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This is a photo of the National Register of Historic Places listing with reference number 7000063

Wednesday, December 21, 2011

SEC CHARGES BERNIE MADOFF EMPLOYEE WITH FALSIFYING RECORDS

The following is an excerpt from the SEC website: 

"Washington, D.C., Dec. 19, 2011 — The Securities and Exchange Commission today charged a longtime Bernie Madoff employee with falsifying books and records in order to hide Madoff’s fraudulent investment advisory operations from regulators.

The SEC alleges that Enrica Cotellessa-Pitz, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 30 years, assisted in falsifying BMIS’s internal accounting records in order to misclassify hundreds of millions of dollars of income purportedly generated by BMIS’s investment advisory operations. Cotellessa-Pitz also falsified financial statements filed with the SEC and other regulators as well as materials that were prepared to deceive SEC staff examiners, federal and state tax auditors, and other external reviewers.
“To keep his massive fraud alive, Madoff had to hide as many facts about his advisory operations as possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Cotellessa-Pitz along with other senior BMIS personnel played a critical role in this effort by creating false documents to deceive federal and state regulators.”

The SEC previously charged BMIS’s Director of Operations David Bonventrewith falsifying books and records to hide and obfuscate Madoff’s advisory operations. According to the SEC’s complaint against Cotellessa-Pitz filed in U.S. District Court for the Southern District of New York, she played a central role in falsifying these records as directed by Madoff and Bonventre. Madoff used the false records to artificially improve the firm’s reported revenue and income as well as to deceive regulators who sought to review the firm’s operations and financial results.
The SEC alleges that Madoff instructed employees to transfer hundreds of millions of dollars from bank accounts holding investor funds to the firm’s operating bank accounts. Madoff’s goal was as simple as it was misleading – to use stolen investor funds to hide the significant losses incurred by BMIS’s market-making and proprietary trading operations. Cotellessa-Pitz joined this effort after she was promoted to controller at the firm in 1998, when Madoff and Bonventre instructed her to falsely account for these transfers of investor funds as adjustments to certain securities positions on BMIS’s stock record.

According to the SEC’s complaint, Cotellessa-Pitz then used these figures to calculate and overstate the trading income purportedly generated by Madoff’s market-making and proprietary trading operations. Cotellessa-Pitz included these bogus figures on BMIS financial statements, which she then filed with the SEC and other regulators. Cotellessa-Pitz and other BMIS personnel then falsified documents provided to regulators to obscure the firm’s advisory operations and the transfer of investor funds to the operating bank accounts.

The U.S. Attorney’s Office for the Southern District of New York today announced parallel criminal charges against Cotellessa-Pitz, who has pled guilty and also consented to the entry of a partial judgment in the SEC’s civil case against her. Subject to court approval, the proposed partial judgment will impose a permanent injunction against Cotellessa-Pitz and require her to disgorge ill-gotten gains and pay a fine in amounts to be determined by the court at a later date.
The SEC’s complaint against Cotellessa-Pitz alleges that by engaging in this conduct, she aided and abetted violations of Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3, 17a-4, and 17a-5 thereunder, and Section 204 of the Investment Advisers Act of 1940 and Rule 204-2 thereunder.

The SEC’s investigation was conducted by Aaron P. Arnzen and Kristine M. Zaleskas of the New York Regional Office. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for its coordination and assistance. The SEC’s investigation is continuing."

Tuesday, December 20, 2011

SEC ALLEGES STOCK BUY-BACK FRAUD

The following excerpt is from the SEC website: December 12, 2011 Securities and Exchange Commission v. Stiefel Laboratories Inc. and Charles W. Stiefel , (UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA, CASE NO. 1:11-cv-24438, FILED DECEMBER 12, 2011) On December 12, 2011, the Securities and Exchange Commission filed securities fraud charges against Stiefel Laboratories Inc. (at the time of its misconduct the world’s largest private manufacturer of dermatology products, and now a fully-owned subsidiary of GlaxoSmithKline PLC) and Charles Stiefel, its former chairman and CEO, alleging they defrauded shareholders by buying back their stock at severely undervalued stock prices from November 2006 to April 2009. The SEC alleges that in each of those years Stiefel Labs and Charles Stiefel used low valuations for stock buybacks and omitted to disclose to the Company’s own employees important information that would have alerted them that their stock was worth much more (information that only certain members of the Stiefel family and senior management knew about). The SEC’s complaint, filed in the Southern District of Florida, alleges that first, between November 2006 and April 2007, Stiefel Labs purchased more than 750 shares of Stiefel Labs stock from shareholders at $13,012 a share even though Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock in November 2006 based on equity valuations of Stiefel Labs that were more than 50% to 200% higher than the valuation later used for stock buybacks . Second, the complaint alleges that between late July 2007 and June 2008, Stiefel Labs purchased more than 350 additional shares of Stiefel Labs stock from shareholders under the Company’s employee stock plan at $14,517 a share. It also bought more than 1,050 shares from shareholders outside the Plan at an even lower stock price. At the time of these buybacks, Charles Stiefel knew, not only about the November 2006 private equity valuations, but that a prominent private equity firm had bought preferred stock based on an equity valuation for Stiefel Labs that was more than 300% higher than that used for stock buybacks . Third, the complaint alleges that between December 3, 2008 and April 1, 2009, Stiefel Labs purchased more than 800 shares of its stock from shareholders at $16,469 a share even though Charles Stiefel knew that equity valuation was low and misleading, in part because he was negotiating the sale of the Company. Indeed, b eginning in late November 2008, Stiefel Labs decided to seek acquisition bids from several pharmaceutical companies. On January 26, 2009, Glaxo expressed interest in a Stiefel Labs acquisition and signed a confidentiality agreement on January 28, 2009. As late as March 16, 2009, Charles Stiefel ordered that the ongoing negotiations not be disclosed to employees and Stiefel Labs misled shareholders to believe the Company would remain family-owned. On April 20, 2009, Stiefel Labs announced that Glaxo would acquire the Company for a value that amounted to more than $68,000 per share (more than 300% higher than the $16,469 Stiefel Labs paid to buy back shares from its shareholders). As a result of their violations of the federal securities laws Stiefel Labs and Charles Stiefel benefitted greatly and shareholders lost more than $110 million by selling their stock to Stiefel Labs based on the misleading valuations Stiefel Labs and Charles Stiefel had provided them. The SEC’s complaint charges Stiefel Labs with violating and Charles Stiefel with violating and aiding and abetting Stiefel Labs’ violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a final judgment permanently enjoining the defendants from future violations of these provisions of the federal securities laws and ordering them to disgorge their ill-gotten gains plus prejudgment interest and pay financial penalties, and also seeks an officer and director bar against Charles Stiefel."

Monday, December 19, 2011

U.S., CANADA AND MEXICO MEET TO DISCUSS ANTITRUST POLICIES

The following excerpt is from the Department of Justice website:


DECEMBER 19, 2011
"WASHINGTON — The heads of the antitrust agencies of the United States, Canada and Mexico – Acting Assistant Attorney General Sharis A. Pozen of the Department of Justice’s Antitrust Division, Chairman Jon Leibowitz of the Federal Trade Commission, Canadian Commissioner of Competition Melanie Aitken and President Eduardo Perez Motta of the Mexican Federal Competition Commission – met today to reaffirm their commitment to effective enforcement cooperation.  The discussions covered a wide range of enforcement and policy issues, including updates on merger policy and enforcement in the three jurisdictions and the sharing of recent experience in areas of mutual enforcement interest.

“Working with our antitrust colleagues across both United States borders to ensure that antitrust enforcement is effective is good for businesses and consumers,” said Acting Assistant Attorney General Pozen.  “The department values its close law enforcement relationships with Canada and Mexico, and I look forward to our continued efforts to work together to combat anticompetitive activity that affects North America.”

The United States, Canada and Mexico are parties to a series of bilateral antitrust cooperation agreements that commit their antitrust agencies to cooperate and coordinate with each other in order to make their antitrust policies and enforcement as consistent and effective as possible.  The three nations also are parties to the North American Free Trade Agreement, which includes a competition chapter that provides for cooperation among them in antitrust investigations." 

SEC ALLEGES PENNY STOCK PUBLICATION MADE MATERIAL MISREPRESENTATIONS AND OMISSIONS

The following excerpt is from the SEC website: December 12, 2011 Securities and Exchange Commission v. Geoffrey J. Eiten and National Financial Communications Corp., 1:11-CV-12185 (District of Massachusetts, Complaint filed December 12, 2011) SEC CHARGES MASSACHUSETTS-BASED PENNY STOCK PROMOTER WITH MAKING FRAUDULENT STATEMENTS The Securities and Exchange Commission, in an action filed today in federal court in Boston, charged Massachusetts resident Geoffrey J. Eiten and his company National Financial Communications Corp. (“NFC”) for making material misrepresentations and omissions in a penny stock publication they issued. The Commission’s complaint alleges that Eiten and NFC publish a penny stock promotion piece called the “OTC Special Situations Reports.” According to the complaint, Eiten, self-proclaimed “America’s Leading Micro-Cap Stock Picker,” promotes penny stocks in this publication on behalf of clients in order to increase the price per share and/or volume of trading in the market for the securities of penny stock companies. The complaint alleges that Eiten and NFC have made misrepresentations in these reports about the penny stock companies they are promoting. For example, the Commission’s complaint alleges that during 2010, Eiten and NFC issued reports promoting four penny stock companies: (1) Clean Power Concepts, Inc., based in Regina, Saskatchewan, Canada, a purported manufacturer and distributor of various fuel additives and lubrication products made from crushed seed oil; (2) Endeavor Power Corp., based in Robesonia, Pennsylvania, a purported recycler of value metals from electronic waste; (3) Gold Standard Mining, based in Agoura Hills, California, a purported owner of Russia gold mining operations; and (4) Nexaira Wireless Corp., based in Vancouver, British Columbia, Canada, a purported developer and seller of wireless routers. The Commission’s complaint alleges that in these four reports, Eiten and NFC made material misrepresentations and omissions, concerning, among other things, the companies’ financial condition, future revenue projections, intellectual property rights, and Eiten’s interaction with company management as a basis for his statements. According to the complaint, Eiten and NFC were hired to issue the above reports. Eiten and NFC used false information provided by their clients, without checking the accuracy of the information with the companies in question or otherwise ensuring that the statements they were making in the OTC Special Situations Report were true. The Commission’s complaint charges Eiten and NFC with violating the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder). In its complaint, the Commission seeks permanent injunctions, disgorgement plus prejudgment interest, civil penalties, and penny stock bars pursuant to Section 21(d)(6) of the Exchange Act against the defendants."

SEC CHIEF ACCOUNTANT BESWICK SPEAKS TO AICPA

The following excerpt is from the SEC website:

" Paul A. Beswick Deputy Chief Accountant U.S. Securities and Exchange Commission Washington, D.C. December 5, 2011 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect those of the Commission or of the author’s colleagues upon the staff of the Commission.. Introduction I would like to thank the AICPA for providing me with the opportunity to speak at the AICPA National Conference on Current SEC and PCAOB Developments.

 Today I would like to spend time talking about two topics, one of which you are probably all expecting and the other that might be a bit of a surprise. IFRS Work Plan Let me first start with IFRS. When thinking about what to say in regards to IFRS, I stuck to one overall guiding principle, no new models or new words. The staff has nearly completed our efforts on the Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers (“2010 Work Plan”). As Jim mentioned earlier this morning, the staff published two reports on November 16, 2011 on the comparison of U.S. GAAP to IFRS and an analysis of IFRS in practice. In terms of existing open items, one of the items the Commission discussed in its Statement in Support of Convergence and Global Accounting (“2010 Statement”) regarding readiness for a determination regarding incorporating IFRS into the financial reporting system for U.S. issuers, and which was mentioned earlier, was the satisfactory completion of the convergence projects between the FASB and the IASB. In addition, the staff is continuing to evaluate with respect to the second area of the 2010 Work Plan the governance of the IASB. As noted in the staff’s 2010 Progress Report on the Work Plan, the Monitoring Board and the Trustees are in the final stages of separate but complementary reviews of governance and strategy for the Foundation.

Enhancements under the two reviews should provide for a clarified and enhanced governance structure supporting the IASB as an independent yet accountable standard-setting body. The Monitoring Board and the Trustees intend to publish their package of governance enhancements during December. These are two very important initiatives yet to be completed that the staff expects to inform our thinking around this area of the Work Plan. We are in the process of drafting a final report that summarizes all of our efforts to complete the 2010 Work Plan. The staff is drafting the report to provide our insights on what we have learned during the last almost two years of work. I would hope that the staff could get the final report out as soon as practicable in 2012. 2011 May Staff Paper Earlier, Jim Kroeker noted the feedback received on the May staff paper, Exploring a Possible Method of Incorporation (May Staff Paper). The goal of publishing the May Staff Paper was to foster greater discussion about what may be practicable from the staff’s perspective in terms of incorporating IFRS into the U.S. However, the staff thinking continues to evolve based on the very helpful feedback we were provided, and I thought I would spend some time discussing what we learned from the May Staff Paper and from some of our other outreach. Today I intend to focus on some of the more significant points, but note that the staff intends to include a more comprehensive discussion in the final staff report. The staff received a lot of well thought out and helpful feedback to the May Staff Paper from a wide range of interested parties. While it is impossible to say we received unanimous thinking in the comment letters, there were three themes that I think are important to highlight. However, what I say here could not begin to capture the rich discussion in the letters. They are all on our website. I encourage you to review them yourself. First, and most basic, was strong support for the objective of a single set of high-quality globally accepted accounting standards. The second was support for the general premise of an endorsement mechanism that was described in the May Staff Paper. Third, further progress should be made on the Boards’ joint standard setting projects before IFRS is incorporated into the U.S. In elaborating on an endorsement mechanism, a major theme I took away from the comments is the notion that the FASB has an important role to play and should act as the “endorser” of newly issued IFRS standards on a standard-by-standard basis. An often-provided rationale was that the FASB is best positioned to act in the interest of U.S. investors and the U.S. capital markets. Commenters felt that the FASB’s expertise and long track record of producing high-quality accounting standards would be a positive influence on the quality of IFRS. Some of the additional comments for maintaining a strong FASB included: Help preserve regulatory authority of the Commission and address issues with U.S. GAAP being embedded in thousands of pages of U.S. laws and regulatory text; Ability of the FASB to provide technical assistance to the IASB; Help ensure a robust due process by the IASB; and Assist the U.S. capital markets in the implementation and interpretations of IASB standards. An area where there was a spectrum of views was what threshold the FASB might use when considering whether to endorse an IASB standard. At the risk of using a general characterization, the feedback in this area to me had a little bit of a “Goldilocks” feel to it. Some felt there should be a “higher” threshold than that posited in the paper (that is, that the FASB should have less discretion in considering whether to endorse a standard). Some felt there should be a “lower” threshold, and some felt it was just right. Many of those who supported a “lower” threshold argued that the FASB should be given the tools to modify an IASB standard to the U.S. regulatory environment. Those in the “just right” or “higher” threshold camp noted that the greatest benefit to incorporating IFRS would be muted if the FASB frequently didn’t endorse an IASB standard. There was also a fair amount of comment that it would be important for the Commission to articulate its expectations in this area. So far I have discussed the themes related to those that supported taking a next step towards the objective of a single set of globally accepted accounting standards. This is not to say that the commenters were unanimous on this issue. There certainly were strong voices of those who were not in favor, stating among other things: that the case has not been made for mandatory incorporation, that the cost of incorporation is expected to be significant with no commensurate benefit, either to an individual company and or the U.S. markets, and concerns about the quality of existing IFRS standards. I think these will be important issues the staff will need to consider. Final Thoughts Before turning to my next subject I thought I would leave you with two final thoughts regarding the Work Plan. First, one of the questions we frequently are asked relates to our ability to apply IFRS standards. Having worked in OCA for the last four years, I can tell you that we are frequently asked our views on the application of IFRS in individual fact patterns. I believe we have been able to manage these application questions, including determining what should be the appropriate accounting under IFRS. I also believe that the U.S. involvement in the application of IFRS, as noted by the Chairman of the IASB in a recent speech, would provide a positive impact on the consistent implementation of IFRS globally. One final point I would like to make relates to the objective of a single set of globally accepted accounting standards. Commenters and others have posed the question: If the FASB and the Commission, or for that matter any jurisdiction, retains the ability to deviate from an IASB standard, can we ever truly achieve a single set of high-quality global accounting standards? I first must note as we have in many of our reports under the Work Plan, jurisdictional approaches to IFRS already are diverse, and rarely are direct to IFRS without an incorporation mechanism. As to the U.S., we know there are going to be challenging issues to resolve under any incorporation decision. The issues of LIFO and contingencies immediately come to mind. But even with all of this, I would offer up one final thought for your consideration: Would it better to be 90% converged and understand the differences, or should the objective be abandoned? Stay tuned. We will have a lot more to say on this subject in coming months. Valuation Profession Now after that light topic, let me spend a couple minutes discussing my views on the current state of the valuation profession in the U.S. Last year, you heard Jim Kroeker speak to the importance of and the tenets to building and maintaining public trust in the accounting profession. Today, I am here to advocate for the building of public trust in a profession that is increasingly intertwined with our own; that is the valuation profession. Recent events and developments, chief among them, the broadening application of fair value and fair value-based measures in US GAAP in recent years and the 2008 financial crisis, have cast the spotlight on valuation professionals. The financial reporting process is a collaborative process that relies on many participants with important roles and responsibilities. For valuation professionals, this means the analyses should be based on methodologies that have strong conceptual merit, supported by consistent and supportable assumptions, and are in conformity with the requirements of the relevant accounting standards. These objectives should be central to any analysis, regardless of the role of the valuator. Valuation professionals wear two primary hats within the financial reporting process. They can be management’s specialist where they assist the company in the estimation of values. Or they could be the auditor’s specialist in the evaluation of management’s models, assumptions, and/or value conclusions. As a regulator, we have reviewed analyses under both roles. In many instances, we’ve seen analyses meet the objectives I’ve described, but we’ve also seen our share of those that do not measure up. Valuation professionals stand apart from other significant contributors in the financial reporting process for another reason, their lack of a unified identity. We accountants, for example, have a clearly defined professional identity. At last count, valuation professionals in the US can choose among five business valuation credentials available from four different organizations,i each with its own set of criteria for attainment, yet none of which is actually required to count oneself amongst the ranks of the profession. There are also non-credentialing organizations that seek to advance the interests of the valuation profession.ii While the multiplicity of credentials in the profession is not a problem in and of itself, risks may exist. Risks created by the differences in valuation credentials that exist today range from the seemingly innocuous concerns of market confusion and an identity void for the profession to the more overt concerns of objectivity of the valuator and analytical inconsistency. The fragmented nature of the profession creates an environment where expectation gaps can exist between valuators, management, and auditors, as well as standard setters and regulators. While much of this may be addressed during a particular engagement, this case-by-case approach has the potential to be an inefficient and costly solution to establish a baseline level of understanding of the analyses. Sometimes, expectation gaps can have broader consequences than just within an engagement, as we have seen in the use of third party pricing sources to measure the fair value of certain financial instruments. You will hear more about this from others at this conference. I think one potential solution to consider is whether there should be, similar to other professions, a single set of qualifications with respect to education level and work experience, a continuing education curriculum, standards of practice and ethics, and a code of conduct. One could also contemplate whether a comprehensive inspection program and a fair disciplinary mechanism should be established to encourage proper behavior and enforce the rules of the profession in the public interest. Closing Once again thank you for the opportunity to speak this morning. We will have time for questions later in the day and I hope you enjoy the rest of the conference. i AICPA grants the Accredited in Business Valuation (ABV) credential; American Society of Appraisers confers the Accredited Senior Appraiser (ASA); Institute of Business Appraisers issues the Certified Business Appraiser (CBA); and National Association of Certified Valuation Analysts awards the Certified Valuation Analyst (CVA) and Accredited Valuation Analyst (AVA). ii For example, The Appraisal Foundation, a non-profit organization established by a number of US valuation organizations in 1987, issues the Uniform Standards of Professional Appraisal Practice (USPAP), set qualification criteria for state licensing, certification, and recertification of real property appraisers, and issues guidance on selected technical topics. The enforcement of the requirements promulgated by The Appraisal Foundation is relegated to the various state boards.”

Saturday, December 17, 2011

FORMER PRUDENTIAL SECURITIES REPRESENTATIVE FOUND LIABLE FOR DECEPTIVE PRACTICES

The following excerpt is from the SEC website:

December 16, 2011
“The Securities and Exchange Commission announced today that on December 14, 2011, a federal jury returned a verdict in the SEC's favor on securities fraud charges against Frederick J. O'Meally of Bay Shore, New York, a former registered representative of broker-dealer Prudential Securities Inc. alleged to have used deceptive practices to evade blocks on his trading by mutual fund companies. The jury found O'Meally liable for violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 (the "Securities Act"). The verdict against O'Meally followed a five-week trial in New York City, NY before the Honorable Laura Taylor Swain, United States District Court Judge for the Southern District of New York.

The Commission filed its Complaint on August 28, 2006 against four registered representatives formerly employed by Prudential Securities, Inc. The Complaint alleged that, between 2001 and 2003, certain mutual fund companies detected market timing activity by the Defendants and attempted to block the Defendants and their hedge fund customers from further trading in their funds. The Complaint further alleged that the Defendants used fraudulent and deceptive trading practices to conceal their and their customers' identities to evade these blocks. Cases against the three other defendants had been resolved previously by settlement.
The district court will hear further post-trial arguments in January 2012, and may determine the appropriate sanctions and remedies against O'Meally at a later date. In addition, the jury found that O'Meally had not violated Section 10(b) of the Exchange Act and Section 17(a)(1) of the Securities Act.
For further information about the Commission's action in SEC v. O'Meally, et al., see Litigation Release No. 21882 (March 10, 2011) [settlement with Jason N. Ginder]; Litigation Release No. 20910 (February 25, 2009) [settlement with Michael L. Silver and Brian P. Corbett]; In the Matter of Michael L. Silver, Release No. 34-59639 (March 27, 2009); In the Matter of Brian P. Corbett, Release No. 34-59640 (March 27, 2009); Exchange Act Release No. 54371 (August 28, 2006) [settlement with Prudential Equity Group, LLC, formerly known as Prudential Securities, Inc.]; Litigation Release No. 19813 (August 26, 2006) [complaint against O'Meally, et al. filed].”