EXECUTIVE AND FORMER EXECUTIVE PLEAD GUILTY IN MUNICIPAL BOND BID-RIGGING CASE

The following excerpt is from the Department of Justice website:

January 9, 2011

"WASHINGTON — An executive and a former executive of Rubin/Chambers, Dunhill Insurance Services, also known as CDR Financial Products, pleaded guilty today in the Southern District of New York for their participation in bid-rigging and fraud conspiracies related to contracts for the investment of municipal bond proceeds and other related municipal finance contracts, the Department of Justice announced.

Zevi Wolmark, also known as Stewart Wolmark, the former chief financial officer and managing director of CDR, and Evan Andrew Zarefsky, a CDR vice president, pleaded guilty before U.S. District Judge Victor Marrero. CDR is a Beverly Hills, Calif.-based financial products and services firm. Wolmark and Zarefsky, together with CDR and its founder and president, David Rubin, were indicted on Oct. 29, 2009. Rubin and CDR pleaded guilty on Dec. 30, 2011.

Wolmark and Zarefsky each pleaded guilty to participating in separate bid-rigging and fraud conspiracies with various financial institutions and insurance companies and their representatives. These institutions and companies, or “providers,” offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States. The public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects. Wolmark and Zarefsky also pleaded guilty to one count of wire fraud in connection with those schemes.

“Through corruption and bid rigging, Zevi Wolmark and Evan Zarefsky reaped profits for their company by defrauding municipalities and denying them the competition they deserved,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Justice Department’s Antitrust Division. “Our investigation into the municipal bond derivatives industry has now led to guilty pleas by 12 financial executives and charges against six others.”

According to court documents, CDR was hired by public entities that issue municipal bonds to act as their broker and conduct what was supposed to be a competitive bidding process for contracts for the investment of municipal bond proceeds. Competitive bidding for those contracts is the subject of regulations issued by the U.S. Department of the Treasury and is related to the tax-exempt status of the bonds.

During his plea, Wolmark admitted that, from 1998 until 2006, he and other co-conspirators favored certain providers when determining which provider would win contracts for investment agreements. Wolmark also admitted that he ensured that certain providers won by soliciting intentionally losing bids from other providers and manipulated bidding in return for unearned or inflated fees. Additionally, Wolmark admitted that he signed certifications that contained false statements regarding whether the bidding process for certain investment agreements complied with relevant Treasury regulations.

Zarefsky admitted that he supplied information to providers to help them win bids, allowed providers to lower their bids and solicited intentionally losing bids from some providers so that other providers could win certain contracts.

“Municipal bonds are issued to fund public works or otherwise serve a public purpose,” said FBI Assistant Director-in-Charge Janice K. Fedarcyk of the New York Field Office. “Bid rigging in the investment of bond proceeds effectively reduces the potential yield on those proceeds, meaning the actions of these defendants had an adverse impact on the public. This wasn’t just self-interest. It was self-interest that ran directly counter to the public interest.”

“Today’s guilty pleas by Zevi Wolmark and Evan Zarefsky represent a milestone in the government’s investigation,” said Special Agent in Charge Charles R. Pine of the Internal Revenue Service-Criminal Investigation (IRS-CI) New York Field Office. “CDR and the firm’s employees have effectively been removed from the municipal bond market and will no longer be able to manipulate and control the bid process for the reinvestment of tax-exempt municipal bond proceeds. This scheme to conceal kickbacks through complex derivative transactions has come to an end. IRS Criminal Investigation will continue to investigate those who violate the law for financial gain at the expense of taxpayers.”

The bid–rigging conspiracy with which Wolmark and Zarefsky are charged carries a maximum penalty of 10 years in prison and a $1 million criminal fine. The fraud conspiracy with which they are charged carries a maximum penalty of five years in prison and a $250,000 criminal fine. The wire fraud charge with which each defendant is charged carries a maximum penalty of 20 years in prison and a $250,000 criminal fine. The maximum fines for each of these offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Including today’s guilty pleas, 12 individuals have pleaded guilty in an ongoing federal investigation into the municipal bonds industry, which is being conducted by the Antitrust Division’s New York Field Office, the FBI and IRS-CI.

In addition, Dominick Carollo and Peter S. Grimm, formerly of GE Funding Capital Market Services, and Steven E. Goldberg, formerly of GE Funding Capital Market Services and FSA, were indicted on July 27, 2010, and are scheduled to begin trial in April 2012. Three former UBS employees, Peter Ghavami, Gary Heinz and Michael Welty, were indicted on Dec. 9, 2010."

SEC ALLEGES THREE FORMER "WELLCARE" EXECS IMPROPERLY RETAINED $40 MILLION

The following excerpt is from the SEC website:

“On January 9, 2012, the Securities and Exchange Commission (“Commission”) filed a civil injunctive action against three former executives of WellCare Health Plans, Inc. (“WellCare”), a managed care services company that administers federal government-sponsored health care programs. According to the Commission’s complaint, from 2003 to 2007, Todd Farha, former Chief Executive Officer, Paul Behrens, former Chief Financial Officer, and Thaddeus Bereday, former General Counsel, (collectively, “the Defendants”), devised and carried out a fraudulent scheme that deceived the Florida Agency for Health Care Administration (“AHCA”) and the Florida Healthy Kids Corporation (“Healthy Kids”) by improperly retaining over $40 million in health care premiums the company was statutorily and contractually obligated to spend on certain health care services or reimburse to the state agencies. As a result of the scheme, WellCare recorded the retained amount as revenue, which materially inflated its net income and diluted earnings per share (“EPS”) in its public financial statements.

As alleged in the complaint, WellCare received premiums from AHCA and Healthy Kids that WellCare was required, by contract and by statute, to spend on certain eligible health care services for low-income plan participants. If WellCare spent less than a certain percentage of the premiums on eligible health care services, it was required to refund some or all of the difference to the State of Florida. According to the complaint, the Defendants devised a scheme to evade the state’s regulatory framework and fraudulently retain the premiums by, among other methods, funneling the premiums through an internal subsidiary and by applying administrative and other non-allowable expenses in their calculation of money spent on health care services. In total, through their fraudulent conduct, the complaint alleges that WellCare reduced the refunds it paid to AHCA by approximately $35 million and to Healthy Kids by approximately $6 million.

The excess premiums retained by the Defendants went straight to WellCare’s bottom line. WellCare materially misstated its net income and EPS in filings with the Commission and in quarterly and annual earnings releases from 2004-2006 and the first two quarters of 2007. On January 26, 2009, WellCare filed its Form 10-K for 2007 and restated its financial results for those time periods. The Restatement reduced WellCare’s reported net income and EPS by approximately 14% for fiscal year (“FY”) 2004, 9% for FY 2005, 13% for FY 2006, and 9% for the first quarter of FY 2007.

The Commission’s complaint also alleges that, after setting their fraudulent scheme in motion, the Defendants sold approximately 1.6 million WellCare shares into the public market for gross proceeds of approximately $91 million. The Commission alleges that the Defendants sold these shares on the basis of the material, nonpublic information that they were conducting a fraudulent scheme that impacted WellCare’s financial results, caused false and misleading statements, and imperiled the Company’s business relationship with the State of Florida. According to the complaint, the Defendants sold the shares pursuant to 10b5-1 trading plans that were created and amended in bad faith, and through three public stock offerings conducted while the scheme was ongoing.

Based on the conduct alleged in the complaint, the Commission charges that each of the Defendants violated antifraud provisions Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rule 10b-5, and also violated Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1. All of the Defendants are also charged with aiding and abetting WellCare’s violations of reporting, books and records, and internal controls provisions, namely, Sections (13)(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13. Bereday is charged with aiding and abetting Farha’s and Behrens’ violations of antifraud provisions Section 10(b) and Rule 10b-5(b) of the Exchange Act. Finally, Farha and Behrens are charged with violating Exchange Act Rules 13b2-2 and 13a-14, and Section 304(a) of Sarbanes-Oxley, which requires that the CEO or CFO of a company that restates its financial results to reimburse the company any incentive-based or equity-based compensation received and any profits realized from the sale of the company’s stock during the 12-month period following initial issuance of the misleading financial statements.

As to each Defendant, the Commission is seeking a judgment permanently enjoining them from violating the provisions of the securities laws specified above, civil penalties, disgorgement of ill-gotten gains with prejudgment interest, and officer and director bars. As to Farha and Behrens, the Commission seeks reimbursement of incentive-based and equity-based compensation pursuant to Section 304(a) of Sarbanes-Oxley.

In conducting its investigation, the Commission acknowledges assistance from the U.S. Attorney’s Office for the Middle District of Florida, the Office of Inspector General for the Department of Health and Human Services and the Federal Bureau of Investigation.”

TEXAS MAN TO PAY BACK $2.69 MILLION FOR FOREIGN CURRENCY PONZI SCHEME

The following excerpt is from the CFTC website:

“Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court consent order requiring CFTC defendant Larry Benny Groover of Gunter, Texas, to pay a total of $2.69 million in restitution and a civil monetary penalty for defrauding customers and misappropriating funds in a foreign currency (forex) Ponzi scheme.

The consent order of permanent injunction, entered by Judge Richard A. Schell of the U.S. District Court for the Eastern District of Texas, Sherman Division, on January 4, 2012, also requires Groover and/or his wife, Joanne Groover, named as a Relief Defendant, to disgorge ill-gotten funds totaling $44,890, which Joanne Groover received as a result of her husband’s fraudulent conduct.

The court’s order finds that from June 18, 2008, to February 4, 2010, Groover solicited and received approximately $1.4 million to trade forex and commingled these customer funds with his and his wife’s personal funds. Groover used approximately $647,500 of the solicited funds to trade forex and lost approximately $600,000. Groover misappropriated the remaining customer funds by making payments to past customers with new customer funds and paying for personal expenses, such as health and medical care, cable television, groceries, dining, auto repair, gasoline, and insurance, according to the order. Additionally, the order finds that Groover used customer funds to purchase software and trade publications and to make payments directly to himself and Joanne Groover.

The CFTC thanks the Financial Services Authority of the United Kingdom, the Australian Securities and Investment Commission, the Texas State Securities Board, and the Collin County District Attorney’s Office for their assistance.

CFTC Division of Enforcement staff members responsible for this case are Jeff Le Riche, Jenny Chapin, Jo Mettenburg, Steve Turley, Richard Glaser, and Richard Wagner.”

COURT GIVES SUMMARY JUDGEMENT AGAINST MISAPPROPRIATOR OF INVESTOR FUNDS

The following excerpt is from the SEC website:

“The Securities and Exchange Commission announced that on December 29, 2011, the United States District Court for the District of Utah granted its motion for summary judgment against Jeffrey L. Mowen. On May 4, 2011, Mowen pled guilty to committing wire fraud in a related criminal action, United States of America v. Mowen, Case No. 2:09-cr-00098-DB (D. Utah). In pleading guilty, Mowen acknowledged operating a Ponzi scheme from around October 2006 to around October 2008, wherein he received over $18 million from investors for use in a purported foreign currency trading program. The SEC Complaint alleges that the investor funds provided to Mowen were raised by Thomas Fry and the other defendants, Fry’s promoters, from the unregistered offer and sale of high-yield promissory notes to over 150 investors in several states. Mowen acknowledged in his guilty plea that, rather than using investor funds for their intended purpose, he used the money for his personal benefit, misappropriating over $8 million.

The SEC moved for summary judgment against Mowen based upon the facts he acknowledged in his guilty plea. The Court granted the SEC’s motion, which sought a finding that Mowen violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933, an injunction against future violations of those provisions, and disgorgement of $8,041,779 in ill-gotten gains, plus prejudgment interest of $1,964,203.”

ATTORNEY CHARGED BY SEC WITH MUNICIPAL BOND FRAUD

The following excerpt is from the Sec website:

“The Securities and Exchange Commission today announced its filing of a civil injunctive action alleging fraud in the offer and sale of municipal bonds by Chalmer E. Detling, II, an attorney based in Atlanta.

Filed December 29, 2011 in the U.S. District Court for the Northern District of Georgia, the SEC’s complaint alleges that Detling made material misrepresentations and omissions in connection with the 2006 offer and sale of $2.96 million of industrial development revenue bonds. Raleigh County, West Virginia issued the bonds in October 2006 to facilitate Aiken Continental, L.L.C.’s acquisition of Continental Casket, Inc., a casket manufacturing facility located within its jurisdiction. In 2006, Detling served as counsel to Aiken Continental and its sole principal, Charles A. Aiken, for purposes of the acquisition, and simultaneously represented Aiken in an unrelated federal criminal proceeding.

According to the SEC’s complaint, Detling failed to disclose to key participants to the transaction, including the issuer, bond counsel, the underwriter, and the bondholders’ trustee, that Aiken had been indicted for financial fraud in late 2005. Detling also failed to disclose that he was in the process of negotiating a plea agreement for Aiken just before the bonds were issued in October 2006. In addition, Detling failed to disclose material information about a $200,000 loan to Aiken and Aiken Continental from a company that was partially owned by Detling, in order to facilitate the closing of the transaction. This loan required a $100,000 interest payment, and gave the lender a twenty percent equity interest in Aiken Continental if the loan plus interest was not fully repaid within six months. Detling’s failure to disclose details about Aiken’s criminal proceeding and the loan rendered certain statements in the bonds’ Official Statement materially misleading. By reviewing the Official Statement, which was distributed to investors in connection with the transaction, and failing to correct the misstatements and omissions therein, the SEC’s complaint alleges that Detling aided and abetted the violations of Aiken and Aiken Continental.

In addition, the SEC’s complaint alleges that Detling signed an opinion letter as counsel to Aiken Continental in which he made false and misleading representations. Specifically, Detling represented that no proceeding at law was pending which would adversely affect Aiken Continental, and that the Official Statement did not contain any untrue statement of material fact or omit any material facts. The SEC’s complaint alleges that these representations were materially false and misleading due to Detling’s failures to disclose material information about Aiken’s criminal proceeding and the loan.
According to the SEC’s complaint, Aiken served 90 days in federal prison and 90 days of home detention in Georgia following the close of the transaction. Aiken’s six-month absence negatively affected the operations of the casket company and the Raleigh County bonds are now in default, with the entire principal amount and accrued interest due.
Without admitting or denying the allegations in the complaint, Detling agreed to settle the SEC’s charges by consenting to the entry of a final judgment, which will permanently enjoin him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and from aiding and abetting violations of Exchange Act Section 10(b) and Rule 10b-5. As part of the settlement, Detling also agreed to pay $10,000 in disgorgement, $3,052 in prejudgment interest, and a $25,000 civil penalty, all of which will be distributed on a pro rata basis to Raleigh County bondholders. The SEC’s settlement with Detling is subject to court approval. In addition, pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, Detling consented to the entry of an administrative order suspending him from appearing or practicing before the Commission as an attorney, with the right to reapply after five years.”

PRESIDENT DEFENDS APPOINTMENT OF LEADER FOR THE CONSUMER FINANCIAL PROTECTION BUREAU

The following excerpt is from the White House website:

"Consumer Watchdog: After appointing Richard Cordray to lead the Consumer Financial Protection Bureau earlier this week, the President traveled to Shaker Heights, Ohio to talk about his decision -- and the fight to help secure a better future for the middle class. The CFPB is in place to ensure the integrity of the financial system and protect all American consumers from fraud and unfair play. The President said: “See, most people in the financial services industry do the right thing, but they're at a disadvantage if nobody is enforcing the rules. We can't let that happen. Now is not the time to play politics while people’s livelihoods are at stake. Now is the time to do everything we can to protect consumers, prevent financial crises like the one that we’ve been through from ever happening again. That starts with letting Richard do his job.”