SEC CHARGES FORMER EXEC WITH FRAUD FOR FAILING TO REPORT HIS INSIDER STOCK SALES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Announces Fraud Charges Against Biotech Company and Former Executive Who Failed to Report Insider Stock Sales

09/10/2014 12:05 PM EDT

The Securities and Exchange Commission today charged a Massachusetts-based biotech company and its former CEO with defrauding investors by failing to report his sales of company stock.

The federal securities laws require certain corporate executives to report their transactions in the company’s stock in order to give investors the opportunity to evaluate whether the purchases and sales by an insider could be indicative of the prospects of the company.  An SEC investigation found that after Gary H. Rabin became CEO, CFO, and chairman of Advanced Cell Technology (ACT) in 2010, he repeatedly failed to report his sales of company stock for the next few years.  Subsequently, ACT’s annual reports and proxy statements during that period were inaccurate because they failed to report that Rabin was not complying with his obligation to disclose his substantial sales of ACT stock.

ACT and Rabin agreed to settle the SEC’s charges.

“It’s not merely a technical lapse when executives fail to report their transactions in company stock, because investors are consequently denied important and timely information about how an insider is potentially viewing the company’s future prospects,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.  “Instead of reporting his numerous company stock sales within two days as typically required, Rabin waited more than two years and compromised Advanced Cell Technology’s financial reporting obligations.”

According to the SEC’s order instituting a settled administrative proceeding, Section 16(a) of the Securities Exchange Act and underlying SEC rules require officers and directors of a company with a registered class of equity securities to file reports of their securities holdings and transactions.  The Sarbanes-Oxley Act of 2002 and additional SEC regulations accelerated the reporting deadline for most insider transactions to two business days and mandated that all reports be filed electronically with the SEC to facilitate rapid dissemination to the public.

The SEC’s order finds that Rabin’s sales would have been viewed by a reasonable investor as significantly altering the total mix of available information about ACT given his executive position as well as the size and frequency of his sales of the company’s stock.  However, it wasn’t until May 2013 that Rabin eventually reported his 27 sales of $1.5 million worth of ACT stock from 2010 to 2012.  ACT and Rabin violated the anti-fraud provisions of the securities laws by failing to file reports of these transactions and holdings in a timely and accurate manner.  Rabin signed and ACT filed annual reports and proxy statements during this period that were false and misleading due to Rabin’s missing Section 16(a) reports.

Rabin, who lives in Santa Monica, Calif., and left the company earlier this year, agreed to settle the SEC’s charges by paying a $175,000 penalty.  ACT agreed to pay a $375,000 penalty and retain an independent consultant to conduct a review of its Section 16(a) reporting and compliance procedures.  They neither admitted nor denied the SEC’s findings while consenting to orders that charge ACT with violations of Sections 17(a)(2) of the Securities Act of 1933 and Sections 13(a) and 14(a) of the Exchange Act as well as Rules 12b-20, 13a-1, and 14a-9, and charge Rabin with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 14(a) and 16(a) of the Exchange Act as well as Rules 14a 9 and 16a-3.  Rabin also is charged with causing ACT’s violations of Exchange Act Section 13(a) as well as Rules 12b-20 and 13a-1.

The SEC’s investigation was conducted by Leslie A. Hakala and C. Dabney O’Riordan in the Los Angeles office.

FORMER EXEC. CHARGED WITH FRAUD AND MONEY LAUNDERING IN FOREIGN KICKBACK SCHEME

FROM:  U.S. JUSTICE DEPARTMENT 
Monday, February 10, 2014
Former Executive of Power Generation Company Charged with Fraud and Money Laundering
Indictment Alleges an Eight-Year Scheme to Obtain More Than $5 Million in Kickbacks from Three Foreign Power Companies to Secure More Than $2 Billion in Lucrative Contracts

Asem Elgawhary, the former principal vice president of Bechtel Corporation and general manager of the Power Generation Engineering and Services Company (PGESCo), was indicted by a grand jury in Maryland today on charges that he defrauded his former employers, laundered the proceeds of the fraudulent scheme and violated federal tax laws.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Rod J. Rosenstein of the District of Maryland, Special Agent in Charge Stephen E. Vogt of the FBI’s Baltimore Division and Chief Richard Weber of the Internal Revenue Service-Criminal Investigation (IRS-CI) made the announcement after the indictment was returned earlier today.

“As today’s indictment alleges, this high-ranking executive took millions of dollars in kickbacks from power companies in exchange for preferential treatment and, in doing so, defrauded his former employer, other companies who were playing by the rules and U.S. tax authorities,” said Acting Assistant Attorney General Raman.  “He then allegedly concealed his kickback scheme by hiding the payments in off-shore bank accounts, giving false information to his former employer and destroying evidence.  The Justice Department is committed to prosecuting not just the companies and individuals who pay bribes and kickbacks, but also those who solicit and accept them.”

“Mr. Elgawhary has been charged with using his corporate position for his own personal gain,” stated IRS-CI Chief Weber.   “No matter what your career or position is in a corporation, all U.S. citizens are obligated to comply with the tax laws.  When individuals and corporations deliberately fail to comply, IRS Criminal Investigation agents conduct investigations and recommend prosecution to the Department of Justice.”

The eight-count indictment alleges that from 1996 to 2011, Elgawhary, 72, of Maryland, was assigned by Bechtel – a U.S. corporation engaged in engineering, construction and project management – to be the general manager at PGESCo, a joint venture between Bechtel and a state-owned and state-controlled electricity company (EEHC).   PGESCo assisted EEHC in identifying possible subcontractors, soliciting bids and awarding contracts to perform power projects for EEHC.   The charges allege that Elgawhary used his position at PGESCo to provide preferential treatment to three power companies attempting to secure projects with EEHC in exchange for kickbacks from those power companies and their third-party consultants.   The court documents allege that the power companies and their consultants paid more than $5 million in kickbacks into various off-shore bank accounts under the control of Elgawhary, including various Swiss bank accounts.   In return, the power companies secured more than $2 billion in lucrative contracts.

The indictment alleges that Elgawhary then also attempted to conceal the kickback scheme and the proceeds he obtained from it.   Elgawhary allegedly sent to Bechtel executives and members of the PGESCo board of directors in Maryland various documents and “Representation Letters” that falsely represented that he had no knowledge of any fraud or suspected fraud at PGESCo and that there were no violations or possible violations of law or regulations whose effects were material and should have been considered for disclosure in PGESCo’s financial statements.   In addition, when Elgawhary was interviewed by counsel for Bechtel in April 2011, he claimed that he never received money from power companies or their consultants and that he did not maintain control over any foreign bank accounts.   With the help of other employees at PGESCo, Elgawhary also allegedly caused evidence about the kickback scheme to be deleted and destroyed, according to the charges.

The court documents also allege that Elgawhary used money from one of his Swiss bank accounts to purchase a $1.78 million home in Maryland for two close family members.   In order to conceal the origin of the money, however, Elgawhary and others made it appear that the money was from an unsecured loan from a marketing company owned and operated by another relative.

Elgawhary also allegedly obstructed and impeded the administration of U.S. tax laws by falsely claiming that he maintained only one foreign bank account and denying that he received any income from any foreign bank account.   Elgawhary also allegedly failed to report any of the kickbacks as income for the tax years 2008 through 2011.

The mail and wire fraud counts each carry a maximum penalty of 20 years in prison and a fine of the greater of $250,000 or twice the value gained or lost.   The conspiracy to commit money laundering count carries a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction.   The tax count carries a maximum penalty of three years in prison and a fine of $5,000.

The charges contained in the indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

The department has received significant assistance in this matter from its law enforcement counterparts in Switzerland, Germany, Italy and Cyprus.   Significant assistance was also provided by the Criminal Division’s Office of International Affairs.

The case is being investigated by the FBI’s and IRS-CI’s Baltimore Divisions.   The case is being prosecuted by Assistant Chief Daniel S. Kahn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David Salem of the District of Maryland.

FORMER BANK EXEC. PLEADS GUILTY IN MUNI-BOND BID-RIGGING FRAUD CASE

FROM:  JUSTICE DEPARTMENT 

FORMER BANK OF AMERICA EXECUTIVE PLEADS GUILTY FOR ROLE IN CONSPIRACY AND FRAUD INVOLVING INVESTMENT CONTRACTS FOR MUNICIPAL BONDS PROCEEDS

WASHINGTON — A former Bank of America executive pleaded guilty today for his participation in a conspiracy and scheme to defraud related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.

Phillip D. Murphy, the former managing director of Bank of America’s municipal derivatives products desk from 1998 to 2002, pleaded guilty today before U.S. District Judge Max O. Cogburn Jr. in the U.S. District Court for the Western District of North Carolina to participating in a fraud conspiracy and wire fraud scheme with employees of Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, a broker of municipal finance contracts, and others.  Murphy also pleaded guilty to conspiring with others to make false entries in the reports and statements originating from his desk, which were sent to bank management.

Murphy was indicted by a grand jury on July 19, 2012.  According to the indictment, Murphy participated in a wire fraud scheme and separate fraud conspiracies that began as early as 1998 and continued until 2006.

“By manipulating what was intended to be a competitive bidding process, the conspirators defrauded municipalities, public entities and taxpayers across the country,” said Brent Snyder, Deputy Assistant Attorney General of the Antitrust Division’s Criminal Enforcement Program.  “Today’s guilty plea reaffirms the Antitrust Division’s continued efforts to hold accountable those who corrupt and subvert the competitive process in our financial markets.”

Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issue, to raise money for, among other things, public projects.  Public entities typically hire a broker to conduct a competitive bidding process for the award of the investment agreements and often for other municipal finance contracts.

According to the charges, Murphy conspired with CDR and others to increase the number and profitability of investment agreements and other municipal finance contracts awarded to Bank of America.  Murphy won investment agreements through CDR’s manipulation of the bidding process in obtaining losing bids from other providers, which is explicitly prohibited by U.S. Treasury regulations.  As a result of the information, various providers won investment agreements and other municipal finance contracts at artificially determined prices.  In exchange for this information, Murphy submitted intentionally losing bids for certain investment agreements and other contracts when requested, and, on occasion, agreed to pay or arranged for kickbacks to be paid to CDR and other co-conspirator brokers.

Murphy and his co-conspirators misrepresented to municipal issuers that the bidding process was competitive and in compliance with U.S. Treasury regulations.  This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process.  Such conduct placed the tax-exempt status of the underlying bonds in jeopardy.

“Mr. Murphy’s actions undermined the public’s trust when he conspired to manipulate a competitive bidding process,” said Richard Weber, Chief, IRS Criminal Investigation (IRS-CI).  “IRS-CI has experienced great success in unraveling significant and complex financial frauds as we work in close collaboration with our law enforcement partners.”

“Mr. Murphy ripped off hard working American taxpayers and cash-strapped municipalities all in pursuit of his own lucre,” said George Venizelos, Assistant Director in Charge of the FBI’s New York Field Office.  “Let this serve as a reminder to others who are entrusted to act in the public’s best interest; your lack of candor won’t go without notice.”

Murphy pleaded guilty to two counts of conspiracy and one count of wire fraud.  The fraud conspiracy carries a maximum penalty of five years in prison and a $250,000 fine.  The wire fraud charge carries a maximum penalty of 30 years in prison and a $1 million fine.  The false bank records conspiracy carries a maximum penalty of five years in prison and a $250,000 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 Murphy, a total of 17 individuals have been convicted or pleaded guilty.  Additionally, one company has pleaded guilty.

The prosecution is being handled by Steven Tugander, Richard Powers, Eric Hoffmann, Patricia Jannaco and Stephanie Raney of the Antitrust Division.  Assistant U.S. Attorneys Kurt Meyers, Michael Savage and Mark Odulio of the U.S. Attorney’s Office for the Western District of North Carolina have also provided valuable assistance in this matter.  The guilty plea announced today resulted from a wide-ranging investigation conducted by the Antitrust Division’s New York office, the FBI and the IRS-CI.  The division coordinated its investigation with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.

Today’s guilty plea is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorney’s offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.

FORMER EXECUTIVE SENTENCED FOR ROLE IN SCHEME TO DEFRAUD WELLS FARGO BANK

FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, December 11, 2013
Former Chief Executive of Mortgage Servicing Company Sentenced for Scheme to Withhold Funds from Wells Fargo Bank

Earl Gross, 74, of Las Vegas, the former President and Chief Executive Officer of U.S. Mortgage, a loan servicing company, was sentenced to serve 18 months in prison for his role in an $8 million scheme to defraud Wells Fargo Bank.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Daniel G. Bogden of the District of Nevada and Special Agent in Charge Laura A. Bucheit of the FBI’s Las Vegas Field Office made the announcement after the sentence was imposed by U.S. District Court Judge Andrew P. Gordon of the District of Nevada.

On June 11, 2013, Gross pleaded guilty to one count of bank fraud.   In addition to his prison term, Gross was ordered to forfeit $8,440,439 in fraudulent proceeds.

According to plea documents, Wells Fargo Bank contracted with U.S. Mortgage to service pools of residential mortgage loans held by investors in mortgage backed securities.   Under the agreement, Gross and U.S. Mortgage were obligated to collect from the borrowers the monthly payments that the borrowers made toward their mortgage obligations and forward these proceeds to Wells Fargo Bank.   In the event that a borrower paid off the loan – usually by selling the mortgaged property – U.S. Mortgage was obligated to remit to Wells Fargo Bank the full payoff amount.   U.S. Mortgage agreed to provide Wells Fargo Bank with monthly reports that described the status of the loans, and it received servicing fees for each loan it serviced.

According to the indictment, from 2004 to 2009, Mr. Gross and U.S. Mortgage withheld over $8 million in loan payoffs that were due Wells Fargo Bank by submitting to the bank reports stating that numerous borrowers were continuing to make monthly payments when in fact they had paid off the loans in full.   Rather than remit the full payoff amount to Wells Fargo Bank, Gross and U.S. Mortgage forwarded only what the borrowers’ monthly payments would have been and retained the difference in U.S. Mortgage’s bank account.   To deceive Wells Fargo Bank about the status of paid-off loans, Gross and U.S. Mortgage created fake amortization schedules indicating that borrowers who had sold and paid off homes were continuing to make monthly payments.   In addition to withholding loan payoff amounts to which he was not entitled, Gross charged Wells Fargo Bank fees to service mortgage loans that had been paid off.

The case was investigated by the FBI and prosecuted by Deputy Chief Charles La Bella and Trial Attorney Brian R. Young of the Criminal Division’s Fraud Section, with assistance from Roberto Iraola of the Office of International Affairs and the United States Attorney’s Office for the District of Nevada.

Today’s guilty plea was a result of efforts by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorney’s Offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud.  Since its formation, the Task Force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants.

FORMER POWER COMPANY EXECUTIVE CHARGED IN FOREIGN BRIBERY SCHEME

FROM: U.S. DEPARTMENT OF JUSTICE
Wednesday, May 1, 2013
Former Executive of French Power Company Subsidiary Charged in Connection with Foreign Bribery Schem
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A former executive of the U.S. subsidiary of a French power and transportation company was charged in a superseding indictment for his alleged participation in a scheme to pay bribes to foreign government officials, Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney for the District of Connecticut David B. Fein and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office announced today.

William Pomponi, 65, a former vice president of sales for the Connecticut-based U.S. subsidiary, was charged in a superseding indictment late yesterday in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of FCPA and money laundering violations.

On April 16, 2013, charges against Frederic Pierucci and a guilty plea by David Rothschild in connection with the bribery scheme were announced. Pierucci is charged in the superseding indictment with Pomponi. On Nov. 2, 2012, Rothschild pleaded guilty to a criminal information.

According to the charges, the defendants, together with others, paid bribes to officials in Indonesia, including a member of Indonesian Parliament and high-ranking members of Perusahaan Listrik Negara (PLN), the state-owned and state-controlled electricity company in Indonesia, in exchange for assistance in securing a $118 million contract, known as the Tarahan project, for the company and its consortium partner to provide power-related services for the citizens of Indonesia. The charges allege that, in order to conceal the bribes, the defendants retained two consultants purportedly to provide legitimate consulting services on behalf of the power company and its subsidiaries in connection with the Tarahan project. In reality, however, the primary purpose for hiring the consultants was allegedly to use the consultants to pay bribes to Indonesian officials.

The first consultant retained by the defendants allegedly received hundreds of thousands of dollars into his Maryland bank account to be used to bribe the member of Parliament, according to the charges. The consultant then allegedly transferred the bribe money to a bank account in Indonesia for the benefit of the official. According to court documents, emails between Pomponi, Pierucci, Rothschild and their co-conspirators discuss in detail the use of the first consultant to funnel bribes to the member of Parliament and the influence that the member of Parliament could exert over the Tarahan project. However, when Pomponi, Pierucci and others determined that the first consultant was not effectively bribing key officials at PLN, they allegedly retained a second consultant to accomplish that purpose. The charges allege that the power company deviated from its usual practice of paying consultants on a pro-rata basis in order to make a much larger up-front payment to the second consultant so that the consultant could "get the right influence." An employee at the power company’s subsidiary in Indonesia sent an email to Pomponi, Pierucci and others asking them to finalize the consultancy agreement with the front-loaded payments but stated that in the meantime the employee would give his word to a high-level official at PLN, according to the charges.

The conspiracy to commit violations of the FCPA count carries a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost. The substantive FCPA counts each carry a maximum penalty of five years in prison and a fine of the greater of $100,000 or twice the value gained or lost. The conspiracy to commit money laundering count carries a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction. The substantive money laundering counts each carry a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction.

An indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

The case is being prosecuted by Trial Attorney Daniel S. Kahn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David E. Novick of the District of Connecticut. The case is being investigated by FBI agents who are part of the Washington Field Office’s dedicated FCPA squad, with assistance from the Meriden, Conn., Resident Agency of the FBI. Significant assistance was provided by the Criminal Division’s Office of International Affairs, and the department has also worked closely with its law enforcement counterparts in Indonesia at the Komisi Pemberantasan Korupsi (Corruption Eradication Commission) and deeply appreciates KPK’s assistance in this matter.