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Tag: OIG

  • BULLETIN: SEC Employee Was Member Of Collapsed Imperia Invest IBC Fraud Scheme That Targeted Deaf Investors And Drained Millions Of Dollars; ‘Headquarters’ Worker Placed On Administrative Leave

    BULLETIN: An employee of the SEC at its Washington headquarters was a member of a fraud scheme under investigation by the agency and shared misleading information about its ongoing probe with other investors, according to a report to Congress by SEC Inspector General H. David Kotz.

    The document does not reveal the employee’s name or his job title. Nor does it  identify the scheme by name.

    But a date cited in the document matches the date of a dramatic action the SEC’s regional office in Utah filed in October 2010 against Imperia Invest IBC, an extremely murky firm that used “fake” offshore addresses, targeted thousands of deaf investors and stole millions of dollars without returning “a single penny,” according to records. A second date cited in the Kotz document matches the date the SEC obtained a judgment against Imperia.

    The Imperia case has been discussed in Washington’s highest power corridors. It was specifically referenced by President Obama’s Financial Fraud Enforcement Task Force in December 2010 as a firm targeted in Operation Broken Trust, a government action aimed at a broad array of investment-fraud schemes that had drained the U.S. economy of billions of dollars.

    Kotz opened a probe into the matter after receiving information from “a regional office senior official that an employee at SEC headquarters was providing false, misleading, and nonpublic information to investors about an active enforcement investigation and litigation from as early as October 2010 to February 2011,” according to Kotz’s semiannual report to Congress made public yesterday.

    “The regional office senior official was concerned that the employee’s actions not only threatened to jeopardize the ongoing investigation, but also misled several investors into believing that the purported company was legitimate,” according to the Kotz report. “Moreover, some or all of the investors knew that the employee worked at the SEC and, therefore, believed incorrectly that he had first-hand knowledge of the SEC’s investigation and that his representations were credible. After the regional office senior official e-mailed the employee and inquired as to whether he was communicating with investors about the investigation, the employee was placed on administrative leave.”

    Kotz’s office reviewed “nearly 10,000 e-mails” as part of the probe and “took the employee’s sworn testimony,” according to the report. Internet postings also were reviewed, along with transcripts, court records and “other relevant information.”

    “The [Office of Inspector General] found that the employee, by his own admission, communicated with several investors during the SEC’s investigation of, and litigation against, the purported company,” according to the report. “In so doing, the employee shared nonpublic, false, and misleading information with investors.

    “As a result, the OIG found that his conduct not only confused certain investors and gave them a false sense of hope, but it also had the potential to adversely affect an ongoing enforcement investigation,” according to the report.

    Imperia Invest was accused by the SEC of siphoning the money into offshore accounts.

  • FDA Chemist Cheng Yi Liang’s Very Bad Day: Busted By The Feds, Sued By The SEC For Trading On Information Lifted From Confidential Government Database

    A chemist who works for the U.S. Food and Drug Administration has been charged criminally by federal prosecutors, arrested by federal agents in Maryland, sued by the SEC — and will go to bed tonight knowing his son has been arrested in the same case.

    Cheng Yi Liang, 56, of Gaithersburg, was accused of abusing his position of trust at the FDA by mining the agency’s database for information on drug approvals or denials — and then trading on the information he gleaned to “generate more than $3.6 million in illicit profits and avoided losses,” the SEC said.

    Liang’s son, Andrew Liang, 25, also of Gaithersburg, was arrested, too.

    And high-ranking public officials minced no words when announcing the charges against the men, which included a stunning allegation that the senior Liang sought to conceal the scheme in part by trading in the account of his elderly mother in China.

    “Cheng Yi Liang was entrusted with privileged information to perform his job of ensuring the health and safety of his fellow citizens,” said Assistant U.S. Attorney General Lanny Breuer. “According to the [criminal] complaint, he and his son repeatedly violated that trust to line their own pockets.”

    Breuer is the head of the Justice Department’s Criminal Division.

    “Liang victimized both the investors who were disadvantaged by his theft of inside information and the American citizens whose trust he violated by placing private gain above public good,” said Robert Khuzami.

    Khuzami is director of the SEC’s Division of Enforcement.

    Another high-ranking official summarized today’s events by saying Liang’s actions made government workers look bad.

    “Profiting based on sensitive, insider information — as Liang is charged with today — is not only illegal, but taints the image of thousands of hard-working government employees,” sighed Elton Malone, special agent in charge of the office of special investigations for the U.S. Department of Health and Human Services, Office of the Inspector General.

    Liang, an FDA employee since 1996, began snatching information as early as July 2006, the SEC charged.

    He “illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded companies,” the agency charged.

    In a bid to cover his tracks, Liang “traded in seven brokerage accounts, none of which were in his name. One belonged to his 84-year-old mother who lives in China,” the SEC charged.

    “The insider trading laws apply to employees of the federal government just as they do to Wall Street traders, corporate insiders, or hedge fund executives,” said Daniel M. Hawke, chief of the SEC’s Market Abuse Unit.

    Father and son were charged with conspiracy to commit securities fraud and wire fraud, securities fraud and wire fraud. Federal prosecutors said investigators caught Liang after special software was installed on the work computer he was using.

    See this SEC exhibit that outlines the trades.

     

  • REPORT: Former SEC Supervisor Aided Arizona ‘Numerologist’ Running A Ponzi Scheme; SEC Employee In Separate Case Probed For Threatening Boss, Bringing Weapons To Work

    H. David Kotz, SEC Inspector General
    H. David Kotz, SEC Inspector General

    A former supervisor with the Securities and Exchange Commission unwittingly aided a man accused of operating a Ponzi scheme in Arizona, according to a report by SEC Inspector General H. David Kotz.

    Meanwhile, Kotz reported that the Office of Inspector General (OIG) also investigated a case in which an SEC enforcement accountant allegedly threatened a supervisor by email. The supervisor, according to Kotz, reported the incident to the SEC’s Security Branch, claiming that the accountant “routinely brought a ‘large buck knife’ to work.”

    A “buck knife” commonly is associated with hunting, although the report did not identify the weapon as a hunting knife.

    On April 1, investigators interviewed the accountant and discovered he was carrying a folding knife with “a 31/2 to 4-inch blade.” An investigator also discovered two similar knives in the accountant’s back pack. The knives were confiscated “immediately,” and the accountant was placed on leave and banned from the building.

    “The OIG found that the Enforcement Accountant violated Title 18 U.S.C. § 930 of the
    Federal criminal code by knowingly carrying dangerous weapons into a federal facility,” according to the Kotz report. “Specifically, the OIG found that on April 1, 2009, the Enforcement Accountant knowingly possessed at least three ‘dangerous weapons’ in a ‘federal facility,’ as those terms are defined in 18 U.S.C. § 930(g), and had routinely been in possession of dangerous weapons within the SEC building for several years despite his own admission that he knew it was unlawful to do so.”

    Investigators also discovered evidence that suggested the accountant “was not completely truthful in his testimony before the OIG and in his previously-submitted Declaration for Federal Employment regarding his prior criminal conviction and probation for driving while intoxicated.”

    Federal prosecutors referred the case to an administrative proceeding, and the SEC is seeking to fire the accountant. The dismissal case is pending.

    Ponzi Case And ‘Soothsayer’

    In the Ponzi case, the OIG concluded that a former supervisor in the SEC’s Office of Administrative Services used an SEC computer to exchange “approximately 2,300 e-mails that were related to the Ponzi scheme perpetrator and his companies.”

    Although the Kotz report did not identify the specific Ponzi suspect by name, the Arizona Corporation Commission (ACC) did in a June 11 news release: Jerome Carter of Scottsdale.

    ACC identified Carter as a purported “soothsayer” who could predict the future. Carter said on his website that he checked into a hotel in the World Trade Center on Sept. 10, 2001, one day before the 9/11 attacks.

    Getting a “bad feeling” later in the day, Carter said, he checked out of the hotel. The Trade Center complex was struck by two hijacked airliners the next day, killing nearly 3,000 people.

    Carter himself was killed in a motorcycle accident in September 2009, about four months after admitting he had operated the Ponzi scheme.

    “Through a website, video teleconferences, radio shows and event appearances, Carter proclaimed himself as an international numerologist and spiritual adviser who could predict the future,” ACC said. “While working as a life coach to individuals in his VIP coaching program, Carter represented to potential investors that he could, through the use of numerology concepts, improve their financial well-being by investing in futures and commodities.

    “As owner and operator of The Greatest Only Divine Productions, LLC and Good Only Done Productions, Carter sold investment and commodity contracts totaling $432,450 to at least 65 investors,” ACC said. “The Commission found that Carter used investor funds for his own personal use and benefit, but in Ponzi-like fashion, returned a total of $154,450 to some of the investors. In settling this matter, Carter admits to the Commission’s findings and agrees to the entry of the consent order.”

    During its probe of Carter, ACC came into possession of emails from the SEC supervisor and turned them over to the OIG.

    “The ACC investigator also informed the OIG that several other witnesses in the ACC investigation had identified the Supervisor as the person who handled money for this Ponzi scheme perpetrator and his companies,” the Kotz report said.

    OIG investigators did not name the supervisor in the report, but said she took early retirement after the OIG probe began and accepted a $25,000 buyout.

    “The OIG discovered that during the period in question, the Supervisor used her SEC e-mail account to conduct business on behalf of the Ponzi scheme perpetrator and his companies on virtually a daily basis,” the Kotz report said. “The OIG found that the Supervisor was extensively involved in handling the payments to and from his victims, and used her SEC e-mail account to communicate directly with those victims.”

    No evidence was found that the supervisor knew Carter was operating a Ponzi scheme.

    OIG investigators “did find that the Supervisor violated Commission rules and policies on the use of SEC office equipment, as well as the Standards of Ethical Conduct for Employees of the Executive Branch by using the SEC’s email system, her SEC computer, and other SEC resources to assist the Ponzi scheme perpetrator operate his companies, whether or not she knew those companies were a Ponzi scheme,” according to the report.

    Federal prosecutors declined to file criminal charges, the Kotz report said. The OIG recommended that the SEC try to claw back the $25,000 buyout accepted by the former supervisor, and the matter is pending.

    Read the Inspector General’s report.