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Tag: Robert Khuzami

  • BULLETIN: SEC: Asset Manager Hid Madoff Losses, Boasted ‘Benchmark-Beating Returns,’ Recruited New Investors, Missed Redemptions — And Blamed MF Global Collapse

    EDITOR’S NOTE: Scams undermine faith in legitimate markets. This is a case in which a purportedly legitimate asset manager allegedly is using the sort of explanations/excuses commonly used by Ponzi-forum hucksters.

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    BULLETIN:The SEC has gone to federal court in the Northern District of Illinois, alleging that asset manager Nikolai Battoo duped investors by hiding losses in the Bernard Madoff Ponzi scheme, recruited new investors and boasted about “benchmark-beating returns.”

    But Battoo, who claimed to have $1.5 billion under management, has not met redemption requests — and now claims his inability is due to the collapse of MF Global, the SEC said.

    Also charged was Tracy Lee Sunderlage, “an unregistered broker-dealer who was banned from the industry in a previous SEC enforcement action,” the SEC said.

    From the SEC complaint:

    In 2008, Battoo and his company-defendants lost tens-of-millions  of dollars investing in Madoff “feeder funds.” That same year they lost more than $100 million when an international bank terminated Battoo’s access to its credit and platform of funds. Yet Battoo-has not been forthcoming with his investors about the extent of — or in some cases even the fact of — these losses. His statements to clients omit his staggering losses. In the wake of such deception, existing clients have invested fresh investment proceeds. Battoo’s falsified track record of benchmark-beating returns has also won him new investors.

    The jig appears to be up. Clients are now clamoring for redemptions, so Battoo has doubled-down on his deception. He’s blamed the MF Global calamity for his inability to repay investors. But when the SEC sought support for such claims, he declined to provide further information. At other times Battoo has blamed unnamed counterparties for freezing his assets because of unspecified government investigations. He told one investor that his attorneys were negotiating a “release” with the SEC. These statements are lies.

    A federal judge, the SEC said, has granted an emergency freeze of assets belonging to Battoo and two of his companies: BC Capital Group S.A. of Panama Panama and BC Capital Group Ltd. of Hong Kong.

    The SEC action is designed to protect U.S. investors, the agency said.

    Battoo claims to manage $100 million for U.S. investors, the agency said.

    “Battoo attracted quite a following of investors by proclaiming his investments withstood the test of the financial crisis, but reality seems to have finally caught up with him,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Now, Battoo is offering investors one excuse after another for holding their money hostage.”

    Read the remarkable complaint.

  • URGENT >> BULLETIN >> MOVING: Peter Madoff Charged Criminally, Civilly; Bernard Madoff’s Brother ‘Enabled The Largest Fraud In Human History’ And Gained Millions Of Dollars, U.S. Attorney Preet Bharara Says

    URGENT >> BULLETIN >> MOVING: Peter Madoff, the brother of Ponzi schemer Bernard Madoff, has pleaded guilty in New York to a two-count superseding information charging him with conspiracy to commit securities fraud, tax fraud, mail fraud, ERISA fraud and falsifying records of an investment adviser.

    The government is seeking a staggering forfeiture order of $143.1 billion, “including all of [Peter Madoff’s] real and personal property.”

    Peter Madoff began conspiring with his brother in 1996, and the sought-after forfeiture amount “represents all of the investor funds paid” into Bernard L. Madoff Investment Securities LLC from 1996 to the Ponzi collapse in December 2008, prosecutors said.

    Peter Madoff has agreed to the forfeiture amount, prosecutors said.

    Peter Madoff, 66, also was charged by the SEC today. He was the chief compliance officer and senior managing director of Bernard L. Madoff Investment Securities.

    “Peter Madoff enabled the largest fraud in human history,” said Preet Bharara, U.S. Attorney for the Southern District of New York. “He will now be jailed well into old age, and he will forfeit virtually every penny he has.  We are not yet finished calling to account everyone responsible for the epic fraud of Bernard Madoff and the epic pain of his many victims.”

    “Peter Madoff helped Bernie Madoff create the image of a functioning compliance program purportedly overseen by sophisticated financial professionals,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Tragically, the image was merely an illusion supported by Peter’s sham paperwork and false filings for which he was rewarded with tens of millions of dollars in stolen investor funds.”

    Read the SEC’s statement.

     

  • BULLETIN: SEC Suspends Trading In 379 Penny Stocks; Initiative Dubbed ‘Operation Shell-Expel’ Leads To Unprecedented Number Of Shutdowns

    BULLETIN: In an unprecedented move, the SEC today announced that it had suspended trading in 379 penny stocks, saying the companies were delinquent in filings and ripe for hijacking and scams involving reverse mergers and pump-and-dump schemes.

    “The trading suspension marks the most companies ever suspended in a single day by the agency as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures,” the agency said.

    The previous one-day record for trading suspensions was 35. That mark was set in 2005, but the SEC now says “enhanced intelligence technology” has enabled it to spot dormant companies more effectively and head off trouble at the pass.

    “Empty shell companies are to stock manipulators and pump-and-dump schemers what guns are to bank robbers — the tools by which they ply their illegal trade,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “This massive trading suspension unmasks these empty shell companies and deprives unscrupulous scam artists of the opportunity to profit at the expense of unsuspecting retail investors.”

    Regulators such as the SEC and FTC and agencies such as the FBI long have fretted about the use of shell companies to pull off fraud schemes, dupe investors, customers and vendors and conceal crimes and civil offenses.

    “It’s critical to assess risks to investors in the capital markets and, through strategic planning, develop ways to neutralize them,” said Thomas Sporkin, director of the SEC’s Office of Market Intelligence. “We were able to conduct a detailed review of the microcap issuers quoted in the over-the-counter market and cull out these high-risk shell companies.”

    As part of an initiative dubbed “Operation Shell-Expel” undertaken by the SEC’s Microcap Fraud Working Group, the trading suspensions announced today affect “clearly dormant shell companies in 32 states and six foreign countries that were ripe for potential fraud,” the agency said.

    “The existence of empty shell companies can be a financial boon to stock manipulators who will pay as much as $750,000 to assume control of the company in order to pump and dump the stock for illegal proceeds to the detriment of investors,” the SEC said. “But with this trading suspension’s obligation to provide updated financial information, these shell companies have been rendered essentially worthless and useless to scam artists.”

    Here is the list of the 379 companies.

  • URGENT >> BULLETIN >> MOVING: Paranoia-Maker: FBI Undercover Sting In Florida Leads To Criminal, Civil Charges Against 5 In Alleged Penny-Stock Capers; Agents Established ‘Phony’ Consulting Company

    URGENT >> BULLETIN >> MOVING: An undercover sting by the FBI in Florida has led to criminal and civil charges against five alleged penny-stock fraudsters in Florida, Texas, Nevada and California.

    The sting featured a phony “consulting” company created by the FBI, authorities said. News about the make-believe consultancy followed on the heels of news last month that U.S. investigators had created a “payment processor” as part of a different probe into illegal gambling.

    Charged criminally in today’s undercover cases were Brian Gibson, 63, of Coconut Creek, Fla; Donald W. Klein, 40, of Frisco, Texas; Douglas Newton, 66, of Rancho Mirage, Calif; Charles Fuentes, 66, of Dana Point, Calif; and Thomas Schroepfer, 54, of Las Vegas. Schroepfer also is known as Thomas Schroepfer Baetsen.

    The men and several companies also were charged civilly by the SEC in what the agency described as a coordinated law-enforcement assault against microcap hucksters.

    “Investors deserve better than secret investment strategies based on kickbacks and bribes,” said Robert Khuzami, director of the SEC’s Division of Enforcement.

    The Miami region’s top federal prosecutor, meanwhile, said the cases evolved from the Southern District of Florida’s ongoing Securities and Investment Fraud Initiative, a task force aimed at criminals and fraudsters operating in the region.

    “The defendants charged today abused their knowledge of the capital markets hoping to misappropriate money held in pension fund and brokerage accounts to enrich themselves and their co-conspirators,” said Wifredo A. Ferrer.

    Undercover FBI agents posed as scammers and set up a phony “consulting” business as part of the probe, the SEC said.

    “The defendants charged today were intent on making profits for themselves while defrauding others,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.

    Newton, the SEC said, was chief executive officer of Real American Brands Inc., now known as Real American Capital Corp. He was accused of paying kickbacks to a “purported employee pension fund trustee” to buy more than 6.2 million shares of restricted Real American Brands stock.

    He further was accused of trying to conceal the kickbacks through a “consulting” firm.

    However, the trustee Newton believed to be corrupt actually was “a fictitious person,” the SEC said. Meanwhile, “the trustee’s business associate who helped arrange the deal was an undercover FBI agent,” and the consulting company was a “phony” one created by the FBI, the SEC added.

    Klein was the president and chief executive officer of KCM Holdings Corp. He is accused of engaging in two restricted stock transactions and one market transaction involving KCM Holdings’ stock.

    “Klein and the company paid kickbacks to an undercover FBI agent who portrayed himself as a business associate of a corrupt trustee of an employee pension fund, in exchange for the fund’s purchase of 2.5 million shares of restricted KCM Holdings stock,” the SEC said. “Klein attempted to conceal the kickbacks through a consulting agreement with a phony company that would receive the kickbacks. In another scheme, Klein bribed a purported corrupt stockbroker (actually an undercover FBI agent) to purchase KCM Holdings stock in the open market for brokerage clients with discretionary accounts.”

    Thomas Schroepfer was president and president of of SmokeFree Innotec Inc. He, too, got caught in the sting, the SEC said.

    For his part, Fuentes was a promoter of SmokeFree’s stock, and “paid kickbacks to an undercover FBI agent, posing as the business associate of a corrupt employee pension fund trustee, in exchange for the fund’s purchase of 400,000 shares of restricted SmokeFree stock,” the SEC said.

    Schroepfer, the SEC said, “attempted to conceal the kickbacks through a consulting agreement with a phony company created to receive the kickbacks.

    “In addition, SmokeFree issued shares of its stock to a cooperating witness for acting as a middleman in the scheme,” the SEC said.

    Gibson “created a now-defunct website, Roaringpennystocks.com, to promote shares of Xtreme Motorsports International Inc., as part of a planned pump-and-dump scheme,” the SEC charged.

    He is accused of touting Xtreme Motorsports “by blasting a series of e-mails to potential investors” and posting “false testimonials on the site from purported investors raving about their success in following the website’s stock picks,” the SEC said.

    In a separate case in Maryland last month, prosecutors announced that federal agents had created a “payment processor” to infiltrate illegal gambling operations.

    The name of the Feds’ “payment processor” was Linwood Payment Solutions — and its website now serves this message:

    “Linwood Payment Solutions is a Department of Homeland Security Undercover Business set up to identify and prosecute companies accepting and paying out funds for U.S. customers who gamble online illegally.”

    In response to a white-collar fraud epidemic involving huge sums of money and fraudsters and criminals operating both domestically and internationally, U.S. agencies, including the Secret Service, ICE and others, have been employing techniques once largely reserved for organized-crime probes.

  • URGENT >> BULLETIN >> MOVING: Former NASDAQ Managing Director Charged Criminally, Sued Civilly In Insider-Trading Case; Donald L. Johnson Pleads Guilty To Criminal Securities Fraud Amid Allegations He Cherry-Picked Information While Serving As Stock-Exchange Gatekeeper

    URGENT >> BULLETIN >> MOVING: A former managing director of the NASDAQ stock exchange has been charged by both the SEC and federal prosecutors in an insider-trading case.

    Donald L. Johnson, 56, of Ashburn, Va., already has pleaded guilty on the criminal side of things, the Justice Department said.

    For its part, the SEC said Johnson abused his position, made trades from his work computer and racked up $755,000 dollars in illegal profits over three years.

    Johnson, the SEC said, cherry-picked information on corporate leadership changes, earnings reports, earnings forecasts and regulatory approvals of new pharmaceutical products.

    “This case is the insider trading version of the fox guarding the henhouse,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Instead of protecting NASDAQ client confidences, Johnson secretly traded on client information for personal gain, even using his NASDAQ office computer to make the trades.”

    Federal prosecutors also used the fox-and-henhouse analogy.

    “Insider trading by a gatekeeper on a securities exchange is a shocking abuse of trust, and must be punished,” said Assistant Attorney General Lanny Breuer, head of the Justice Department’s Criminal Division.

    Meanwhile, U.S. Attorney Neil H. MacBride of the Eastern District of Virginia said Johnson padded his retirement by cheating.

    “He thought he could get away with it by using his wife’s account and inside information to make relatively small trades just a few times a year,” MacBride said.  “But he learned what every other trader on Wall Street must now realize: We’re watching.”

    Prosecutors gave the U.S. Postal Inspection Service credit for the criminal bust.

    Johnson was a managing director on NASDAQ’s market intelligence desk in New York between 2006 and September 2009, prosecutors said.

    “Johnson brazenly stole nonpublic information from NASDAQ and its listed companies in breach of his duties of confidentiality to his employer and clients,” said Antonia Chion, associate director of the SEC’s Division of Enforcement.

    Criminal securities fraud carries a maximum penalty of 20 years in federal prison and a maximum fine of $5 million.

  • 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.

     

  • SEC Charges Rajat K. Gupta, One Of World’s Top Business Consultants, In Insider Trading Case Involving Raj Rajaratnam, One Of America’s Richest Men

    In a case apt to plague Wall Street with questions about whether people on Main Street should trust it,  the SEC has accused one of the world’s foremost business consultants with providing illegal “insider trading” tips that lined the corporate pockets of one of the richest men in the world.

    Rajat K. Gupta is accused of providing confidential information about the earnings reports of Goldman Sachs and Procter & Gamble to Raj Rajaratnam and also disclosing to Rajaratnam a plan by Warren Buffett’s Berkshire Hathaway to invest $5 billion in Goldman.

    Gupta allegedly gleaned the information while serving on the boards of Goldman Sachs and Procter & Gamble. Rajaratnam, the head of Galleon Management, used it virtually immediately either to generate illegal trading profits of millions of dollars or to avoid losing millions of dollars, the SEC charged.

    Rajaratnam, who is facing a criminal trial in the Galleon insider-trading case, was listed as No. 236 on the 2009 Forbes magazine list of the 400 richest Americans. Forbes reported that Rajaratnam had assets of $7 billion in 2009.

    Gupta, meanwhile, is the chairman of the International Chamber of Commerce, a special adviser to the United Nations, an adviser to the Bill & Melinda Gates Foundation, an adviser to prominent academic institutions in the United States and India  — and a board member or former board member of some of the most famous companies in the world. By virtually all accounts, he built a stunningly successful international business career after starting out at McKinsey & Co. in 1973.

    Today, though, the SEC accused him of betraying the trust he had built up over decades.

    “Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”

    Gupta “voluntarily resigned” from P&G’s board today, the company said in a statement. He left the board of Goldman Sachs last year.

    One of the problems with illegal insider trading is that it undermines the public’s confidence in the fairness and integrity of securities markets, the SEC says. It is illegal to trade on material, nonpublic information about a security and to breach a fiduciary duty.

    Read the stunning allegations against Gupta, who denies them.

  • BULLETIN: National Investment-Fraud Sweep Dubbed ‘Operation Broken Trust’ Nets 532 Defendants; AG Holder Says Capers Caused More Than $10 Billion In Losses; ‘Undercover Operations’ Part of Task Force Arsenal

    U.S. Attorney General Eric Holder and members of President Obama’s Financial Fraud Enforcement Task Force said this morning that a nationwide sweep known as “Operation Broken Trust” has netted 343 criminal defendants and 189 civil defendants.

    Among the targets of the sweep were purveyors of Ponzi schemes, affinity fraud, prime bank/high-yield investment scams, foreign exchange (FOREX) frauds, business-opportunity fraud and other similar schemes, investigators said.

    Some of the defendants “filed for bankruptcy in an attempt to avoid claims by victim-investors,” investigators said.

    The combined losses in the schemes, which affected 120,000 investors, were estimated at $10.4 billion, Holder said. He was joined in the announcement by FBI Executive Assistant Director Shawn Henry; U.S. Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami; U.S. Postal Inspection Service (USPIS) Chief Postal Inspector Guy Cottrell;  Deputy Chief Rick Raven of the Internal Revenue Service Criminal Investigation (IRS-CI); Acting Director of Enforcement Vince McGonagle of the U.S. Commodity Futures Trading Commission (CFTC); and other members of the Financial Fraud Enforcement Task Force.

    “With this operation, the Financial Fraud Enforcement Task Force is sending a strong message,” said Holder.  “To the public: be alert for these frauds, take appropriate measures to protect yourself, and report such schemes to proper authorities when they occur. And to anyone operating or attempting to operate an investment scam: cheating investors out of their earnings and savings is no longer a safe business plan — we will use every tool at our disposal to find you, to stop you, and to bring you to justice.”

    The calling card of the schemes was greed, Henry said, adding that undercover probes are part of the Task Force’s arsenal.

    “This operation highlights the scope of this problem, and its impact on individuals from all walks of life,” said Henry.  “This one sweep alone involves fraud schemes that harmed more than 120,000 victims. The schemes may change, but the underlying greed does not. Working with our partners, we in the FBI will use all the investigative techniques in our arsenal, including undercover operations, to bring those responsible to justice.”

    Khuzami, meanwhile, said the law-enforcement community was pursuing multiple forms of fraud.

    “Fraud by well-known companies or high-profile executives gets the biggest headlines, but other scams are equally devastating to hard working families and retirees,” said Khuzami. “Victims want justice and don’t much care who the fraudster is or how unique the fraud. Today’s actions underscore that law enforcement agrees and will pursue fraud in whatever form.”

    Read Holder’s announcement, made this morning in Washington.

    President Obama authorized the Financial Fraud Enforcement Task Force in November 2009. In January 2010, Holder ventured to Florida to speak about the aims of the Task Force and to warn scammers that the government was serious about putting them in jail.

  • KABOOM! Florida — Again: Palm Beach Operators, Firms Charged With Running Scheme-Within-Scheme In Tom Petters’ Ponzi; More Than $1 Billion Plowed Into Rathole, SEC Says

    EDITOR’S NOTE: The SEC has been particularly active in Florida in recent weeks. Now, the agency once again has gone to federal court to allege a spectacular fraud involving people and companies in the Sunshine State. This one involves more than $1 billion and is linked to the Tom Petters’ Ponzi case in Minnesota.

    Two Florida men and their companies assisted convicted Ponzi schemer Tom Petters in keeping his $3.65 billion fraud afloat by hatching a scheme-within-a-scheme that assured hedge-fund investors that their money was safe, the SEC said in a lawsuit.

    The scheme occurred prior to the filing of criminal charges against Petters in 2008, according to court documents. Petters, who also faces an SEC lawsuit, was convicted of running the Ponzi scheme last year. In April, he was sentenced to 50 years in federal prison.

    SEC investigators now say Bruce F. Prévost, 50, of Palm Beach Gardens, and David W. Harrold, 51, of Del Ray Beach “falsely assured their investors and potential investors that the flow of their money would be safeguarded by collateral accounts and described a phony process for protecting their assets.

    “When Petters was unable to make payments on investments held by the funds they managed, Prévost, Harrold, and their firms concealed it from investors by concocting sham note exchange transactions with Petters,” the SEC said.

    Calling it a “betrayal” that had cost investors more than $1 billion, Robert Khuzami, director of the SEC’s Division of Enforcement, said the Florida men parlayed the losses of others into gains for themselves.

    “Prévost and Harrold portrayed themselves as guardians of their hedge fund investors while in fact they facilitated Tom Petters’s fraudulent scheme through lies and deceit,” Khuzami said.

    The case was filed in Minnesota.

    Prévost, Harrold and their companies — Palm Beach Capital Management LP and Palm Beach Capital Management LLC — pocketed more than $58 million in fees from the scheme, the SEC charged.

    At the same time, they raised additional money to plow into the scheme “by borrowing money from two Cayman Islands funds that were also established by Prévost and Harrold,” the SEC charged. The agency identified the offshore funds as Palm Beach Offshore Ltd. and Palm Beach Offshore II Ltd.

    “From 2004 through at least as late June 2008, the defendants funneled money into the Petters Ponzi scheme by selling interests in the Palm Beach Funds to investors throughout the United States,” the SEC charged. “Investors in the Palm Beach Funds included individuals, foundations, family trusts and other hedge funds. The Funds invested all investor contributions into the Petters Ponzi scheme. Of the approximately $3.65 billion invested in the Petters Ponzi scheme at the time of its collapse, the Palm Beach Funds accounted for more than $1 billion.”

    Florida has been plagued by Ponzi schemes and fraud schemes. In January, U.S. Attorney General Eric Holder ventured to the state to introduce President Obama’s Financial Fraud Enforcement Task Force.

    Holder announced the Task Force at a speech in the Palm Beach area, using the event at the Forum Club of the Palm Beaches to drive home the message that Ponzi schemers, mortgage fraudsters and financial criminals are going to have many sleepless nights in the months ahead.

    “To those who see the victimization of others as an avenue to wealth, take notice,” Holder warned. “If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail.”

  • KABOOM! More Bad News For Fraudsters: ‘FBI Undercover Operation’ Leads To Florida Fraud Busts; 20 Charged In Alleged Schemes, Including ‘CHiPs’ Actor

    An undercover sting conducted by the FBI has resulted in fraud charges being filed against 20 individuals or companies. The sting was centered in southern Florida. Among those charged was Larry Wilcox, one of the stars of the long-running television program “CHiPs” in which Wilcox played the role of a California police officer, the SEC said.

    Records suggest Wilcox agreed to become a government informant after becoming implicated in the probe.

    Wilcox, 63, of West Hills, Calif., was among a group charged both civilly and criminally. The case was brought after the FBI conducted an undercover probe into penny-stock schemes.

    “Securities fraud is an equal opportunity crime — it runs the gamut from very large to very small publicly traded companies,” said U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.

    Ferrer noted that “even microcap companies are plagued by fraudsters who seek to manipulate the stock market to line their own pockets.”

    Separately, the SEC said the sting was conducted “in such a way that no investors suffered harm” — an announcement that could send shockwaves across the fraud universe because it demonstrates that investigators are infiltrating schemes and relying on informants to unmask the schemers.

    Wilcox, for example, believed he was doing business with a “corrupt trustee,” according to court filings. Records suggest that Wilcox entered a deal with the government in July in which he would cooperate in an ongoing probe.

    “These corrupt promoters meticulously planned their schemes down to the last detail, except for the possibility that they were walking into an undercover operation,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “This joint law enforcement effort is a stark warning to those who embark on securities fraud schemes that we may be listening and we may be watching.”

    Whether the SEC and FBI were performing similar stings in the corrupt worlds of HYIPs, autosurfs and 2×2 matrix cyclers as promoted on Ponzi forums was not immediately clear. The Justice Department, however, has made it clear in court filings that it is infiltrating criminal forums and is using undercover operatives.

    The U.S. Secret Service also has made it clear that it is using undercover operatives in its investigations of corrupt enterprises such as HYIPs, autosurfs and 2×2 matrix cyclers.

    Read the SEC’s statement:

    Read the statement of U.S. Attorney Ferrer and remarks from the FBI:

    Read a story about a Secret Service probe in which undercover operatives were used to infiltrate criminal forums:

  • SEC: ‘Offshore Does Not Mean Off-Limits’; Agency Charges Famous U.S. Firm With Violating Foreign Corrupt Practices Act In Alleged Bribery Scheme

    Cheryl Scarboro, SEC.
    Cheryl J. Scarboro, SEC

    BULLETIN: The Securities and Exchange Commission has charged General Electric Co. and two foreign subsidiaries in an alleged kickback scheme with the Iraq government “to win contracts to supply medical equipment and water purification equipment.”

    Robert Khuzami, director of the SEC’s Division of Enforcement, did not mince words when announcing the charges and a settlement in the case.

    “Bribes and kickbacks are bad business, period,” said Khuzami. “This case affirms that law enforcement is active across the globe — offshore does not mean off-limits.”

    GE, which neither admitted nor denied the allegations, agreed to pay $23.4 million to settle the case. The SEC said GE cooperated in the probe, which crossed into Europe and the Middle East. The United Nations assisted the SEC and the U.S. Department of Justice in the probe.

    “GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win Oil for Food contracts, and it failed to properly record the true nature of the payments in its accounting records,” said Cheryl J. Scarboro, chief of the SEC’s Foreign Corrupt Practices Act Unit.

    For its part, GE said the conduct “did not meet our standards, and we believe that it is in the best interests of GE and its shareholders to resolve this matter now, without admitting or denying the allegations, and put the matter behind us.”

    “GE is committed to the highest standards of conduct in all transactions in all of the jurisdictions where we do business throughout the world,” the company said.

    “In this case, the SEC has identified 18 contracts under the Oil-for-Food Program that it alleges were not accounted for or controlled properly. Fourteen of these transactions involve businesses that were not owned by GE at the time of the transactions,” the company said.  “The SEC alleges that, in acquiring these companies, GE acquired their liabilities as well as their assets.  The other four transactions relate to GE Healthcare units in Europe.  These units declined to make cash payments to the Iraqi Ministry of Health, but they acquiesced when their agent offered instead to make in-kind payments of computer equipment, medical supplies, and services to the Iraqi Health Ministry, and then failed to reflect the transactions accurately in their books and records.”

    Read the SEC civil complaint.

    The case against GE and the subsequent settlement may be seen as a blow to other types of business pursuits that fall under the SEC’s purview. Ventures such as autosurfs and HYIPs  routinely claim that “offshore” locations shelter them from U.S. law enforcement, and commission-based shills and hucksters use the claim to recruit investors.

    GE is an iconic company that traces its roots to 1890, when inventor Thomas Alva Edison founded Edison General Electric Co.