This is a photo of the National Register of Historic Places listing with reference number 7000063
Wednesday, June 4, 2014
ALLEGED INVENTORY OVER-STATER GETS CHARGED WITH ACCOUNTING FRAUD BY SEC
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Former CFO of Dallas-Based Jewelry and Collectibles Company with Accounting Fraud
The Securities and Exchange Commission today filed accounting fraud charges against a Dallas-based company and its former chief financial officer for manipulating its inventory accounts.
The SEC alleges that I. John Benson made repeated false accounting entries that materially inflated the value of inventory on the balance sheets at DGSE Companies Inc., which buys and sells jewelry, diamonds, fine watches, rare coins, precious metals and other collectibles. Benson’s entries made it appear that DGSE owned certain inventory that actually still belonged to customers in consignment arrangements where DGSE held the goods on the owner’s behalf until they were sold. Benson then misled the company’s independent auditors about the journal entries, and DGSE subsequently overstated its inventory by anywhere from 99.1 percent to 227.4 percent in public filings during 2009, 2010, and 2011.
DGSE agreed to settle the SEC’s charges, and Benson agreed to a settlement in which he will pay a $75,000 penalty, be permanently barred from serving as an officer or director of a public company, and be suspended from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.
According to the SEC’s complaint filed in the Dallas Division of U.S. District Court for the Northern District of Texas, deficiencies in DGSE’s accounting systems and controls led to problems that significantly compromised the integrity of the company’s financial data. The deficiencies included the failure to properly record intercompany transactions such as inventory transfers between stores. As a result, DGSE’s intercompany accounts became out of balance by millions of dollars.
The SEC alleges that Benson subsequently made a number of fraudulent accounting entries in order to bring the intercompany accounts and DGSE’s general ledger as a whole back into balance. The entries resulted in a number of errors in DGSE’s financial statements including the large overstatement of DGSE inventory by millions of dollars. Benson concealed the improper entries by manipulating inventory detail listings to improperly reflect the consigned inventory as being owned by DGSE. Benson sent these listings to DGSE’s external auditor, and misled the auditor to believe the consigned goods were owned by DGSE. Benson then knowingly signed misleading public filings by DGSE, including annual reports for the 2009 and 2010 fiscal years as well as quarterly filings. Benson also signed false management certifications that were attached to these filings.
Benson is charged with violating Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b), 13(a), and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2(a) thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. DGSE is charged with violating Section 17(a)(2) of the Securities Act, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. DGSE and Benson each consented to injunctions against future violations of these provisions. DGSE also agreed to the appointment of an independent consultant to review the company’s accounting controls, and DGSE has taken or agreed to take remedial steps to correct its deficiencies.
The SEC’s investigation was conducted by Chris Davis, Keith Hunter, and Joann Harris of the Fort Worth Regional Office.
Tuesday, June 3, 2014
FORMER ARTHROCARE CORPORATION CEO, CFO CONVICTED FOR ROLES IN $400 MILLION SECURITIES FRAUD
FROM: U.S. JUSTICE DEPARTMENT
Monday, June 2, 2014
Former CEO and CFO of Arthrocare Corporation Convicted for Orchestrating $400 Million Securities Fraud Scheme
A federal jury convicted the former chief executive officer and the former chief financial officer of ArthroCare Corporation, a publicly traded medical device company based in Austin, Texas, for orchestrating a fraud scheme that resulted in shareholder losses of over $400 million.
Principal Deputy Assistant Attorney General Marshall L. Miller and Special Agent in Charge Christopher Combs of the FBI’s San Antonio Field Office made the announcement.
“These corporate executives cooked the books to prop up their stock, and when the truth came out investors lost more than $400 million,” said Principal Deputy Assistant Attorney General Miller. “Today’s convictions are the first step in holding them accountable for undermining our financial markets for their own personal gain.”
“This case demonstrates the FBI’s commitment to unraveling elaborate and complex fraud schemes leaving no financial stone unturned,” said FBI SAC Combs. “Those who abuse their position of trust to illegally enrich themselves, at the expense of shareholders and members of the investing public, will be held accountable for their actions.”
After a four-week trial, a jury in the Western District of Texas found the former CEO, Michael Baker, 55, guilty of conspiracy to commit wire and securities fraud, wire fraud, securities fraud and false statements. Michael Gluk, 56, the former CFO, was found guilty of conspiracy to commit wire and securities fraud, wire fraud and securities fraud. Baker and Gluk were charged in a superseding indictment returned on April 1, 2014.
Evidence at trial demonstrated that Baker and Gluk, along with their co-conspirators, masterminded and executed a scheme to artificially inflate sales and revenue through a series of end-of-quarter transactions involving several of ArthroCare’s distributors beginning in 2005 and continuing until 2009. Co-conspirators John Raffle and David Applegate, both former senior vice presidents of ArthroCare, pleaded guilty to multiple felonies in 2013 in connection with their participation in the scheme.
Baker, Gluk and other ArthroCare employees determined the type and amount of product to be shipped to distributors based on ArthroCare’s need to meet Wall Street analyst forecasts, rather than distributors’ actual orders. Baker, Gluk and others then caused ArthroCare to “park” millions of dollars’ worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter. ArthroCare then reported these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to meet or exceed internal and external earnings forecasts.
Evidence at trial further showed that ArthroCare’s distributors agreed to accept shipment of millions of dollars of products in exchange for special conditions, including substantial, upfront cash commissions, extended payment terms and the ability to return products, allowing ArthroCare to falsely inflate its revenue by tens of millions of dollars.
Baker, Gluk and others used DiscoCare, a privately owned Delaware corporation, as one of the distributors to cover shortfalls in ArthroCare’s revenue. Evidence at trial showed that, at Baker and Gluk’s direction, ArthroCare shipped product to DiscoCare that far exceeded DiscoCare’s needs.
Baker, Gluk and others lied to investors and analysts about ArthroCare's relationships with its distributors, including DiscoCare. Baker and Gluk caused ArthroCare to acquire DiscoCare specifically to conceal from the investing public the nature and financial significance of ArthroCare’s relationship with DiscoCare.
Evidence at trial also established that Baker lied when he was deposed by the U.S. Securities and Exchange Commission in November 2009 about the DiscoCare relationship.
Between December 2005 and February 2009, ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock. On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.
Following today’s verdict, U.S. District Judge Sam Sparks remanded Baker into custody. A sentencing date for Baker and Gluk has not yet been scheduled.
This case was investigated by the FBI’s San Antonio Field Office. The case is being prosecuted by Deputy Chief Benjamin D. Singer and Trial Attorneys Henry P. Van Dyck and William S.W. Chang of the Criminal Division’s Fraud Section. The Department appreciates the substantial assistance of the U.S. Securities and Exchange Commission.
Monday, June 2, 2014
3 CORPORATE OFFICERS, STOCK PROMOTER GET SENTENCES FOR ROLES IN KICKBACK MARKET MANIPULATION SCHEME
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Three Corporate Officers and Stock Promoter Sentenced for Fraudulent Kickback and Market Manipulation Scheme
The Securities and Exchange Commission announced that three corporate officers and a stock promoter were sentenced recently by the United States District Court for the District of Massachusetts in cases filed on December 1, 2011 alleging they used kickbacks and other schemes to trigger investments in various thinly-traded stocks. Those sentenced were: stock promoter Edward Henderson of Lincoln, Rhode Island; and corporate officers Paul Desjourdy of Medfield, Massachusetts (President of Symbollon Pharmaceuticals, Inc.); James Wheeler of Camas, Washington (Chief Executive Officer of MicroHoldings US, Inc.); and Michael Lee of Hingham, Massachusetts (President and Chief Executive Officer of ZipGlobal Holdings, Inc.). The Commission filed related civil charges against these and other parties on December 1, 2011, and those charges remain pending.
Henderson, Desjourdy, Wheeler, and Lee were among 13 defendants who were alleged to have engaged in criminal activity in the midst of an undercover FBI operation. According to the charges filed in U.S. District Court, the schemes involved secret kickbacks to an investment fund representative in exchange for having the investment fund buy stock in certain companies; the kickbacks were to be concealed through the use of sham consulting agreements. What the insiders and promoters did not know was that the purported investment fund representative was actually an undercover agent.
On November 25, 2013, Henderson was sentenced to one year of probation and was ordered to forfeit $12,650 after pleading guilty on January 20, 2012 to one count of wire fraud. On January 16, 2014, Desjourdy was sentenced to 18 months of probation and was ordered to forfeit $54,000 after pleading guilty on January 11, 2012 to one count of mail fraud and one count of conspiracy. On January 16, 2014, Wheeler was sentenced to 18 months of probation and was ordered to forfeit $24,000 after pleading guilty on January 18, 2012 to one count of mail fraud and one count of conspiracy. On March 6, 2014, Lee was sentenced to three years of probation (the first nine months to be served in home confinement with electronic monitoring) and ordered to forfeit $105,603 after pleading guilty on January 11, 2012 to one count of mail fraud and one count of conspiracy.
On December 1, 2011, the Commission filed civil charges of securities fraud against Henderson, Desjourdy, Wheeler, Lee, ZipGlobal Holdings, Inc., and MicroHoldings US, Inc., alleging that they used kickbacks to engage in fraudulent financing transactions involving microcap stocks. Those cases are pending.
Sunday, June 1, 2014
COMPANY DIRECTOR CHARGED BY SEC WITH INSIDER TRADING AHEAD OF SALE TO PRIVATE EQUITY FIRM
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
On May 22, 2014, the Securities and Exchange Commission charged a former director of a Long Island-based vitamin company and others in his family circle with insider trading ahead of the company’s sale to a private equity firm.
The SEC alleges that board member Glenn Cohen learned that NBTY Inc. was negotiating a sale to The Carlyle Group and tipped his three brothers and a brother’s girlfriend with the confidential information. Craig Cohen, Marc Cohen, Steven Cohen, and Laurie Topal all traded on the inside information that Glenn Cohen provided and reaped illicit profits totaling $175,000.
The four Cohens and Topal agreed to settle the SEC’s charges by paying a total of more than $500,000.
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Glenn Cohen first learned in May 2010 that NBTY management was negotiating to sell the company. He shared the nonpublic information with his three brothers and Topal, who is the girlfriend of Marc Cohen. All four purchased NBTY shares as a result. The next month, Glenn Cohen attended additional board meetings as negotiations between NBTY and Carlyle progressed. As more information became available to the board, Steven and Craig Cohen purchased additional NBTY shares. On July 15, Carlyle announced its acquisition of NBTY at a per-share price that was 47 percent above the prior day’s closing price, enabling the Cohens and Topal to profit significantly when they all sold their NBTY shares that same day.
The SEC’s complaint charges the Cohens and Topal with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In a settlement that would permanently enjoin them from violations of Section 10(b) and Rule 10b-5, they agreed to the following sanctions:
Glenn Cohen: penalty of $153,613.25 and barred from serving as an officer or director of a public company.
Craig Cohen: disgorgement of $71,932, prejudgment interest of $9,606, and a penalty of $71,932.
Marc Cohen: disgorgement of $21,454, prejudgment interest of $2,865, and a penalty of $21,454
Steven Cohen: disgorgement of $60,226, prejudgment interest of $8,042, and a penalty of $60,226.
Laurie Topal: disgorgement of $21,780, prejudgment interest of $2,908, and a penalty of $21,780.
The Cohens and Topal neither admitted nor denied the charges in the settlement, which is subject to court approval.
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