FROM: U.S. JUSTICE DELPARTMENT
WASHINGTON — A former financial services broker was sentenced today in U.S. District Court for the Southern District of New York, for his participation in conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.
Adrian Scott-Jones, of Morriston, Fla. , a former broker for Tradition N.A. , was sentenced by District Court Judge Harold Baer Jr. for his role in the conspiracies. Scott-Jones was sentenced to serve 18 months in prison and to pay a $12,500 criminal fine.
"From soliciting intentionally losing bids for investment agreements to paying out kickbacks to manipulate the competitive bidding process, the conspirators went to great lengths to defraud municipalities across the country," said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division's criminal enforcement program. "Today's sentence sends a clear message that the division will continue to hold executives accountable for their anticompetitive conduct. "
On Sept. 8, 2010, Scott-Jones pleaded guilty to participating in multiple conspiracies with executives of General Electric Co. (GE) affiliates, from as early as 1999 until 2006. According to the charges, GE and other financial institutions and insurance companies (providers), offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States. The public entities hired brokers like Scott-Jones and Tradition to conduct bidding for contracts to invest money from a variety of sources, primarily the proceeds of municipal bonds issued to raise money for, among other things, public projects. Scott-Jones also participated in a conspiracy with representatives of a second provider located in New York City.
According to court documents, in each conspiracy, Scott-Jones gave co-conspirators information about the prices, price levels or conditions in competitors' bids, a practice known as a "last look," which is explicitly prohibited by U.S. Treasury regulations. Scott-Jones also solicited and received intentionally losing bids for certain investment agreements and other municipal finance contracts. As a result of Scott-Jones’ role in corrupting the bidding process for investment agreements, he and his co-conspirators deprived the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds used by municipalities for various public works projects, such as water pollution abatement projects and low-cost housing. The department said that the conspiracies cost municipalities around the country millions of dollars.
"Today's sentencing reaffirms the ongoing success of our efforts to weed out corruption in the municipal bond market," said George Venizelos, Acting Director in Charge of the FBI in New York. "The FBI will continue to work closely with our partners from the Antitrust Division to protect the integrity of the competitive bidding process in public finance. "
"Individuals who manipulate the competitive bidding system to benefit themselves will be held accountable for their criminal activity," said Richard Weber, Chief, Internal Revenue Service Criminal Investigation (IRS-CI). "Quite simply, Mr. Scott-Jones profited at the expense of the towns and cities that needed the money for important public works projects. IRS Criminal Investigation is committed to working with our law enforcement partners to uncover this kind of corruption and secure justice for American taxpayers. "
A total of 20 individuals have been charged as a result of the department's ongoing municipal bonds investigation, 19 of whom have been convicted at trial or pleaded guilty; one is currently awaiting trial. Additionally, one company has pleaded guilty.
The sentences announced today resulted from an ongoing investigation conducted by the Antitrust Division's New York Office, the FBI and IRS-CI. The division is coordinating its investigation with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.
Today's convictions are part of efforts underway by President Obama's Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys' offices and state and local partners, it's the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
FROM: SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced that on December 18, 2012 and June 12, 2012, the Honorable Judge Dora L. Irizarry, United States District Judge for the Eastern District of New York, entered Judgments against, respectively, Michael E. Metter ("Metter"), the former Chief Executive Office of Spongetech Delivery Systems, Inc. ("Spongetech"), and Steven Y. Moskowitz ("Moskowitz"), Spongetech’s former Chief Financial Officer. The judgments permanently enjoin Metter and Moskowitz from violating antifraud and securities registration provisions of the federal securities laws, as well as reporting, recordkeeping, and internal controls provisions. The Judgments also bar Metter and Moskowitz from serving as an officer or director of a public company, bar them from engaging in any offering of penny stock, and order them to pay penalties and disgorgement in amounts to be determined by the court, upon motion by the Commission. On September 20, 2012, the Commission instituted a settled administrative proceeding suspending Moskowitz from appearing or practicing before the Commission as an accountant.
The Commission’s complaint, filed on May 5, 2010, alleged that Metter, Moskowitz, Spongetech, and others engaged in a scheme to increase demand illegally for, and profit from, the unregistered sale of publicly-traded Spongetech stock by, among other things, "pumping" up demand for the stock through false public statements about non-existent customers, fictitious sales orders, and phony revenue. They also repeatedly and fraudulently understated the number of Spongetech’s outstanding shares in press releases and public filings. The purpose of flooding the market with false public information was to fraudulently inflate the price for Spongetech shares so the defendants and others could then "dump" the shares by illegally selling them to the public through affiliated entities in unregistered transactions. Among other things, the complaint further alleged that Spongetech, at the direction of Metter and Moskowitz, filed periodic reports with the Commission that contained materially false and misleading statements and materially overstated revenues, created materially false purchase orders, invoices, and other documents, and failed to ensure that Spongetech maintained accurate books and records or implemented effective internal controls. Metter and Moskowitz consented to the entry of the Judgments without admitting or denying the allegations of the Commission’s complaint.
The Commission previously obtained judgments against other defendants in this action. On November 10, 2011, the court entered a judgment by consent against Spongetech. The judgment imposed full injunctive relief and ordered Spongetech to pay penalties and disgorgement in amounts to be determined by the court, upon motion by the Commission.
On March 6, 2012, the court entered final judgments against RM Enterprises International, Inc. ("RM Enterprises"), a Spongetech affiliate, and George Speranza, a stock promoter. The final judgments imposed full injunctive relief against both, ordered Speranza to pay penalties, disgorgement, and prejudgment interest totaling $135,883.40, and barred Speranza from participating in any penny stock offering. The court deferred ruling on monetary remedies against RM Enterprises until the claims against other defendants are resolved.
Status of the Commission’s Spongetech Litigation
On March 14, 2011, the court issued an order granting the SEC’s motion for preliminary injunctions against six defendants, and granted the SEC’s requests for asset freezes against Metter, Moskowitz, and RM Enterprises. An asset freeze was not entered against Spongetech because the company filed for bankruptcy in July 2010, and has since been controlled by a court-appointed bankruptcy trustee. The asset freezes entered against Metter, Moskowitz, and RM, as subsequently modified by the court, remain in effect, as does the preliminary injunction entered against defendant Joel Pensley.
On March 27, 2012, the court granted the Commission’s motion to add BusinessTalkRadio.net, Inc. ("BTR") and Blue Star Media Group, Inc. ("Blue Star") as relief defendants. The amended complaint alleges that in 2009, RM Enterprises transferred illicit proceeds from the Spongetech fraud to satisfy a judgment that had been entered against Metter, these entities, and others.
The Commission’s action remains pending against BTR, Blue Star, and two of Spongetech’s former attorneys, Pensley and Jack Halperin, who are charged with violating the antifraud provisions by authoring false and misleading opinion letters to improperly remove the restrictions on trading shares of Spongetech stock.
On December 19, 2011, in a separate action, the court entered a Final Judgment permanently enjoining Myron Weiner from violating the securities registration provisions in connection with his purchase and sale of Spongetech’s stock, imposing a one-year penny stock bar, and ordered him to pay disgorgement and penalties totaling over $1.3 million. SEC v. Myron Weiner, Civil Action No. 11-CV-5731 (E.D.N.Y.). [See Litigation Release No. 22168 (Nov. 23, 2011), Litigation Release No. 22206 (Dec. 21, 2011)].
The Parallel Criminal Action
On May 5, 2010, the United States Attorney’s Office for the Eastern District of New York (USAO-EDNY) arrested Metter and Moskowitz, who were indicted for conspiracy to commit securities fraud and obstruction of justice, securities fraud, obstruction of justice, conspiracy to commit money laundering, and perjury. On October 14, 2010, the USAO-EDNY filed a superseding indictment against Speranza and four former Spongetech employees – Andrew Tepfer, Seymour Eisenberg, Thomas Cavanagh, and Frank Nicolois – on charges including securities fraud, obstruction of justice, money laundering, structuring, and contempt.
All of the criminal defendants have entered guilty pleas, with the exception of Metter. Moskowitz pleaded guilty to securities fraud and is awaiting sentencing. Speranza pleaded guilty to perjury for giving false testimony during the SEC’s investigation, and was sentenced to five years of probation. Cavanagh and Nicolois pleaded guilty to structuring transactions to avoid federal currency transaction reporting requirements, and were sentenced to 24 months and 16 months in prison, respectively, followed by three years of supervised release. Eisenberg and Tepfer also have pleaded guilty to securities fraud and await sentencing.
The Commission’s investigation is continuing, and is being conducted by Uta von Eckartsberg, Charles Davis, Scott Stanley, and Alexander Koch. The SEC’s lead trial counsel in the pending civil action is Paul Kisslinger.
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Chicago-Based R.J. O’Brien & Associates, LLC Sanctioned $300,000 for Supervision Violations
RJO failed to diligently supervise the handling of customer orders over four years
Washington, DC ― The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against R.J. O’Brien & Associates, LLC (RJO), of Chicago, Ill., a registered Futures Commission Merchant, for failing to diligently supervise its employees in connection with the handling of commodity futures orders of a Guaranteed Introducing Broker (GIB) of RJO and the GIB’s Associated Person (AP), sole principal, and owner.
The CFTC order finds that, from at least January 2003 through February 2007, the GIB’s AP engaged in an unlawful trade allocation scheme for his personal benefit and to the detriment of both the GIB’s customers and a commodity futures pool operated by the AP through accounts held at RJO. The AP was able to allocate trades post-execution, allocating the more profitable trades to his personal accounts, and the unprofitable, or less profitable trades to either the GIB customer accounts or the pool account, the order finds. The GIB’s and AP’s customers sustained losses of up to $183,000, according to the order.
In addition, RJO failed to follow procedures it had in place concerning the placement of bunched orders by account managers, the order finds. For example, RJO failed to ensure that it always received a post-allocation plan prior to, or contemporaneously with, the GIB’s AP’s filing of bunched orders. The order also finds that RJO did not employ adequate procedures to monitor, detect, and deter unusual activity concerning trades that were allocated post-execution, or for supervision of its employees’ handling and processing of bunched orders. By such acts, RJO failed to diligently supervise the handling of customer orders in violation of CFTC regulation 166.3, 17 C.F.R. § 166.3 (2011).
The CFTC order imposes a $300,000 civil monetary penalty and requires RJO to cease and desist from further violations of CFTC regulation 166.3, as charged.
CFTC Division of Enforcement staff was responsible for this case are Kevin S. Webb, Michelle S. Bougas, Heather N. Johnson, James H. Holl, III, Gretchen L. Lowe, and Vincent A. McGonagle.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today the resolution of an enforcement action filed by the Commission on October 19, 2010 in federal district court in Rhode Island against defendants David G. Stern and Online-Registries, Inc. (d/b/a Online Medical Registries) ("OMR") and relief defendant Michele Ritter. The court entered final judgment by consent against Stern on December 5, 2012 and entered a stipulation of dismissal of the claims against the relief defendant on December 27, 2012. The court previously had entered a final judgment by default against OMR on September 25, 2012.
The Commission's complaint alleged that Stern and OMR made false and misleading statements to investors in OMR, a web-based company founded and controlled by Stern, in connection with investors' purchase of stock in OMR. The misrepresentations generally related to OMR's business ventures, the status of its technology, its number of customers, and Stern's personal background, consisting of disbarment from the practice of law and a prior criminal conviction in federal district court in Massachusetts relating to financial wrongdoing. Based upon these and other allegations, including the misuse of investor funds, the Commission obtained a temporary restraining order and asset freeze on October 20, 2010, and a stipulated preliminary injunction on February 28, 2011 against Stern and OMR. On April 3, 2012, the court held Stern in contempt for violations of the preliminary injunction.
Without admitting or denying the allegations in the Commission's complaint, Stern agreed to the entry of a final judgment that: (i) permanently enjoins him from violating Section 17(a) of the Securities Act of 1933 (the "Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder; (ii) holds him liable for disgorgement of $197,875, representing amounts received as a result of the conduct alleged in the Commission's complaint, together with prejudgment interest thereon in the amount of $27,800.71, for a total of $225,675.71; and (iii) waives the payment of disgorgement and prejudgment interest and does not impose a civil penalty based upon the representations in Stern's sworn statement of financial condition. The final judgment by default entered against OMR (i) enjoins OMR from violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and (ii) orders OMR to pay disgorgement of $197,875 and prejudgment interest in the amount of $24,997.22. The Commission had initially charged that relief defendant Michele Ritter received some investor funds from Stern and sought the return of those funds. The Commission has now agreed to dismiss its charges against relief defendant Michele Ritter.
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