SEC CHARGES FORMER BANK HOLDING COMPANY OFFICERS WITH DISCLOSURE FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23254 / May 7, 2015

Securities and Exchange Commission v. David R. Gibson, et al., Civil Action No. 15-cv-00363 (D. Del., May 6, 2015)

SEC Charges Four Former Officers of Delaware Bank Holding Company with Disclosure Fraud

On May 6, 2015, the Securities and Exchange Commission filed fraud charges against four former officers of Wilmington Trust for intentionally understating past due bank loans during the financial crisis.  The former Delaware-based bank holding company was acquired by M&T Bank in May 2011 and paid $18.5 million in September 2014 to settle related SEC charges of improper accounting and disclosure fraud.

The SEC’s complaint, filed in federal district court in Wilmington, Delaware, alleges the four took part in a scheme to mask the impact of real estate market declines on the bank’s portfolio of commercial real estate loans.  According to the SEC’s complaint, the former officials improperly excluded hundreds of millions of dollars of past due real estate loans from financial reports filed by Wilmington Trust in 2009 and 2010, violating a requirement to fully disclose the amount of loans 90 or more days past due.

The complaint names the bank’s former Chief Financial Officer David R. Gibson, former Chief Operating Officer and President Robert V.A. Harra, former Controller Kevyn N. Rakowski, and former Chief Credit Officer William B. North.  The complaint alleges that Gibson, Rakowski, and North omitted approximately $351 million of matured loans 90 days or more past due from Wilmington Trust’s disclosures in the third quarter of 2009, so that the bank disclosed only $38.7 million of such loans.  The four former officials allegedly omitted approximately $330.2 million of these loans in the fourth quarter of 2009, so that the bank’s annual report disclosed just $30.6 million in matured loans 90 days or more past due.

In addition, the complaint alleges that Gibson, Rakowski and North schemed to materially misreport this category of past due loans in the first half of 2010.  Gibson also is alleged to have materially understated the amount of non-accruing loans in Wilmington Trust’s portfolio in the third quarter of 2009 and the bank’s loan loss provision and allowance for loan losses in the fourth quarter of 2009.  Gibson, Harra, Rakowski and North are each charged with violating or aiding and abetting violations of the antifraud provisions of the federal securities laws.  Each also is charged with aiding and abetting violations of the reporting, recordkeeping, and internal controls provision of the federal securities laws.  The SEC is seeking to have all four return allegedly ill-gotten gains with interest and pay civil monetary penalties, and to have Gibson and Harra barred from serving as corporate officers or directors.

In a related action, the U.S. Attorney’s Office for the District of Delaware today announced criminal charges against Rakowski and North.

The SEC’s investigation has been conducted by Margaret Spillane, James Addison, and Thomas P. Smith, Jr. of the New York Regional Office.  Jack Kaufman and Ms. Spillane will lead the SEC’s litigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Delaware, Federal Bureau of Investigation, Federal Reserve, and Office of the Special Inspector General for the Troubled Asset Relief Program.

SEC.gov | Keynote Speech at New York City Bar 4th Annual White Collar Institute

SEC.gov | Keynote Speech at New York City Bar 4th Annual White Collar Institute

U.S. Equity Market Structure: Making Our Markets Work Better for Investors

U.S. Equity Market Structure: Making Our Markets Work Better for Investors

SEC CHARGES HEDGE FUND ADVISORY FIRM, EXECUTIVES WITH IMPROPER ALLOCATION OF ASSETS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
04/29/2015 12:30 PM EDT

The Securities and Exchange Commission announced charges against a Santa Barbara, Calif.-based hedge fund advisory firm and two executives involved in improper allocations of fund assets to pay undisclosed operating expenses.  The SEC also charged an accountant who conducted the outside audit of misleading financial statements that the firm sent to investors.

An SEC investigation found that Alpha Titans LLC, its principal Timothy P. McCormack, and general counsel Kelly D. Kaeser used assets of two affiliated private funds to pay more than $450,000 in office rent, employee salaries and benefits, and similar expenses without clear authorization from fund clients and without accurate and complete disclosures that fund assets were being used for these purposes.  The firm’s outside auditor Simon Lesser was aware of how Alpha Titans used fund assets but still gave his final approval of audit reports containing unqualified opinions that the funds’ financial statements were presented fairly.

The firm, both executives, and the auditor agreed to settle the SEC’s charges.

“Alpha Titans did not make the proper disclosures for clients to decipher that the funds were footing the bill for many of the firm’s operational expenses,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Private fund managers must be fully transparent about the type and magnitude of expenses they allocate to the funds.”

According to the SEC’s orders instituting settled administrative proceedings, Alpha Titans, McCormack, and Kaeser sent investors audited financial statements that failed to disclose almost $3 million in expenses tied to transactions involving other entities controlled by McCormack.  Lesser engaged in improper professional conduct while auditing the funds’ financial statements by not considering the adequacy of the related party disclosures in the funds’ financial statements.  Alpha Titans violated the custody rule by distributing financial statements that were not GAAP compliant.

To settle the SEC’s charges, Alpha Titans and McCormack agreed to pay disgorgement of $469,522, prejudgment interest of $28,928, and a penalty of $200,000.  McCormack and Kaeser each agreed to be barred from the securities industry for one year, and Kaeser agreed to a one-year suspension from practicing as an attorney on behalf of any entity regulated by the SEC.  Lesser agreed to pay a penalty of $75,000 and consented to an order suspending him from practicing as an accountant on behalf of any entity regulated by the SEC for at least three years.  The firm and the three individuals settled the charges without admitting or denying the SEC’s findings.

The SEC’s investigation was conducted by Ronnie B. Lasky, C. Dabney O’Riordan, and Dan Pines of the Asset Management Unit along with Carol Shau and Megan T. Monroe.  The SEC examination that led to the investigation was conducted by Charles Liao, John K. Kreimeyer, Nicholas Mead, and Andy Ganguly of the SEC’s Los Angeles office.

SEC FILES FRAUD CHARGES AGAINST FORMER OFFICRS OF WILMINGTON TRUST

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23254 / May 7, 2015
Securities and Exchange Commission v. David R. Gibson, et al., Civil Action No. 15-cv-00363 (D. Del., May 6, 2015)
SEC Charges Four Former Officers of Delaware Bank Holding Company with Disclosure Fraud

On May 6, 2015, the Securities and Exchange Commission filed fraud charges against four former officers of Wilmington Trust for intentionally understating past due bank loans during the financial crisis.  The former Delaware-based bank holding company was acquired by M&T Bank in May 2011 and paid $18.5 million in September 2014 to settle related SEC charges of improper accounting and disclosure fraud.

The SEC’s complaint, filed in federal district court in Wilmington, Delaware, alleges the four took part in a scheme to mask the impact of real estate market declines on the bank’s portfolio of commercial real estate loans.  According to the SEC’s complaint, the former officials improperly excluded hundreds of millions of dollars of past due real estate loans from financial reports filed by Wilmington Trust in 2009 and 2010, violating a requirement to fully disclose the amount of loans 90 or more days past due.

The complaint names the bank’s former Chief Financial Officer David R. Gibson, former Chief Operating Officer and President Robert V.A. Harra, former Controller Kevyn N. Rakowski, and former Chief Credit Officer William B. North.  The complaint alleges that Gibson, Rakowski, and North omitted approximately $351 million of matured loans 90 days or more past due from Wilmington Trust’s disclosures in the third quarter of 2009, so that the bank disclosed only $38.7 million of such loans.  The four former officials allegedly omitted approximately $330.2 million of these loans in the fourth quarter of 2009, so that the bank’s annual report disclosed just $30.6 million in matured loans 90 days or more past due.

In addition, the complaint alleges that Gibson, Rakowski and North schemed to materially misreport this category of past due loans in the first half of 2010.  Gibson also is alleged to have materially understated the amount of non-accruing loans in Wilmington Trust’s portfolio in the third quarter of 2009 and the bank’s loan loss provision and allowance for loan losses in the fourth quarter of 2009.  Gibson, Harra, Rakowski and North are each charged with violating or aiding and abetting violations of the antifraud provisions of the federal securities laws.  Each also is charged with aiding and abetting violations of the reporting, recordkeeping, and internal controls provision of the federal securities laws.  The SEC is seeking to have all four return allegedly ill-gotten gains with interest and pay civil monetary penalties, and to have Gibson and Harra barred from serving as corporate officers or directors.

In a related action, the U.S. Attorney’s Office for the District of Delaware today announced criminal charges against Rakowski and North.

The SEC’s investigation has been conducted by Margaret Spillane, James Addison, and Thomas P. Smith, Jr. of the New York Regional Office.  Jack Kaufman and Ms. Spillane will lead the SEC’s litigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Delaware, Federal Bureau of Investigation, Federal Reserve, and Office of the Special Inspector General for the Troubled Asset Relief Program.

MICHIGAN RESIDENT RECEIVES PRISON SENTENCE FOR DEFRAUDING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23250 / April 30, 2015
Securities and Exchange Commission v. Joel I. Wilson et al., Civil Action No. 12-cv-15062 (E.D. Mich.)
Michigan Businessman Sentenced to Up to 20 Years for Defrauding Investors

The Securities and Exchange Commission announced that on April 24, 2015, the Honorable Joseph K. Sheeran of the Bay County Circuit Court in Bay City, Michigan sentenced Joel Wilson to concurrent prison terms of 105 months to 20 years and 80 months to 10 years on six criminal counts. The Court ordered that he pay $6.5 million in restitution, plus $11,000 to the Michigan Attorney General's Office for the costs of extraditing him from Germany. Wilson, 32, of Saginaw, Michigan, had been previously found guilty by a jury in March 2015 of fraudulent sale of securities, sale of unregistered securities, and continuing a criminal enterprise or racketeering and larceny.

The criminal charges arose out of the same facts that were the subject of a civil enforcement action that the Commission filed against Wilson on November 15, 2012. According to the Commission's complaint, Wilson defrauded investors who bought unregistered securities offered by his company, Diversified Group Partnership Management, LLC, and sold through his brokerage firm, W R Rice Financial Services, Inc. Wilson raised approximately $6.7 million from approximately 120 investors who bought Diversified Group's securities from September 2009 through October 2012, and used the funds to finance his business of buying, renovating, and selling houses in and around Bay City, the Commission alleged.

Although Wilson promised investors that he would invest their money in real estate that would yield returns of 9.9% per year, he used most of it to make unsecured loans to his real estate business, which did not generate enough income to repay the investors. Wilson also diverted $582,000 of investor money to pay personal expenses, including $75,000 he used to buy W R Rice Financial, $46,780 he spent on travel, and $35,000 for his wife's business. In addition, Wilson used investors' money to pay for a sponsorship and tickets to the Saginaw Sting football team and to buy thousands of dollars worth of tickets to the Detroit Red Wings.

The Commission also alleged that Wilson raised additional funds for his real estate business through stock sales for another of his companies, American Realty Funds Corporation, which traded on the OTC Bulletin Board under the symbol ANFDE at the time and is now no longer listed. The complaint alleged that there were misrepresentations and omissions in some of the reports the company filed with the Commission, which Wilson signed, including that American Realty had failed to make loan payments and that its purportedly independent directors have undisclosed personal and business relationships with Wilson.

The Commission's complaint, filed in the U.S. District Court for the Eastern District of Michigan, charged Wilson and Diversified Group with violations of the registration and antifraud provisions of the federal securities laws and American Realty with violations of the antifraud and reporting provisions of the federal securities laws. When Wilson failed to answer the Commission's complaint, the Court granted the Commission's motion for entry of a default judgment against him. On July 26, 2013, the Court entered a Second Amended Final Judgment against Wilson, which permanently enjoined Wilson from future violations of the federal securities laws and ordered him to pay disgorgement of $6,403,580, prejudgment interest of $290,319, and a civil penalty of $7,500 for a total of $6,701,399. The Commission also entered a final administrative order on October 17, 2014, barring Wilson from associating with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in an offering of penny stock.