Leila C. Jenkins, its founder and sole owner. The Commission's Complaint against Locke and Jenkins, filed in March 2009, alleged that they invented a billion-dollar client in order to gain credibility and attract legitimate investors. The Complaint further alleged that Jenkins tried to perpetuate her scheme by lying to the Commission staff about the existence of the invented client and furnishing the staff with bogus documents in 2008, including fake custodial statements that she created on her laptop. The Court ordered that Locke and Jenkins will be jointly and severally liable for disgorgement of $1,781,520, representing advisory fees paid to them from 2007-2009, plus prejudgment interest of $110,956. In addition, each defendant was ordered to pay a penalty of $1,781,520.

According to the Complaint, filed on March 9, 2009, Jenkins repeatedly claimed that the so-called "confidential" client accounts that she invented and claimed to manage contained more than $1 billion in assets. Even as Locke began to take on genuine clients in late 2006, the assets under management of its real clients never amounted to more than a very small portion of the billion-plus dollars that Jenkins claimed to manage. From at least 2003 to 2009, falsehoods concerning the confidential accounts were made in brochures, meetings, submissions to online databases that prospective clients used to select money managers, and in SEC filings.

The Honorable William E. Smith, United States District Judge in the United States District Court for the District of Rhode Island, issued an Opinion and Order on June 30, 2011, granting the Commission's motion for summary judgment against Jenkins and denying Jenkins's motion for summary judgment. The Court had previously granted the Commission's motion for default judgment against Locke in March 2010. The court entered final judgments against Jenkins and Locke on June 30, 2011. The final judgments permanently enjoin Jenkins and Locke from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 207 of the Investment Advisers Act of 1940 (Advisers Act"). The final judgment as to Locke also permanently enjoins it from violating Sections 204 and 206(4) of the Advisers Act and Rules 204-2(a)(6), (8), (10), (15), and (16), as wells as 206(4)-1(a)(5) thereunder, and the final judgment as to Jenkins further permanently enjoins her from aiding and abetting violations of the same law sections. The final judgment as to Locke further permanently enjoins it from violating Section 204A of the Advisers Act and Rule 204A-1 thereunder. The final judgments hold Locke and Jenkins jointly and severally liable for disgorgement of $1,781,520 plus prejudgment interest of $110,956, and order each defendant was ordered to pay a penalty of $1,781,520."

TWO FORMER EXECUTIVES IN CALIFORNIA CHARGED WITH FRAUD BY SEC

The following is an excerpt from the SEC website:

June 27, 2011
The Securities and Exchange Commission today announced charges against two former Basin Water, Inc. executives with fraudulently inflating its revenues, beginning with the company’s first financial report after it went public.
The SEC alleges that former Basin Water chief executive officer Peter L. Jensen and former chief financial officer Thomas C. Tekulve, Jr. improperly recognized revenue to disguise the company’s true financial performance in its 2006 and 2007 quarterly and annual reports. The SEC also alleges that Jensen sold and donated his own Basin Water shares before the company’s true financial condition was revealed, reaping millions of dollars in trading profits and tax benefits. Basin Water built, sold, and leased water treatment systems that cleaned contaminated groundwater.
The SEC’s complaint, filed June 24, 2011, alleges that Jensen and Tekulve improperly included revenue from six sales transactions in Basin Water’s financial reports filed with the Commission. The SEC alleges that, depending upon the transaction, the sale was not final; did not have the customer’s required acceptance of the system; allowed the customer to pay nothing until the customer resold the system, even though there was no resale; did not provide enough assurance that the customer would pay for the system; or where the company had not shipped the system. The SEC alleges that as a result Basin Water overstated its 2006 revenues by 13% and its 2007 revenues by 74% and overstated its quarterly 2006 and 2007 revenues by 10% to 161%. The SEC further alleges that, before the company’s true financial condition was revealed, Jensen sold or donated approximately 1.9 million Basin Water shares for over $9.1 million in trading profits and tax deductions.
In February 2009, Basin Water restated its financial results. In July 2009, the Rancho Cucamonga, Calif.-based company declared Chapter 11 bankruptcy and is now defunct.
The SEC’s complaint charges Jensen and Tekulve with violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1, and against Tekulve only, 13b2-2 thereunder. The complaint also alleges control person liability, pursuant to Section 20(a) of the Exchange Act, against Jensen and Tekulve for violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. The complaint further charges Jensen and Tekulve with aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The complaint also alleges that Jensen and Tekulve failed to comply with Section 304 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The complaint seeks against each defendant permanent injunctive relief, an officer and director bar, disgorgement of ill-gotten gains plus prejudgment interest, a financial penalty, and Sarbanes-Oxley Act reimbursement.”