CPA PLEADS GUILTY TO LYING TO SEC STAFF

The following excerpt is from an e-mail sent out by the SEC:

“Washington, D.C., Jan. 12, 2012 – The Securities and Exchange Commission today announced that a former audit partner at accounting and consulting firm BDO USA LLP has pled guilty to criminal charges for lying to SEC enforcement staff during investigative testimony.

Ronald C. Machen Jr., the U.S. Attorney for the District of Columbia, filed the criminal charges against certified public accountant Bryan N. Polozola, who lives in Richardson, Texas.

According to the criminal information filed in U.S. District Court for the District of Columbia, the SEC issued subpoenas last year to BDO and Polozola, who was responsible for auditing several hedge funds managed by an investment adviser that the SEC is investigating. The criminal information states that the audit is a central issue in the SEC inquiry, and investigators took testimony from Polozola to obtain information about his role in the audit process and assess his credibility. Polozola was the subject of a 2005 NASD (now FINRA) proceeding alleging that he took $49,350 in funds from a former employer for his personal use. Polozola neither admitted nor denied NASD’s allegations in consenting to a bar from associating with any NASD firm.
The criminal information alleges that during questioning in September 2011, Polozola falsely testified to SEC staff that he was not aware of a $49,350 payment made on his behalf to his former employer. In fact, Polozola was aware that his attorney had repaid the $49,350 to the former employer as reimbursement of the funds he had allegedly taken for his personal use. The payment was made at Polozola’s direction and with Polozola’s funds.

“Truth in testimony is the first principle of a fair and effective enforcement program,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This guilty plea is a stark reminder that those who lie in SEC investigations will face an SEC committed to working closely with the criminal authorities to ensure that they are held accountable.”
Polozola pled guilty to a one-count information charging him with making a false statement to government officials in violation of 18 U.S.C. § 1001.

The SEC thanks the U.S. Attorney’s Office for the District of Columbia for its efforts in prosecuting the case.”

SEC BRINGS CHARGES AGAINST IMPERIALI, INC., FOR FRAUD

The following excerpt is from the SEC website:

“On January 9, 2012, the Securities and Exchange Commission charged Florida-based Imperiali, Inc., one current and one former officer, and its former auditor for their involvement in a fraudulent disclosure and accounting scheme.

The SEC’s Complaint alleges that between 2005 and 2008, Daniel Imperato orchestrated a scheme to use Imperiali, a business development company that Imperato owned and controlled, to defraud investors by making it appear that Imperiali was a thriving multinational corporation with several wholly-owned businesses, when in fact it was nothing more than a shell corporation. The Complaint alleges that Imperiali raised approximately $2.5 million using offering materials that included numerous material misrepresentations and omissions, and that Imperato and Fiscina drafted, reviewed, and certified at least 16 materially false and misleading registration statements, periodic reports and current reports with the Commission on behalf of Imperiali. Among other things, the Complaint alleges that those filings overvalued Imperiali’s virtually worthless assets at amounts ranging from $3.5 million to $269 million, and failed to disclose the issuance of millions of shares of restricted stock. The Complaint also alleges that O’Donnell failed to audit Imperiali’s financial statements in accordance with Public Company Accounting Oversight Board (PCAOB) Standards, and issued audit reports on Imperiali’s financial statements that he knew or was reckless in not knowing contained materially false and misleading information.

The SEC’s complaint charges that Imperiali and Imperato violated, or aided and abetted violations of, Sections 5(a), 5(a), and 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; that Imperiali also violated Sections 18(d), 31(a), and 34(b) of the Investment Company Act of 1940 (Investment Company Act) and rule 31a-1 thereunder; that Imperato also violated Sections 13(b)(5) and 15(a) of the Exchange Act and rules 13b2-1, 13b2-2, and 13a-14 thereunder, and Section 34(b) of the Investment Company Act; and that O’Donnell violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks permanent injunctions and civil penalties from each defendant, disgorgement with prejudgment interest from Imperiali and Imperato, and an officer and director bar against Imperato, and Fiscina.
Without admitting or denying the SEC’s allegations, Fiscina has consented to the entry of a final judgment that permanently enjoins him from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder, and Section 34(b) of the Investment Company Act, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder, and bars him from acting as an officer or director of a public company. The Fiscina final judgment does not impose a civil penalty against him based on his sworn inability to pay. The settlement is subject to the Court’s approval.”

SEC ALLEGES INSIDER TRADING IN MATRIA HEALTHCARE, INC., STOCK

The following excerpt is from the SEC website:

"On January 9, 2012, the Securities and Exchange Commission filed a civil injunctive action against Earl C. Arrowood, a 67-year old resident of Gainesville, Georgia, and Parker H. “Pete” Petit, a 72-year old who maintains residences in both Miramar Beach, Florida and Roswell, Georgia. The Commission alleges insider trading by Arrowood based on material non-public information about the potential sale of Matria Healthcare, Inc. (“Matria”), formerly a NASDAQ-listed company, provided by his friend and flying partner, Petit. At that time, Petit was the Chairman and Chief Executive Officer of Matria. The Commission alleges that Petit tipped Arrowood that Matria was seeking to be acquired in advance of Matria’s January 15, 2008 public announcement. Based on the tip, Arrowood purchased a total of over 17,500 common shares of Matria in October and December 2007 resulting in unrealized gains on the Matria trades in excess of $94,000, based on a 20 percent increase in Matria’s share price after the news was made public in January 2008.

The Commission’s complaint, filed in the United States District Court for the Northern District of Georgia, charges Arrowood and Petit with violating the antifraud provisions of the federal securities laws. The complaint alleges that that each violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, alleges and seeks against each a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties pursuant Section 21A of the Exchange Act; and as to Petit, an order barring him from acting as an officer or director of any issuer whose securities are registered with the Commission pursuant to Section 12 of the Exchange Act or which is required to file reports with the Commission pursuant to Section 15(d) of the Exchange Act."

COURT FINDS AWMS ACQUISITIONS, INC., AND OWNER MADE FALSE STATEMENTS IN AMR AND KODAK BUYOUT OFFERS

The following excerpt is from the SEC website:

“On January 10, 2012, the U.S. District Court for the Southern District of Florida in Miami entered final judgments against Allen E. Weintraub and his company, AWMS Acquisitions, Inc., d/b/a Sterling Global Holdings (Sterling Global), in connection with purported tender offers they made for the common stock of Eastman Kodak Company (Kodak) and AMR Corporation (AMR), the parent company of American Airlines. The Court’s order imposes permanent injunctions against Weintraub and Sterling Global and requires them to pay $400,000 in civil money penalties.

On December 30, 2011, the Court entered an order granting the Securities and Exchange Commission’s motion for summary judgment against Weintraub, a resident of Aventura, Florida. In its Order, the Court found that Weintraub deceived the public by making false and misleading statements regarding Sterling Global’s ability to purchase and operate Kodak and AMR. Specifically, the Court found:
On March 19, 2011, Weintraub, on behalf of Sterling Global, emailed a written offer to Kodak for all its “outstanding stock” at a total price of approximately $1.3 billion in cash. On March 29, 2011, Weintraub emailed substantially the same letter to AMR offering to purchase all AMR’s “outstanding stock” for approximately $3.25 billion in cash. These offer prices represented almost a 50% premium over each company’s then current stock price.

Before submitting the offer letters to Kodak and AMR, Weintraub entered the local branches of three banking institutions to solicit respective loans of $3 billion, $3.5 billion, and $1.3 billion. Each institution informed Weintraub that they were not interested in establishing a business relationship. Weintraub never obtained a letter of credit or other written financing agreement. The letters he sent to Kodak and AMR created the misleading impression that Sterling Global was poised to purchase the companies because Weintraub and Sterling Global had substantially no assets, and lacked the resources to complete the offers.

Weintraub emailed the purported tender offers to media outlets, investment research firms, and large shareholders in an effort to publicize his proposed deal. In published media interviews, Weintraub misrepresented that he had the financial backing of “several large institutions,” could produce letters of credit “within five minutes,” had done similarly-sized deals, and was in discussions with Kodak about his offer.

Weintraub did not disclose several aspects of his personal background before submitting the offer letters to Kodak and AMR, or in his subsequent communications with shareholders and members of the press. Specifically, Weintraub never disclosed that in 2008 he pleaded guilty to two felony counts of organized fraud and one count of felony money laundering, and that he was on probation when he submitted the offer letters to Kodak and AMR. He also did not disclose that in 2002 the Court permanently enjoined him from acting as an officer or director of any public company as a result of a previous violation of federal securities law. SEC v. Florida Stock Transfer, Inc., et al., Lit. Rel. 17795 & 18021.

Weintraub failed to disclose that he had filed for bankruptcy in 2007, and that his primary residence was foreclosed upon in 2008. Weintraub also did not divulge that on September 24, 2010, the Division of Corporations of the Florida Department of State administratively dissolved Sterling Global for failing to file its annual report.
The Court permanently enjoined Weintraub and Sterling Global from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-8 thereunder, and ordered them to each pay a civil money penalty in the amount of $200,000. The Commission did not seek any other remedies.
The Commission filed its complaint in this matter on May 3, 2011. See Litigation Release 21955 (May 4, 2011). On July 21, 2011 the Clerk of the Court entered a default against Sterling Global for failing to appear via an attorney and to answer the Commission’s complaint.”

SEC CHAIRMAN MARY SCHAPIRO SPEAKS ON THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD BUDGET AND FEE

The following excerpt comes from the SEC website:

January 11, 2012
Chairman Mary Schapiro
“Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on January 11, 2012.

Today, the Commission will consider the proposed 2012 budget and accounting support fee for the Public Company Accounting Oversight Board. Under the Sarbanes-Oxley Act, which created the PCAOB, the Commission must annually review and approve the Board’s budget and support fee.

And while it our responsibility to ask questions about the appropriate funding level and the stewardship of those funds, there is little question that the PCAOB has grown into an important regulatory body with a significant investor protection role. Since its creation in 2002, the PCAOB has been empowered with the authority to oversee the audits and auditors of public companies’ financial statements — a role that is essential to investor confidence and the success of our capital markets.

And, more recently, the Dodd-Frank Act expanded the PCAOB’s role — vesting it with the express authority to oversee the audits and auditors of broker-dealer financial statements as well.

As we know, the PCAOB improves the quality of audits by developing and maintaining high quality standards for audit performance, conducting and reporting on inspections of audits, and carrying out enforcement actions.

When the PCAOB was established, it represented an unprecedented change in the oversight of the audit profession. Investors were no longer left to rely on a “peer review” system where one auditor reviewed the work of another. Rather, inspections were to be conducted by professionals free from potential conflict, and the results of those inspections were to be made public.

The increased credibility and objectivity inherent in this model speaks for itself. If you compare the findings of an old peer review report with a PCAOB inspection report, you would be struck by the nature and extent of investor protection and professional quality areas identified by the Board.

Likewise, the standards governing audit performance — including how an audit is to be performed by an independent and objective party — are now set by the PCAOB, rather than the auditing profession.

Given its responsibilities and the vital protections it provides to the investment community, the PCAOB must continuously re-examine the results of its standard setting, inspection, and enforcement efforts, and we at the SEC must do the same in our oversight capacity.
To do its job — and do it right — the PCAOB must have sufficient resources, and this review and approval process will give the Board a chance to justify its budget request. In turn, we at the SEC can carry out our responsibility by critically evaluating and ensuring the appropriate funding levels, and probing whether the funds that are collected from issuers and broker-dealers are used efficiently and effectively“.

SEC SETTLES ENFORCEMENT ACTION WITH SEVERAL REAL ESTATE ENTITIES

The following excerpt is from the SEC website:

January 10, 2012
The Securities and Exchange Commission announced today the resolution of an enforcement action filed by the Commission on March 1, 2010 in federal district court in Massachusetts against several Massachusetts-based parties who offered real estate investments. The court entered final judgments by consent against several defendants on January 10, 2012, and the Commission agreed to dismiss the case against certain of the other parties.

The Commission’s complaint charged Kathleen S. Dobens and Charles T. Dobens, husband and wife business partners from Duxbury, Massachusetts; their business partner, Joseph A. Roche of Braintree, Massachusetts; and four entities through which they operated (Silex Group, LLC, Preakness Apartments I & II, LLC, Cherry Hills Apartments of Fort Worth, LLC, and Clear River Partners, LLC). The complaint alleged that the defendants committed securities law violations with respect to real estate investments that they offered. The Commission also charged four other entities as relief defendants.
Without admitting or denying the allegations in the Commission’s complaint, the three individual defendants (Kathleen S. Dobens, Charles T. Dobens, and Joseph A. Roche) agreed to the entry of final judgments that: (a) permanently enjoin them from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder; (b) order the individual defendants to pay, jointly and severally, disgorgement of $284,399 plus prejudgment interest of $20,775; (c) order Kathleen S. Dobens and Charles T. Dobens to each pay a civil monetary penalty of $80,000, but not imposing any civil penalty against Roche based on the representations in Roche’s sworn statement of financial condition; (d) order that any money, assets, or other benefit received by the individual defendants from their ownership interest in defendant Preakness Apartments I & II, LLC be applied toward partial satisfaction of the outstanding disgorgement orders against them; and (e) orders that the individual defendants comply with an undertaking forbidding them from having any control over expenditures made by or on behalf of Preakness Apartments I & II, LLC.

Three of the entity defendants (Silex Group, LLC, Cherry Hills Apartments of Forth Worth, LLC, and Clear River Partners, LLC), also agreed, without admitting or denying the allegations in the Commission’s complaint, to the entry of final judgments permanently enjoining each of them from violating Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

Finally, the Commission agreed to dismiss its charges against defendant Preakness Apartments I & II, LLC and the relief defendants East Coast Investment Solutions, LLC, The Dobens Company, LLC, Crosscreeks Apartments I and Crosscreeks Apartments II, LLC.”