SEC ALLEGES SECURITIES FRAUD INVOLVING AN IPO

Becoming very rich by getting investors to place their savings in investments that are mainly non-existent is the modern definition of entrepreneurialism. In the old days such behavior was known as fraud and was generally frowned upon by society. Today such individuals are said to be great capitalist who are willing to take chances. Of course the chances these so called capitalists take is that they may be discovered, pay heavy fines and/or, go to jail. In the following excerpt from the SEC web site the SEC alleges fraud in the matter of an Initial Public Offering:

“Washington, D.C., May 11, 2011 – The Securities and Exchange Commission today charged the co-founders of a New York-based beverage and food carrier company with orchestrating an $8 million securities fraud and spending at least half of investor money for their personal use.
The SEC alleges that Angelo Cuomo of Staten Island and George Garcy of Aventura, Fla., fraudulently obtained investments in E-Z Media Inc. while falsely telling investors that their company owned several patents for beverage and food carriers and had contracts to sell its carriers to such major companies as Heineken, Anheuser Busch, and Aramark Corporation. They also misrepresented their plans to conduct an initial public offering (IPO), their use of offering proceeds, and the projected share price. E-Z Media never actually had any contracts or other agreements to sell its carriers to any major company, including the brand-name companies that Cuomo and Garcy touted to investors. E-Z Media never took even the basic steps to prepare for a purported IPO.

“Garcy and Cuomo conducted an offering fraud that was rife with false statements and omissions to entice unsuspecting investors,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Instead of using the offering proceeds to develop their business, Garcy and Cuomo treated E-Z Media’s bank account as a personal slush fund and diverted millions of dollars to line their pockets.”
According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, E-Z Media designs carriers for use at concession stands at stadiums, arenas, movie theaters, and similar venues. E-Z Media is not registered nor does it file reports with the SEC.
The SEC alleges that Cuomo and Garcy (also known as Jorge Garcia) conducted their scheme from at least 2003 to 2009, making false statements and omissions about their company’s business prospects, assets, and liabilities. E-Z Media never disclosed that its claimed ownership of its main asset – certain patents for the carriers – was contingent on E-Z Media’s payment of $14.5 million to Cuomo, or that E-Z Media’s ownership of those patents may not have been valid in the first place.
The SEC further alleges that E-Z Media also had no reasonable basis for the post-IPO price projections that Garcy and Cuomo presented to investors, because the company had no significant assets or revenues and had substantial liabilities. They never told investors that the SEC sanctioned Garcy in 1997 for improperly offering and selling stock of another company to the public.
According to the SEC’s complaint, Garcy and Cuomo misappropriated and diverted at least $4 million of funds obtained from investors to make payments on personal loans, private school tuition, and rent and mortgages as well as other personal uses. The SEC’s complaint also names four relief defendants for the purposes of recovering fraudulently transferred assets: Cuomo’s sons Ralph Cuomo and Vincent Cuomo, Cuomo’s sister Judith Guido, and New York-based attorney Joseph Lively.
The SEC’s complaint seeks a final judgment permanently enjoining Garcy and Cuomo from future violations of the federal securities laws, barring Garcy and Cuomo from acting as officers and directors of any public company, requiring Garcy and Cuomo to pay financial penalties, and requiring the defendants and relief defendants to disgorge all ill-gotten gains plus prejudgment interest, among other relief.
The SEC thanks the U.S. Attorney’s Office for the Eastern District of New York and the Internal Revenue Service for their assistance in this matter.”

The SEC and other governmental agencies have been working very hard at uncovering cases of fraud however; many in Congress want to stop the SEC and others from doing their jobs by defunding the agencies.

INSIDER TRADING CASE INVOLVING ALBERTSON’S LLC

The following is an excerpt from the SEC web site:

‘Litigation Release No. 21950 / April 28, 2011
Securities and Exchange Commission v. Jonathan Hollander, Civil Action No. 11-CV-2885 (S.D.N.Y. April 28, 2011)

SEC CHARGES FORMER HEDGE FUND PROFESSIONAL WITH INSIDER TRADING
The Securities and Exchange Commission today charged Jonathan Hollander, a former hedge fund professional, with insider trading in Albertson’s, LLC based on material nonpublic information regarding an impending acquisition of ABS that Hollander received from a friend who was employed by the financial advisor retained by ABS in connection with impending acquisition. The Complaint alleges that Hollander traded ABS securities on the basis of the material nonpublic information and also tipped a family member and another friend (the tippees) who also traded ABS securities. As a result of their trading, Hollander and his tippees generated $95,807 in illegal profits.
The Complaint alleges that on January 12, 2006, Hollander purchased a total of 5,600 shares of ABS stock in his personal brokerage accounts. The Complaint further alleges that around the same time Hollander’s family member purchased 425 ABS call options. The Complaint also alleges that on January 17, 2006, the next business day after visiting with Hollander, Hollander’s friend purchased 25 ABS call options and on January 18, he purchased an additional 15 ABS call options.
On Monday, January 23, 2006, prior to the opening of trading, ABS announced it would be acquired by a consortium of buyers. Following the public announcement, Hollander’s tippees sold their ABS holdings. Hollander’s family member made a profit of $72,815 and his friend made a profit of $5,250. Hollander earned a profit of $17,742 in his own brokerage accounts.
Without admitting or denying the SEC’s allegations, Hollander agreed to settle the charges against him. The settlement is pending final approval by the court. Specifically, Hollander consented to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, ordering him to pay disgorgement of $95,807 plus prejudgment interest of and imposing a civil penalty of $95,807. Hollander also consented to the entry of a Commission order, based upon the entry of a final judgment, barring him from association with a broker, dealer, investment adviser, municipal securities dealer or transfer agent with the right to reapply after three years.
The SEC acknowledges the assistance of the United States Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation in connection with this matter.”

SEC USES DEFERRED PROSECUTION AGREEMENT IN BRIBERY CASE

Under FCPA companies are often charged for bribing foreign officials. Unfortunately, in many places companies in order to do business are forced to give bribes. In the following case the SEC is allowing a corporation to come clean and help with the investigation in order to avoid further prosecution. This excerpt of this case has been taken from the SEC web site:

“Washington, D.C., May 17, 2011 – The Securities and Exchange Commission today entered into a Deferred Prosecution Agreement (DPA) with Tenaris S.A. in its first-ever use of the approach to facilitate and reward cooperation in SEC investigations.

The agreement with Tenaris involves allegations that the global manufacturer of steel pipe products violated the Foreign Corrupt Practices Act (FCPA) by bribing Uzbekistan government officials during a bidding process to supply pipelines for transporting oil and natural gas. The SEC alleges that Tenaris made almost $5 million in profits when it was subsequently awarded several contracts by the Uzbekistan government. Under the terms of the DPA, Tenaris must pay $5.4 million in disgorgement and prejudgment interest.
Tenaris is the first company to enter into a DPA with the SEC, an approach announced last year to encourage individuals and companies to provide information about misconduct and assist with an SEC investigation. When Tenaris conducted a thorough, worldwide internal review of its operations and controls, it discovered FCPA violations by personnel in Uzbekistan and informed the SEC. In response to its findings, Tenaris reviewed its controls and compliance measures and significantly enhanced its anti-corruption policies and practices. Tenaris has agreed to cooperate further with the SEC, Justice Department, and any other law enforcement agency in connection with this case. Tenaris also agreed to pay a $3.5 million criminal penalty in a Non-Prosecution Agreement announced today by the Justice Department.
“The Tenaris foreign bribery scheme was unacceptable and unlawful, but the company’s response demonstrated high levels of corporate accountability and cooperation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The company’s immediate self-reporting, thorough internal investigation, full cooperation with SEC staff, enhanced anti-corruption procedures, and enhanced training made it an appropriate candidate for the Enforcement Division’s first Deferred Prosecution Agreement. Effective enforcement of the securities laws includes acknowledging and providing credit to those who fully and completely support our investigations and who display an exemplary commitment to compliance, cooperation, and remediation.”‬
Cheryl Scarboro, Chief of the SEC Enforcement Division’s FCPA Unit, added, “Tenaris’s conduct was clearly in violation of the FCPA. The company’s employees bribed government officials in Uzbekistan to obtain government contracts. But when Tenaris discovered the illegal conduct, it took noteworthy steps to address the violations and significantly enhance its anti-corruption policies and practices to remediate weaknesses in its internal controls.”
Tenaris is incorporated in Luxembourg and its American Depositary Receipts (TS) are listed on the New York Stock Exchange. According to the DPA, the SEC alleges that Tenaris bid on a series of contracts in 2006 and 2007 and bribed Uzbekistan officials to gain access to confidential bids by competitors. Tenaris used the information to revise its own bids, and as a result was awarded several contracts by the Uzbekistan government.
Under the terms of the DPA, the SEC will refrain from prosecuting the company in a civil action for its violations if Tenaris complies with certain undertakings. Among other things, Tenaris has agreed to enhance its policies, procedures, and controls to strengthen compliance with the FCPA and anti-corruption practices. Tenaris will implement due diligence requirements related to the retention and payment of agents, provide detailed training on the FCPA and other anti-corruption laws, require certification of compliance with anti-corruption policies, and notify the SEC of any complaints, charges, or convictions against Tenaris or its employees related to violations of any anti-bribery or securities laws. Tenaris has agreed to continue to fully cooperate with the SEC in its investigation.”

The SEC has said this is a first of its kind case and as such, the SEC should be commended for using the real prosecutorial tactic of allowing the alleged criminal get a lighter sentence in exchange for full cooperation.

FINAL JUDGMENT AGAINST GARY TRUMP IN SECURITIES CASE

The following excerpt is from the SEC web site:

“Litigation Release No. 21939 / April 20, 2011
Accounting and Auditing Enforcement Release No. 3272 / April 20, 2011
Securities and Exchange Commission v. Duane Martin and Gary Trump, Civil Action No. 09-cv-05259 (N.D. Ill.)
COURT ENTERS A FINAL JUDGMENT AGAINST STOCK PROMOTER GARY TRUMP
On April 12, 2011, the District Court for the Northern District of Illinois entered a Final Judgment against stock promoter Gary Trump in a civil action brought by the United States Securities & Exchange Commission (the “Commission”). The Commission sued Trump as well as Duane Martin, the former CEO of St. Charles, Illinois-based Universal Food & Beverage, Inc. ("Universal"), a now-defunct company, for violating federal securities laws. Trump was charged with violating the registration provisions of the Securities Act of 1933 (the "Securities Act") for improperly issuing S-8 stock to stock promoters and Martin's personal creditors. The Final Judgment entered against Trump permanently enjoins him from violating Sections 5(a) and 5(c) of the Securities Act and permanently bars him from participating in any penny stock offerings. It also orders him to pay $69,976.27 in disgorgement and prejudgment interest, but waives payment based on his demonstrated inability to pay. The Final Judgment was entered based on Trump’s Consent to Final Judgment in which he neither admitted nor denied the allegations in the Commission's Complaint.
The Commission's Complaint alleged that Trump and Martin violated the registration provisions of the Securities Act by improperly issuing S-8 stock to stock promoters and Martin's personal creditors. Trump, who took S-8 shares in exchange for promoting Universal stock, (a) helped engineer the illegal S-8 offering by hand-picking a team of promoters who participated in the offering and (b) illegally distributed his S-8 shares to the public without registration. The Complaint also pled several fraud claims against Martin.
The Commission previously settled its claims against Duane Martin by which Martin agreed to entry of (1) a permanent injunction, (2) a permanent penny stock bar, and (3) a permanent officer and director bar. In addition, on March 16, 2010, the United States Attorney’s Office for the Northern District of Illinois (“USAO”) charged Martin with wire fraud based largely on the misconduct identified in the Commission’s Complaint. Martin pled guilty and, on July 13, 2010, was sentenced to 41 months in prison and ordered to pay $618,441 in restitution to Universal’s creditors.”

JOHNSON AND JOHNSON PAYS OVER $70 MILLION TO SETTLE BRIBERY CHARGES

The following case from the SEC web site details the settlement in a case which involved the Foreign Corrupt Practices act:

“The Securities and Exchange Commission today announced a settlement with Johnson and Johnson (“J&J”) to resolve SEC charges that the New Brunswick, NJ-based global pharmaceutical, consumer product, and medical device company violated the Foreign Corrupt Practices Act (FCPA) by bribing public doctors in several European countries and paying kickbacks to Iraq to illegally obtain business.
The SEC alleges that, since at least 1998, J&J’s subsidiaries paid bribes to public doctors in Greece who selected J&J surgical implants, paid bribes to public doctors and hospital administrators in Poland who awarded tenders to J&J, and paid bribes to public doctors in Romania to prescribe J&J pharmaceutical products. J&J also paid kickbacks to Iraq in order to obtain contracts under the United Nations Oil for Food Program (“Program”).
J&J has agreed to pay more than $48.6 million in disgorgement and prejudgment interest to settle the SEC’s charges and to pay a $21.4 million fine to the U.S. Department of Justice to settle criminal charges. A resolution of a related investigation by the United Kingdom Serious Fraud Office is anticipated.
The SEC’s complaint alleges that J&J subsidiaries, employees, and agents paid bribes to public doctors and administrators in Greece, Poland, and Romania. Doctors who ordered or prescribed J&J products were rewarded in a variety of ways, including cash and inappropriate travel. A variety of schemes were used to carry-out the bribery, including the use of slush funds, sham civil contracts with doctors, and off-shore companies in the Isle of Man. A J&J executive was involved in the Greek conduct, and MD&D Poland executives running three business lines oversaw the creation of sham contracts, travel documents, and the creation of slush funds in Poland. The SEC’s complaint also alleges that J&J’s agent paid secret kickbacks to Iraq to obtain nineteen Oil for Food contracts.
Without admitting or denying the SEC’s allegations, J&J has consented to the entry of a court order permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934; ordering it to pay $38,227,826 in disgorgement and $10,438,490 in prejudgment interest; and ordering it to comply with certain undertakings regarding its FCPA compliance program.
J&J voluntarily disclosed some of the violations by its employees, and conducted a thorough internal investigation to determine the scope of the bribery and other violations, including proactive investigations in more than a dozen countries by both its internal auditors and outside counsel. J&J’s internal investigation and its ongoing compliance programs were essential in gathering facts regarding the full extent of J&J’s FCPA violations.
Kelly G. Kilroy and Tracy L. Price of the Enforcement Division’s FCPA Unit and Brent S. Mitchell and Reid A. Muoio conducted the SEC’s investigation. The SEC acknowledges the assistance of the U.S. Department of Justice, Fraud Section; the Federal Bureau of Investigation; the Serious Fraud Office in the United Kingdom; and 5th Investigation Department of the Regional Prosecutor’s Office in Radom, Poland. The SEC's investigation is continuing.”

COURT JUDGMENT IN EAST DELTA RESOURCES CASE

In the following excerpt from the SEC web site the SEC got a summary judgment against in a securities fraud case:

‘The United States Securities and Exchange Commission announced today that on March 22, 2011, Judge Sandra Feuerstein of the United States District Court for the Eastern District of New York entered summary judgment in favor of the Commission on most of its claims against Mayer Amsel and his brother, David Amsel in a market manipulation case involving the securities of East Delta Resources Corp. Mayer Amsel is a securities fraud recidivist.
The Commission’s motion for summary judgment argued that from 2004 through at least 2006, the Amsels, in concert with several others and through their individual actions, artificially inflated the volume of market activity for, and in turn the price of, East Delta stock, and illegally sold East Delta shares that they received at little or no cost. The Commission’s summary judgment motion further argued that the Amsels together collected illegal profits of $1,322,703 from their manipulative conduct.
The summary judgment opinion grants the following relief: (1) a permanent injunction prohibiting both Amsels from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; (2) a permanent injunction prohibiting both Amsels from violating Section 17(a) of the Securities Act of 1933 (Securities Act); (3) a permanent injunction prohibiting David Amsel from violating Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; and (4) a permanent injunction prohibiting both Amsels from participating in an offering of penny stock, absent an explicit release from the Commission. The opinion reserved judgment on the issue of the Amsels’ liability for violations of Sections 5(a) and 5(c) of the Securities Act (together, Section 5), the question of whether to impose an officer and director bar against David Amsel, and what the appropriate judgment amount should be with respect to disgorgement, civil penalties, and prejudgment interest. Subsequently, the court entered a default judgment against David Amsel that permanently enjoined him from violating Section 5 of the Securities Act after he failed to appear at a bench trial that was held in the case on March 28, 2011.
The latest judgments against the Amsel brothers follow others entered in the same case within the past seven months against East Delta and its former CEO, Victor Sun. On September 22, 2010 and October 13, 2010, the court entered final judgments against East Delta and Sun, respectively. Both defendants settled with the Commission without admitting or denying the allegations against them.
A decision on Mayer Amsel’s Section 5 liability is still pending following the March 28, 2011 trial. A ruling on the officer and director bar against David Amsel and the monetary remedies sought by the Commission is expected after further briefing.
The SEC appreciates the assistance of the Quebec Autorité des marchés financiers (AMF) and the British Columbia Securities Commission (BCSC) in connection with the investigation leading to the litigation.”