The following excerpt came from the FDIC web site. This is a list of failed banks and the acquiring bank by date. The dates range from January 2010-April 2011 and are arranged from most recent to oldest:
Bank Name City State CERT # Acquiring Institution Closing Date Updated Date:
Nevada Commerce Bank Las Vegas NV 35418 City National Bank April 8, 2011 April 11, 2011
Western Springs National Bank and Trust Western Springs IL 10086 Heartland Bank and Trust Company April 8, 2011 April 11, 2011
The Bank of Commerce Wood Dale IL 34292 Advantage National Bank Group March 25, 2011 March 29, 2011
Legacy Bank Milwaukee WI 34818 Seaway Bank and Trust Company March 11, 2011 March 15, 2011
First National Bank of Davis Davis OK 4077 The Pauls Valley National Bank March 11, 2011 March 31, 2011
Valley Community Bank St. Charles IL 34187 First State Bank February 25, 2011 March 02, 2011
San Luis Trust Bank, FSB San Luis Obispo CA 34783 First California Bank February 18, 2011 March 4, 2011
Charter Oak Bank Napa CA 57855 Bank of Marin February 18, 2011 March 4, 2011
Citizens Bank of Effingham Springfield GA 34601 Heritage Bank of the South February 18, 2011 February 23, 2011
Habersham Bank Clarkesville GA 151 SCBT National Association February 18, 2011 February 23, 2011
Canyon National Bank Palm Springs CA 34692 Pacific Premier Bank February 11, 2011 March 4, 2011
Badger State Bank Cassville WI 13272 Royal Bank February 11, 2011 February 18, 2011
Peoples State Bank Hamtramck MI 14939 First Michigan Bank February 11, 2011 February 18, 2011
Sunshine State Community Bank Port Orange FL 35478 Premier American Bank, N.A. February 11, 2011 March 3, 2011
Community First Bank Chicago Chicago IL 57948 Northbrook Bank & Trust February 4, 2011 February 10, 2011
North Georgia Bank Watkinsville GA 35242 BankSouth February 4, 2011 February 11, 2011
American Trust Bank Roswell GA 57432 Renasant Bank February 4, 2011 February 11, 2011
First Community Bank Taos NM 12261 U.S. Bank, National Association January 28, 2011 February 10, 2011
FirsTier Bank Louisville CO 57646 No Acquirer January 28, 2011 February 2, 2011
Evergreen State Bank Stoughton WI 5328 McFarland State Bank January 28, 2011 February 10, 2011
The First State Bank Camargo OK 2303 Bank 7 January 28, 2011 February 10, 2011
United Western Bank Denver CO 31293 First-Citizens Bank & Trust Co. January 21, 2011 February 10, 2011
The Bank of Asheville Asheville NC 34516 First Bank January 21, 2011 February 10, 2011
CommunitySouth Bank & Trust Easley SC 57868 CertusBank, National Association January 21, 2011 February 10, 2011
Enterprise Banking Company McDonough GA 19758 No Acquirer January 21, 2011 January 27, 2011
Oglethorpe Bank Brunswick GA 57440 Bank of the Ozarks January 14, 2011 January 20, 2011
Legacy Bank Scottsdale AZ 57820 Enterprise Bank & Trust January 7, 2011 February 11, 2011
First Commercial Bank of Florida Orlando FL 34965 First Southern Bank January 7, 2011 January 11, 2011
Community National Bank Lino Lakes MN 23306 Farmers & Merchants Savings Bank December 17, 2010 March 8, 2011
First Southern Bank Batesville AR 58052 Southern Bank December 17, 2010 March 8, 2011
United Americas Bank, N.A. Atlanta GA 35065 State Bank and Trust Company December 17, 2010 March 8, 2011
Appalachian Community Bank, FSB McCaysville GA 58495 Peoples Bank of East Tennessee December 17, 2010 March 8, 2011
Chestatee State Bank Dawsonville GA 34578 Bank of the Ozarks December 17, 2010 March 8, 2011
The Bank of Miami,N.A. Coral Gables FL 19040 1st United Bank December 17, 2010 March 8, 2011
Earthstar Bank Southampton PA 35561 Polonia Bank December 10, 2010 March 8, 2011
Paramount Bank Farmington Hills MI 34673 Level One Bank December 10, 2010 March 8, 2011
First Banking Center Burlington WI 5287 First Michigan Bank November 19, 2010 March 8, 2011
Allegiance Bank of North America Bala Cynwyd PA 35078 VIST Bank November 19, 2010 March 8, 2011
Gulf State Community Bank Carrabelle FL 20340 Centennial Bank November 19, 2010 March 8, 2011
Copper Star Bank Scottsdale AZ 35463 Stearns Bank, N.A. November 12, 2010 March 8, 2011
Darby Bank & Trust Co. Vidalia GA 14580 Ameris Bank November 12, 2010 March 8, 2011
Tifton Banking Company Tifton GA 57831 Ameris Bank November 12, 2010 March 8, 2011
First Vietnamese American Bank
In Vietnamese Westminster CA 57885 Grandpoint Bank November 5, 2010 March 8, 2011
Pierce Commercial Bank Tacoma WA 34411 Heritage Bank November 5, 2010 March 8, 2011
Western Commercial Bank Woodland Hills CA 58087 First California Bank November 5, 2010 March 8, 2011
K Bank Randallstown MD 31263 Manufacturers and Traders Trust Company November 5, 2010 March 8, 2011
First Arizona Savings, A FSB Scottsdale AZ 32582 No Acquirer October 22, 2010 March 8, 2011
Hillcrest Bank Overland Park KS 22173 Hillcrest Bank, N.A. October 22, 2010 March 8, 2011
First Suburban National Bank Maywood IL 16089 Seaway Bank and Trust Company October 22, 2010 March 8, 2011
The First National Bank of Barnesville Barnesville GA 2119 United Bank, Zebulon October 22, 2010 March 8, 2011
The Gordon Bank Gordon GA 33904 Morris Bank October 22, 2010 March 8, 2011
Progress Bank of Florida Tampa FL 32251 Bay Cities Bank October 22, 2010 March 8, 2011
First Bank of Jacksonville Jacksonville FL 27573 Ameris Bank October 22, 2010 March 8, 2011
Premier Bank Jefferson City MO 34016 Providence Bank October 15, 2010 March 8, 2011
WestBridge Bank and Trust Company Chesterfield MO 58205 Midland States Bank October 15, 2010 March 8, 2011
Security Savings Bank, F.S.B. Olathe KS 30898 Simmons First National Bank October 15, 2010 March 8, 2011
Shoreline Bank Shoreline WA 35250 GBC International Bank October 1, 2010 March 8, 2011
Wakulla Bank Crawfordville FL 21777 Centennial Bank October 1, 2010 March 8, 2011
North County Bank Arlington WA 35053 Whidbey Island Bank September 24, 2010 March 8, 2011
Haven Trust Bank Florida Ponte Vedra Beach FL 58308 First Southern Bank September 24, 2010 March 8, 2011
Maritime Savings Bank West Allis WI 28612 North Shore Bank, FSB September 17, 2010 March 8, 2011
Bramble Savings Bank Milford OH 27808 Foundation Bank September 17, 2010 March 8, 2011
The Peoples Bank Winder GA 182 Community & Southern Bank September 17, 2010 March 8, 2011
First Commerce Community Bank Douglasville GA 57448 Community & Southern Bank September 17, 2010 March 8, 2011
Bank of Ellijay Ellijay GA 58197 Community & Southern Bank September 17, 2010 March 8, 2011
ISN Bank Cherry Hill NJ 57107 Customers Bank September 17, 2010 March 8, 2011
Horizon Bank Bradenton FL 35061 Bank of the Ozarks September 10, 2010 March 8, 2011
Sonoma Valley Bank Sonoma CA 27259 Westamerica Bank August 20, 2010 March 8, 2011
Los Padres Bank Solvang CA 32165 Pacific Western Bank August 20, 2010 March 16, 2011
Butte Community Bank Chico CA 33219 Rabobank, N.A. August 20, 2010 March 8, 2011
Pacific State Bank Stockton CA 27090 Rabobank, N.A. August 20, 2010 March 8, 2011
ShoreBank Chicago IL 15640 Urban Partnership Bank August 20, 2010 March 7, 2011
Imperial Savings and Loan Association Martinsville VA 31623 River Community Bank, N.A. August 20, 2010 March 7, 2011
Independent National Bank Ocala FL 27344 CenterState Bank of Florida, N.A. August 20, 2010 March 7, 2011
Community National Bank at Bartow Bartow FL 25266 CenterState Bank of Florida, N.A. August 20, 2010 March 7, 2011
Palos Bank and Trust Company Palos Heights IL 17599 First Midwest Bank August 13, 2010 March 7, 2011
Ravenswood Bank Chicago IL 34231 Northbrook Bank and Trust Company August 6, 2010 March 7, 2011
LibertyBank Eugene OR 31964 Home Federal Bank July 30, 2010 March 7, 2011
The Cowlitz Bank Longview WA 22643 Heritage Bank July 30, 2010 March 7, 2011
Coastal Community Bank Panama City Beach FL 9619 Centennial Bank July 30, 2010 March 7, 2011
Bayside Savings Bank Port Saint Joe FL 57669 Centennial Bank July 30, 2010 March 7, 2011
Northwest Bank & Trust Acworth GA 57658 State Bank and Trust Company July 30, 2010 March 7, 2011
Home Valley Bank Cave Junction OR 23181 South Valley Bank & Trust July 23, 2010 March 7, 2011
SouthwestUSA Bank Las Vegas NV 35434 Plaza Bank July 23, 2010 March 7, 2011
Community Security Bank New Prague MN 34486 Roundbank July 23, 2010 March 7, 2011
Thunder Bank Sylvan Grove KS 10506 The Bennington State Bank July 23, 2010 March 7, 2011
Williamsburg First National Bank Kingstree SC 17837 First Citizens Bank and Trust Company, Inc. July 23, 2010 March 7, 2011
Crescent Bank and Trust Company Jasper GA 27559 Renasant Bank July 23, 2010 March 7, 2011
Sterling Bank Lantana FL 32536 IBERIABANK July 23, 2010 March 7, 2011
Mainstreet Savings Bank, FSB Hastings MI 28136 Commercial Bank July 16, 2010 March 7, 2011
Olde Cypress Community Bank Clewiston FL 28864 CenterState Bank of Florida July 16, 2010 March 7, 2011
Turnberry Bank Aventura FL 32280 NAFH National Bank July 16, 2010 March 7, 2011
Metro Bank of Dade County Miami FL 25172 NAFH National Bank July 16, 2010 March 7, 2011
First National Bank of the South Spartanburg SC 35383 NAFH National Bank July 16, 2010 March 7, 2011
Woodlands Bank Bluffton SC 32571 Bank of the Ozarks July 16, 2010 March 7, 2011
Home National Bank Blackwell OK 11636 RCB Bank July 9, 2010 March 16, 2011
USA Bank Port Chester NY 58072 New Century Bank July 9, 2010 March 7, 2011
Ideal Federal Savings Bank Baltimore MD 32456 No Acquirer July 9, 2010 March 7, 2011
Bay National Bank Baltimore MD 35462 Bay Bank, FSB July 9, 2010 March 7, 2011
High Desert State Bank Albuquerque NM 35279 First American Bank June 25, 2010 November 1, 2010
First National Bank Savannah GA 34152 The Savannah Bank, N.A. June 25, 2010 October 21, 2010
Peninsula Bank Englewood FL 26563 Premier American Bank, N.A. June 25, 2010 September 22, 2010
Nevada Security Bank Reno NV 57110 Umpqua Bank June 18, 2010 October 22, 2010
Washington First International Bank Seattle WA 32955 East West Bank June 11, 2010 November 30, 2010
TierOne Bank Lincoln NE 29341 Great Western Bank June 4, 2010 March 24, 2010
Arcola Homestead Savings Bank Arcola IL 31813 No Acquirer June 4, 2010 August 26, 2010
First National Bank Rosedale MS 15814 The Jefferson Bank June 4, 2010 August 26, 2010
Sun West Bank Las Vegas NV 34785 City National Bank May 28, 2010 November 1, 2010
Granite Community Bank, NA Granite Bay CA 57315 Tri Counties Bank May 28, 2010 November 1, 2010
Bank of Florida - Tampa Tampa FL 57814 EverBank May 28, 2010 August 26, 2010
Bank of Florida - Southwest Naples FL 35106 EverBank May 28, 2010 August 26, 2010
Bank of Florida - Southeast Fort Lauderdale FL 57360 EverBank May 28, 2010 August 26, 2010
Pinehurst Bank Saint Paul MN 57735 Coulee Bank May 21, 2010 August 26, 2010
Midwest Bank and Trust Company Elmwood Park IL 18117 FirstMerit Bank, N.A. May 14, 2010 August 26, 2010
Southwest Community Bank Springfield MO 34255 Simmons First National Bank May 14, 2010 October 28, 2010
New Liberty Bank Plymouth MI 35586 Bank of Ann Arbor May 14, 2010 August 26, 2010
Satilla Community Bank Saint Marys GA 35114 Ameris Bank May 14, 2010 August 26, 2010
1st Pacific Bank of California San Diego CA 35517 City National Bank May 7, 2010 August 26, 2010
Towne Bank of Arizona Mesa AZ 57697 Commerce Bank of Arizona May 7, 2010 August 26, 2010
Access Bank Champlin MN 16476 PrinsBank May 7, 2010 August 26, 2010
The Bank of Bonifay Bonifay FL 14246 First Federal Bank of Florida May 7, 2010 August 26, 2010
Frontier Bank Everett WA 22710 Union Bank, N.A. April 30, 2010 August 26, 2010
BC National Banks Butler MO 17792 Community First Bank April 30, 2010 November 4, 2010
Champion Bank Creve Coeur MO 58362 BankLiberty April 30, 2010 August 26, 2010
CF Bancorp Port Huron MI 30005 First Michigan Bank April 30, 2010 March 24, 2010
Westernbank Puerto Rico
En Español Mayaguez PR 31027 Banco Popular de Puerto Rico April 30, 2010 August 26, 2010
R-G Premier Bank of Puerto Rico
En Español Hato Rey PR 32185 Scotiabank de Puerto Rico April 30, 2010 August 26, 2010
Eurobank
En Español San Juan PR 27150 Oriental Bank and Trust April 30, 2010 March 16, 2010
Wheatland Bank Naperville IL 58429 Wheaton Bank & Trust April 23, 2010 August 26, 2010
Peotone Bank and Trust Company Peotone IL 10888 First Midwest Bank April 23, 2010 August 26, 2010
Lincoln Park Savings Bank Chicago IL 30600 Northbrook Bank and Trust Company April 23, 2010 August 26, 2010
New Century Bank Chicago IL 34821 MB Financial Bank, N.A. April 23, 2010 August 26, 2010
Citizens Bank and Trust Company of Chicago Chicago IL 34658 Republic Bank of Chicago April 23, 2010 November 4, 2010
Broadway Bank Chicago IL 22853 MB Financial Bank, N.A. April 23, 2010 November 3, 2010
Amcore Bank, National Association Rockford IL 3735 Harris N.A. April 23, 2010 March 10, 2011
City Bank Lynnwood WA 21521 Whidbey Island Bank April 16, 2010 November 29, 2010
Tamalpais Bank San Rafael CA 33493 Union Bank, N.A. April 16, 2010 August 26, 2010
Innovative Bank Oakland CA 23876 Center Bank April 16, 2010 August 26, 2010
Butler Bank Lowell MA 26619 People's United Bank April 16, 2010 November 4, 2010
Riverside National Bank of Florida Fort Pierce FL 24067 TD Bank, N.A. April 16, 2010 August 26, 2010
AmericanFirst Bank Clermont FL 57724 TD Bank, N.A. April 16, 2010 November 8, 2010
First Federal Bank of North Florida Palatka FL 28886 TD Bank, N.A. April 16, 2010 August 27, 2010
Lakeside Community Bank Sterling Heights MI 34878 No Acquirer April 16, 2010 August 27, 2010
Beach First National Bank Myrtle Beach SC 34242 Bank of North Carolina April 9, 2010 August 27, 2010
Desert Hills Bank Phoenix AZ 57060 New York Community Bank March 26, 2010 August 27, 2010
Unity National Bank Cartersville GA 34678 Bank of the Ozarks March 26, 2010 August 27, 2010
Key West Bank Key West FL 34684 Centennial Bank March 26, 2010 November 3, 2010
McIntosh Commercial Bank Carrollton GA 57399 CharterBank March 26, 2010 August 27, 2010
State Bank of Aurora Aurora MN 8221 Northern State Bank March 19, 2010 August 27, 2010
First Lowndes Bank Fort Deposit AL 24957 First Citizens Bank March 19, 2010 November 3, 2010
Bank of Hiawassee Hiawassee GA 10054 Citizens South Bank March 19, 2010 August 27, 2010
Appalachian Community Bank Ellijay GA 33989 Community & Southern Bank March 19, 2010 August 27, 2010
Advanta Bank Corp. Draper UT 33535 No Acquirer March 19, 2010 September 16, 2010
Century Security Bank Duluth GA 58104 Bank of Upson March 19, 2010 August 27, 2010
American National Bank Parma OH 18806 The National Bank and Trust Company March 19, 2010 November 4, 2010
Statewide Bank Covington LA 29561 Home Bank March 12, 2010 August 27, 2010
Old Southern Bank Orlando FL 58182 Centennial Bank March 12, 2010 August 27, 2010
The Park Avenue Bank New York NY 27096 Valley National Bank March 12, 2010 August 27, 2010
LibertyPointe Bank New York NY 58071 Valley National Bank March 11, 2010 August 27, 2010
Centennial Bank Ogden UT 34430 No Acquirer March 5, 2010 August 27, 2010
Waterfield Bank Germantown MD 34976 No Acquirer March 5, 2010 August 27, 2010
Bank of Illinois Normal IL 9268 Heartland Bank and Trust Company March 5, 2010 August 27, 2010
Sun American Bank Boca Raton FL 27126 First-Citizens Bank & Trust Company March 5, 2010 August 27, 2010
Rainier Pacific Bank Tacoma WA 38129 Umpqua Bank February 26, 2010 August 27, 2010
Carson River Community Bank Carson City NV 58352 Heritage Bank of Nevada February 26, 2010 August 27, 2010
La Jolla Bank, FSB La Jolla CA 32423 OneWest Bank, FSB February 19, 2010 August 27, 2010
George Washington Savings Bank Orland Park IL 29952 FirstMerit Bank, N.A. February 19, 2010 August 27, 2010
The La Coste National Bank La Coste TX 3287 Community National Bank February 19, 2010 November 3, 2010
Marco Community Bank Marco Island FL 57586 Mutual of Omaha Bank February 19, 2010 August 27, 2010
1st American State Bank of Minnesota Hancock MN 15448 Community Development Bank, FSB February 5, 2010 November 8, 2010
American Marine Bank Bainbridge Island WA 16730 Columbia State Bank January 29, 2010 August 26, 2010
First Regional Bank Los Angeles CA 23011 First-Citizens Bank & Trust Company January 29, 2010 August 26, 2010
Community Bank and Trust Cornelia GA 5702 SCBT National Association January 29, 2010 August 26, 2010
Marshall Bank, N.A. Hallock MN 16133 United Valley Bank January 29, 2010 August 26, 2010
Florida Community Bank Immokalee FL 5672 Premier American Bank, N.A. January 29, 2010 March 24, 2010
First National Bank of Georgia Carrollton GA 16480 Community and Southern Bank January 29, 2010 November 3, 2010
Columbia River Bank The Dalles OR 22469 Columbia State Bank January 22, 2010 November 2, 2010
Evergreen Bank Seattle WA 20501 Umpqua Bank January 22, 2010 August 26, 2010
Charter Bank Santa Fe NM 32498 Charter Bank January 22, 2010 August 26, 2010
Bank of Leeton Leeton MO 8265 Sunflower Bank, N.A. January 22, 2010 August 26, 2010
Premier American Bank Miami FL 57147 Premier American Bank, N.A. January 22, 2010 August 26, 2010
Barnes Banking Company Kaysville UT 1252 No Acquirer January 15, 2010 August 26, 2010
St. Stephen State Bank St. Stephen MN 17522 First State Bank of St. Joseph January 15, 2010 November 2, 2010
Town Community Bank & Trust Antioch IL 34705 First American Bank January 15, 2010 August 26, 2010
Horizon Bank Bellingham WA 22977 Washington Federal Savings and Loan Association January 8, 2010 November 4, 2010
This is a photo of the National Register of Historic Places listing with reference number 7000063
Thursday, April 14, 2011
Tuesday, April 12, 2011
CORPORATE ATTORNEY AND WALL STREET TRADER CHARGE BY SEC FOR INSIDER TARADING
Everyone who ever has traded very many stocks knows that insider trading and manipulated trading by large institutions goes on all the time. The following is a case that the SEC for whatever reason decided to prosecute. The case is from the SEC blog:
" Washington, D.C., April 6, 2011 – The Securities and Exchange Commission today charged a corporate attorney and a Wall Street trader with insider trading in advance of at least 11 merger and acquisition announcements involving clients of the law firm where the attorney worked.
The SEC alleges that Matthew H. Kluger, who formerly worked at Wilson Sonsini Goodrich & Rosati, and Garrett D. Bauer did not have a direct relationship with each other, but were linked only through a mutual friend who acted as a middleman to facilitate the illegal scheme. Kluger and Bauer communicated with the middleman using public telephones and prepaid disposable mobile phones in order to avoid detection. According to the SEC’s complaint, Kluger accessed information on 11 mergers and acquisitions involving the law firm’s clients and then tipped the middleman. In at least nine instances, the middleman passed the information on to Bauer, who illegally traded for illicit profits totaling nearly $32 million.
In a parallel criminal action, the U.S. Attorney’s Office for the District of New Jersey today announced the arrests of Kluger and Bauer.
“They plotted to fly under law enforcement radar by using disposable phones to hide their communications, cash withdrawals to obscure the flow of tainted money, and a middleman to conceal Kluger as the secret source of inside information,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Now, those same schemes and devices serve only to make it clear beyond any doubt that Kluger and Bauer were involved in an illegal scheme.”
Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit and Director of its Philadelphia Regional Office, added “This was a brazen and deplorable scheme in which Kluger, a lawyer, repeatedly abused his access to confidential client information. As this and recent cases demonstrate, the Division of Enforcement is working aggressively to root out and identify hard-to-detect insider trading by connecting patterns of trading to sources of material non-public information - whether those sources are law firms or others who are under a duty to keep such information confidential.”
According to the SEC’s complaint filed in federal court in Newark, N.J., Kluger, Bauer and the middleman deliberately structured their communications and trading so that Kluger and the middleman could share in the insider trading proceeds while Bauer could illegally trade and profit without being connected to Kluger as a possible source of information. Bauer withdrew cash from his bank accounts and kicked back hundreds of thousands of dollars to the middleman, who in turn delivered at least $500,000 to Kluger for his role in the scheme.
According to the SEC’s complaint, over the past five years Kluger accessed and then tipped confidential information in advance of the following 11 mergers and acquisitions between April 2006 and March 2011:
The acquisition of Advanced Digital Information Corp. by Quantum Corp., announced May 2, 2006.
The acquisition of Acxiom Corp. by multiple entities, announced on May 17, 2007.
The strategic recapitalization of Palm Inc. with Elevation Partners LP, announced June 4, 2007.
The planned acquisition of 3Com Corp. by Bain Capital LLC, announced Sept. 28, 2007.
The acquisition of Visual Sciences Inc. by Omniture Inc., announced Oct. 25, 2007.
The acquisition of Ansoft Corp. by Ansys Inc., announced March 31, 2008.
The acquisition of Sun Microsystems Inc. by Oracle Corp., announced April 20, 2009.
The acquisition of Omniture Inc. by Adobe Systems Inc., announced Sept. 15, 2009.
The acquisition of 3Com Corp. by Hewlett-Packard Co., announced Nov. 11, 2009.
The acquisition of McAfee Inc. by Intel Corp., announced Aug. 19, 2010.
The acquisition of Zoran Corp. by CSR PLC, announced Feb. 20, 2011.
The middleman traded in two deals on the basis of information that he received from Kluger and profited at least $690,000.
The SEC alleges that Kluger and Bauer violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.”
" Washington, D.C., April 6, 2011 – The Securities and Exchange Commission today charged a corporate attorney and a Wall Street trader with insider trading in advance of at least 11 merger and acquisition announcements involving clients of the law firm where the attorney worked.
The SEC alleges that Matthew H. Kluger, who formerly worked at Wilson Sonsini Goodrich & Rosati, and Garrett D. Bauer did not have a direct relationship with each other, but were linked only through a mutual friend who acted as a middleman to facilitate the illegal scheme. Kluger and Bauer communicated with the middleman using public telephones and prepaid disposable mobile phones in order to avoid detection. According to the SEC’s complaint, Kluger accessed information on 11 mergers and acquisitions involving the law firm’s clients and then tipped the middleman. In at least nine instances, the middleman passed the information on to Bauer, who illegally traded for illicit profits totaling nearly $32 million.
In a parallel criminal action, the U.S. Attorney’s Office for the District of New Jersey today announced the arrests of Kluger and Bauer.
“They plotted to fly under law enforcement radar by using disposable phones to hide their communications, cash withdrawals to obscure the flow of tainted money, and a middleman to conceal Kluger as the secret source of inside information,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Now, those same schemes and devices serve only to make it clear beyond any doubt that Kluger and Bauer were involved in an illegal scheme.”
Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit and Director of its Philadelphia Regional Office, added “This was a brazen and deplorable scheme in which Kluger, a lawyer, repeatedly abused his access to confidential client information. As this and recent cases demonstrate, the Division of Enforcement is working aggressively to root out and identify hard-to-detect insider trading by connecting patterns of trading to sources of material non-public information - whether those sources are law firms or others who are under a duty to keep such information confidential.”
According to the SEC’s complaint filed in federal court in Newark, N.J., Kluger, Bauer and the middleman deliberately structured their communications and trading so that Kluger and the middleman could share in the insider trading proceeds while Bauer could illegally trade and profit without being connected to Kluger as a possible source of information. Bauer withdrew cash from his bank accounts and kicked back hundreds of thousands of dollars to the middleman, who in turn delivered at least $500,000 to Kluger for his role in the scheme.
According to the SEC’s complaint, over the past five years Kluger accessed and then tipped confidential information in advance of the following 11 mergers and acquisitions between April 2006 and March 2011:
The acquisition of Advanced Digital Information Corp. by Quantum Corp., announced May 2, 2006.
The acquisition of Acxiom Corp. by multiple entities, announced on May 17, 2007.
The strategic recapitalization of Palm Inc. with Elevation Partners LP, announced June 4, 2007.
The planned acquisition of 3Com Corp. by Bain Capital LLC, announced Sept. 28, 2007.
The acquisition of Visual Sciences Inc. by Omniture Inc., announced Oct. 25, 2007.
The acquisition of Ansoft Corp. by Ansys Inc., announced March 31, 2008.
The acquisition of Sun Microsystems Inc. by Oracle Corp., announced April 20, 2009.
The acquisition of Omniture Inc. by Adobe Systems Inc., announced Sept. 15, 2009.
The acquisition of 3Com Corp. by Hewlett-Packard Co., announced Nov. 11, 2009.
The acquisition of McAfee Inc. by Intel Corp., announced Aug. 19, 2010.
The acquisition of Zoran Corp. by CSR PLC, announced Feb. 20, 2011.
The middleman traded in two deals on the basis of information that he received from Kluger and profited at least $690,000.
The SEC alleges that Kluger and Bauer violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.”
DODD-FRANK: RULES FOR SWAPS TO BE DISCUSSED IN MAY
The following excerpt is from the SEC web site and involves Dodd-Frank implementation of rules on Swaps under the Wall Street Reform and Protection Act:
" Washington, D.C. April 12, 2011 — The staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) today announced that they intend to hold a two-day joint public roundtable on May 2-3, 2011, to discuss the schedule for implementing final rules for swaps and security-based swaps under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act gives the CFTC and SEC certain flexibility to set effective dates and a schedule for compliance with rules implementing Title VII of the Act, which involves oversight of swaps and security-based swaps, so that market participants have time to develop the policies, procedures, systems and processes needed to comply with the new regulatory requirements.
Public comments on Title VII have helped inform the Commissions as to what requirements can be met sooner and which ones will take more time. The roundtable is intended to supplement the comments received to date and help inform the Commissions as they proceed with rulemaking. The order in which the Commissions finalize the rules need not determine the order in which the rules become effective or the applicable compliance dates.
The roundtable will provide the public with the opportunity to comment on whether to phase implementation of the new requirements based on factors such as: the type of swap or security-based swap, including by asset class; the type of market participants that engage in such trades; the speed with which market infrastructures can meet the new requirements; and whether registered market infrastructures or participants might be required to have policies and procedures in place ahead of compliance with such policies and procedures by non-registrants.
The roundtable is expected to include panel discussions of (1) compliance dates for new rules for existing trading platforms and clearinghouses and the registration and compliance with rules for new platforms, such as swap and security-based swap execution facilities, and data repositories for swaps and security-based swaps; (2) compliance dates for new requirements for dealers and major participants in swaps and security-based swaps; (3) implementation of clearing mandates; (4) compliance dates for financial entities such as hedge funds, asset managers, insurance companies and pension funds subject to a clearing mandate and other requirements; and (5) considerations with regard to non-financial end users.
The roundtable will be held from 9:30 am to 4:00 pm each day in the Conference Center at the CFTC’s Headquarters, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC. The discussion will be open to the public with seating on a first-come, first-served basis."
" Washington, D.C. April 12, 2011 — The staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) today announced that they intend to hold a two-day joint public roundtable on May 2-3, 2011, to discuss the schedule for implementing final rules for swaps and security-based swaps under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act gives the CFTC and SEC certain flexibility to set effective dates and a schedule for compliance with rules implementing Title VII of the Act, which involves oversight of swaps and security-based swaps, so that market participants have time to develop the policies, procedures, systems and processes needed to comply with the new regulatory requirements.
Public comments on Title VII have helped inform the Commissions as to what requirements can be met sooner and which ones will take more time. The roundtable is intended to supplement the comments received to date and help inform the Commissions as they proceed with rulemaking. The order in which the Commissions finalize the rules need not determine the order in which the rules become effective or the applicable compliance dates.
The roundtable will provide the public with the opportunity to comment on whether to phase implementation of the new requirements based on factors such as: the type of swap or security-based swap, including by asset class; the type of market participants that engage in such trades; the speed with which market infrastructures can meet the new requirements; and whether registered market infrastructures or participants might be required to have policies and procedures in place ahead of compliance with such policies and procedures by non-registrants.
The roundtable is expected to include panel discussions of (1) compliance dates for new rules for existing trading platforms and clearinghouses and the registration and compliance with rules for new platforms, such as swap and security-based swap execution facilities, and data repositories for swaps and security-based swaps; (2) compliance dates for new requirements for dealers and major participants in swaps and security-based swaps; (3) implementation of clearing mandates; (4) compliance dates for financial entities such as hedge funds, asset managers, insurance companies and pension funds subject to a clearing mandate and other requirements; and (5) considerations with regard to non-financial end users.
The roundtable will be held from 9:30 am to 4:00 pm each day in the Conference Center at the CFTC’s Headquarters, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC. The discussion will be open to the public with seating on a first-come, first-served basis."
5 AGENCIES ASK FOR COMMENTS ON SWAP MARGIN AND CAPITAL REQUIREMENTS
The following was found on the FDIC blog site:
"Five federal agencies are seeking comment on a proposed rule to establish margin and capital requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The rule is proposed by the Federal Reserve Board, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency. The proposed rule would require swap entities regulated by the five agencies to collect minimum amounts of initial margin and variation margin from counterparties to non-cleared swaps and non-cleared, security-based swaps
The amount of margin that would be required under the proposed rule would vary based on the relative risk of the counterparty and of the swap or security-based swap. A swap entity would not be required to collect margin from a commercial end user as long as its margin exposure is below an appropriate credit exposure limit established by the swap entity. A swap entity would also not be required to collect margin from low-risk financial end users as long as its margin exposure does not exceed a specific threshold. The proposed margin requirements would apply to new, non-cleared swaps or security-based swaps entered into after the proposed rule's effective date. The proposal also seeks comment on several alternative approaches to establishing margin requirements.
Provisions in the Dodd-Frank Act also require the agencies to establish capital requirements for regulated swap entities. The proposed rule would implement these provisions by requiring swap entities to comply with the existing capital standards that apply to those entities as part of their prudential regulation, as those capital standards already address non-cleared swaps and non-cleared, security-based swaps.
Staff of the agencies consulted with staff of the Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission in developing the proposed rule.
The agencies request comments on the proposed rule by June 24, 2011."
"Five federal agencies are seeking comment on a proposed rule to establish margin and capital requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The rule is proposed by the Federal Reserve Board, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency. The proposed rule would require swap entities regulated by the five agencies to collect minimum amounts of initial margin and variation margin from counterparties to non-cleared swaps and non-cleared, security-based swaps
The amount of margin that would be required under the proposed rule would vary based on the relative risk of the counterparty and of the swap or security-based swap. A swap entity would not be required to collect margin from a commercial end user as long as its margin exposure is below an appropriate credit exposure limit established by the swap entity. A swap entity would also not be required to collect margin from low-risk financial end users as long as its margin exposure does not exceed a specific threshold. The proposed margin requirements would apply to new, non-cleared swaps or security-based swaps entered into after the proposed rule's effective date. The proposal also seeks comment on several alternative approaches to establishing margin requirements.
Provisions in the Dodd-Frank Act also require the agencies to establish capital requirements for regulated swap entities. The proposed rule would implement these provisions by requiring swap entities to comply with the existing capital standards that apply to those entities as part of their prudential regulation, as those capital standards already address non-cleared swaps and non-cleared, security-based swaps.
Staff of the agencies consulted with staff of the Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission in developing the proposed rule.
The agencies request comments on the proposed rule by June 24, 2011."
Sunday, April 10, 2011
BODY ARMOR COMPANY ACCUSED OF ACCOUNTING FRAUD
The following is an excerpt from the SEC website. In this case officials at a maker of body armor were accused of misleading investors:
“Washington, D.C., Feb. 28, 2011 – The Securities and Exchange Commission today charged a major supplier of body armor to the U.S. military and law enforcement agencies for engaging in a massive accounting fraud. The agency separately charged three of the company’s former outside directors and audit committee members for their complicity in the scheme.
The SEC alleges that Pompano Beach, Fla.-based DHB Industries (now known as Point Blank Solutions) engaged in pervasive accounting and disclosure fraud through its senior officers and misappropriated company assets to personally benefit the former CEO. This resulted in the filing of materially false and misleading periodic reports to investors. The SEC further alleges that outside directors Jerome Krantz, Cary Chasin, and Gary Nadelman were willfully blind to numerous red flags signaling the accounting fraud, reporting violations, and misappropriation at DHB.
The SEC previously charged former DHB CEO David Brooks as well as two other former DHB senior officers for their roles in the fraud.
"We will not second-guess the good-faith efforts of directors. But in stark contrast, Krantz, Chasin and Nadelman were directors and audit committee members who repeatedly turned a blind eye to warning signs of fraud and other misconduct by company officers," said Robert Khuzami, Director of the SEC's Division of Enforcement.
Eric I. Bustillo, Director of the SEC’s Miami Regional Office, added, “This massive accounting fraud permeated throughout an entire company and was facilitated by the egregious, wholesale failure of the company’s board to act in the face of mounting red flags. As the fraud swirled around them, Krantz, Chasin, and Nadelman ignored the obvious and submitted to the directives and decisions of DHB’s senior management while themselves profiting from sales of the company’s securities.”
The SEC filed two separate complaints in U.S. District Court for the Southern District of Florida against DHB and the former outside directors. According to the SEC’s complaint against Krantz, Chasin, and Nadelman, their willful blindness to red flags allowed senior management to manipulate the company’s reported gross profit, net income, and other key figures in its earnings releases and public filings between 2003 and 2005. The company overstated inventory values, failed to include appropriate charges for obsolete inventory, and falsified journal entries. By ignoring red flags, the three outside directors also facilitated the misconduct by Brooks, who diverted at least $10 million out of the company through fraudulent transactions with a related entity that he controlled. Their willful blindness to red flags additionally facilitated DHB’s improper payment of millions of dollars in personal expenses for Brooks, including luxury cars, jewelry, art, real estate, extravagant vacations, and prostitution services. Despite being confronted with the red flags indicating fraud, Krantz, Chasin, and Nadelman approved or signed DHB’s false and misleading filings.
The SEC’s complaints against DHB, Krantz, Chasin, and Nadelman charge them with violating or aiding and abetting the antifraud, reporting, books and records, and other provisions of the federal securities laws. DHB has agreed to settle with the SEC and agreed to a permanent injunction from future violations. The proposed settlement took into account the remedial measures already taken by the company. The company is currently in bankruptcy and its settlement with the SEC is pending the approval of the bankruptcy court. The SEC seeks injunctive relief, disgorgement of ill-gotten gains, monetary penalties, and officer and director bars against Krantz, Chasin, and Nadelman.
The U.S. Attorney’s Office for the Eastern District of New York previously filed criminal charges against Brooks, Hatfield, and Schlegel based on the same misconduct. On Sept. 14, 2010, a jury convicted Brooks and Hatfield of, among other things, multiple counts of securities fraud, insider trading, and obstruction of justice, including obstructing the SEC’s investigation. Brooks and Hatfield are awaiting sentencing. Schlegel previously pled guilty to criminal charges pursuant to a plea agreement. The SEC’s civil actions against Brooks, Hatfield, and Schlegel are stayed pending the full resolution of the criminal actions.”
It is hopeful that if the above charges are true that, purchasers of body armor from this company were not also lied to regarding the usefulness of the body armor. In business if someone cheats one group of people they will cheat another group. If someone steals from their employees then they will also steal from their vendors and customers and cheat on their taxes. Criminal minds never stop thinking of ways to steal.
“Washington, D.C., Feb. 28, 2011 – The Securities and Exchange Commission today charged a major supplier of body armor to the U.S. military and law enforcement agencies for engaging in a massive accounting fraud. The agency separately charged three of the company’s former outside directors and audit committee members for their complicity in the scheme.
The SEC alleges that Pompano Beach, Fla.-based DHB Industries (now known as Point Blank Solutions) engaged in pervasive accounting and disclosure fraud through its senior officers and misappropriated company assets to personally benefit the former CEO. This resulted in the filing of materially false and misleading periodic reports to investors. The SEC further alleges that outside directors Jerome Krantz, Cary Chasin, and Gary Nadelman were willfully blind to numerous red flags signaling the accounting fraud, reporting violations, and misappropriation at DHB.
The SEC previously charged former DHB CEO David Brooks as well as two other former DHB senior officers for their roles in the fraud.
"We will not second-guess the good-faith efforts of directors. But in stark contrast, Krantz, Chasin and Nadelman were directors and audit committee members who repeatedly turned a blind eye to warning signs of fraud and other misconduct by company officers," said Robert Khuzami, Director of the SEC's Division of Enforcement.
Eric I. Bustillo, Director of the SEC’s Miami Regional Office, added, “This massive accounting fraud permeated throughout an entire company and was facilitated by the egregious, wholesale failure of the company’s board to act in the face of mounting red flags. As the fraud swirled around them, Krantz, Chasin, and Nadelman ignored the obvious and submitted to the directives and decisions of DHB’s senior management while themselves profiting from sales of the company’s securities.”
The SEC filed two separate complaints in U.S. District Court for the Southern District of Florida against DHB and the former outside directors. According to the SEC’s complaint against Krantz, Chasin, and Nadelman, their willful blindness to red flags allowed senior management to manipulate the company’s reported gross profit, net income, and other key figures in its earnings releases and public filings between 2003 and 2005. The company overstated inventory values, failed to include appropriate charges for obsolete inventory, and falsified journal entries. By ignoring red flags, the three outside directors also facilitated the misconduct by Brooks, who diverted at least $10 million out of the company through fraudulent transactions with a related entity that he controlled. Their willful blindness to red flags additionally facilitated DHB’s improper payment of millions of dollars in personal expenses for Brooks, including luxury cars, jewelry, art, real estate, extravagant vacations, and prostitution services. Despite being confronted with the red flags indicating fraud, Krantz, Chasin, and Nadelman approved or signed DHB’s false and misleading filings.
The SEC’s complaints against DHB, Krantz, Chasin, and Nadelman charge them with violating or aiding and abetting the antifraud, reporting, books and records, and other provisions of the federal securities laws. DHB has agreed to settle with the SEC and agreed to a permanent injunction from future violations. The proposed settlement took into account the remedial measures already taken by the company. The company is currently in bankruptcy and its settlement with the SEC is pending the approval of the bankruptcy court. The SEC seeks injunctive relief, disgorgement of ill-gotten gains, monetary penalties, and officer and director bars against Krantz, Chasin, and Nadelman.
The U.S. Attorney’s Office for the Eastern District of New York previously filed criminal charges against Brooks, Hatfield, and Schlegel based on the same misconduct. On Sept. 14, 2010, a jury convicted Brooks and Hatfield of, among other things, multiple counts of securities fraud, insider trading, and obstruction of justice, including obstructing the SEC’s investigation. Brooks and Hatfield are awaiting sentencing. Schlegel previously pled guilty to criminal charges pursuant to a plea agreement. The SEC’s civil actions against Brooks, Hatfield, and Schlegel are stayed pending the full resolution of the criminal actions.”
It is hopeful that if the above charges are true that, purchasers of body armor from this company were not also lied to regarding the usefulness of the body armor. In business if someone cheats one group of people they will cheat another group. If someone steals from their employees then they will also steal from their vendors and customers and cheat on their taxes. Criminal minds never stop thinking of ways to steal.
EXECUTIVES AT FAIR FINANCIAL COMPANY OF OHIO CHARGED WITH FRAUD
The following was obtained from the Department of Justice web site and involves charges of investment fraud against executives at Fair Financial Company:
“Wednesday, March 16, 2011
Three Former Executives Charged in $200 Million Fraud Scheme Involving Fair Financial Company Investors
WASHINGTON – Three former executives of Fair Financial Company, an Ohio financial services business, were arrested today and charged in an indictment filed in the Southern District of Indiana for their roles in a scheme to defraud approximately 5,000 investors of more than $200 million, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; Timothy M. Morrison, First Assistant U.S. Attorney for the Southern District of Indiana; and Special Agent in Charge Michael E. Welch of the FBI in Indiana.
The indictment, returned by a federal grand jury on March 15, 2011, and unsealed today, charges Timothy S. Durham, 48; James F. Cochran, 55; and Rick D. Snow, 47, with one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. Durham was arrested in Los Angeles, and Cochran and Snow were arrested in Indianapolis.
According to the indictment, Durham and Cochran purchased Fair, whose headquarters were in Akron, Ohio, in 2002. Durham was the chief executive officer of Fair and a member of the board of directors, Cochran was the chairman of the board of Fair, and Snow, a certified public accountant, served as the chief financial officer of Fair.
The indictment alleges that between approximately February 2005 through the end of November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The indictment further alleges that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises, and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money.
According to the indictment, when Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. The indictment alleges that in November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled, which they claimed were worth approximately $240 million, and finance receivables of approximately $24 million.
“These former executives are charged with engaging in fraudulent and deceptive business practices to hide from investors and regulators Fair’s true financial condition and their misuse of the company’s funds,” said Assistant Attorney General Breuer. “As alleged in the indictment, by using investors’ money to fund their failing business ventures and personal lifestyles, they perpetrated a $200 million fraud. Today’s charges and arrests reflect that investigating and prosecuting financial fraud is a Justice Department priority.”
“This has been an arduous journey, as are most large white collar cases,” said First Assistant U.S. Attorney Morrison. “But we now welcome the opportunity to prove the indictment’s allegations against these three men beyond a reasonable doubt.”
“These arrests follow the largest corporate fraud investigation in the history of the FBI in Indiana which resulted in over 5,000 victims and an estimated loss of $200 million dollars,” said Special Agent in Charge Welch.
According to the indictment, when Durham and Cochran bought Fair in 2002 its primary business was purchasing and collecting finance receivables. Fair financed its purchase of finance receivables by selling investment certificates to investors. Investors who purchased investment certificates were promised regular interest payments for a set period of time, at the end of which they were entitled to the return of their principal investment.
In order to sell its investment certificates, Fair was required to register the investment certificates with the State of Ohio Division of Securities. Fair did so by submitting registration documents and a proposed “offering circular” to the Division of Securities that was required to contain truthful and accurate disclosures about Fair’s business.
The indictment alleges that after Durham and Cochran acquired Fair, they changed the manner in which the company operated and used its funds. Rather than using the funds Fair raised from investors primarily for the purpose of purchasing finance receivables, Durham and Cochran caused Fair to extend loans to themselves, their associates and businesses they owned or controlled, which caused a steady and substantial deterioration in Fair’s financial condition.
According to the indictment, companies owned or controlled by Durham and Cochran, including DC Investments LLC (DCI) and Obsidian Enterprises Inc., as well as other businesses controlled through Obsidian and DCI, were among the primary beneficiaries of the loans Durham and Cochran made with Fair investor money. Durham and Cochran allegedly loaned money through Obsidian and DCI to a variety of struggling businesses and start-up ventures, including a car magazine, restaurants, a surgery center, trailer manufacturers, internet companies, a race car team, a replica vintage car manufacturer, a rubber reclaiming plant and a luxury bus leasing business. The indictment further alleges that after receiving loans from Fair, many of these businesses failed and were never able to repay the money they borrowed, while others, with the benefit of continued loans from Fair, struggled as unprofitable entities for years. In addition, Durham and Cochran allegedly took loans of Fair investor money for themselves, and used a significant portion of the proceeds of the loans to maintain their lifestyles and to pay for personal expenses.
According to the indictment, Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral. The indictment alleges that after firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009. The indictment further alleges that with independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.
The indictment also alleges that Durham, Cochran and Snow falsely represented, in registration documents and offering circulars submitted to the Division of Securities and in offering circulars distributed to investors, that the loans on Fair’s books were assets that could support Fair’s sale of investment certificates. According to the indictment, the defendants knew that in reality, the loans were worthless or grossly overvalued; producing little or no cash proceeds; supported by insufficient or non-existent collateral to assure repayment; and in part advances, salaries, bonuses and lines of credit for Durham and Cochran’s personal expenses.
The indictment alleges that the defendants engaged in a variety of other fraudulent activities to conceal from the Division of Securities and from investors Fair’s true financial health and cash flow problems, including making false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health, and directing employees of Fair not to pay investors who were owed interest or principal payments on their certificates. According to the indictment, even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.
An indictment is only a charge and is not evidence of guilt. A defendant is presumed innocent and is entitled to a fair trial at which the government must prove guilt beyond a reasonable doubt.
Also today, the U.S. Securities and Exchange Commission filed civil securities charges against Durham, Cochran and Snow.
This case is being prosecuted by Assistant U.S. Attorneys Winfield D. Ong and Joe H. Vaughn of the Southern District of Indiana and Assistant Chief Robertson Park and Trial Attorney Henry P. Van Dyck of the Fraud Section of the Criminal Division. The investigation was led by the FBI in Indianapolis.
Durham, Cochran and Snow each face a maximum of five years in prison for the conspiracy count, 20 years in prison for each wire fraud count and 20 years in prison for the securities fraud count. Additionally, each defendant could be fined $250,000 for each count of conviction. An initial hearing was held today in Indianapolis before a U.S. Magistrate Judge Kennard Foster for Cochran and Snow, and an initial hearing for Durham will be held in Los Angeles.
This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.”
“Wednesday, March 16, 2011
Three Former Executives Charged in $200 Million Fraud Scheme Involving Fair Financial Company Investors
WASHINGTON – Three former executives of Fair Financial Company, an Ohio financial services business, were arrested today and charged in an indictment filed in the Southern District of Indiana for their roles in a scheme to defraud approximately 5,000 investors of more than $200 million, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; Timothy M. Morrison, First Assistant U.S. Attorney for the Southern District of Indiana; and Special Agent in Charge Michael E. Welch of the FBI in Indiana.
The indictment, returned by a federal grand jury on March 15, 2011, and unsealed today, charges Timothy S. Durham, 48; James F. Cochran, 55; and Rick D. Snow, 47, with one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. Durham was arrested in Los Angeles, and Cochran and Snow were arrested in Indianapolis.
According to the indictment, Durham and Cochran purchased Fair, whose headquarters were in Akron, Ohio, in 2002. Durham was the chief executive officer of Fair and a member of the board of directors, Cochran was the chairman of the board of Fair, and Snow, a certified public accountant, served as the chief financial officer of Fair.
The indictment alleges that between approximately February 2005 through the end of November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The indictment further alleges that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises, and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money.
According to the indictment, when Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. The indictment alleges that in November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled, which they claimed were worth approximately $240 million, and finance receivables of approximately $24 million.
“These former executives are charged with engaging in fraudulent and deceptive business practices to hide from investors and regulators Fair’s true financial condition and their misuse of the company’s funds,” said Assistant Attorney General Breuer. “As alleged in the indictment, by using investors’ money to fund their failing business ventures and personal lifestyles, they perpetrated a $200 million fraud. Today’s charges and arrests reflect that investigating and prosecuting financial fraud is a Justice Department priority.”
“This has been an arduous journey, as are most large white collar cases,” said First Assistant U.S. Attorney Morrison. “But we now welcome the opportunity to prove the indictment’s allegations against these three men beyond a reasonable doubt.”
“These arrests follow the largest corporate fraud investigation in the history of the FBI in Indiana which resulted in over 5,000 victims and an estimated loss of $200 million dollars,” said Special Agent in Charge Welch.
According to the indictment, when Durham and Cochran bought Fair in 2002 its primary business was purchasing and collecting finance receivables. Fair financed its purchase of finance receivables by selling investment certificates to investors. Investors who purchased investment certificates were promised regular interest payments for a set period of time, at the end of which they were entitled to the return of their principal investment.
In order to sell its investment certificates, Fair was required to register the investment certificates with the State of Ohio Division of Securities. Fair did so by submitting registration documents and a proposed “offering circular” to the Division of Securities that was required to contain truthful and accurate disclosures about Fair’s business.
The indictment alleges that after Durham and Cochran acquired Fair, they changed the manner in which the company operated and used its funds. Rather than using the funds Fair raised from investors primarily for the purpose of purchasing finance receivables, Durham and Cochran caused Fair to extend loans to themselves, their associates and businesses they owned or controlled, which caused a steady and substantial deterioration in Fair’s financial condition.
According to the indictment, companies owned or controlled by Durham and Cochran, including DC Investments LLC (DCI) and Obsidian Enterprises Inc., as well as other businesses controlled through Obsidian and DCI, were among the primary beneficiaries of the loans Durham and Cochran made with Fair investor money. Durham and Cochran allegedly loaned money through Obsidian and DCI to a variety of struggling businesses and start-up ventures, including a car magazine, restaurants, a surgery center, trailer manufacturers, internet companies, a race car team, a replica vintage car manufacturer, a rubber reclaiming plant and a luxury bus leasing business. The indictment further alleges that after receiving loans from Fair, many of these businesses failed and were never able to repay the money they borrowed, while others, with the benefit of continued loans from Fair, struggled as unprofitable entities for years. In addition, Durham and Cochran allegedly took loans of Fair investor money for themselves, and used a significant portion of the proceeds of the loans to maintain their lifestyles and to pay for personal expenses.
According to the indictment, Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral. The indictment alleges that after firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009. The indictment further alleges that with independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.
The indictment also alleges that Durham, Cochran and Snow falsely represented, in registration documents and offering circulars submitted to the Division of Securities and in offering circulars distributed to investors, that the loans on Fair’s books were assets that could support Fair’s sale of investment certificates. According to the indictment, the defendants knew that in reality, the loans were worthless or grossly overvalued; producing little or no cash proceeds; supported by insufficient or non-existent collateral to assure repayment; and in part advances, salaries, bonuses and lines of credit for Durham and Cochran’s personal expenses.
The indictment alleges that the defendants engaged in a variety of other fraudulent activities to conceal from the Division of Securities and from investors Fair’s true financial health and cash flow problems, including making false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health, and directing employees of Fair not to pay investors who were owed interest or principal payments on their certificates. According to the indictment, even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.
An indictment is only a charge and is not evidence of guilt. A defendant is presumed innocent and is entitled to a fair trial at which the government must prove guilt beyond a reasonable doubt.
Also today, the U.S. Securities and Exchange Commission filed civil securities charges against Durham, Cochran and Snow.
This case is being prosecuted by Assistant U.S. Attorneys Winfield D. Ong and Joe H. Vaughn of the Southern District of Indiana and Assistant Chief Robertson Park and Trial Attorney Henry P. Van Dyck of the Fraud Section of the Criminal Division. The investigation was led by the FBI in Indianapolis.
Durham, Cochran and Snow each face a maximum of five years in prison for the conspiracy count, 20 years in prison for each wire fraud count and 20 years in prison for the securities fraud count. Additionally, each defendant could be fined $250,000 for each count of conviction. An initial hearing was held today in Indianapolis before a U.S. Magistrate Judge Kennard Foster for Cochran and Snow, and an initial hearing for Durham will be held in Los Angeles.
This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.”
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