FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
CFTC Charges North Carolina Resident Michael Anthony Jenkins and his Company, Harbor Light Asset Management, LLC, with Solicitation Fraud, Misappropriation, and Embezzlement in Ponzi Scheme
Defendants charged with fraudulently soliciting and accepting at least $1.79 million from approximately 377 persons
In a related criminal action, Jenkins was indicted for securities fraud and is in custody awaiting trial
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a federal civil enforcement action in the U.S. District Court for the Eastern District of North Carolina, charging Michael Anthony Jenkins of Raleigh, N.C., and his company, Harbor Light Asset Management, LLC (HLAM), with operating a Ponzi scheme for the purpose of trading E-mini S&P 500 futures contracts (E-mini futures). From at least January 2011 through January 2012, the defendants fraudulently solicited at least $1.79 million from approximately 377 persons, primarily located in Raleigh, N.C., in connection with the scheme, according to the complaint.
The CFTC complaint also charges Jenkins, the owner and President of HLAM, with embezzlement and failure to register with the CFTC as a futures commission merchant. Furthermore, Jenkins allegedly misappropriated $748,827 of investors’ funds to trade gold and oil futures, stock index futures, and E-mini futures in his personal accounts. Jenkins also used misappropriated funds to pay for charges at department and discount stores and gasoline stations, and for cellular phone bills and airline tickets, according to the complaint.
The CFTC complaint, filed on November 20, 2012, alleges that HLAM’s Investment Agreement falsely represented to investors that their investment was solely for investing in E-mini futures and that investors’ funds would be immediately wired to a specific trading account. However, according to the complaint, most of investors’ funds were misappropriated by HLAM and Jenkins. To conceal and continue the fraud, Jenkins allegedly sent trading spreadsheets and statements to investors that falsely reported trades and profits earned and inflated the value of investments. The defendants’ fraudulent conduct resulted in a loss of approximately $1.3 million in investor funds, consisting of $1.16 million in misappropriated and embezzled funds and $140,000 in trading losses, according to the complaint.
In its continuing litigation, the CFTC seeks restitution, return by Jenkins and HLAM of all ill-gotten gains received, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the Commodity Exchange Act, as charged.
In a related criminal action by the Securities Division of the North Carolina, Department of the Secretary of State, Jenkins was indicted on August 20, 2012 on three counts of securities fraud in The General Court of Justice, State of North Carolina, Wake County, and is in custody awaiting trial.
The CFTC appreciates the assistance of the Securities Division of the North Carolina Department of the Secretary of State.
CFTC Division of Enforcement staff members responsible for this action are Xavier Romeu-Matta, Nathan B. Ploener, Christopher Giglio, Manal Sultan, Lenel Hickson, Stephen J. Obie, and Vincent A. McGonagle.
This is a photo of the National Register of Historic Places listing with reference number 7000063
Thursday, November 29, 2012
Wednesday, November 28, 2012
EXECUTIVE PLEADS GUILTY IN MAJOR MORTGAGE-DOCUMENT FRAUD SHEME
FROM: U.S. DEPARTMENT OF JUSTICE
Tuesday, November 20, 2012
Former Executive at Florida-Based Lender Processing Services Inc. Admits Role in Mortgage-Related Document Fraud Scheme
Over 1 Million Documents Prepared and Filed with Forged and False Signatures, Fraudulent Notarizations
WASHINGTON – A former executive of Lender Processing Services Inc. (LPS) – a publicly traded company based in Jacksonville, Fla. – pleaded guilty today, admitting her participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States.
The guilty plea of Lorraine Brown, 56, of Alpharetta, Ga., was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Middle District of Florida Robert E. O’Neill; and Michael Steinbach, Special Agent in Charge of the FBI’s Jacksonville Field Office.
The plea, to conspiracy to commit mail and wire fraud, was entered before U.S. Magistrate Judge Monte C. Richardson in Jacksonville federal court. Brown faces a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the crime. The date for sentencing has not yet been set.
"Lorraine Brown participated in a scheme to fabricate mortgage-related documents at the height of the financial crisis," said Assistant Attorney General Breuer. "She was responsible for more than a million fraudulent documents entering the system, directing company employees to forge and falsify documents relied on by property recorders, title insurers and others. Appropriately, she now faces the prospect of prison time."
"Homeownership is a huge step for American citizens," said U.S. Attorney O’Neill. "The process itself is often intimidating and lengthy. Consumers rely heavily on the integrity and due diligence of those serving as representatives throughout this process to secure their investments. When the integrity of this process is compromised, illegally, public confidence is eroded. We must work to assure the public that their investments are sound, worthy, and protected."
Special Agent in Charge Steinbach stated, "Our country is increasingly faced with more pervasive and sophisticated fraud schemes that have the potential to disrupt entire markets and the economy as a whole. The FBI, with our partners, is committed to addressing these schemes. As these schemes continue to evolve and become more sophisticated, so too will we."
Brown was the chief executive of DocX LLC, which was involved in the preparation and recordation of mortgage-related documents throughout the country since the 1990s. DocX was acquired by an LPS predecessor company, and was part of LPS’s business when LPS was formed as a stand-alone company in 2008. At that time, DocX was rebranded as "LPS Document Solutions, a Division of LPS." Brown was the president and senior managing director of LPS Document Solutions, which constituted DocX’s operations.
DocX’s main clients were residential mortgage servicers, which typically undertake certain actions for the owners of mortgage-backed promissory notes. Servicers hired DocX to, among other things, assist in creating and executing mortgage-related documents filed with recorders’ offices. Only specific personnel at DocX were authorized by the clients to sign the documents.
According to plea documents filed today, employees of DocX, at the direction of Brown and others, began forging and falsifying signatures on the mortgage-related documents that they had been hired to prepare and file with property recorders’ offices. Unbeknownst to the clients, Brown directed the authorized signers to allow other DocX employees, who were not authorized signers, to sign the mortgage-related documents and have them notarized as if actually executed by the authorized DocX employee.
Also according to plea documents, Brown implemented these signing practices at DocX to enable DocX and Brown to generate greater profit. Specifically, DocX was able to create, execute and file larger volumes of documents using these signing and notarization practices. To further increase profits, DocX also hired temporary workers to sign as authorized signers. These temporary employees worked for much lower costs and without the quality control represented by Brown to DocX’s clients. Some of these temporary workers were able to sign thousands of mortgage-related instruments a day. Between 2003 and 2009, DocX generated approximately $60 million in gross revenue.
After these documents were falsely signed and fraudulently notarized, Brown authorized DocX employees to file and record them with local county property records offices across the country. Many of these documents – particularly mortgage assignments, lost note affidavits and lost assignment affidavits – were later relied upon in court proceedings, including property foreclosures and federal bankruptcy actions. Brown admitted she understood that property recorders, courts, title insurers and homeowners relied upon the documents as genuine.
Brown also admitted that she and others also took various steps to conceal their actions from clients, LPS corporate headquarters, law enforcement authorities and others. These actions included testing new employees to ensure they could mimic signatures, lying to LPS internal audit personnel during reviews of the operation in 2009, making false exculpatory statements after being confronted by LPS corporate officials about the acts and lying to the FBI during its investigation. LPS closed DocX in early 2010.
This case is being prosecuted by Trial Attorney Ryan Rohlfsen and Assistant Chief Glenn S. Leon of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark B. Devereaux of the U.S. Attorney’s Office for the Middle District of Florida. This case is being investigated by the FBI, with assistance from the state of Florida’s Department of Financial Services.
Tuesday, November 20, 2012
Former Executive at Florida-Based Lender Processing Services Inc. Admits Role in Mortgage-Related Document Fraud Scheme
Over 1 Million Documents Prepared and Filed with Forged and False Signatures, Fraudulent Notarizations
WASHINGTON – A former executive of Lender Processing Services Inc. (LPS) – a publicly traded company based in Jacksonville, Fla. – pleaded guilty today, admitting her participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States.
The guilty plea of Lorraine Brown, 56, of Alpharetta, Ga., was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Middle District of Florida Robert E. O’Neill; and Michael Steinbach, Special Agent in Charge of the FBI’s Jacksonville Field Office.
The plea, to conspiracy to commit mail and wire fraud, was entered before U.S. Magistrate Judge Monte C. Richardson in Jacksonville federal court. Brown faces a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the crime. The date for sentencing has not yet been set.
"Lorraine Brown participated in a scheme to fabricate mortgage-related documents at the height of the financial crisis," said Assistant Attorney General Breuer. "She was responsible for more than a million fraudulent documents entering the system, directing company employees to forge and falsify documents relied on by property recorders, title insurers and others. Appropriately, she now faces the prospect of prison time."
"Homeownership is a huge step for American citizens," said U.S. Attorney O’Neill. "The process itself is often intimidating and lengthy. Consumers rely heavily on the integrity and due diligence of those serving as representatives throughout this process to secure their investments. When the integrity of this process is compromised, illegally, public confidence is eroded. We must work to assure the public that their investments are sound, worthy, and protected."
Special Agent in Charge Steinbach stated, "Our country is increasingly faced with more pervasive and sophisticated fraud schemes that have the potential to disrupt entire markets and the economy as a whole. The FBI, with our partners, is committed to addressing these schemes. As these schemes continue to evolve and become more sophisticated, so too will we."
Brown was the chief executive of DocX LLC, which was involved in the preparation and recordation of mortgage-related documents throughout the country since the 1990s. DocX was acquired by an LPS predecessor company, and was part of LPS’s business when LPS was formed as a stand-alone company in 2008. At that time, DocX was rebranded as "LPS Document Solutions, a Division of LPS." Brown was the president and senior managing director of LPS Document Solutions, which constituted DocX’s operations.
DocX’s main clients were residential mortgage servicers, which typically undertake certain actions for the owners of mortgage-backed promissory notes. Servicers hired DocX to, among other things, assist in creating and executing mortgage-related documents filed with recorders’ offices. Only specific personnel at DocX were authorized by the clients to sign the documents.
According to plea documents filed today, employees of DocX, at the direction of Brown and others, began forging and falsifying signatures on the mortgage-related documents that they had been hired to prepare and file with property recorders’ offices. Unbeknownst to the clients, Brown directed the authorized signers to allow other DocX employees, who were not authorized signers, to sign the mortgage-related documents and have them notarized as if actually executed by the authorized DocX employee.
Also according to plea documents, Brown implemented these signing practices at DocX to enable DocX and Brown to generate greater profit. Specifically, DocX was able to create, execute and file larger volumes of documents using these signing and notarization practices. To further increase profits, DocX also hired temporary workers to sign as authorized signers. These temporary employees worked for much lower costs and without the quality control represented by Brown to DocX’s clients. Some of these temporary workers were able to sign thousands of mortgage-related instruments a day. Between 2003 and 2009, DocX generated approximately $60 million in gross revenue.
After these documents were falsely signed and fraudulently notarized, Brown authorized DocX employees to file and record them with local county property records offices across the country. Many of these documents – particularly mortgage assignments, lost note affidavits and lost assignment affidavits – were later relied upon in court proceedings, including property foreclosures and federal bankruptcy actions. Brown admitted she understood that property recorders, courts, title insurers and homeowners relied upon the documents as genuine.
Brown also admitted that she and others also took various steps to conceal their actions from clients, LPS corporate headquarters, law enforcement authorities and others. These actions included testing new employees to ensure they could mimic signatures, lying to LPS internal audit personnel during reviews of the operation in 2009, making false exculpatory statements after being confronted by LPS corporate officials about the acts and lying to the FBI during its investigation. LPS closed DocX in early 2010.
This case is being prosecuted by Trial Attorney Ryan Rohlfsen and Assistant Chief Glenn S. Leon of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark B. Devereaux of the U.S. Attorney’s Office for the Middle District of Florida. This case is being investigated by the FBI, with assistance from the state of Florida’s Department of Financial Services.
Tuesday, November 27, 2012
2012 YIELDS NEAR RECORD RESULTS FOR SEC ENFORCEMENTS
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Nov. 14, 2012 — Building on last year’s record results, the Securities and Exchange Commission today announced that it filed 734 enforcement actions in the fiscal year that ended Sept. 30, 2012, one shy of last year’s record of 735. Most significantly, that number included an increasing number of cases involving highly complex products, transactions, and practices, including those related to the financial crisis, trading platforms and market structure, and insider trading by market professionals. Twenty percent of the actions were filed in investigations designated as National Priority Cases, representing the Division’s most important and complex matters.
The SEC also announced that it obtained orders in fiscal year 2012 requiring the payment of more than $3 billion in penalties and disgorgement for the benefit of harmed investors. It represents an 11 percent increase over the amount ordered last year. In the past two years, the SEC has obtained orders for $5.9 billion in penalties and disgorgement.
"The record of performance is a testament to the professionalism and perseverance of the staff and the innovative reforms put in place over the past few years," said SEC Chairman Mary L. Schapiro. "We’ve now brought more enforcement actions in each of the last two years than ever before including some of the most complex cases we’ve ever seen."
Robert Khuzami, Director of the SEC’s Division of Enforcement, added, "It’s not simply numbers, but the increasing complexity and diversity of the cases we file that shows how successful we’ve been. The intelligence, dedication, and deep experience of our enforcement staff are, more than any other factors, responsible for the Division’s success."
The sustained high-level performance comes two years after the Division underwent its most significant reorganization since it was established in the early 1970s. The results in 2012 were aided by many of the reforms and innovations put in place in the past two years, such as increased expertise in complex and emerging financial markets, products, and transactions, including through enhanced training, the hiring of industry experts, and the creation of specialized enforcement units focused on high-priority misconduct; a flatter management structure; streamlined and centralized processes and the improved utilization of information technology; and a vastly enhanced ability to collect, process, and analyze tips and complaints.
Financial Crisis-Related Cases
Among the cases filed by the SEC in FY 2012 were 29 separate actions naming 38 individuals, including 24 CEOs, CFOs and other senior corporate officers, regarding wrongdoing related to the financial crisis.
These cases included enforcement actions involving:
The former senior officers of Fannie Mae and Freddie Mac for misleading statements regarding the extent of each company’s holdings of higher-risk mortgage loans.
Former investment bankers at Credit Suisse for fraudulently overstating the prices of $3 billion in subprime bonds.
Several bank and mortgage executives including those at United Commercial Bank, TierOne Bank, Franklin Bank, and Thornburg Mortgage for misleading investors about mounting loan losses and the deteriorating financial condition of their institutions.
The U.S. investment banking subsidiary of Japan-based Mizuho Financial Group for misleading investors in a CDO by using "dummy assets" to inflate the deal’s credit ratings.
During the last 2½ years, the agency has filed actions related to the financial crisis against 117 defendants – nearly half of whom were CEOs, CFOs and other senior corporate executives, resulting in approximately $ 2.2 billion in disgorgement, penalties, and other monetary relief obtained or agreed to. The SEC brought enforcement actions against Goldman Sachs, J.P Morgan Securities, and Morgan Keegan as well as senior executives from Countrywide, New Century, and American Home Mortgage.
Insider Trading Cases
Insider trading cases also are on the upswing with 58 actions filed in FY 2012 by the SEC, an increase over last year’s total of 57 actions. The 168 total insider trading actions filed since October 2009 have been the most in SEC history for any three-year period.
In these actions, the SEC has charged approximately 400 individuals and entities for illegal trading totaling approximately $600 million in illicit profits. Among those charged in SEC insider trading cases in 2012 were:
Former McKinsey & Co. global head Rajat Gupta for illegally tipping convicted hedge fund manager Raj Rajaratnam.
Hedge funds Diamondback Capital and Level Global Investors and affiliated traders and analysts.
Hedge fund manager Douglas Whitman.
John Kinnucan and his expert network consulting firm Broadband Research Corporation.
A second round of charges in an insider trading case involving former professional baseball players and the former top executive at Advanced Medical Optics.
Other Enforcement Matters
In order to ensure fair trading and equal access to information in the securities markets, the SEC brought several actions involving compliance failures and rules violations relating to stock exchanges, alternative trading platforms, and other market structure participants.
These cases included:
First-of-its-kind charges against the New York Stock Exchange for compliance failures that gave certain customers an improper head start on trading information.
The first-ever action against a "dark pool" trading platform (Pipeline Trading Systems) for failing to disclose to its customers that the vast amount of orders were filled by an affiliated trading operation.
An action against Direct Edge Holdings LLC for violations at two of its electronic stock exchanges and a broker-dealer arising out of weak controls that resulted in millions of dollars in trading losses and a systems outage.
In the NYSE matter, the exchange and its parent company NYSE Euronext agreed to pay a $5 million penalty, marking the first-ever SEC financial penalty against an exchange.
Investment Advisers: The SEC filed numerous actions resulting from several risk-based, proactive measures that identify threats at an early stage so that early action to halt the misconduct can be initiated and investor harm minimized. In 2012, several actions resulted from the Division’s investment adviser compliance initiative, which looks for registered investment advisers who lack effective compliance programs designed to prevent securities laws violations.
The SEC also filed actions charging three advisory firms and six individuals as part of the Aberrational Performance Inquiry into abnormal performance returns by hedge funds. Other actions against investment advisers included cases against UBS Financial Services of Puerto Rico and two executives for misleading disclosures relating to certain proprietary closed-end mutual funds, Morgan Stanley Investment Management for an improper fee arrangement, and OppenheimerFunds for misleading investors in two funds suffering significant losses during the financial crisis. UBS paid more than $26 million to settle the SEC’s charges while OppenheimerFunds paid more than $35 million for its violations.
The SEC filed 147 enforcement actions in 2012 against investment advisers and investment companies, one more than the previous year’s record number.
Issuer Disclosures:
The SEC brought 79 actions in FY 2012 for financial fraud and issuer disclosure violations. Those cases included actions against Life Partners Holdings and senior executives for fraudulent disclosures related to life settlements; two executives at China-based Puda Coal for defrauding investors about the nature of the company’s assets; and an enforcement action against Shanghai-based Deloitte Touche Tohmatsu for its refusal to provide the SEC with audit work papers related to a China-based company under investigation for potential accounting fraud against U.S. investors.
Broker-Dealers:
The agency filed 134 enforcement actions related to broker-dealers, a 19 percent increase over the previous year. Broker-dealer actions included charges against a Latvian trader and electronic trading firms for their roles in an online account intrusion scheme that manipulated the prices of more than 100 NYSE and Nasdaq securities as well as charges against New York-based brokerage firm Hold Brothers On-Line Investment Services and three of its executives for their roles in allowing overseas traders to access the markets and conduct manipulative trading through accounts the firm controlled. The defendants in the Hold Brothers action paid a total of $4 million to settle the SEC’s charges.
FCPA:
The SEC filed 15 actions in FY 2012 for violations of the Foreign Corrupt Practices Act. FCPA actions were filed against former Siemens executives, Magyar Telekom, Biomet, Smith & Nephew, Pfizer, Tyco International, and a former executive at Morgan Stanley’s real estate investment and fund advisory business.
Municipal Securities:
The SEC filed 17 enforcement actions related to municipal securities, more than double the number filed in 2011. Among those charged in SEC municipal securities actions were the former mayor and city treasurer of Detroit in a pay-to-play scheme involving investments of the city’s pension funds, and Goldman Sachs for violations of various municipal securities rules resulting from undisclosed "in-kind" non-cash contributions that one of its investment bankers made to a Massachusetts gubernatorial candidate.
Washington, D.C., Nov. 14, 2012 — Building on last year’s record results, the Securities and Exchange Commission today announced that it filed 734 enforcement actions in the fiscal year that ended Sept. 30, 2012, one shy of last year’s record of 735. Most significantly, that number included an increasing number of cases involving highly complex products, transactions, and practices, including those related to the financial crisis, trading platforms and market structure, and insider trading by market professionals. Twenty percent of the actions were filed in investigations designated as National Priority Cases, representing the Division’s most important and complex matters.
The SEC also announced that it obtained orders in fiscal year 2012 requiring the payment of more than $3 billion in penalties and disgorgement for the benefit of harmed investors. It represents an 11 percent increase over the amount ordered last year. In the past two years, the SEC has obtained orders for $5.9 billion in penalties and disgorgement.
"The record of performance is a testament to the professionalism and perseverance of the staff and the innovative reforms put in place over the past few years," said SEC Chairman Mary L. Schapiro. "We’ve now brought more enforcement actions in each of the last two years than ever before including some of the most complex cases we’ve ever seen."
Robert Khuzami, Director of the SEC’s Division of Enforcement, added, "It’s not simply numbers, but the increasing complexity and diversity of the cases we file that shows how successful we’ve been. The intelligence, dedication, and deep experience of our enforcement staff are, more than any other factors, responsible for the Division’s success."
The sustained high-level performance comes two years after the Division underwent its most significant reorganization since it was established in the early 1970s. The results in 2012 were aided by many of the reforms and innovations put in place in the past two years, such as increased expertise in complex and emerging financial markets, products, and transactions, including through enhanced training, the hiring of industry experts, and the creation of specialized enforcement units focused on high-priority misconduct; a flatter management structure; streamlined and centralized processes and the improved utilization of information technology; and a vastly enhanced ability to collect, process, and analyze tips and complaints.
Financial Crisis-Related Cases
Among the cases filed by the SEC in FY 2012 were 29 separate actions naming 38 individuals, including 24 CEOs, CFOs and other senior corporate officers, regarding wrongdoing related to the financial crisis.
These cases included enforcement actions involving:
Former investment bankers at Credit Suisse for fraudulently overstating the prices of $3 billion in subprime bonds.
Several bank and mortgage executives including those at United Commercial Bank, TierOne Bank, Franklin Bank, and Thornburg Mortgage for misleading investors about mounting loan losses and the deteriorating financial condition of their institutions.
The U.S. investment banking subsidiary of Japan-based Mizuho Financial Group for misleading investors in a CDO by using "dummy assets" to inflate the deal’s credit ratings.
During the last 2½ years, the agency has filed actions related to the financial crisis against 117 defendants – nearly half of whom were CEOs, CFOs and other senior corporate executives, resulting in approximately $ 2.2 billion in disgorgement, penalties, and other monetary relief obtained or agreed to. The SEC brought enforcement actions against Goldman Sachs, J.P Morgan Securities, and Morgan Keegan as well as senior executives from Countrywide, New Century, and American Home Mortgage.
Insider Trading Cases
Insider trading cases also are on the upswing with 58 actions filed in FY 2012 by the SEC, an increase over last year’s total of 57 actions. The 168 total insider trading actions filed since October 2009 have been the most in SEC history for any three-year period.
In these actions, the SEC has charged approximately 400 individuals and entities for illegal trading totaling approximately $600 million in illicit profits. Among those charged in SEC insider trading cases in 2012 were:
Hedge funds Diamondback Capital and Level Global Investors and affiliated traders and analysts.
Hedge fund manager Douglas Whitman.
John Kinnucan and his expert network consulting firm Broadband Research Corporation.
A second round of charges in an insider trading case involving former professional baseball players and the former top executive at Advanced Medical Optics.
Other Enforcement Matters
In order to ensure fair trading and equal access to information in the securities markets, the SEC brought several actions involving compliance failures and rules violations relating to stock exchanges, alternative trading platforms, and other market structure participants.
These cases included:
The first-ever action against a "dark pool" trading platform (Pipeline Trading Systems) for failing to disclose to its customers that the vast amount of orders were filled by an affiliated trading operation.
An action against Direct Edge Holdings LLC for violations at two of its electronic stock exchanges and a broker-dealer arising out of weak controls that resulted in millions of dollars in trading losses and a systems outage.
In the NYSE matter, the exchange and its parent company NYSE Euronext agreed to pay a $5 million penalty, marking the first-ever SEC financial penalty against an exchange.
Investment Advisers: The SEC filed numerous actions resulting from several risk-based, proactive measures that identify threats at an early stage so that early action to halt the misconduct can be initiated and investor harm minimized. In 2012, several actions resulted from the Division’s investment adviser compliance initiative, which looks for registered investment advisers who lack effective compliance programs designed to prevent securities laws violations.
The SEC also filed actions charging three advisory firms and six individuals as part of the Aberrational Performance Inquiry into abnormal performance returns by hedge funds. Other actions against investment advisers included cases against UBS Financial Services of Puerto Rico and two executives for misleading disclosures relating to certain proprietary closed-end mutual funds, Morgan Stanley Investment Management for an improper fee arrangement, and OppenheimerFunds for misleading investors in two funds suffering significant losses during the financial crisis. UBS paid more than $26 million to settle the SEC’s charges while OppenheimerFunds paid more than $35 million for its violations.
The SEC filed 147 enforcement actions in 2012 against investment advisers and investment companies, one more than the previous year’s record number.
Issuer Disclosures:
The SEC brought 79 actions in FY 2012 for financial fraud and issuer disclosure violations. Those cases included actions against Life Partners Holdings and senior executives for fraudulent disclosures related to life settlements; two executives at China-based Puda Coal for defrauding investors about the nature of the company’s assets; and an enforcement action against Shanghai-based Deloitte Touche Tohmatsu for its refusal to provide the SEC with audit work papers related to a China-based company under investigation for potential accounting fraud against U.S. investors.
Broker-Dealers:
The agency filed 134 enforcement actions related to broker-dealers, a 19 percent increase over the previous year. Broker-dealer actions included charges against a Latvian trader and electronic trading firms for their roles in an online account intrusion scheme that manipulated the prices of more than 100 NYSE and Nasdaq securities as well as charges against New York-based brokerage firm Hold Brothers On-Line Investment Services and three of its executives for their roles in allowing overseas traders to access the markets and conduct manipulative trading through accounts the firm controlled. The defendants in the Hold Brothers action paid a total of $4 million to settle the SEC’s charges.
FCPA:
The SEC filed 15 actions in FY 2012 for violations of the Foreign Corrupt Practices Act. FCPA actions were filed against former Siemens executives, Magyar Telekom, Biomet, Smith & Nephew, Pfizer, Tyco International, and a former executive at Morgan Stanley’s real estate investment and fund advisory business.
Municipal Securities:
The SEC filed 17 enforcement actions related to municipal securities, more than double the number filed in 2011. Among those charged in SEC municipal securities actions were the former mayor and city treasurer of Detroit in a pay-to-play scheme involving investments of the city’s pension funds, and Goldman Sachs for violations of various municipal securities rules resulting from undisclosed "in-kind" non-cash contributions that one of its investment bankers made to a Massachusetts gubernatorial candidate.
Monday, November 26, 2012
TWO FORMER STANFORD FINANCIAL GROUP EXECUTIVES CONVICTED FOR ROLES IN FRAUD SCHEME
FROM: U.S. DEPARTMENT OF JUSTICE
Monday, November 19, 2012
Former Executives of Stanford Financial Group Entities Convicted for Roles in Fraud Scheme
WASHINGTON – A Houston federal jury has convicted Gilbert T. Lopez Jr., the former chief accounting officer of Stanford Financial Group Company, and Mark J. Kuhrt, the former global controller of Stanford Financial Group Global Management, for their roles in helping Robert Allen Stanford perpetrate a fraud scheme involving Stanford International Bank (SIB).
The guilty verdict was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Kenneth Magidson of the Southern District of Texas; FBI Assistant Director Kevin Perkins of the Criminal Investigative Division; Assistant Secretary of Labor for the Employee Benefits Security Administration Phyllis C. Borzi; Chief Postal Inspector Guy J. Cottrell; and Special Agent in Charge Lucy Cruz of IRS-Criminal Investigation.
Stanford, who was convicted in a separate trial held earlier this year, illegally used billions of dollars of SIB’s assets to fund his personal business ventures, to live a lavish lifestyle, and for other improper purposes.
The evidence presented at the trial of Lopez and Kuhrt established that they were aware of and tracked Stanford’s misuse of SIB’s assets, kept the misuse hidden from the public and from almost all of Stanford’s other employees, and worked behind the scenes to prevent the misuse from being discovered.
The trial against Lopez and Kuhrt spanned five weeks. After approximately three days of deliberations, the jury found both Lopez, 70, and Kuhrt, 40, both of Houston, guilty of 10 of 11 counts in the indictment. Each defendant was convicted of one count of conspiracy to commit wire fraud and nine counts of wire fraud. Each was found not guilty on one wire fraud count.
Both defendants were immediately remanded into custody.
U.S. District Judge David Hittner, who presided over the trial, has set sentencing for Feb. 14, 2013. At sentencing, Lopez and Kuhrt will each face a maximum of 20 years in prison on each count of conviction.
The investigation was conducted by the FBI, U.S. Postal Inspection Service, IRS-CI and the U.S. Department of Labor, Employee Benefits Security Administration. The case was prosecuted by Deputy Chief Jeffrey Goldberg and Trial Attorney Andrew Warren of the Criminal Division’s Fraud Section, and by Assistant U.S. Attorney Jason Varnado of the Southern District of Texas.
Monday, November 19, 2012
Former Executives of Stanford Financial Group Entities Convicted for Roles in Fraud Scheme
WASHINGTON – A Houston federal jury has convicted Gilbert T. Lopez Jr., the former chief accounting officer of Stanford Financial Group Company, and Mark J. Kuhrt, the former global controller of Stanford Financial Group Global Management, for their roles in helping Robert Allen Stanford perpetrate a fraud scheme involving Stanford International Bank (SIB).
The guilty verdict was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Kenneth Magidson of the Southern District of Texas; FBI Assistant Director Kevin Perkins of the Criminal Investigative Division; Assistant Secretary of Labor for the Employee Benefits Security Administration Phyllis C. Borzi; Chief Postal Inspector Guy J. Cottrell; and Special Agent in Charge Lucy Cruz of IRS-Criminal Investigation.
Stanford, who was convicted in a separate trial held earlier this year, illegally used billions of dollars of SIB’s assets to fund his personal business ventures, to live a lavish lifestyle, and for other improper purposes.
The evidence presented at the trial of Lopez and Kuhrt established that they were aware of and tracked Stanford’s misuse of SIB’s assets, kept the misuse hidden from the public and from almost all of Stanford’s other employees, and worked behind the scenes to prevent the misuse from being discovered.
The trial against Lopez and Kuhrt spanned five weeks. After approximately three days of deliberations, the jury found both Lopez, 70, and Kuhrt, 40, both of Houston, guilty of 10 of 11 counts in the indictment. Each defendant was convicted of one count of conspiracy to commit wire fraud and nine counts of wire fraud. Each was found not guilty on one wire fraud count.
Both defendants were immediately remanded into custody.
U.S. District Judge David Hittner, who presided over the trial, has set sentencing for Feb. 14, 2013. At sentencing, Lopez and Kuhrt will each face a maximum of 20 years in prison on each count of conviction.
The investigation was conducted by the FBI, U.S. Postal Inspection Service, IRS-CI and the U.S. Department of Labor, Employee Benefits Security Administration. The case was prosecuted by Deputy Chief Jeffrey Goldberg and Trial Attorney Andrew Warren of the Criminal Division’s Fraud Section, and by Assistant U.S. Attorney Jason Varnado of the Southern District of Texas.
Sunday, November 25, 2012
U.S. SEC CHARGES J.P. MORGAN SECURITIES LLC AND CREDIT SUISSE SECURITIES WITH MISLEADING INVESTORS IN OFFERINGS OF RMBS
FROM: U.S. SECURITES AND EXCHANGE COMMISSION
Washington, D.C., Nov. 16, 2012 — In coordination with the federal-state Residential Mortgage-Backed Securities Working Group, the Securities and Exchange Commission today charged J.P. Morgan Securities LLC and Credit Suisse Securities (USA) with misleading investors in offerings of residential mortgage-backed securities (RMBS). The firms agreed to settlements in which they will pay more than $400 million combined, and the SEC plans to distribute the money to harmed investors.
The SEC alleges that J.P. Morgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS offering in which it was the underwriter. J.P. Morgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans. J.P. Morgan also is charged for Bear Stearns' failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts. The proceeds from this bulk settlement practice were at least $137.8 million.
J.P. Morgan has agreed to pay $296.9 million to settle the SEC's charges.
According to the SEC's order against Credit Suisse, the firm similarly failed to accurately disclose its practice of retaining cash for itself from the settlement of claims against mortgage loan originators for problems with loans that Credit Suisse had sold into RMBS trusts and no longer owned. Credit Suisse also made misstatements in SEC filings about when it would repurchase mortgage loans from trusts if borrowers missed the first payment due. The firm made $55.7 million in profits and losses avoided from its bulk settlement practice, and its investors lost more than $10 million due to Credit Suisse's practices concerning first payment defaults.
Credit Suisse has agreed to pay $120 million to settle the SEC's charges.
"In many ways, mortgage products such as RMBS were ground zero in the financial crisis," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed. Today's actions involving RMBS securities are a continuation of the SEC's strong efforts to pursue wrongdoing committed in connection with the financial crisis."
Mr. Khuzami is a co-chair of the RMBS Working Group, which brings together federal and state agencies to investigate those responsible for misconduct that contributed to the financial crisis through the pooling and sale of RMBS.
RMBS Working Group Co-Chair and U.S. Attorney for the District of Colorado John Walsh said, "Today's filings represent significant steps towards the accomplishment of the Working Group's mission - to investigate and confront the abuses in the residential mortgage-backed securities market that significantly contributed to the Financial Crisis. The Working Group model allows the Department of Justice to lend a hand to other enforcement partners around the country who, in turn, have their own unique resources, talents, and legal tools to contribute to the effort. And the Justice Department's efforts in this area have benefited from SEC's work on its own cases."
RMBS Working Group Co-Chair and New York State Attorney General Eric Schneiderman said, "Today's actions are another step forward in the process of bringing accountability for the misconduct that led to the collapse of the housing market. We will continue to work together on behalf of consumers and investors to ensure that it never happens again."
According to the SEC's complaint against J.P. Morgan filed in federal court in Washington D.C., federal regulations under the securities laws require the disclosure of delinquency information related to assets that provide collateral for an asset-backed securities offering. Information about the delinquency status of mortgage loans in an RMBS transaction is important to investors because those loans are the primary source of funds by which investors can earn interest and obtain repayment of their principal.
The SEC alleges that in the prospectus supplement for the $1.8 billion RMBS offering that occurred in December 2006, J.P. Morgan made materially false and misleading statements about the loans that provided collateral for the transaction. The firm represented that only four loans (.04 percent of the total loans collateralizing the transaction) were delinquent by 30 to 59 days, and that those four were the only loans that had had an instance of delinquency of 30 or more days in the 12 months prior to the "cut-off date" for the transaction. However, at the time J.P. Morgan made these representations, the firm actually had information showing that more than 620 loans (above 7 percent of the total loans collateralizing the transaction) were, and had been, 30 to 59 days delinquent, and the four loans represented as being 30 to 59 days delinquent were in fact 60 to 89 days delinquent.
The SEC's complaint also alleges that Bear Stearns' bulk settlements covered loans collateralizing 156 different RMBS transactions issued from 2005 to 2007. Loan originators were usually required by contract to buy back loans that suffered early payment defaults or had other defects. However, Bear Stearns frequently negotiated discounted cash settlements with these loan originators in lieu of a buy-back on loans that were owned by the RMBS trusts. The firm - both before and after the merger with J.P. Morgan - then kept most of the bulk settlement proceeds. The firm failed to disclose the practice to investors who owned the loans. Bear Stearns repurchased only about 13 percent of these defective bulk settlement loans from the trusts, compared to a nearly 100 percent repurchase rate when loan originators agreed to buy back the defective loans. For most loans covered by bulk settlements, the firm collected money from originators without paying anything to the trusts.
J.P. Morgan settled the SEC's charges by consenting to pay $50.5 million in disgorgement and prejudgment interest and a $24 million penalty for the delinquency misstatements, which the SEC will seek to distribute to harmed investors in the transaction through a Fair Fund. J.P. Morgan agreed to pay $162,065,536 in disgorgement and prejudgment interest and a $60.35 million penalty for the bulk settlement practice misconduct, and the SEC will seek to distribute these funds to harmed investors through a separate Fair Fund. J.P. Morgan consented, without admitting or denying the allegations, to the entry of a final judgment permanently enjoining them from violating Section 17(a)(2) and (3) of the Securities Act of 1933. The settlement is subject to court approval.
According to the SEC's order instituting a settled administrative proceeding against Credit Suisse, the firm and its affiliated entities misled investors in 75 different RMBS transactions through the bulk settlement practice. From 2005 to 2010, Credit Suisse frequently negotiated bulk settlements with loan originators in lieu of a buy-back of loans that were owned by the RMBS trusts. Credit Suisse kept the bulk settlement proceeds for itself and failed to disclose the practice to investors who owned the loans. In nine of the 75 RMBS trusts, Credit Suisse failed to comply with offering document provisions that required it to repurchase certain early defaulting loans. Credit Suisse also applied different quality review procedures for loans that it sought to put back to originators, instituted a practice of not repurchasing such loans from trusts unless the originators had agreed to repurchase them, and failed to disclose the bulk settlement practice when answering investor questions about early payment defaults.
The SEC's order also found that Credit Suisse made misleading statements about a key investor protection known as the First Payment Default (FPD) provision in two RMBS offerings. The FPD provision required the mortgage loan originator to repurchase or substitute loans that missed payments shortly before or after they were securitized. Credit Suisse misled investors by falsely claiming that "all First Payment Default Risk" was removed from its RMBS, and at the same time limiting the number of FPD loans that were put back to the originator.
Credit Suisse settled the SEC's charges by consenting to pay $68,747,769 in disgorgement and prejudgment interest and a $33 million penalty, which the SEC will seek to distribute through a Fair Fund to harmed investors in the 75 RMBS transactions affected by the bulk settlement practice. Credit Suisse agreed to pay $12,256,651 in disgorgement and prejudgment interest and a $6 million penalty, which the SEC will seek to distribute through a separate Fair Fund to harmed investors in the two transactions affected by the FPD misstatements. Credit Suisse agreed to an order, without admitting or denying the allegations, requiring them to cease and desist from violations of Section 17(a)(2) and (3) of the Securities Act and Section 15(d) of the Securities Exchange Act of 1934.
These investigations were conducted by members of the SEC Enforcement Division's Structured and New Products Unit in both the Denver and Washington, D.C. offices, including Zachary Carlyle, Mark Cave, Sarra Cho, Allison Herren Lee, Laura Metcalfe, Colin Rand, Thomas Silverstein, John Smith, Andrew Sporkin, Amy Sumner, and Jeffrey Weiss. The trial unit members assigned to this matter were Dugan Bliss, Kyle DeYoung, Jan Folena, and Christian Schultz. The Enforcement Division was assisted by Eugene Canjels and Vance Anthony in the Division of Risk, Strategy and Financial Innovation. The SEC thanks the other agencies who are members of the RMBS Working Group for their assistance and cooperation regarding these enforcement actions.
"These actions demonstrate that we intend to hold accountable those who misled investors through poor disclosures in the sale of RMBS and other financial products commonly marketed and sold during the financial crisis. Our efforts in that regard continue," said Kenneth Lench, Chief of the SEC Enforcement Division's Structured and New Products Unit.
Washington, D.C., Nov. 16, 2012 — In coordination with the federal-state Residential Mortgage-Backed Securities Working Group, the Securities and Exchange Commission today charged J.P. Morgan Securities LLC and Credit Suisse Securities (USA) with misleading investors in offerings of residential mortgage-backed securities (RMBS). The firms agreed to settlements in which they will pay more than $400 million combined, and the SEC plans to distribute the money to harmed investors.
The SEC alleges that J.P. Morgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS offering in which it was the underwriter. J.P. Morgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans. J.P. Morgan also is charged for Bear Stearns' failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts. The proceeds from this bulk settlement practice were at least $137.8 million.
J.P. Morgan has agreed to pay $296.9 million to settle the SEC's charges.
According to the SEC's order against Credit Suisse, the firm similarly failed to accurately disclose its practice of retaining cash for itself from the settlement of claims against mortgage loan originators for problems with loans that Credit Suisse had sold into RMBS trusts and no longer owned. Credit Suisse also made misstatements in SEC filings about when it would repurchase mortgage loans from trusts if borrowers missed the first payment due. The firm made $55.7 million in profits and losses avoided from its bulk settlement practice, and its investors lost more than $10 million due to Credit Suisse's practices concerning first payment defaults.
Credit Suisse has agreed to pay $120 million to settle the SEC's charges.
"In many ways, mortgage products such as RMBS were ground zero in the financial crisis," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed. Today's actions involving RMBS securities are a continuation of the SEC's strong efforts to pursue wrongdoing committed in connection with the financial crisis."
Mr. Khuzami is a co-chair of the RMBS Working Group, which brings together federal and state agencies to investigate those responsible for misconduct that contributed to the financial crisis through the pooling and sale of RMBS.
RMBS Working Group Co-Chair and U.S. Attorney for the District of Colorado John Walsh said, "Today's filings represent significant steps towards the accomplishment of the Working Group's mission - to investigate and confront the abuses in the residential mortgage-backed securities market that significantly contributed to the Financial Crisis. The Working Group model allows the Department of Justice to lend a hand to other enforcement partners around the country who, in turn, have their own unique resources, talents, and legal tools to contribute to the effort. And the Justice Department's efforts in this area have benefited from SEC's work on its own cases."
RMBS Working Group Co-Chair and New York State Attorney General Eric Schneiderman said, "Today's actions are another step forward in the process of bringing accountability for the misconduct that led to the collapse of the housing market. We will continue to work together on behalf of consumers and investors to ensure that it never happens again."
According to the SEC's complaint against J.P. Morgan filed in federal court in Washington D.C., federal regulations under the securities laws require the disclosure of delinquency information related to assets that provide collateral for an asset-backed securities offering. Information about the delinquency status of mortgage loans in an RMBS transaction is important to investors because those loans are the primary source of funds by which investors can earn interest and obtain repayment of their principal.
The SEC alleges that in the prospectus supplement for the $1.8 billion RMBS offering that occurred in December 2006, J.P. Morgan made materially false and misleading statements about the loans that provided collateral for the transaction. The firm represented that only four loans (.04 percent of the total loans collateralizing the transaction) were delinquent by 30 to 59 days, and that those four were the only loans that had had an instance of delinquency of 30 or more days in the 12 months prior to the "cut-off date" for the transaction. However, at the time J.P. Morgan made these representations, the firm actually had information showing that more than 620 loans (above 7 percent of the total loans collateralizing the transaction) were, and had been, 30 to 59 days delinquent, and the four loans represented as being 30 to 59 days delinquent were in fact 60 to 89 days delinquent.
The SEC's complaint also alleges that Bear Stearns' bulk settlements covered loans collateralizing 156 different RMBS transactions issued from 2005 to 2007. Loan originators were usually required by contract to buy back loans that suffered early payment defaults or had other defects. However, Bear Stearns frequently negotiated discounted cash settlements with these loan originators in lieu of a buy-back on loans that were owned by the RMBS trusts. The firm - both before and after the merger with J.P. Morgan - then kept most of the bulk settlement proceeds. The firm failed to disclose the practice to investors who owned the loans. Bear Stearns repurchased only about 13 percent of these defective bulk settlement loans from the trusts, compared to a nearly 100 percent repurchase rate when loan originators agreed to buy back the defective loans. For most loans covered by bulk settlements, the firm collected money from originators without paying anything to the trusts.
J.P. Morgan settled the SEC's charges by consenting to pay $50.5 million in disgorgement and prejudgment interest and a $24 million penalty for the delinquency misstatements, which the SEC will seek to distribute to harmed investors in the transaction through a Fair Fund. J.P. Morgan agreed to pay $162,065,536 in disgorgement and prejudgment interest and a $60.35 million penalty for the bulk settlement practice misconduct, and the SEC will seek to distribute these funds to harmed investors through a separate Fair Fund. J.P. Morgan consented, without admitting or denying the allegations, to the entry of a final judgment permanently enjoining them from violating Section 17(a)(2) and (3) of the Securities Act of 1933. The settlement is subject to court approval.
According to the SEC's order instituting a settled administrative proceeding against Credit Suisse, the firm and its affiliated entities misled investors in 75 different RMBS transactions through the bulk settlement practice. From 2005 to 2010, Credit Suisse frequently negotiated bulk settlements with loan originators in lieu of a buy-back of loans that were owned by the RMBS trusts. Credit Suisse kept the bulk settlement proceeds for itself and failed to disclose the practice to investors who owned the loans. In nine of the 75 RMBS trusts, Credit Suisse failed to comply with offering document provisions that required it to repurchase certain early defaulting loans. Credit Suisse also applied different quality review procedures for loans that it sought to put back to originators, instituted a practice of not repurchasing such loans from trusts unless the originators had agreed to repurchase them, and failed to disclose the bulk settlement practice when answering investor questions about early payment defaults.
The SEC's order also found that Credit Suisse made misleading statements about a key investor protection known as the First Payment Default (FPD) provision in two RMBS offerings. The FPD provision required the mortgage loan originator to repurchase or substitute loans that missed payments shortly before or after they were securitized. Credit Suisse misled investors by falsely claiming that "all First Payment Default Risk" was removed from its RMBS, and at the same time limiting the number of FPD loans that were put back to the originator.
Credit Suisse settled the SEC's charges by consenting to pay $68,747,769 in disgorgement and prejudgment interest and a $33 million penalty, which the SEC will seek to distribute through a Fair Fund to harmed investors in the 75 RMBS transactions affected by the bulk settlement practice. Credit Suisse agreed to pay $12,256,651 in disgorgement and prejudgment interest and a $6 million penalty, which the SEC will seek to distribute through a separate Fair Fund to harmed investors in the two transactions affected by the FPD misstatements. Credit Suisse agreed to an order, without admitting or denying the allegations, requiring them to cease and desist from violations of Section 17(a)(2) and (3) of the Securities Act and Section 15(d) of the Securities Exchange Act of 1934.
These investigations were conducted by members of the SEC Enforcement Division's Structured and New Products Unit in both the Denver and Washington, D.C. offices, including Zachary Carlyle, Mark Cave, Sarra Cho, Allison Herren Lee, Laura Metcalfe, Colin Rand, Thomas Silverstein, John Smith, Andrew Sporkin, Amy Sumner, and Jeffrey Weiss. The trial unit members assigned to this matter were Dugan Bliss, Kyle DeYoung, Jan Folena, and Christian Schultz. The Enforcement Division was assisted by Eugene Canjels and Vance Anthony in the Division of Risk, Strategy and Financial Innovation. The SEC thanks the other agencies who are members of the RMBS Working Group for their assistance and cooperation regarding these enforcement actions.
"These actions demonstrate that we intend to hold accountable those who misled investors through poor disclosures in the sale of RMBS and other financial products commonly marketed and sold during the financial crisis. Our efforts in that regard continue," said Kenneth Lench, Chief of the SEC Enforcement Division's Structured and New Products Unit.
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