FORMER CFO TBW PLEADS GUILTY TO FRAUD

The following excerpt is from the Department of Justice website:
Tuesday, March 20, 2012
WASHINGTON – Delton de Armas, a former chief financial officer (CFO) of Taylor, Bean & Whitaker Mortgage Corp. (TBW), pleaded guilty today to making false statements and conspiring to commit bank and wire fraud for his role in a more than $2.9 billion fraud scheme that contributed to the failures of TBW and Colonial Bank.

 The guilty plea was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Christy Romero, Deputy Special Inspector General, Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; David A. Montoya, Inspector General of the Department of Housing and Urban Development (HUD-OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA-OIG); and Rick A. Raven, Acting Chief of the Internal Revenue Service Criminal Investigation (IRS-CI).

De Armas, 41, of Carrollton, Texas, pleaded guilty before U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.  De Armas faces a maximum penalty of 10 years in prison when he is sentenced on June 15, 2012.

“As TBW’s chief financial officer, Mr. de Armas concealed a massive $1.5 billion deficit in TBW’s funding facility and another large deficit on TBW’s books,” said Assistant Attorney General Breuer.  “He tried to conceal the gaping holes by falsifying financial statements and lying to investors as well as the government.  Ultimately, Mr. de Armas’ criminal conduct, along with that of his co-conspirators, contributed to the collapse of TBW and Colonial Bank.  With today’s guilty plea, Mr. de Armas joins seven other defendants – including the former chairman of TBW Lee Bentley Farkas – who have been convicted of participating in this massive fraudulent scheme.”

“When Mr. de Armas learned of a hole in Ocala Funding’s assets, he used his position as CFO to cover it up and mislead investors,” said U.S. Attorney MacBride.  “Today’s plea is the eighth conviction in one of the nation’s largest bank frauds in history.  As CFO, Mr. de Armas could have put a stop to the fraud the moment he discovered it.  Instead, the hole in Ocala Funding grew to $1.5 billion on his watch, and as it grew, so did his lies to investors and the government.”

According to court documents, de Armas joined TBW in 2000 as its CFO and reported directly to its chairman, Lee Bentley Farkas, and later to its CEO, Paul Allen.  He admitted in court that from 2005 through August 2009, he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a wholly-owned lending facility called Ocala Funding.  Ocala Funding obtained funds for mortgage lending for TBW from the sale of asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas. The facility was managed by TBW and had no employees of its own.

According to court records, shortly after Ocala Funding was established, de Armas learned there were inadequate assets backing its commercial paper, a deficiency referred to internally at TBW as a “hole” in Ocala Funding.  De Armas knew that the hole grew over time to more than $700 million.  He learned from the CEO that the hole was more than $1.5 billion at the time of TBW’s collapse.  De Armas admitted he was aware that, in an effort to cover up the hole and mislead investors, a subordinate who reported to him had falsified Ocala Funding collateral reports and periodically sent the falsified reports to financial institution investors in Ocala Funding and to other third parties.  De Armas acknowledged that he and the CEO also deceived investors by providing them with a false explanation for the hole in Ocala Funding.

De Armas also admitted in court that he directed a subordinate to inflate an account receivable balance for loan participations in TBW’s financial statements.  De Armas acknowledged that he knew that the falsified financial statements were subsequently provided to Ginnie Mae and Freddie Mac for their determination on the renewal of TBW’s authority to sell and service securities issued by them.

In addition, de Armas admitted in court to aiding and abetting false statements in a letter the CEO sent to the U.S. Department of Housing and Urban Development, through Ginnie Mae, regarding TBW’s audited financial statements for the fiscal year ending on March 31, 2009.  De Armas reviewed and edited the letter, knowing it contained material omissions.  The letter omitted that the delay in submitting the financial data was caused by concerns its independent auditor had raised about the financing relationship between TBW and Colonial Bank and its request that TBW retain a law firm to conduct an internal investigation.  Instead, the letter falsely attributed the delay to a new acquisition and TBW’s switch to a compressed 11-month fiscal year.

“With our nation in a housing crisis, de Armas, as chief financial officer of TBW, one of the country’s largest mortgage lenders, papered over a gaping hole in the balance sheet of TBW subsidiary Ocala Funding and lied to regulators and investors to cover it up,” said Deputy Special Inspector General Romero for SIGTARP.  “The fraud provided cover to others at TBW to misappropriate more than $1 billion in Ocala funds and sell fraudulent, worthless securities to conspirators at Colonial BancGroup.  SIGTARP and its law enforcement partners stopped $553 million in TARP funds from being lost to this fraud and brought accountability and justice that the American taxpayers deserve.”
“Mr. de Armas has admitted that, during his tenure at TBW, he purposefully misled investors in a massive scheme to defraud financial institutions,” said FBI Assistant Director in Charge McJunkin.  “The actions of Mr. de Armas and his co-conspirators contributed to the financial crisis and led to the collapse of one of the country’s largest commercial banks.  The FBI and our partners remain vigilant in investigating such fraudulent activity in our banking and mortgage industries.”

“The guilty plea of Mr. de Armas is one small measure in our continued efforts to restore the trust and confidence of the general public and of investors in our financial system,” said HUD Inspector General Montoya.  “In response to the many recent articles of mortgage fraud and misconduct, the mortgage industry needs to do much to rethink their values and their idea of client service in order to help rebuild a stronger economy and to restore the confidence of American homeowners.”

“The Federal Deposit Insurance Corporation Office of Inspector General is pleased to have played a role in bringing to justice yet another senior official in a position of trust who was involved in one of the biggest and most complex bank fraud schemes of our time,” said FDIC Inspector General Rymer.  “The former chief financial officer of Taylor, Bean & Whitaker is the latest participant who will be held accountable for seeking to undermine the integrity of the financial services industry.  Even as the financial and economic crisis seems to be easing, we reaffirm our commitment to ensuring that those contributing to the failures of financial institutions and corresponding losses to the Deposit Insurance Fund will be punished to the fullest extent of the law.”
“Mr. de Armas and his colleagues committed an egregious crime,” said FHFA Inspector General Linick.  “FHFA-OIG is proud to be part of the team that continues to protect American taxpayers.”

In April 2011, a jury in the Eastern District of Virginia found Lee Bentley Farkas, the chairman of TBW, guilty of 14 counts of conspiracy, bank, securities and wire fraud.  On June 30, 2011, Judge Brinkema sentenced Farkas to 30 years in prison.  In addition, six individuals have pleaded guilty for their roles in the fraud scheme, including: Paul Allen, former chief executive officer of TBW, who was sentenced to 40 months in prison; Raymond Bowman, former president of TBW, who was sentenced to 30 months in prison; Desiree Brown, former treasurer of TBW, who was sentenced to six years in prison; Catherine Kissick, former senior vice president of Colonial Bank and head of its Mortgage Warehouse Lending Division (MWLD), who was sentenced to eight years in prison; Teresa Kelly, former operations supervisor for Colonial Bank’s MWLD, who was sentenced to three months in prison; and Sean Ragland, a former senior financial analyst at TBW, who was sentenced to three months in prison.

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia.  This case was investigated by SIGTARP, FBI’s Washington Field Office, FDIC-OIG, HUD-OIG, FHFA-OIG and IRS-CI.  The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury also provided support in the investigation.  The Department would also like to acknowledge the substantial assistance of the U.S. Securities and Exchange Commission in the investigation of the fraud scheme.

COURT ORDERS TWO OFFICERS OF UNITED AMERICAN VENTURES TO PAY $1 MILLION PENALTIES AND $8.5 MILLION IN DISGORGEMENT IN SEC CASE

The following excerpt is from the U.S. Securities and Exchange Commission website:
March 13, 2012
The U.S. Securities and Exchange Commission announced today that a federal judge has ordered two current and former officers of United American Ventures, LLC to pay a total of $2 million in civil penalties and to disgorge over $8.5 million in ill-gotten profits in a securities fraud case.

The SEC litigated the case beginning in June 14, 2010 when the agency charged Eric J. Hollowell of Newport Beach, California, Philip Lee David Jack Thomas of Irvine, California, Matthew A. Dies of Corona, California, Anthony J. Oliva of Placitas, New Mexico, and United American Ventures, LLC, and Integra Investment Group, LLC with securities fraud. The complaint alleged that United American Ventures, LLC, which is also known as UAV, raised $10 million from at least 100 investors through the unregistered and fraudulent sale of convertible bonds. According to the complaint, Hollowell and Thomas founded UAV, with Hollowell acting as the company’s president from 2006 until 2009, when Thomas took over as president of the company.

The Honorable Judith C. Herrara in federal court in New Mexico granted judgment in favor of the SEC on March 2, 2012, finding Hollowell, Thomas, and United American Ventures, LLC jointly liable for disgorgement of $8,652,942 and prejudgment interest of $426,430. The court also assessed civil penalties of $1,000,000 each against Hollowell and Thomas. The court had previously enjoined Hollowell and Thomas from violating Section 10(b) of the Securities Exchange Act of 1934 as well as other provisions of federal securities laws.

The court also granted judgment in favor of the SEC finding Oliva and Integra Investment Group, LLC jointly liable for $284,039 in disgorgement, and Dies liable for $54,381 in disgorgement. It assessed a $130,000 civil penalty against Oliva and a $54,381 penalty against Dies.

SEC BRINGS CHARGES IN CONNECTION WITH SECONDARY MARKET TRADING OF PRIVATE COMPANY SHARES

The following excerpt is from the SEC website:
March 14, 2012
The Securities and Exchange Commission today charged a New York City area fund manager with misleading investors and pocketing undisclosed commissions in connection with several pooled investment vehicles he operated.

The SEC alleges that Mazzola, who lives in Upper Saddle River, N.J., and his firms Felix Investments, LLC, and Facie Libre Management Associates, LLC, created two funds to buy securities of Facebook and other high profile technology companies. However, Mazzola and his firms engaged in improper self-dealing – earning secret commissions above the 5 percent disclosed in offering materials on the funds’ acquisition of Facebook stock and on re-sales of fund interests to new investors. The hidden charges essentially raised the prices paid by their investors for Facebook stock because it created a disincentive for Mazzola and his firms to negotiate a lower price for fund investors. They also sold Facie Libre fund interests despite knowing the funds lacked ownership of certain Facebook shares.

According to the SEC’s complaint filed in federal court in San Francisco, Mazzola and his firms also made false statements to investors in other funds they created to invest in various pre-IPO companies. For instance, they misled one investor into believing a Felix fund had successfully acquired stock of Zynga. They also made false representations about Twitter’s revenue to attract investors to their Twitter fund.

The SEC’s lawsuit charges Mazzola, Felix Investments, and Facie Libre Management Associates with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) thereunder. It also charges Mazzola and Facie Libre Management Associates with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The Commission seeks court orders prohibiting them from engaging in securities fraud and requiring them to disgorge their ill-gotten gains and pay financial penalties.

Separately, the Commission initiated a settled administrative proceeding against Laurence Albukerk and his company EB Financial Group LLC, for failing to disclose in their offering materials certain compensation they earned in connection with two Facebook funds they managed. Without admitting or denying the SEC’s findings, Albukerk and EB Financial consented to entry of a SEC order finding that they violated Section 17(a)(2) of the Securities Act and Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. Albukerk and EB Financial also agreed to pay disgorgement and prejudgment interest of $210,499 and a penalty of $100,000.

The Commission also initiated a settled administrative proceeding against SharesPost, Inc., an online platform that facilitated certain secondary market transactions, and its CEO, Greg Brogger, for effecting securities transactions without registering as a broker-dealer. SharesPost and Brogger consented to an SEC order finding that SharesPost committed and Brogger caused a violation of Section 15(a) of the Exchange Act of 1934. They agreed to pay penalties of $80,000 and $20,000 respectively.

OWNER, EXECUTIVES AND BCI AIRCRAFT LEASING INC., ALL CONVICTED OF FRAUD

The following excerpt is from the Securities and Exchange Commission website:
March 20, 2012
The Securities and Exchange Commission (“Commission”) announced that on March 14, 2012, a federal jury convicted Brian Hollnagel and BCI Aircraft Leasing Inc. on seven criminal counts, including fraud and obstruction charges for engaging in a fraudulent financing scheme that raised more than $50 million from investors and lenders. Brian Hollnagel, 38, of Chicago, the owner, president, and chief executive officer of BCI Aircraft Leasing Inc., and the corporation itself were each convicted of six counts of wire fraud and one count of obstruction of justice for obstructing the Commission’s 2007 lawsuit against them. As part of this verdict, Hollnagel and BCI were convicted of committing fraud and obstruction in connection with the provision of fraudulent court-ordered accountings of investor LLCs to the SEC during that litigation. U.S. v. Brian Hollnagel et al., Criminal Action No. 1:10-cr-0195 (N.D. Ill.) (St. Eve., J.).

On August 13, 2007, the Commission filed a civil injunctive complaint alleging that Defendants Hollnagel and BCI, from approximately 1998 through 2007, raised at least $82 million from approximately 120 investors as part of a fraudulent scheme in which the Defendants commingled investor funds, used investor funds to pay other investors, and failed to use investor funds as represented. The Complaint alleged that, as a result of their conduct, the Defendants violated 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. The Commission’s action remains pending.

SEC CHARGES CHICAGO BROKER WITH INSIDER TRADING IN NBTY STOCK

The following excerpt is from the SEC website:
Washington, D.C., March 15, 2012 – The Securities and Exchange Commission today charged a Chicago-based management consultant with insider trading based on confidential information about his client’s impending takeover of a Long Island-based vitamin company.

The SEC alleges that Sherif Mityas and others at his global management consulting firm were retained by Washington, D.C.-based private equity firm The Carlyle Group to provide strategic advice related to the acquisition of NBTY Inc. That same month, Mityas purchased NBTY stock and subsequently tipped a relative who also bought NBTY shares. After Carlyle publicly announced its acquisition of NBTY, Mityas and his relative sold their NBTY stock for a combined profit of nearly $38,000.

Mityas, who is a partner and vice president at the firm, has agreed to pay more than $78,000 to settle the SEC’s charges. In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced the unsealing of criminal charges against Mityas.

“Mityas was entrusted with highly confidential information but, driven by greed, he violated that trust and jeopardized a successful consulting career for the chance to make a quick buck,” said Sanjay Wadhwa, Deputy Chief of the SEC’s Market Abuse Unit and Associate Director of the New York Regional Office. “Corporate transactions such as mergers and acquisitions demand confidentiality until they become public, and not just from company employees but also from the lawyers, accountants, consultants, and others who work on the deals.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Mityas’s firm was retained by Carlyle in May 2010. Only five days after being told during a May 17 conference call that NBTY was Carlyle’s acquisition target, Mityas moved $50,000 from a bank account he shared with a relative into a brokerage account they shared. On May 27, he transferred $49,000 from that brokerage account to a different relative’s brokerage account that he controlled as custodian, and then used those funds to purchase 1,300 shares of NBTY at a cost of more than $44,000. On July 7, based on a tip from Mityas, yet another relative bought 440 shares of NBTY stock. That same relative bought an additional 210 shares on July 14. Carlyle’s acquisition of NBTY was publicly announced the following day. Mityas sold all of his shares only three hours after the announcement was made, for an illegal profit of $25,896. The relative held the shares purchased on July 7 and 14 through the completion of the merger, and sold all of the shares on October 1 for an illicit profit of $12,035.

The SEC’s complaint charges Mityas with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The settlement, which is subject to court approval, would require Mityas to pay disgorgement of his and his relative’s ill-gotten gains totaling $37,931, plus prejudgment interest of $2,375.39, and a penalty of $37,931. The settlement also would bar Mityas from serving as an officer or director of a public company and permanently enjoin him from future violations of these provisions of the federal securities laws.

The SEC’s investigation was conducted by Daniel R. Marcus and Amelia A. Cottrell – members of the SEC’s Market Abuse Unit in New York – and Layla Mayer of the SEC’s New York Regional Office. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority (FINRA).

FORMER STARMEDIA EXECUTIVE AGREES TO SETTLEMENT IN SEC LITIGATION

The following excerpt is from the U.S. Securities and Exchange Commission website:
March 13, 2012
The U.S. Securities and Exchange Commission today announced that on March 12, 2012, the U.S. District Court for the Southern District of New York entered a settled final judgment as to Adriana J. Kampfner, the former Senior Vice President for Global Sales for StarMedia Network, Inc., a now-defunct Internet portal, in Securities and Exchange Commission v. Fernando J. Espuelas et al., Civil Action No. 06 CV 2435 (PAE) (S.D.N.Y. filed Mar. 29, 2006). The Commission’s injunctive action alleged violations of the federal securities laws by eight former StarMedia executives. The Commission’s amended complaint alleges, in relevant part, that for fiscal year 2000 and the first two quarters of fiscal year 2001, StarMedia’s books and records misstated the company’s revenue.

Without admitting or denying the allegations in the amended complaint, Kampfner consented to the entry of the Final Judgment permanently enjoining her from future violations of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 (Exchange Act), and from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act.