Former HBOC GC Settles Accounting Fraud Charges at McKesson HBOC

The SEC settled charges against Jay Lapine, the former GC of HBO & Company, a vendor of health care technology that merged with McKesson in 1999. Lapine was charged in a previously-filed action with securities fraud in connection with a financial reporting fraud at McKesson HBOC, Inc. (now, McKesson Corporation), a Fortune 100 company headquartered in San Francisco, California. Lapine consented to the entry of judgment without admitting or denying the allegations of the Commission’s complaint except as to jurisdiction.

The Complaint, filed September 27, 2001, alleged that Lapine, together with other senior executives, participated in a long-running fraudulent scheme to inflate the revenue and net income of HBOC. As part of this scheme, Lapine took part in negotiating two large backdated transactions with side agreements containing cancellation contingencies that enabled the companies to recognize revenue in earlier reporting periods. Both of these practices failed to comply with Generally Accepted Accounting Principles. The fraud enabled HBOC and McKesson HBOC to report falsely in press releases and in periodic reports HBOC filed with the Commission that the companies were having an unbroken run of financial success and had continually exceeded analysts’ expectations. However, when McKesson HBOC announced in April 1999 that the company was conducting an internal investigation into financial reporting irregularities, its shares tumbled from approximately $65 to $34, a drop that slashed its market value by more than $9 billion. The Commission also alleged that Lapine failed in his gatekeeper role during the multi-year long scheme.

The final judgment against Lapine permanently enjoins him from violating federal securities law, bars him from acting as an officer or director of a public company for a period of five years, and orders him to pay a civil penalty of $60,000. Lapine was acquitted on November 19, 2009 of criminal charges related to the fraud at HBOC and McKesson HBOC.

Source

Posted in Accounting Fraud | No Comments »

CP Ships insider-trading action settled

Former investors in CP Ships Ltd. are being asked to sign up for a piece of a settlement in class-action lawsuits against the company that was filed after it overstated its profits and faced allegations of illegal insider trading.

According to a statement Monday from Siskinds LLP, which acted for the plaintiffs in the Ontario proceedings, the $12.8-million deal is not an admission of wrongdoing.

But it appears to bring to an end the tale of CP Ships, which was sold in a friendly takeover to Germany’s TUI AG in 2005.

In August, 2004, CP Ships said it had overstated its 2003 earnings, blaming accounting discrepancies. Its stock sank by more than 20 per cent.

Then, in December, 2004, CP Ships acknowledged that four of its executives sold stock in the firm with advance knowledge of the bookkeeping issue.

Among them was then-chairman Ray Miles, who, partly by exercising stock options, made a $3.5-million profit in May, long before the August announcement.

A company probe determined the trades were made inadvertently and without an intention to break any corporate rules or securities laws. A 2005 Ontario Securities Commission investigation also concluded that CP Ships should be let off with only a warning, praising the co-operation investigators received from the company. The executives agreed to pay restitution of $1.4-million.

Class actions on behalf of shareholders were launched in Ontario, British Columbia and Quebec. An Ontario court approved the settlement last month, with a Quebec judge following suit in January. As a condition of the settlement, the B.C. suit was dropped.

Siskinds LLP put out a statement Monday advising anyone who bought CP Ships securities between Jan. 29, 2003, and Aug. 9, 2004, or who held CP Ships securities on Aug. 9, 2004, to file their claims by June 7, 2010.

Source

Posted in Insider Trading | No Comments »

Unregistered Securities Result in $135 Million South Florida Ponzi Scheme

The founders and co-owners of the Miami-based real estate development company Royal West Properties, Inc. have been charged with fraud for conducting a $135 million Ponzi scheme. The Securities and Exchange Commission (SEC) alleges that Gaston E. Cantens and his wife allegedly sold promissory notes to investors after acquiring various properties and later financing their sale.

According to the civil complaint filed by the SEC, the Cantens targeted members of the Cuban-American community. Well-known within the close-knit community, the couple gained the trust of mostly elderly investors whom they met at charitable and religious gatherings, and at events hosted at their Miami home. Mr. Cantens also allegedly used his connections as an alumnus and board member at the Belén Prep School to recruit investors. Outside of their immediate community, investors were attracted by televised commercials broadcast on Spanish-language channels nationwide.

Despite the Cantens not being registered with the SEC under the federal securities laws to make securities offerings to investors, reportedly no questions were asked of the couple that a community regarded as old friends.

In a statement given by Director of the SEC’s Miami Regional Office, Eric I. Bustillo commented on the couples’ recruiting tactics, saying that “They portrayed themselves as a pious couple closely involved with educational and religious organizations, while in reality they were living lavishly off money from defrauded investors.”

Along with allegedly using investor money to repay earlier investors, the SEC also contends that the Cantens misappropriated more than $20 million to fund personal business ventures, pay themselves high salaries, and allocated an estimated $1 million to their children and grandchildren citing “consulting fees”.

Continued Reading

Posted in Florida Securities Law, Ponzi Schemes | No Comments »

Assistant Treasury Secretary Testifies on Citigroup Investment

Assistant Secretary of the Treasury Allison testified today before the Congressional Oversight Panel on the Treasury Department’s reasons for making the Citigroup investments and its strategy for exiting these investments.

Source

Posted in Uncategorized | No Comments »

S.E.C. Charges Psychic With Securities Fraud

It may read as if it’s ripped from the pages of The Onion, but yes, it’s real.

The Securities and Exchange Commission on Thursday sued a well-known fortune teller who called himself “America’s Prophet,” charging him with securities fraud for swindling investors out of $6 million with the promise that he could accurately predict market moves. (Read the lawsuit after the jump.)

The fortune teller, Sean David Morton, 51, is accused of inducing more than 100 investors into pouring money into the Delphi Investment Group through his newsletter, Web site and guest spots on a nationally syndicated radio show.

Among his pitches: “I have called ALL the highs and lows of the market giving EXACT DATES for rises and crashes over the last 14 years.”

S.E.C. officials on Thursday were less impressed by his claims.

“Morton’s self-proclaimed psychic powers were nothing more than a scam to attract investors and steal their money,” George S. Canellos, the director of the S.E.C.’s New York regional office, said in a statement.

Mr. Morton’s wife, Melissa Morton, and their nonprofit religious organization, Prophecy Research Institute, were listed as relief defendants, meaning that while they are not accused of a crime, the S.E.C. is seeking a disgorgement of their share of the ill-gotten gains.

Neither the couple, nor a representative for their organization could be reached for comment.

Source

Posted in Securities Fraud | No Comments »

Zamansky: Annuities and the Avoidance of the Fiduciary Standard

There’s a saying on Wall Street: “Structured products are never bought, only sold”. The same could be said of annuities.

Selling annuities is an extremely lucrative and virtually risk-free business, which is one of the reasons why insurance companies and some Wall Street firms are aggressively lobbying Congress not to require brokers and other purveyors of financial products to adhere to a so-called “fiduciary standard.” Under the proposed standard, brokers and insurance salesmen would be required to put their clients’ interests ahead of their own, likely forgoing high-commission annuities for other, more appropriate investments.

Not surprisingly, Morgan Stanley has voiced concerns that the fiduciary standard would cut into its business. Morgan Stanley has good reason to worry: The firm earned $37 million from selling annuities in the first quarter of 2009 alone, or 1.22 percent of its noninterest income, according to a report by the American Bankers Insurance Association (ABIA). A Morgan Stanley spokesman recently told Bloomberg that expanding the fiduciary standard to include brokers would impinge upon the firm’s ability “to provide clients with products and services they want.” Or, perhaps more accurately, don’t want.

More: Annuities and the Avoidance of the Fiduciary Standard

Posted in Securities News | No Comments »

U.S. SEC charges Miami couple in Ponzi scheme

U.S. securities regulators charged a prominent Miami couple on Wednesday with running a $135 million Ponzi scheme that victimized elderly Cuban-Americans living in South Florida.

In a complaint filed in Miami federal court, the Securities and Exchange Commission alleged that Gaston and Teresita Cantens, founders and co-owners of real estate developer Royal West Properties Inc in Miami, had enticed investors with promises of 9 to 16 percent returns.

Instead, beginning no later than 2002, they used new investor money to repay earlier investors and the company’s operating costs, the SEC charged. All told, the couple raised $135 million from hundreds of investors, many from South Florida’s Cuban-exile community, the complaint alleged.

Read the rest of this entry »

Posted in Florida Securities Law, Ponzi Schemes | No Comments »

Bankruptcy Judge Sides with SIPC Trustee in Calculating Madoff Investors’ Claims

U.S. Bankruptcy Judge Burton Lifland ruled today in favor of the SIPC Trustee in the liquidation of Bernard Madoff’s securities firm, affirming that customers’ claims are properly based on the amount of cash deposited by the customer less any amounts withdrawn by the customer (the “net investment method”).  Some customers argued that the amounts of their claims should be based on the amounts set forth in their last financial statements received from Madoff (the ‘last statement method”).  Recognizing that choosing between these two competing calculations of “net equity” was not “plainly ascertainable in law,” the court endorsed the trustee’s net investment method after a thorough analysis of the plain meaning and legislative history of the relevant statute, controlling Second Circuit precedent, and considerations of equity and practicality.  The New York Times has posted the opinion on its website.

An appeal of the decision is expected.

Source

Posted in Madoff | No Comments »

Morgan Keegan Racks Up Another Big Loss On Bond Fund

Morgan Keegan & Co. has been ordered to pay $1.1 million to an investor group for losses tied to bond funds steeped in risky mortgage-related securities, marking the second such award in days.

A securities arbitration panel found Morgan Keegan, a unit of Birmingham, Ala.-based Regions Financial Corp. (RF), liable for failure to disclose the true nature of investments to financial firms founded by Gen. Henry Cobb, Jr., according to an award by the Financial Industry Regulatory Authority. The panel didn’t provide a reason for its award or findings.

The award follows a $2.5 million decision against Morgan Keegan rendered on Friday. Finra, the Wall Street self-regulatory organization, has received more than 400 arbitration claims against Morgan Keegan involving six bond funds that were heavily invested in collateralized-debt obligations and other subprime-related securities.

Cobb, an 89-year-old World War II Army veteran, originally had sought more than $4 million in damages as the funds declined in value as much as 82% after the housing bubble burst. CIC Capital Management Company LLC, Cobb Investment Company LLC, and CIC Financial were also claimants in the arbitration.

A Morgan Keegan spokesman did not immediately provide a comment. The firm previously said 114 cases seeking more than $24 million were dropped by claimants before their hearings, in addition to settling cases for an undisclosed amount.

Cobb and his holding companies alleged that the funds were promoted as “conservative investments with relatively low risk,” according to a statement of claim. Despite the losses from the risky funds, the claimants ultimately made a $6 million profit generated by income from municipal bond investments managed by Morgan Keegan, according to Cobb’s attorney, Jeffrey Erez.

The award also marks what could be the first time that the arbitration panel admitted into evidence a Wells notice sent to Morgan Keegan by the Securities and Exchange Commission, said several attorneys for investors with claims against the brokerage. That notice, which is sent to companies ahead of potential regulatory enforcement action, outlines potential wrongdoings being investigated by regulators.

Regions Financial reported in a securities filing last year that it received a Wells notice on July 9. Regions was told that the SEC “staff intends to recommend that the commission bring enforcement actions for possible violations of the federal securities laws,” the filing said. The notice doesn’t mean for certain that the SEC will initiate an enforcement proceeding, but does give the recipient an opportunity to demonstrate why the SEC shouldn’t.

Andrew Stoltmann, a Chicago-based lawyer, said panels in other cases have denied his requests for Morgan Keegan to reveal the content of the Wells notice. Among his clients is retired National Basketball Association star Horace Grant, who was awarded $1.46 million for losses associated with the funds. Morgan Keegan is trying to overturn that award.

“They’re fighting it tooth and nail,” he said. “Obviously, (the Wells notice is) very devastating.”

Erez declined to discuss the content of the Wells notice, citing confidentiality requirements.

On Friday, a Finra panel awarded $2.5 million to investor Andrew Stein in a case involving the same group of funds. A Morgan Keegan spokesman confirmed at the time that the award was the largest in response to a flood of claims filed by investors in the funds.

Regions has since transferred management of those funds to Hyperion Brookfield Asset Management Inc. of New York, which subsequently liquidated and closed two of the funds, a Morgan Keegan spokesman confirmed on Friday.

Source

Posted in Bonds | No Comments »

Canada’s first criminal conviction for illegal insider trading

Canada’s first criminal conviction for illegal insider trading occurred on November 6, 2009 when Justice Robert Bigelow of the Ontario Court of Justice accepted a guilty plea from Stan Grmovsek. Sentencing was delayed until January 7, 2010 to facilitate the conclusion of regulatory proceedings brought by the Ontario Securities Commission (OSC) and a civil action brought by the United States Securities and Exchange Commission (SEC) against Grmovsek and his co-accused, Gil Cornblum. Tragically, Cornblum committed suicide on October 27, 2009, a day before he was scheduled to plead guilty. Cornblum and Grmovsek collaborated in a deliberate and prolonged illegal insider trading scheme.

Cornblum and Grmovsek, who were classmates at law school, started the illegal insider trading scheme after their graduation in 1994. Cornblum sought and obtained material, non-public information about pending corporate transactions that he passed on to Grmovsek who then executed trades in the securities of the corporations involved in the corporate transactions for a profit that they split between them.

Cornblum’s conduct reads a bit like a spy novel. During the time of the illegal insider trading, he worked at a number of law firms including, Sullivan and Cromwell, LLP, New York; Schulte Roth and Zabel, LLP, New York; and Dorsey, Whitney, LLP, Toronto. Cornblum received some of the material non-public information in his role as counsel to certain issuers on pending corporate transactions. In addition, he gained material non-public information through conversations with colleagues or other counsel. However, Cornblum also resorted to more clandestine-like activity to obtain material non-public information. For example, he used the night secretarial staff’s temporary passwords to search for confidential information in the computer databases at the law firms that he worked for. He also conducted early morning searches through the hallways, photocopy rooms, fax machines and files of his colleagues at the firms for documents that contained confidential information about pending transactions that he was not involved in.

The illegal insider trading scheme spanned a 14 year period from 1994 to 2008, but the trading was generally conducted in two time periods: September 1996 to August 2000 and May 2004 to April 2008.

In total, Cornblum tipped Grmovsek and Grmovsek traded while in possession of material, non-public information about 46 corporate transactions involving securities that were publicly listed in Canada and the United States.

Read the rest of this entry »

Posted in Insider Trading | No Comments »