JURY FINDS TWO FORMER INFOUSA, INC CFO'S LIABLE FOR ALL CLAIMS

The following excerpt is from the SEC website:

“March 6, 2012
JURY RETURNS VERDICT OF LIABILITY ON ALL CLAIMS AGAINST TWO FORMER CFO’S OF INFOUSA, INC, RAJNISH K. DAS AND STORMY L. DEAN
The U.S. Securities and Exchange Commission announced today that on March 1, 2012, a jury in Omaha, Nebraska returned a verdict of liability on all claims against former chief financial officers Rajnish K. Das and Stormy L. Dean. Das and Dean were former executives of infoUSA, Inc., a database marketing company headquartered in Omaha, Nebraska. The trial was presided over by U.S. District Judge Laurie Smith Camp. In its complaint, the Commission charged Das and Dean with violations of Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934; Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9 thereunder; and aiding and abetting violations of Exchange Act Sections 13(a) and 13(b)(2), and Rules 12b-20, 13a-1, and 13a-13 thereunder. At the trial, the Commission argued that Das and Dean assisted former chief executive officer Vinod Gupta in looting infoUSA, Inc. by authorizing Gupta’s use of company funds to pay for his lavish lifestyle. The Commission argued that Gupta used company funds to pay for his personal expenses including private jet flights, yacht expenses, private club memberships, credit card expenses, and expenses associated with his homes and cars. The Commission argued that Das and Dean signed and certified Info’s false public filings which underreported Gupta’s executive compensation and related party transactions. After the 10-day trial, the jury deliberated for approximately two hours before rendering its verdict. The Commission expects to file a motion for injunctive and other remedial relief based upon the jury’s verdict“.

FORMER FDA CHEMIST GOES TO PRISON FOR INSIDER TRADING

The following excerpt  is from the Department of Justice website:

Monday, March 5, 2012
“Former FDA Chemist Sentenced to 60 Months in Prison for Insider Trading
WASHINGTON – Cheng Yi Liang, a former Food and Drug Administration (FDA) chemist from Gaithersburg, Md., was sentenced today to 60 months in prison for engaging in insider trading on multiple occasions based on material, non-public information he obtained in his capacity as an FDA scientist.  Liang was previously ordered to forfeit $3.7 million representing the proceeds of the insider trading scheme.

The sentence was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney for the District of Maryland Rod J. Rosenstein; James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office; and Elton Malone, Special Agent in Charge, Department of Health and Human Services, Office of the Inspector General (HHS-OIG), Office of Investigations, Specials Investigations Branch.

“Taking advantage of his special access as a chemist at the FDA, Mr. Liang used sensitive inside information to reap illegal profits in the pharmaceutical securities market,” said Assistant Attorney General Breuer.  “For years, he exploited his position in the agency to make easy money on the stock market.  But today’s sentence shows that easy money has consequences.  Investors engage in insider trading at their peril.”

 “Cheng Yi Liang bought and sold stocks based on non-public information, and he tried to conceal his crimes by using the names of friends and relatives,” said U.S. Attorney Rosenstein.  “Mr. Liang violated his duty of loyalty to the FDA and profited from inside information.”

“Liang brazenly sought to profit based on sensitive, insider information.  What he didn’t know is that investigators have been utilizing sophisticated technical tools to identify and track criminal behavior,” said Special Agent in Charge Malone of HHS-OIG.  “We will continue to insist that federal government employee conduct be held to the highest of standards.”

“Mr. Liang breached the trust of his employment by obtaining sensitive information and using it for his own profit,” said Assistant Director in Charge McJunkin.  “Together with our partner agencies, the FBI will continue to pursue and hold accountable those who perpetrate such financial crimes, as we work to protect American taxpayers and our financial markets.”

Liang, 58, was sentenced by U.S. District Judge Deborah K. Chasanow in the District of Maryland.  He pleaded guilty on Oct. 18, 2011, to one count of securities fraud and one count of making false statements.

According to court documents, Liang had been employed as a chemist since 1996 at the FDA’s Office of New Drug Quality Assessment (NDQA).  Through his work at NDQA, Liang had access to the FDA’s password protected internal tracking system for new drug applications, known as the Document Archiving, Reporting and Regulatory Tracking (DARRTS) system.  FDA uses DARRTS to manage, track, receive and report on new drug applications.  Liang reviewed DARRTS for information relating to the progression of experimental drugs through the FDA approval process.  Much of the information accessible on the DARRTS system constituted material, non-public information regarding the pharmaceutical companies that had submitted their experimental drugs to the FDA for review.

In his plea, Liang admitted that between in or about July 2006 and in or about March 2011, using material, non-public information from DARRTS and other sources, he traded in the securities of pharmaceutical companies in violation of the duties of trust and confidence he owed the FDA.  Liang utilized accounts of relatives and acquaintances, including his son, to execute the trades.  When the FDA insider information about a company’s product was positive, Liang purchased securities through the accounts he controlled.  When the FDA insider information was negative, Liang would sell short a company’s stock.  After the FDA’s action with respect to a drug was made public, Liang executed trades to profit from the change in the company’s share price as a result of the FDA announcement, resulting in total profits gained and losses avoided of $3,776,152.

During the time he was employed by the FDA, Liang was required to file a confidential financial disclosure form, disclosing, among other things, investment assets with a value greater than $1,000 and sources of income greater than $200.  During the time period of his insider trading scheme, Liang annually filed these forms and failed to disclose using various brokerage accounts under his control or his income from the illicit securities trading.   For example, on Feb. 16, 2010, Liang signed and submitted the 2010 confidential financial disclosure form, failing to disclose that during 2009 he earned approximately $1,040,000 from trading on material, non-public information obtained from the FDA.

In related actions, the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS) filed a civil complaint in the District of Maryland for forfeiture of proceeds related to the insider trading scheme.  To date, the government has obtained over $1 million through the civil forfeiture of nine bank and brokerage accounts.  The forfeiture of two real properties – a house and a condominium in Montgomery County, Md. – is still pending.  Liang previously consented to the entry of final judgment as to the U.S. Securities and Exchange Commission’s (SEC) civil enforcement action against him, also in the District of Maryland.

This case is being prosecuted by Trial Attorneys Kevin Muhlendorf and Thomas Hall of the Criminal Division’s Fraud Section, Assistant U.S. Attorney David Salem for the District of Maryland, and AFMLS Senior Trial Attorney Pamela J. Hicks and Trial Attorney Jennifer Ambuehl.  The case was investigated by the FBI’s Washington Field Office and the HHS-OIG. The department acknowledges the substantial assistance of the SEC, in particular its Market Abuse Unit, which referred the matter to the Criminal Division’s Fraud Section.

This prosecution is part of efforts underway by President Barack Obama’s 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.”

FORMER CEO BROOKSTREET SECURITIES CORP. ORDER TO PAY $10 MILLION FOR SECURITIES FRAUD

The following excerpt is from the SEC website: 

"Washington, D.C., March 2, 2012 — The Securities and Exchange Commission today announced that a federal judge has ordered the former CEO of Brookstreet Securities Corp. to pay a maximum $10 million penalty in a securities fraud case related to the financial crisis.

The SEC litigated the case beginning in December 2009, when the agency charged Stanley C. Brooks and Brookstreet with fraud for systematically selling risky mortgage-backed securities to customers with conservative investment goals. Brookstreet and Brooks developed a program through which the firm’s registered representatives sold particularly risky and illiquid types of Collateralized Mortgage Obligations (CMOs) to more than 1,000 seniors, retirees, and others for whom the securities were unsuitable. Brookstreet and Brooks continued to promote and sell the risky CMOs even after Brooks received numerous warnings that these were dangerous investments that could become worthless overnight. The fraud caused severe investor losses and eventually caused the firm to collapse.

The Honorable David O. Carter in federal court in Los Angeles granted summary judgment in favor of the SEC on February 23, finding Brookstreet and Brooks liable for violating Section 10(b) of the Securities Exchange Act of 1934 as well as Rule 10b-5. The judge entered a final judgment in the case yesterday and ordered the financial penalty sought by the SEC.

“Brooks’ aggressive promotion and sale of risky mortgage products to seniors and other risk-averse investors deserves the maximum penalty possible, and that is what he got,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Those who direct such exploitative practices from the boardroom will be held personally accountable and face severe consequences for their egregious actions.”

Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office, added, “The CMOs that Brookstreet sold its customers were among the most risky of all mortgage-backed securities. This judgment highlights the responsibility of brokerage firm principals to ensure the suitability of the securities they sell to customers.”

In addition to the $10,010,000 penalty, Brooks was ordered to pay $110,713.31 in disgorgement and prejudgment interest. The court’s judgment also enjoins both Brookstreet and Brooks from violating Section 10(b) of the Exchange Act as well as Rule 10b-5.

The SEC is awaiting a court decision in a separate Brookstreet-related enforcement action filed in federal court in Florida. In that case, the SEC charged 10 former Brookstreet registered representatives with making misrepresentations to investors in the purchases and sales of risky CMOs. Two representatives settled the charges, and the SEC tried the case against the remaining eight representatives in October 2011.

The SEC has brought enforcement actions stemming from the financial crisis against 95 entities and individuals, including 49 CEOs, CFOs, and other senior officers.

KAZAKHSTANI NATIONAL PLEADS GUILTY TO "HACK AND DUMP" SCHEME

The following excerpt is from the Department of Justice website:

Friday, March 2, 2012
“WASHINGTON – Alexey Li, 21, a citizen of Kazakhstan who entered the United States on a student visa, pleaded guilty today before U.S. District Judge Ewing Werlein, Jr. to aiding and abetting money laundering, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Kenneth Magidson for the Southern District of Texas.

Li and three co-conspirators were charged in an indictment filed in the Southern District of Texas and unsealed in December 2011.

According to court documents, Li agreed to launder funds generated in a sophisticated “hack and dump” stock scheme that caused more than $400,000 in losses.  The indictment charges that Li’s co-conspirators illegally accessed brokerage accounts to engage in a stock fraud scheme in which the compromised accounts were used to purchase borrowed shares of stock at above-market prices from the defendants’ personal brokerage accounts.  Li’s co-conspiratorsthen repurchased the borrowed shares at the considerably lower market price, returned the borrowed shares to the stock lender and claimed as profit the difference between the market price and the inflated price paid by the compromised victim accounts.

At sentencing, Li will face a maximum penalty of 10 years in prison and a $250,000 fine.

This case was investigated by the FBI.  The case is being prosecuted by Trial Attorney Ethan Arenson of the Computer Crime and Intellectual Property Section in the Justice Department’s Criminal Division and Assistant U.S. Attorney Mark McIntyre of the Southern District of Texas.

Criminal indictments are only charges and are not evidence of guilt.  All defendants are presumed innocent until and unless proven guilty by proof beyond a reasonable doubt in a court of law.”

COURT ENTERS SUMMARY JUDGEMENT AGAINST INSIDE TRADERS JOHN AND MARLEEN JANTZEN

The following excerpt is from the SEC website:

March 1, 2012
“On Wednesday, February 29, 2012, United States District Judge James R. Nowlin of the Western District of Texas, Austin Division, entered summary judgment against Austin residents Marleen Jantzen, a former assistant to an executive at Dell, Inc., and husband John Jantzen, a Commission-registered securities broker. The Commission previously charged the Jantzens with insider trading in connection with a September 21, 2009 public announcement that Dell would acquire Perot Systems, Corp. in a tender offer transaction.
The Court found that both Jantzens insider traded in violation of Sections 10(b) and 14(e) of the Exchange Act, and Rules 10b-5 and 14e-3(a) thereunder, and that Marleen Jantzen also violated Exchange Act Rule 14e-3(d). The Court enjoined the Jantzens from future violations of those provisions and ordered them to pay disgorgement of $26,920.50, representing profits gained as a result of the illegal insider trading, plus prejudgment interest. The Court deferred a final ruling on the Commission’s request for monetary penalties, pending submission of further briefing by the parties.

In granting this relief, the Court specifically found that “Marleen tipped John and took unprecedented and persistent action to ensure that they were able to maximize their informational advantage.” The Court also found that the evidence showed “a high degree of scienter, particularly with regard to John, who as a licensed securities broker certainly knew what he was doing.”

The Commission’s complaint, filed on October 5, 2010, alleged that Marleen Jantzen learned through an internal Dell email material, nonpublic information regarding Dell’s impending tender offer for the shares of Perot Systems, Inc., and thereafter tipped her husband to the inside information. The Court found that on September 18, 2009, the last trading day before the tender offer announcement, Marleen Jantzen made a highly unusual cash transfer to the couples’ joint brokerage account. Within minutes of this transfer, John Jantzen bought Perot Systems call options and stock and Dell securities in the joint account—in total, purchasing 500 shares of Perot Systems common stock and 24 Perot Systems call option contracts.

On September 21, 2009, Dell and Perot Systems jointly announced the tender offer for Perot Systems’ shares. The stock price immediately rose from $17.91 to $29.56, or approximately 65% from the prior day’s closing price. When John Jantzen cashed out that day, the couple reaped one-day trading profits of $26,920.50“.

OP-ED TEXT ON WALL STREET REFORMS BY U.S. TREASURY SECRETARY TIM GEITHNER

The following excerpt is from a Department of the Treasury e-mail:

 You are subscribed to Wall Street Reform for U.S. Department of the Treasury.
Geithner Op-Ed: ‘Financial Crisis Amnesia’

  "WASHINGTON – In an op-ed to be published in the March 2, 2012 edition of the Wall Street Journal, Treasury Secretary Tim Geithner discusses the perils of financial crisis amnesia, contrasting the terrible costs of crisis with the complaints of those attempting to weaken or repeal crucial Wall Street reforms.

 The full text of the piece follows. Financial Crisis Amnesia By Tim Geithner

My wife looks up from the newspaper with bewilderment at another story about people in the financial world or their lobbyists complaining about Wall Street reform. Four years ago, on an evening in March 2008, I received a call from the CEO of Bear Stearns informing me that they planned to file for bankruptcy in the morning. Bear Stearns was the smallest of the major Wall Street institutions, but it was deeply entwined in financial markets and had the perfect mix of vulnerabilities. It took on too much risk. It relied on billions of dollars of risky short-term financing. And it held thousands of derivative contracts with thousands of companies. These weaknesses made Bear Stearns the most important initial casualty in what would become the worst financial crisis since the Great Depression. But as we saw in the summer and fall of 2008, these weaknesses were not unique to that firm. In the spring of 2008, more Americans were starting to face higher mortgage payments as teaser interest rates reset and they could no longer refinance out of them because the value of their homes stopped rising—the leading edge of a wave of foreclosures and a terrible fall in house prices. By the time Bear Stearns failed, the recession was then already several months old, but it would of course get much worse in coming months. These problems were partly the result of amnesia. There was no memory of extreme crisis, no memory of what can happen when a nation allows huge amounts of risk to build up outside of the safeguards all economies require. When the CEO of Bear Stearns called that night, it was not because I was his firm's supervisor or regulator, but because I was then the head of the Federal Reserve Bank of New York, which serves as the fire department for the financial system. The financial safeguards in the law at that moment were tragically antiquated and weak. Neither the Fed, nor any other federal agency, had the necessary comprehensive authority over investment firms like Bear Stearns, insurance companies like AIG, or the government-sponsored mortgage giants Fannie Mae and Freddie Mac. Regulators did not have the authority they needed to oversee and impose prudent limits on overall risk and leverage on large nonbank financial institutions. And they had no authority to put these firms, or bank holding companies, through a managed bankruptcy that wound them down in an orderly way or to otherwise adequately contain the damage caused by their failure. The safeguards on banks were much tougher than those applied to any other part of the financial system, but even those provisions were not conservative enough. A large shadow banking system had developed without meaningful regulation, using trillions of dollars in short-term debt to fund inherently risky financial activity. The derivatives markets grew to more than $600 trillion, with little transparency or oversight. Household debt rose to an alarming 130% of income, with a huge portion of those loans originated with little to no supervision and poor consumer protections. The failure to modernize the financial oversight system sooner is the most important reason why this crisis was more severe than any since the Great Depression, and why it was so hard to put out the fires of the crisis. The failure to reform sooner is why the crisis caused gross domestic product to fall at an annual rate of 9% in the last quarter of 2008; why millions of Americans lost their jobs, homes, businesses and savings; why the housing market is still so far from recovery; and why our national debt has grown so significantly. For all these reasons, President Obama asked Congress to pass tough reforms quickly, before the memory of the crisis faded. The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by the president on July 21, 2010, put in place safer and more modern rules of the road for the financial industry. Yet only four years after the financial crisis began to unfold, some people seem to be suffering from amnesia about how close America came to complete financial collapse under the outdated regulatory system we had before Wall Street reform. Remember the crisis when you hear complaints about financial reform—complaints about limits on risk-taking or requirements for transparency and disclosure. Remember the crisis when you read about the hundreds of millions of dollars now being spent on lobbyists trying to weaken or repeal financial reform. Remember the crisis when you recall the dozens of editorials and columns against reform published on the opinion pages of this newspaper over the past three years. Are the costs of reform too high? Certainly not relative to the costs of another financial crisis. Credit is relatively inexpensive and growing across most of the U.S. financial system, although it is still tight for some borrowers. If the costs of reform were a material drag on credit growth, then loans to businesses would not have grown faster than the overall economy since the law passed and its implementation began. Are these reforms complex? No more complex than the problems they are designed to solve. And, it should be noted, most of the length and complexity in the rules is the result of the care required to target safeguards where they are needed, not where they would have a damaging effect. Is there some risk that these reforms will go too far with unintended consequences? That depends on the quality of judgment of regulators in the coming months as they flesh out the remaining reforms. But our system provides considerable protection against that risk, with the rules subject to long periods of public comment and analysis and with room in the law to get the balance right. The greater error would be for Congress or the regulators, under tremendous pressure from lobbyists, to once again exempt large swaths of the financial industry from rules against abuse. These reforms are not perfect, and they will not prevent all future financial crises. But if these reforms had been in place a decade ago, then the rise in debt and leverage would have been less dangerous, consumers would not have been nearly as vulnerable to predation and abuse, and the government would have been able to limit the damage that a financial crisis could have on the broader economy. President Obama, along with Sen. Chris Dodd and Rep. Barney Frank, deserves enormous credit for pushing for tough reforms quickly. My wife occasionally looks up from the newspaper with bewilderment while reading another story about people in the financial world or their lobbyists complaining about Wall Street reform or claiming they didn't need the Troubled Asset Relief Program. She reminds me of the panicked calls she answered for me at home late at night or early in the morning in 2008 from the then-giants of our financial system. We cannot afford to forget the lessons of the crisis and the damage it caused to millions of Americans. Amnesia is what causes financial crises. These reforms are worth fighting to preserve.”
 Mr. Geithner is secretary of the U.S. Treasury.