JUDGMENTS ENTERED AGAINST FORMER TRADERS FOR INSIDER TRADING

The following excerpt is from the SEC website: 

"The Securities and Exchange Commission announced today that on January 31, 2012, The Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York, entered judgments against David Plate and Craig Drimal in SEC v. Cutillo et al., 09-CV-9208, an insider trading case the SEC filed on November 5, 2009. The SEC charged Drimal, a former trader who worked out of the offices of Galleon Management, LP, and Plate, a former proprietary trader at the broker-dealer Schottenfeld Group, LLC, with trading on inside information related to corporate acquisitions.

The SEC’s complaint alleged that Arthur Cutillo, a former attorney with the law firm Ropes & Gray LLP, misappropriated from his law firm material, nonpublic information concerning the potential acquisitions, and tipped the inside information, through another attorney, to Zvi Goffer, a proprietary trader at Schottenfeld, in exchange for kickbacks. The complaint further alleged that Goffer tipped the information to a number of individuals, including Drimal and Plate. As alleged in the complaint, Drimal traded on, and tipped, inside information in advance of the announced acquisitions of Avaya Inc. in June 2007, 3Com Corp. in September 2007 and Axcan Pharma Inc. in November 2007, and Plate traded on inside information in advance of the Axcan announcement.

To settle the SEC’s charges, Drimal and Plate each consented to the entry of a final judgment that: (i) permanently enjoins each from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders each to pay disgorgement plus prejudgment interest. The final judgment against Drimal orders disgorgement of $6,711,805, plus prejudgment interest of $970,481. The final judgment against Plate orders disgorgement of $134,983, plus prejudgment interest of $17,460. In related administrative proceedings, Drimal and Plate each consented to the entry of an SEC order barring each from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent, and barring each from participating in any offering of a penny stock. The SEC previously announced the entry of a judgment against Plate in a separate case alleging insider trading in connection with other securities.See SEC v. Galleon, LP, et al., No. 09-CIV-8811 (S.D.N.Y.) (JSR).

In related criminal cases, Drimal and Plate previously pled guilty to charges of securities fraud and conspiracy to commit securities fraud. United States v. Craig Drimal, 10-CR-0056 (S.D.N.Y.) and United States v. David Plate, 10-CR-0056 (S.D.N.Y.). Drimal was sentenced to a five and one-half year prison term and ordered to pay criminal forfeiture of $11,000,000. Plate was sentenced to six months of home confinement and three years probation, and ordered to pay criminal forfeiture of $289,000."

SEC ALLEGES FRIENDS AND FAMILY INVESTMENT FRAUD

The following excerpt is from the SEC website:

“The Securities and Exchange Commission announced today that on January 30, 2012 the Honorable Richard M. Berman of the United States District Court for the Southern District of New York entered a final judgment against defendants Christopher T. Vulliez and Amphor Advisors, LLC. The final judgment imposes a permanent injunction against future violations of the antifraud provisions of the federal securities laws and orders defendants to pay disgorgement.

The Commission’s Complaint alleged that, between March 2010 and January 2011, Vulliez and Amphor misappropriated at least $700,000 from his closest family and friends. According to the complaint, Vulliez made false and misleading statements to his clients that he would invest their funds in a biotech company. Instead, he and Amphor misappropriated the funds. The Complaint charged Vulliez and Amphor with 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 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.

The final judgment permanently enjoins defendants Vulliez and Amphor from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. In addition, the final judgment orders defendants to pay disgorgement, on a joint and several basis, of $820,500. Defendants consented to the entry of the final judgment.

In a related criminal action, on December 7, 2011, Vulliez pled guilty to, inter alia, one count of Scheme to Defraud in the First Degree in violation of Penal Law §190.65(1)(b) and ten counts of Securities Fraud in violation of General Business Law § 352-C(6), before the Supreme Court of the State of New York for the County of New York in The People of the State of New York v. Christopher T. Vulliez, Superior Court Information No. 5556/2011, Docket No. 2011NY087021. Pursuant to a plea agreement, Vulliez will receive a sentence of six months incarceration followed by five years of probation and be ordered to pay restitution in the amount of $2,176,755.48.

Earlier, on August 20, 2011, the Commission filed an Amended Complaint to name Sophie Pachella and EatStrong, LLC as relief defendants. The Amended Complaint alleged that Vulliez diverted a portion of the investor funds that he had misappropriated to EatStrong and Pachella. On August 31, 2011, Judge Berman entered a final judgment that ordered EatStrong and Pachella to pay disgorgement, on a joint and several basis, of $375,000. EatStrong and Pachella consented to the entry of the final judgment.
The Commission acknowledges the assistance provided by the Manhattan District Attorney’s Office.”

SEC SETTLES FICTITIOUS SALES AND SHIPPING DOCUMENTS FRAUD CASE

The following excerpt is from the SEC website:

“On January 30, 2012, the Securities and Exchange Commission filed settled charges against Robert Chiu for aiding and abetting the fraudulent revenue recognition scheme at Syntax-Brillian Corporation (“Syntax”), a developer of high-definition LCD televisions. In addition, on January 12, 2012, Judge Susan R. Bolton of the United States District Court for the District of Arizona entered a default judgment against Thomas Chow, formerly the Chief Procurement Officer and a Director of Syntax. The Court permanently enjoined Chow from future violations of the antifraud, reporting, books and records, internal controls, and misrepresentation to auditor provisions of the federal securities laws, and ordered him to pay disgorgement of $10,370,317.16, prejudgment interest of $2,567,483.64, an insider trading penalty of $30,849,951.48, and a civil penalty of $4,680,000.00 for his role in the financial fraud scheme. Chow was also permanently barred from serving as an officer or director of a publicly traded company.

As alleged in the SEC’s Complaint against Chow, from at least June 2006 through April 2008, Chow and other members of Syntax’s senior management engaged in a complex scheme to overstate Syntax’s revenues and earnings and artificially inflate its stock price. As a result, Syntax reported false and misleading financial statements beginning in the fiscal year ended June 30, 2006, through the fiscal first quarter ended September 30, 2007. The scheme included the creation of fictitious sales and shipping documents and coordinating the circular transfer of funds among and between Syntax, its primary manufacturer in Taiwan, and its purported distributor in Hong Kong.

In its Complaint against Chiu, the SEC alleged that he served as an audit and relationship partner for Syntax’s outside auditor. Specifically, the SEC alleged that Chiu instructed Syntax executives on how to create a backdated distribution agreement to assist them in improperly recognizing revenue in Syntax’s fourth quarter ended June 30, 2006. Additionally, the SEC alleged that after his firm was replaced as Syntax’s auditor, Chiu participated in an engagement for Syntax’s purported distributor, where he learned that it was treating the Syntax sales as agency sales. This treatment was in contrast to Syntax’s treatment of the same sales. Despite his knowledge, Chiu failed to object to his accounting firm’s issuance of multiple consents to the reissuance of its audit opinion to Syntax’s Form 10-K for fiscal year 2007.

Without admitting or denying the allegations in the SEC’s complaint, Chiu consented to the entry of a final judgment permanently enjoining him from aiding and abetting violations of Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder. Chiu also consented to the institution of settled administrative proceedings pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice suspending him from appearing or practicing before the Commission as an accountant, with the right to reapply after five years.
The settlement with Chiu takes into account his substantial cooperation with the Commission’s investigation.

The Commission has previously obtained permanent injunctions against defendants James Li, Roger Kao, Christopher Liu, and Wayne Pratt, and collected total disgorgement of $88,000, prejudgment interest of $17,000, and civil penalties of $290,000. In addition, the Commission obtained officer and director bars against Li, Liu, and Pratt, as well as the entry of an administrative order suspending Pratt from appearing or practicing before the Commission as an accountant with the right to reapply after five years.”

SEC REMARKS ON CHARGES BROUGHT AGAINST CREDIT SUISSE EXECUTIVES

REMARKS BY ROBERT KHUZAMI,  DIRECTOR OF THE SEC DIVISION OF ENFORCEMENT

The following excerpt is from the U.S. Securities and Exchange Commission website:

February 1, 2012
“For the past three years, the SEC has been aggressively pursuing fraudulent conduct related to the financial crisis. We have brought actions against more than 90 individuals and entities, with more than half of them senior officers such as CEOs and CFOs.

Today, we add four more people to the list of individuals that the SEC has charged for conduct stemming from the financial crisis including the former Global Head of Structured Credit Trading for Credit Suisse, Kareem Serageldin.

Serageldin was a high-ranking member of Credit Suisse’s investment bank. He played a critical role in overseeing the bank’s activities in the structuring, marketing and selling of mortgage-backed securities.

And, in the end, he took advantage of his privileged position within the bank to consistently record fictitious profits on his books, or to cover up losses between the fall of 2007 and early 2008.

The Commission’s case today alleges that these defendants – all highly experienced, well-seasoned investment bankers and traders – corrupted the process of recording the fair value of billions of dollars of predominantly residential mortgage-backed securities owned by Credit Suisse.

Known as RMBS, these securities are created by pooling together large groups of mortgages, which can then be marketed and sold to investors or kept in a firm’s trading books.

While these products were complex, the rules were quite simple: tell the truth about the fair value of the securities that you have on your books, a rule that holds true in good markets and in bad.

Indeed, when banks report to the public about their financial health, investors – and the law – demand that the information is accurate.
In this case, defendants spent countless hours manipulating the prices of these RMBS securities to avoid having to disclose a significant decline in value, while trying to avoid marking the bonds in such a way that their scheme would be detected by the bank.

The Complaint reads like a “Greatest Hits” list of mismarking “how-tos.” For example, the defendants:
Used profit and loss targets to reverse engineer the marks on the bonds, rather than basing those marks on the true market price.

Manually overrode the proper marks when they showed more losses than the defendants wanted to take.
Used a friendly broker-dealer to conceal the fraud by sending that friendly broker-dealer a spreadsheet with Credit Suisse’s marks, and rather than testing those marks, the friendly broker-dealer in effect “laundered” those marks by returning them back to Credit Suisse untested – what was, in effect, a “round trip.”
As a result of defendants’ misconduct, Credit Suisse provided investors with information that painted a rosy and ultimately false picture of the fair value of its subprime exposure at a time when other major banks, one after another, had announced significant losses on their subprime exposure.

The evidence, as laid out in our complaint, is based on e-mails and recorded phone conversations, which show these defendants engaged in multiple acts of deception – acts that sought to obscure the devastating decline in the fair value of billions of dollars of subprime mortgage-backed securities they controlled.

Because Credit Suisse taped the phone lines of some of its trading personnel, our complaint is built around real words uttered by real people in the midst of a fraud.
What’s more, these defendants were incredibly knowledgeable about the markets and financial instruments that they repeatedly mispriced.
Yet, at every turn, they disregarded objective market data so that they could, in Serageldin’s own words, send a “message” to the senior-most management of Credit Suisse that they were generating profits.
I want to add that three of the defendants we have charged cooperated in the government’s investigation.

Before I turn it over to Preet Bharara, I want to thank Preet and Janice Fedarcyk, Assistant Director-in-Charge of the FBI’s New York office, and their teams from the U.S. Attorney’s Office and the FBI – in particular Assistant U.S. Attorney Eugene Ingoglia and Virginia Chavez Romano as well as Special Agent Thomas McGuire. Like always, their work was extraordinary and professional.

Lastly, I want to recognize the dedication of the SEC staff that conducted this investigation. Those individuals – who reviewed millions of pages of documents, highly technical trading spreadsheets, and hundreds of hours of recorded calls – are:
Michael Osnato
Michael Paley
Kenneth Gottlieb
Howard Fischer
Kristine Zaleskas
Michael Fioribello”

LOS VEGAS STOCK PROMOTER CONVICTED OF SECURITIES FRAUD

The following excerpt is from the Department of Justice website:

February 1, 2012
“WASHINGTON – The principal of a Costa Rican brokerage firm and a Las Vegas stock promoter were each convicted yesterday in the Southern District of Florida of all charges for their roles in a stock manipulation scheme that defrauded investors, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Chief Postal Inspector Guy Cottrell of the U.S. Postal Inspection Service (USPIS) and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office.

Jonathan Curshen, 47, the principal of Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks, was found guilty of conspiracy to commit securities fraud, wire fraud and mail fraud; two counts of mail fraud; and conspiracy to commit international money laundering.  Nathan Montgomery, 30, a Las Vegas stock promoter, was found guilty of conspiring to commit securities fraud and wire fraud.

The evidence at trial showed that in January and February 2007, Curshen, of Costa Rica and Sarasota, Fla., and Montgomery, of Las Vegas, were involved in a scheme to illegally manipulate the stock price of a company called CO2 Tech (ticker CTTD), which traded on the Pink Sheets, an inter-dealer electronic quotation and trading system.

Evidence at trial showed that Curshen’s and Montgomery’s co-conspirators controlled the outstanding shares of CO2 Tech, which were used in the stock manipulation scheme.  Montgomery and his conspirators engaged in coordinated trades in conjunction with the issuance of false and misleading press releases that were designed to artificially inflate the price of CO2 Tech shares to make it appear that it had significant business prospects.   According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes, when in fact CO2 Tech never had any business or relationship with Boeing.

According to the evidence at trial, Montgomery and his co-conspirators, Robert Weidenbaum, Timothy Barham Jr., Ryan Reynolds and others fraudulently “pumped” the market price and demand for CO2 Tech stock through these press releases and coordinated trades of shares of CO2 Tech stock in order to create the appearance of legitimate buying interest by legitimate investors.  The evidence showed that as Montgomery and his conspirators pumped the price of the stock, Curshen and his conspirators facilitated the “dumping” of shares through the trading desk at Red Sea and Sentry Global Securities by selling the shares at the direction of their conspirators to the general investing public.  The evidence showed that these shares, which became virtually worthless, were purchased by unsuspecting investors, including investors in the Southern District of Florida.  The evidence showed that Montgomery, Weidenbaum, Reynolds and Barham were paid approximately $1 million in cash by their conspirators to participate in sham stock trades of CO2 Tech.  The cash was delivered to Miami via a private jet from an airport outside New York.

The evidence further showed that, from approximately 2003 through 2008, Curshen operated Red Sea as a money laundering hub in Costa Rica that established bank accounts and brokerage accounts in the United States and Canada under false pretenses and through nominee owners.  The evidence further showed that Curshen and his co-conspirators laundered the proceeds of the stock fraud from accounts in the United States to an account in Canada, all in an effort to conceal and disguise the nature and source of the proceeds.
At sentencing, Curshen faces a sentence of up to five years in prison on the conspiracy to defraud count, and up to 20 years on each count of mail fraud and money laundering conspiracy.  Montgomery faces a sentence of up to five years for the conspiracy to defraud count.  The defendants are scheduled to be sentenced by Judge Richard W. Goldberg on May 11, 2012.      
         
Stock promoters Weidenbaum, Barham and Reynolds, who were also charged in this case, previously pleaded guilty to conspiring to commit securities fraud, wire fraud and mail fraud.  They also will be sentenced by Judge Goldberg on May 9, 2012.  Michael Simon Krome, a securities attorney from New York, who participated in the conspiracy and evaded federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free trading” shares of CO2 Tech that were used to execute the stock manipulation, also pleaded guilty to conspiring to commit securities fraud, mail fraud and wire fraud.

The case was investigated by the FBI’s Washington Field Office and the USPIS.  The case is being prosecuted by Trial Attorneys N. Nathan Dimock and Rina Tucker Harris of the Fraud Section in the Justice Department’s Criminal Division.  The U.S. Attorney’s Office for the Southern District of Florida provided significant assistance in this case.  The Department of Justice acknowledges the significant assistance of the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) in its investigation.  The SEC has a pending parallel civil case.  The Criminal Division’s Office of International Affairs and Costa Rican authorities also provided assistance.
This prosecution is part of efforts under way by the Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.”

SEC AGREES TO A SETTLEMENT IN ALLEGED BOOK-COOKING CASE AGAINST BRITISH BASED FIRM

The following excerpt is from the SEC website:

January 30, 2012
“The Securities and Exchange Commission today announced four enforcement actions arising from an alleged financial fraud spanning several years at a British subsidiary of the NYSE-listed Symmetry Medical, Inc. (“Symmetry”).

First, the Commission announced today that it has filed and, subject to Court approval, simultaneously settled charges against Richard J. Senior, Matthew Bell, Lynne Norman and Shaun P. Whiteley arising from the alleged financial fraud. According to the Commission’s Complaint, the fraud was orchestrated and carried out by senior executives and accounting staff of the Sheffield, England-based Symmetry Medical Sheffield LTD, f/k/a Thornton Precision Components, Limited (hereinafter “TPC”), particularly by Senior, Bell, Norman and Whiteley, who were, respectively, Symmetry’s VP for European Operations, TPC’s Finance Director, TPC’s Controller and a TPC Management Accountant. According to the Complaint, the fraud involved the systematic understatement of expenses and overstatement of assets and revenues, and materially distorted the financial statements of the Indiana-headquartered Symmetry, into which TPC’s financials were consolidated, for a period running from Symmetry’s December 2004 initial public offering through its second fiscal quarter of 2007. The Complaint further alleges that during the fraud, Senior, Bell and Norman made false certifications as to the accuracy of the financial information reported to Symmetry by TPC, and lied to TPC’s outside auditors. Finally, the Complaint alleges that Senior and Bell sold Symmetry stock during the fraud, at prices each knew or recklessly disregarded were inflated by the fraud at TPC.

According to the Complaint, by their conduct, Senior, Bell, Norman and Whiteley violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Symmetry’s violation of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Rules 12b-20, 13a-1 and 13a-13 thereunder; Senior and Bell also violated Section 17(a) of the Securities Act of 1933; and Senior, Bell and Norman also violated Exchange Act Rule 13b2-2. The four defendants’ signed Consents—which are subject to approval by the Court—provide that, without admitting or denying the Commission’s allegations, defendants Senior, Bell and Norman would be barred from serving as an officer or director of any public company. (Additionally, Bell, Norman and Whiteley each consented to be permanently barred, in follow-on administrative proceedings, from appearing or practicing before the Commission as accountants.) The final judgment to which Bell consented further orders that he is liable for disgorgement of $136,209 together with $50,728 in prejudgment interest thereon, but, based on his sworn financial statements and supporting documentation, waives payment of disgorgement and prejudgment interest; and the judgment to which Senior consented defers resolution of the monetary portion of his case pending the completion of asset discovery, with which Senior would be ordered to cooperate. Each defendant would also be permanently enjoined against future violations of the statutes and rules each is alleged to have violated.

The Commission also announced that it has filed, and, subject to Court approval, simultaneously settled, a civil action against Symmetry’s former CEO, Brian S. Moore, seeking reimbursement for bonuses and other incentive-based and equity-based compensation pursuant Section 304 of the Sarbanes-Oxley Act of 2002. The Commission’s Complaint alleges that Symmetry was required to restate its annual financial statements for 2005 and 2006, as well as other reporting periods, as a result of misconduct in the reporting of TPC’s financials. The Complaint further alleges that Moore received from Symmetry bonuses and incentive-based and equity-based compensation, and realized profits from the sale of Symmetry stock, during the 12-month periods following the restated financials, but has made no reimbursement thereof. The Complaint does not allege that Moore engaged in the fraud. Moore’s signed Consent—which is subject to approval by the Court—provides that, without admitting or denying the Commission’s allegations, Moore would agree to issuance of a Final Judgment ordering him make reimbursement of $450,000 to Symmetry.

The Commission further announced that, separately, it has instituted and simultaneously settled administrative proceedings against two Associate Chartered Accountants in the United Kingdom, Christopher J. Kelly and Margaret Hebb née Whyte, who were the former audit partner and audit manager, respectively, on Ernst & Young UK LLP’s audits of TPC for the 2004 through 2006 fiscal years (in the case of Kelly) and for the 2005 and 2006 fiscal years (in the case of Hebb). Kelly and Hebb consented to issuance of the Commission’s Order and the sanctions it imposed, without admitting or denying the Order’s findings. The Order found that both Kelly and Hebb engaged in improper professional conduct by, among other things, failing to properly audit TPC’s accounts receivable balances and inventory. Based on these findings, the Order suspended both Kelly and Hebb from appearing or practicing before the Commission as accountants, with the opportunity to seek reinstatement after two years. See Matter of Christopher J. Kelly, ACA and Margaret Hebb, ACA, Admin. Proc. File No. 3-____ (Jan. 30, 2012)

Finally, the Commission further announced that, separately, it has instituted and simultaneously settled administrative proceedings against Symmetry and its CFO, Fred L. Hite. Symmetry and Hite consented to issuance of the Commission’s Order and the sanctions it imposed, without admitting or denying the Order’s findings. With respect to Symmetry, the Order found that, as a result of the fraud at TPC, Symmetry (i) filed periodic reports with the Commission that included materially false and misleading financial statements in violation of Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13 and (ii) maintained materially inaccurate books, records and accounts in violation of Exchange Act Section 13(b)(2)(a); and that Symmetry also failed to devise and maintain effective internal accounting controls in violation of Exchange Act Section 13(b)(2)(B). With respect to Hite, the Order found that by failing to provide an internal audit status report concerning TPC to Symmetry’s Audit Committee in July 2006, Hite violated Exchange Act Section 13(b)(5) and was a cause of Symmetry’s violation of Exchange Act Section 13(b)(2)(B); and that by failing to reimburse Symmetry for bonuses, incentive- and equity-based compensation, and Symmetry stock-sale proceeds he received during periods embraced by Symmetry’s restatement, Hite violated Section 304 of the Sarbanes-Oxley Act. Based on the foregoing findings, the Commission ordered Symmetry and Hite to cease-and-desist from committing or causing future violations of the relevant provisions, and ordered Hite to pay a $25,000 penalty and make reimbursement of $185,000 to Symmetry. “