The settlements arise from extensive law enforcement investigations into widespread corruption in the municipal reinvestment industry. In the past year, federal and state authorities have reached settlements with four other financial firms, and 18 individuals have been indicted or pled guilty, including three former GE Funding CMS traders.
For a list of other financial institutions charged prior to the settlement with GE Funding CMS follow the link below.
The SEC alleges that Bixby’s former CEO and former CFO made repeated misstatements both verbally and in writing to investors about the company’s core product – a machine that supposedly produced synthetic natural gas through a proprietary clean coal technology. They told investors that Bixby’s coal gasification machine was proven and operating when in fact it had substantial technological defects, did not function properly, and was at risk of self-destruction. The CEO and CFO never disclosed these problems to investors.
In addition to Heart Tronics, and the three individuals, the SEC charged three other individuals involved in the scheme, including the attorney ’s chauffer and handyman , who carried out the fraud with him. The SEC also charged a stock promoter, as well as the trustee and stockbroker for a number of nominee accounts that the attorney used to unlawfully sell Heart Tronics stock.
In a parallel criminal investigation, the U.S. Department of Justice today announced the arrest of the attorney.
The SEC alleges that the employee, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 30 years, assisted in falsifying BMIS’s internal accounting records in order to misclassify hundreds of millions of dollars of income purportedly generated by BMIS’s investment advisory operations. The employee also falsified financial statements filed with the SEC and other regulators, as well as materials that were prepared to deceive SEC staff examiners, federal and state tax auditors, and other external reviewers.
“To keep his massive fraud alive, Madoff had to hide as many facts about his advisory operations as possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Cotellessa-Pitz along with other senior BMIS personnel played a critical role in this effort by creating false documents to deceive federal and state regulators.”
The SEC previously charged BMI's Director of Operations with falsifying books and records to hide and obfuscate Madoff’s advisory operations. According to the SEC’s complaint against the employee, she played a central role in falsifying these records as directed by Madoff and the Director of Operations. Madoff used the false records to artificially improve the firm’s reported revenue and income as well as to deceive regulators who sought to review the firm’s operations and financial results.
Fannie Mae and Freddie Mac each entered into a Non-Prosecution Agreement with the Commission wherein each company agreed to accept responsibility for its conduct and not dispute, contest, or contradict the contents of an agreed-upon Statement of Facts without admitting nor denying liability. Each also agreed to cooperate with the Commission's litigation against the former executives.
"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, Director of the SEC's Enforcement Division. "These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to subprime loans, and misled the market about the amount of risk on the company's books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors."
SEC Charges Former Fannie Mae and Freddie Mac Executives with Securities FraudIt is alleged that the father and son operated from a base in Fountain Green, Utah. They offered investors the opportunity to invest in LLCs to share ownership of large apartment complexes in eight states. The investors were solicited by word of mouth and through religious affiliation. The duo presented plans to buy apartment complexes, renovate and revamp, and then sell for a high profit. The investors were told they would share in the profit from the sales and also from rental income. The truth of the matter was that the investors money was really being depositing into large bank accounts, which were used for company and personal expenses, and to pay other investors. Since the complaint has been filed, the SEC obtained an emergency court order freezing the father and son's assets and companies. The scheme began in 2008 and involved 225 investors and more than $220 million.
George S. Canellos, Director of the SEC's New York Regional Office said, “[he] avoided the cost of borrowing shares while engaging in complex short selling transactions, thus earning significant profits with minimal risk and gaining an advantage over legitimate participants in the market. We’ll continue aggressively to pursue and punish abusive short sellers who attempt to circumvent regulatory requirements to make more money.”
The SEC alleges that the executives who maintained the scheme worked at Siemens and its regional company, Siemens Argentina. Siemens paid more than $100 million in bribes to such high-ranking officials as two former Argentine presidents and former cabinet members. The executives falsified documents and participated in meetings in the United States to negotiate the terms of bribe payments. In a parallel criminal action, the Department of Justice announced charges against former executives and agents of Siemens. They are charged with conspiracy to violate the FCPA and the wire fraud statue and wire fraud.
“Shell packagers who buy and sell public companies for use by fraudsters have no rightful place in our markets,” said David Rosenfeld, Associate Director of the SEC’s New York Regional Office. “These shell packagers not only sold the shell company, but created the false documents necessary to cause the transfer agent to issue shares that should never have been sold to the public.”
According to the SEC’s complaint, false documents were submitted to a transfer agent and an attorney, who relied on them to conclude that free-trading shares of AGTI could legitimately be issued. The fraud was aided by Belmont Partner and their CEO creating and sometimes backdating the false documentation, including a sham assignment of debt and a fabricated and backdated corporate resolution and convertible note. Then AGTI's CEO then used the illegally issued stock certificates to fund promotional campaigns promoting their stock. The stock promoters were charged with selling the unregistered securities.
Last month, a federal district court declined to approve a consent judgment because, in its view, the underlying allegations were ‘unsupported by any proven or acknowledged facts.’ As a result, the court rejected a $285 million settlement between the SEC and Citigroup that reasonably reflected the relief the SEC would likely have obtained if it prevailed at trial.
We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits. For this reason, today we filed papers seeking review of the decision in the U.S. Court of Appeals for the Second Circuit..."
The full statement can be found at: SEC Enforcement Director's Statement on Citigroup Case
I have certainly been critical of FINRA in the past, and it certainly makes its share of mistakes, but this piece in Forbes is a bit aggressive and over the top.
The argument here is that because FINRA did not catch Madoff, and gave Corzine a waiver on his securities examinations, the SEC should regulate investment advisors. That, with all due respect to Forbes and the author, makes no sense.
First, let's be clear. My firm believe is that the SEC should regulated investment advisors, and I am even firmer in my belief that FINRA should not be allowed anywhere near investment advisors. That being said, the Forbes article is off base for a couple of reasons.
First, the SEC IS the entity that is responsible for regulating investment advisors, at least those with in excess of 30 million dollars under management.
Second, using Madoff as an example is not such a great example, since the SEC was the regulator with primary responsibiltiy for oversight of Madoff - the fraud occured for the most part at his investment advisory firm, which was regulated by the SEC, not FINRA.
And third, we are going argue against FINRA as a regulator because it waived examinations for Corzine? Really? I can think of at least a dozen reasons not to give FINRA oversight of investment advisors - waiving the examinations for Corzine, while a terrible move both on an regulatory and public relations front was a terrible idea, is not in the top 20 reasons to deny them that authority.
At the top, FINRA tries. Its executives talk a good game, but they are terrible at getting their message down to the staff, who still, in far too many instances, treat brokers and firms as if they are criminals, conducting exams with a "gotcha!" mentality, and constantly looking for the "career making" error in every examination they conduct. It is absurd, and not good regulatory policy. The Corzine incident was an embarrassment. The forging of documents during an SEC investigation is unforgiveable, and would result in a permant bar from the industry if a brokerage firm executive pulled such a stunt.
And, lets keep in mind that although you would never know it from dealing with them, FINRA is a membership organization, it is owned, operated and controlled by the big firms. Independent broker-dealers and investment advisors are NOT part of that association, and are competitors to the brokerage industry. In fact, I would imagine that many of the executives in the investment advisory world went to that side of the industry to get away from the very issues that FINRA cannot shake - it is owned, lock, stock and barrell by the large firms.
In what other industry would a regulated entity be permitted to continue in operations with tens of millions of dollars in fines, with multiple, systemic violations, year after year? That could only occur when the regulated entity is in control of the regulator.
We don't need FINRA expanding its power and authority over yet another facet of the financial industry, increasing its ability to quash competition. If we want sound regulatory oversight, it needs to come from an independent entity, not one that would love to see the regulated put out of business.
Jon Corzine, Bernie Madoff, And Why The SEC Should Directly Regulate Investment Advisors
"Leaders and senior representatives of the authorities responsible for regulation of the over-the-counter (OTC) derivatives markets in Canada, the European Union, Hong Kong, Japan, Singapore, and the United States met yesterday in Paris.
The meeting included Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA); Jonathan Faull, Director General for Internal Market and Services at the European Commission; Ashley Alder, Chief Executive Officer of the Hong Kong Securities and Futures Commission; Masamichi Kono, Vice-Commissioner of the Japan Financial Services Agency; Teo Swee Lian, Deputy Managing Director (Financial Supervision) of the Monetary Authority of Singapore; Mary Condon, Vice-Chair of the Ontario Securities Commission; Louis Morisset, Superintendent of Securities Markets at l’Autorité des Marchés Financiers du Québec; Gary Gensler, Chairman of the United States Commodity Futures Trading Commission; and Mary Schapiro, Chairman of the United States Securities and Exchange Commission.
Since mid-2011, the authorities have engaged in a series of bilateral technical dialogues on OTC derivatives regulation. The meeting, held at ESMA headquarters in Paris, is the first time the authorities have met as a group to discuss their implementation efforts.
In the meeting, the authorities addressed the cross-border issues related to the implementation of new legislation and rules to govern the OTC derivatives markets in their respective jurisdictions.
At the conclusion of the meeting, the authorities agreed to continue bilateral regulatory dialogues and to meet as a group again in early 2012."
Wachovia agreed to settle the charges by paying $46 million to the SEC, which will be returned to affected municipalities or conduit borrowers. The settlements arise out of long-standing parallel investigations into widespread corruption in the municipal securities reinvestment industry.
SEC Charges Wachovia with Fraudulent Bid Rigging in Municipal Bond ProceedsThe SEC alleges that they offered investors risk-free returns of up to 20 times the original investment within as few as 45 days through the purported “lease” and “trading” of foreign bank instruments in highly complex transactions involving unidentified parties and secretive “trading platforms.” Yet all the bank instruments and trading programs were entirely fictitious. Investors in schemes like this are often told that details are too difficult for non-experts to understand, and that secrecy is required for success. In this case, they used vague and complex terms to confuse investors, and claimed that confidentiality concerns prevented them from providing more details regarding the status of the investment. The D.C. attorney and her law firm acted as counsel for the Pennsylvania resident.
Under the initiative, the SEC Enforcement Division’s Asset Management Unit uses proprietary risk analytics to evaluate hedge fund returns and red flags performance that appears inconsistent with a fund's investment strategy.
“We’re using risk analytics and unconventional methods to help achieve the holy grail of securities law enforcement — earlier detection and prevention,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This approach, especially in the absence of a tip or complaint, minimizes both the number of victims and the amount of loss while increasing the chance of recovering funds and charging the perpetrators.”
These charges follow a year-long investigation focusing on preventing fraud in the micro-cap stock markets, which have become an increasingly common area for fraud and abuse. Microcap companies are small publicly traded companies whose stock often trades at pennies per share. As a result, many microcap companies do not file financial reports with the SEC, which makes it more difficult for investors to find information. In October 2010 and June 2011 similar cases were filed.
“The public has a right to invest in an honest and fair market. Companies that agree to pay illegal kickbacks harm investors and undermine fair competition in the markets,” said United States Attorney Carmen Ortiz. “Hard working Americans who invest their savings should not be subjected to backroom deals like those alleged today.”
SEC, US Attorney and FBI Announced 13 Charged in Connection with Securities Kickback SchemesAn Austin woman filed suit Thursday against Bank of America Corp., alleging the company fraudulently sought to foreclose on her home. The suit claims that the bank wrongly invalidated a loan modification agreement because it wasn't signed by her husband even though he died in 2007, more than three years before the agreement was made. Filed in state District Court in Travis County, the lawsuit by Maria Gonzales comes on the same day a Massachusetts lawsuit accused five of the nation's largest banks — including Bank of America — of deceptive foreclosure practices.
http://www.statesman.com/business/austin-woman-sues-bank-of-america-over-foreclosure-2007435.html
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "By approving and distributing marketing materials with ambiguous and equivocal statements, Wells misled investors into thinking Wells Timberland was a REIT at a time when it was not a REIT. Firms need to be mindful that investors rely on marketing materials to disclose truthful, accurate and up-to-date information to help inform their investment decisions."
