Original Story: latimes.com
The yearlong battle between American Apparel Inc. and founder Dov Charney has taken another twist, with Charney filing a lawsuit accusing company officials and hedge fund Standard General of conspiring to push him out of the company last June.
The lawsuit, part of a flurry of legal actions by both sides, alleges fraud and conspiracy, among other things. Charney is seeking damages of $100 million and wants agreements rescinded that gave control of his American Apparel stock to Standard General and removed him from the company's board.
The complaint, filed Wednesday in Los Angeles County Superior Court, lays out an effort by current company board member Allan Mayer, former Chief Financial Officer John Luttrell and former board members David Danzinger, Robert Greene, Marvin Igelman and William Mauer to trick Charney into diluting his ownership stake in the company and then oust him.
In the lawsuit, Charney noted that the board filed a proxy statement with securities regulators praising his leadership ahead of last June's shareholder's meeting. A San Diego securities lawyer is experienced in the effective resolution of securities lawsuits as related to stocks, bonds, and debentures in California.
“Based on these statements of confidence,” the lawsuit said, Charney voted to reelect “the very same board members filing that proxy statement, who, immediately after the shareholders' meeting, voted to terminate him.”
Although Charney's lawsuit echoes many of the allegations he has made in previous legal documents, it presents new details of the ousted CEO's version of how events unfolded.
For instance, the suit said Standard General approached American Apparel in March 2014 with a financing proposal, but company directors rejected the New York investment firm's money in favor of a financing arrangement that reduced Charney's ownership stake to 27% from 43%.
The suit contends that American Apparel and Standard General subsequently worked together to ensure that Charney would be removed from company leadership and would never regain control.
It was Standard General that reached out to Charney after his June termination and promised to help him get back his job and control of the company, the lawsuit said. Instead, the suit said, Standard General “fraudulently induced” him into giving the hedge fund control over his shares and “reneged” on its word. An Indianapolis defamation lawyer is following this story closely.
The lawsuit said that Standard General never intended to help Charney because its investors wouldn't tolerate such a relationship. The suit recounted an early-morning “emergency” meeting on June 30, 2014, in New York's Central Park between Charney and Standard General Chief Executive Soohyung Kim.
“Kim then made various representations that he was being ‘crucified' by his limited partner investors who were reacting negatively to his partnership with Charney ... and that he was on the brink of losing his hedge fund. Kim emotionally pleaded with Charney to help him save his hedge fund or they were all ‘going to die,'” the lawsuit stated, adding that Kim was so frantic, he scratched himself until he was bleeding.
Charney felt he had no choice but to go along with Standard General's plan to settle with American Apparel, rather than stage a hostile bid for control, relying on Kim's promises that Charney would be reinstated at the company within weeks, the suit said. Charney agreed to relinquish his board seat as part of that settlement.
A Standard General spokesman said in an email that the filing was “yet another example of the frivolous, meritless lawsuits that Mr. Charney and his associates continue to file at a breakneck pace.”
He added, “The facts speak for themselves, and we are confident that he will ultimately be held accountable.”
According to the lawsuit, Charney suffered emotional distress after he was suspended when the board of directors started a “negative and defamatory media campaign against him.” Company representatives leaked confidential information and a video of Charney dancing nude to drive away potential allies, the suit said. An Atlanta slander lawyer is reviewing the details of this case.
The suit also said that Charney had amassed hundreds of thousands of dollars in legal fees, which Charney had expected American Apparel to pay, and that those expenses had put Charney's “personal finances in jeopardy.”
An American Apparel spokeswoman said in an email that Charney's lawsuit is “yet another example of the habitual nuisance lawsuits that Dov Charney and his lawyer continue to file, and which we continue to defeat.”
American Apparel filed court documents Friday that spelled out Charney's alleged misconduct at the company. Keith Fink, Charney's attorney, said Wednesday's lawsuit had nothing to do with this recent filing.
Among the graphic details described in the documents were allegations that Charney stored footage on company equipment of himself having sex with employees and models and sent sexually explicit messages to employees. Fink said those were personal messages that were welcomed by the recipients. A Memphis sexual harassment lawyer represents victims of harassment and assists them in recovering damages for emotional trauma and physical injuries that may have occurred.
The documents were part of an anti-SLAPP motion, intended to stanch what the company calls frivolous lawsuits.
The company's Friday filing was in response to a defamation suit filed by Charney's team in May against the company and its chairwoman, Colleen Brown. The defamation complaint alleged that Brown falsely informed American Apparel employees that Charney had agreed in writing never to return to the company in any capacity.
Charney filed an additional defamation suit against the company and Danzinger, alleging that they lied to prevent him from winning the necessary votes to reclaim control of the company.
Showing posts with label Fraud. Show all posts
Showing posts with label Fraud. Show all posts
Friday, June 26, 2015
Wednesday, June 11, 2014
CHICAGO MONEY MANAGER STEPHEN COLEMAN CHARGED WITH FRAUD
Original Story: Chicago Tribune
Illinois regulators have charged Daedalus Capital LLC founder and chief investment officer Stephen Messiah Coleman with fraud, claiming in a civil action that the money manager sold improper investments and acted as an unlicensed adviser. Will he need a Novi Divorce Lawyer when his wife finds out?
Coleman had earlier been the subject of an investigation by Missouri securities regulators. He moved to Chicago two years ago from St. Louis and has been running advertisements in theater programs, promising to double investors’ money in five years or less regardless of market conditions.
In a “temporary order of prohibition” dated May 16, the Illinois Securities Department prohibited Daedalus for selling securities, namely the Deuce and Alpha, for 90 days effective May 16 subject to further order from the state. Coleman has 30 days to request a hearing after having been served the order. If he doesn’t, the order can become final.
“On the Illinois matter, I have no comment today,” Coleman said Friday morning. The Illinois securities division, which brought the charges, also declined to comment on Friday.
Missouri, where Coleman had lived for most of his life, had prohibited him from selling securities. That state’s securities commissioner had found that Coleman had committed fraud, a ruling that a division spokesman said was upheld by circuit and appeals courts in the state. But an administrative hearing commissioner looking into whether Coleman had violated professional conduct standards rejected charges in 2010 that Coleman had misled people who invested in a related company, saying financial arrangements were disclosed in documents. In another legal proceeding in 2012, a Missouri county court ruled that no evidence was presented that Coleman’s investors lost money, but it fined him and Daedalus $50,000 and found he committed fraud after selling unregistered securities and acting as an unregistered investment adviser, in violation of securities laws.
Illinois is charging him with fraud in the offer and sale of securities; the offer and sale of unregistered securities; fraud in offering investment advice; and acting as an unregistered investment adviser.
Deuce is a "debt security" that seeks to double its money in five years. A copy of the Deuce agreement on Daedalus' website prominently states that the security isn't registered with the SEC or any state securities laws.
Coleman has accepted $346,000 from four Deuce investors, but the vehicle has an undisclosed $248,404 unfunded liability, Illinois said in its eight-page order.
Coleman and Daedalus “omitted to inform investors that they had insufficient assets to cover projected liabilities to current investors,” Illinois said.
Daedalus had assured at least one Deuce investor in January that it was “highly confident” that it would be able to fulfill its obligations, the state of Illinois said.
Although the Deuce agreement, as well as that for Alpha, discloses that the state of Missouri had fined Daedalus $50,000 for selling unregistered securities, the agreement failed to say that the penalties were unpaid, the state of Illinois pointed out. The Deuce and Alpha agreements also didn’t mention federal tax liens filed against Coleman, the state said.
Securities sold in Illinois must be registered unless they receive exemptions.
“Daedalus is not using an exemption from registration,” Illinois securities regulators quote Coleman as saying under oath in February 2014. “We did not seek registration of the Deuce because it is borrowed money, like a bank loan.”
Another Daedalus investment is Alpha, which invests in up to five stocks. Coleman told the Tribune on May 7 for a story that ran May 18 that clients give him their usernames and passwords to allow him to manage money in their accounts, a practice known as proxy trading. Coleman said that was one reason he didn’t need to be registered.
In its May 16 complaint, the state of Illinois says it’s typical industry practice to file a limited power of attorney with a broker dealer granting the money manager the power to execute trades in the customers’ accounts.
The state of Illinois said Coleman essentially misrepresented himself as the account’s owner. The state said it suspects that Coleman did so because he was afraid that the broker dealer might not do business with him given his past history with regulators.
Also, by acting in such a manner, Coleman was acting as an investment adviser despite not being registered, the state of Illinois said.
Coleman, who declined to comment on Illinois’ actions, on Friday called the Missouri actions “a rigged game.”
“This was nothing simple or benign,” he said. “It was evil in my eyes.
“Do not get lost in the muck,” Coleman told the Tribune on Friday. “The truth that brought Daedalus to your attention endures: Daedalus Capital LLC promises a return of 100 percent or more to our clients, in five years or less, regardless of general market conditions."
Illinois regulators have charged Daedalus Capital LLC founder and chief investment officer Stephen Messiah Coleman with fraud, claiming in a civil action that the money manager sold improper investments and acted as an unlicensed adviser. Will he need a Novi Divorce Lawyer when his wife finds out?
Coleman had earlier been the subject of an investigation by Missouri securities regulators. He moved to Chicago two years ago from St. Louis and has been running advertisements in theater programs, promising to double investors’ money in five years or less regardless of market conditions.
In a “temporary order of prohibition” dated May 16, the Illinois Securities Department prohibited Daedalus for selling securities, namely the Deuce and Alpha, for 90 days effective May 16 subject to further order from the state. Coleman has 30 days to request a hearing after having been served the order. If he doesn’t, the order can become final.
“On the Illinois matter, I have no comment today,” Coleman said Friday morning. The Illinois securities division, which brought the charges, also declined to comment on Friday.
Missouri, where Coleman had lived for most of his life, had prohibited him from selling securities. That state’s securities commissioner had found that Coleman had committed fraud, a ruling that a division spokesman said was upheld by circuit and appeals courts in the state. But an administrative hearing commissioner looking into whether Coleman had violated professional conduct standards rejected charges in 2010 that Coleman had misled people who invested in a related company, saying financial arrangements were disclosed in documents. In another legal proceeding in 2012, a Missouri county court ruled that no evidence was presented that Coleman’s investors lost money, but it fined him and Daedalus $50,000 and found he committed fraud after selling unregistered securities and acting as an unregistered investment adviser, in violation of securities laws.
Illinois is charging him with fraud in the offer and sale of securities; the offer and sale of unregistered securities; fraud in offering investment advice; and acting as an unregistered investment adviser.
Deuce is a "debt security" that seeks to double its money in five years. A copy of the Deuce agreement on Daedalus' website prominently states that the security isn't registered with the SEC or any state securities laws.
Coleman has accepted $346,000 from four Deuce investors, but the vehicle has an undisclosed $248,404 unfunded liability, Illinois said in its eight-page order.
Coleman and Daedalus “omitted to inform investors that they had insufficient assets to cover projected liabilities to current investors,” Illinois said.
Daedalus had assured at least one Deuce investor in January that it was “highly confident” that it would be able to fulfill its obligations, the state of Illinois said.
Although the Deuce agreement, as well as that for Alpha, discloses that the state of Missouri had fined Daedalus $50,000 for selling unregistered securities, the agreement failed to say that the penalties were unpaid, the state of Illinois pointed out. The Deuce and Alpha agreements also didn’t mention federal tax liens filed against Coleman, the state said.
Securities sold in Illinois must be registered unless they receive exemptions.
“Daedalus is not using an exemption from registration,” Illinois securities regulators quote Coleman as saying under oath in February 2014. “We did not seek registration of the Deuce because it is borrowed money, like a bank loan.”
Another Daedalus investment is Alpha, which invests in up to five stocks. Coleman told the Tribune on May 7 for a story that ran May 18 that clients give him their usernames and passwords to allow him to manage money in their accounts, a practice known as proxy trading. Coleman said that was one reason he didn’t need to be registered.
In its May 16 complaint, the state of Illinois says it’s typical industry practice to file a limited power of attorney with a broker dealer granting the money manager the power to execute trades in the customers’ accounts.
The state of Illinois said Coleman essentially misrepresented himself as the account’s owner. The state said it suspects that Coleman did so because he was afraid that the broker dealer might not do business with him given his past history with regulators.
Also, by acting in such a manner, Coleman was acting as an investment adviser despite not being registered, the state of Illinois said.
Coleman, who declined to comment on Illinois’ actions, on Friday called the Missouri actions “a rigged game.”
“This was nothing simple or benign,” he said. “It was evil in my eyes.
“Do not get lost in the muck,” Coleman told the Tribune on Friday. “The truth that brought Daedalus to your attention endures: Daedalus Capital LLC promises a return of 100 percent or more to our clients, in five years or less, regardless of general market conditions."
Wednesday, April 16, 2014
4 PLACES YOU SHOULD NOT SWIPE YOUR DEBIT CARD
Original Story: USAToday.com
Breaking news such as the massive data breach at Experian or Target now seems common. Leaving aside the victims of actual fraud, I hear constantly from people who've had to swap out every debit and credit card, or whose cards were unilaterally replaced by their bank. This causes all sorts of problems.
Sometimes it makes you long for the days of cash. While cash is not practical for everything, there are very compelling reasons to consider it or other alternatives instead of those debit cards.
Of course, you also have to watch where you get your cash, too. Criminals are good at installing near-invisible skimmers on ATMs. These steal your card information and then a miniature camera over the keypad steals your PIN. It's everything a thief needs to drain your account.
Avoid out of the way ATMs in isolated areas. When you can, use ATMs in a restricted-access foyer. You should also hold your hand over the keypad when you enter your PIN. This blocks a camera from seeing what you're doing.
CREDIT OR DEBIT: What's best for consumers?
Now that you know how to safely get cash, here's where you should use it.
1. GAS STATIONS
ATMs aren't the only places criminals can install card skimmers. Gas stations are a favorite target for thieves. Last year, four men were arrested for allegedly stealing $2.1 million using skimmers at gas stations in the south. The skimmers were installed in the pumps and were even equipped with Bluetooth — which allowed the thieves to come by and extract the collected numbers and PINs wirelessly!
To keep the odds in your favor, use cash. If nothing else, use a credit card at a gas pump. It's not widely appreciated that consumer responsibility for debit-card charges are different than they are for credit cards. Credit-card charges are easier to contest, and you're only liable for up to $50 of fraudulent purchases.
With a debit card, you have to report a fraudulent purchase within a few business days for the $50 liability limit to kick in.
2. RESTAURANTS
Restaurants, too, can be a source of trouble. Some unscrupulous servers bring handheld card skimmers to work to swipe your card info. Even low-tech thieves can just write down the card numbers.
To make matters worse, many restaurants use older computer systems for processing cards. These are easy for hackers to install card-swipe software, as in the Target hack. The price paid can be quite high; Subway got hit in 2011 by Romanian hackers, who got away with $10 million from 150 restaurants.
One of the lesser noted aspects about the coming end to Microsoft's XP operating system is that many restaurants and ATMs still use the XP infrastructure.
3. STORES
Restaurants and gas stations make juicy targets: a steady steam of customers, some not from the area. The same goes for stores.
For small purchases cash is the way to go. Use cash at the grocery store or while buying clothes. For larger purchases, use a credit card instead of a debit card. Again, you have less liability than you do with a debit card.
Bonus tip: Some people use cash at stores to avoid the store tracking what they buy. However, stores can still track your purchase history if you still swipe a loyalty card.
4. ONLINE
OK, you can't use cash online. But please, use a credit card, not a debit card. The fraud protections are better and a hacker can't overdraft your bank account with a credit card. You don't need to be fighting overdraft fees on top of everything else.
You can also check with your bank to see if it offers one-time credit card numbers for online buying. Since each number only works once, it won't do a hacker any good to steal it.
Of course, one drawback to using a credit card is the interest payments if you don't pay on time. This site can show you the real cost of using a credit card.
Finally, I know this is a lot of work, particularly when it seems that everyone is busy and overworked; but remember as well to check your bank statements, and credit reports, regularly for suspicious activity.
Breaking news such as the massive data breach at Experian or Target now seems common. Leaving aside the victims of actual fraud, I hear constantly from people who've had to swap out every debit and credit card, or whose cards were unilaterally replaced by their bank. This causes all sorts of problems.
Sometimes it makes you long for the days of cash. While cash is not practical for everything, there are very compelling reasons to consider it or other alternatives instead of those debit cards.
Of course, you also have to watch where you get your cash, too. Criminals are good at installing near-invisible skimmers on ATMs. These steal your card information and then a miniature camera over the keypad steals your PIN. It's everything a thief needs to drain your account.
Avoid out of the way ATMs in isolated areas. When you can, use ATMs in a restricted-access foyer. You should also hold your hand over the keypad when you enter your PIN. This blocks a camera from seeing what you're doing.
CREDIT OR DEBIT: What's best for consumers?
Now that you know how to safely get cash, here's where you should use it.
1. GAS STATIONS
ATMs aren't the only places criminals can install card skimmers. Gas stations are a favorite target for thieves. Last year, four men were arrested for allegedly stealing $2.1 million using skimmers at gas stations in the south. The skimmers were installed in the pumps and were even equipped with Bluetooth — which allowed the thieves to come by and extract the collected numbers and PINs wirelessly!
To keep the odds in your favor, use cash. If nothing else, use a credit card at a gas pump. It's not widely appreciated that consumer responsibility for debit-card charges are different than they are for credit cards. Credit-card charges are easier to contest, and you're only liable for up to $50 of fraudulent purchases.
With a debit card, you have to report a fraudulent purchase within a few business days for the $50 liability limit to kick in.
2. RESTAURANTS
Restaurants, too, can be a source of trouble. Some unscrupulous servers bring handheld card skimmers to work to swipe your card info. Even low-tech thieves can just write down the card numbers.
To make matters worse, many restaurants use older computer systems for processing cards. These are easy for hackers to install card-swipe software, as in the Target hack. The price paid can be quite high; Subway got hit in 2011 by Romanian hackers, who got away with $10 million from 150 restaurants.
One of the lesser noted aspects about the coming end to Microsoft's XP operating system is that many restaurants and ATMs still use the XP infrastructure.
3. STORES
Restaurants and gas stations make juicy targets: a steady steam of customers, some not from the area. The same goes for stores.
For small purchases cash is the way to go. Use cash at the grocery store or while buying clothes. For larger purchases, use a credit card instead of a debit card. Again, you have less liability than you do with a debit card.
Bonus tip: Some people use cash at stores to avoid the store tracking what they buy. However, stores can still track your purchase history if you still swipe a loyalty card.
4. ONLINE
OK, you can't use cash online. But please, use a credit card, not a debit card. The fraud protections are better and a hacker can't overdraft your bank account with a credit card. You don't need to be fighting overdraft fees on top of everything else.
You can also check with your bank to see if it offers one-time credit card numbers for online buying. Since each number only works once, it won't do a hacker any good to steal it.
Of course, one drawback to using a credit card is the interest payments if you don't pay on time. This site can show you the real cost of using a credit card.
Finally, I know this is a lot of work, particularly when it seems that everyone is busy and overworked; but remember as well to check your bank statements, and credit reports, regularly for suspicious activity.
Friday, February 8, 2013
109 Arrests - IRS Cracking Down on Identity Theft
Story first appeared on USA Today -
The IRS says a coast-to-coast campaign against tax-related identity theft led to more than 700 enforcement actions last month, including arrests and indictments.
Federal authorities took action against 389 people suspected of involvement in identity theft to commit tax fraud, the IRS said Thursday.
Announced as the annual federal tax-filing season begins, the nationwide actions include 109 arrests and 189 indictments, plus court complaints and information, said acting IRS Commissioner Steven Miller.
The bulk of the enforcement actions took place on the East Coast and in the Midwest, a map released Thursday by the IRS shows.
Additionally, IRS auditors and criminal investigators in late January started visiting 197 money service businesses, including check-cashing stores, to ensure the locations don't aid identity theft or refund fraud. The visits focus on 17 high-risk areas identified by the IRS in or near New York; Philadelphia; Atlanta; Tampa; Miami; Chicago; Houston; Phoenix; Los Angeles; San Diego; El Paso; Tucson; Birmingham; Detroit; San Francisco; Oakland and San Jose.
Part of a year-long IRS crackdown, the effort targets thieves who gain access to other people's Social Security numbers and other identifying information, and then use that information to concoct and file fraudulent federal tax returns — and collect unwarranted refunds.
"As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft," said Miller. "We have aggressively stepped up our efforts to pursue and prevent refund fraud and identity theft, and we will continue to intensely focus on this area.
The tax agency has added additional computer screening filters in an effort to stop the crime, said Miller. Although he acknowledged the filters could slow IRS processing of some legitimate tax returns and refunds, Miller said the tax agency would work to keep any delays to a minimum.
Additionally, the IRS as of late 2012 had assigned more than 3,000 employees to work on identity theft-related work, said Miller. That's more than double the number devoted to the area in 2011, he said.
In all, the IRS says its efforts in 2012 "protected" against $20 billion in fraudulent refunds, most of which are directly related to identity theft. That compares with $14 billion in 2011.
Miller said the IRS is making progress in fighting identity theft refund fraud, but still has room to improve. The agency is working to speed the time it takes to get refunds to honest taxpayers victimized by the crimes, he said.
The IRS says a coast-to-coast campaign against tax-related identity theft led to more than 700 enforcement actions last month, including arrests and indictments.
Federal authorities took action against 389 people suspected of involvement in identity theft to commit tax fraud, the IRS said Thursday.
Announced as the annual federal tax-filing season begins, the nationwide actions include 109 arrests and 189 indictments, plus court complaints and information, said acting IRS Commissioner Steven Miller.
The bulk of the enforcement actions took place on the East Coast and in the Midwest, a map released Thursday by the IRS shows.
Additionally, IRS auditors and criminal investigators in late January started visiting 197 money service businesses, including check-cashing stores, to ensure the locations don't aid identity theft or refund fraud. The visits focus on 17 high-risk areas identified by the IRS in or near New York; Philadelphia; Atlanta; Tampa; Miami; Chicago; Houston; Phoenix; Los Angeles; San Diego; El Paso; Tucson; Birmingham; Detroit; San Francisco; Oakland and San Jose.
Part of a year-long IRS crackdown, the effort targets thieves who gain access to other people's Social Security numbers and other identifying information, and then use that information to concoct and file fraudulent federal tax returns — and collect unwarranted refunds.
"As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft," said Miller. "We have aggressively stepped up our efforts to pursue and prevent refund fraud and identity theft, and we will continue to intensely focus on this area.
The tax agency has added additional computer screening filters in an effort to stop the crime, said Miller. Although he acknowledged the filters could slow IRS processing of some legitimate tax returns and refunds, Miller said the tax agency would work to keep any delays to a minimum.
Additionally, the IRS as of late 2012 had assigned more than 3,000 employees to work on identity theft-related work, said Miller. That's more than double the number devoted to the area in 2011, he said.
In all, the IRS says its efforts in 2012 "protected" against $20 billion in fraudulent refunds, most of which are directly related to identity theft. That compares with $14 billion in 2011.
Miller said the IRS is making progress in fighting identity theft refund fraud, but still has room to improve. The agency is working to speed the time it takes to get refunds to honest taxpayers victimized by the crimes, he said.
Tuesday, May 15, 2012
Chinese Chairman in Trouble for Loan Fraud
Story first appeared in Reuters.
A China-based natural gas company and its chairman were charged with fraud by the U.S. Securities and Exchange Commission for concealing loans designed to benefit the chairman's family.
The chairman and former chief executive of China Natural Gas Inc in January 2010 arranged for two improper loans totaling $14.3 million, and then lied about them to the company's board, investors and auditors.
The SEC has for more than a year probed accounting irregularities and other problems at Chinese companies listed on U.S. stock exchanges. Accounting issues and China Supplier Quality Management issues have led to the resignations of many of these companies' auditors, and prompted the exchanges to delist or halt trading of the companies' shares.
According to the SEC, the chairman had concealed a $9.9 million loan made through a sham borrower to a real estate firm, Demaoxing Real Estate Co, owned by his son and nephew.
It said he also concealed a $4.4 million loan to Shaanxi Juntai Housing Purchase Co, a business partner of Demaoxing and whose general manager was a friend.
The SEC said the chairman told China Natural Gas directors that the loans involved senior Chinese government officers in charge of a liquid natural gas project, and repeated this lie to investors on a May 10, 2010, quarterly earnings conference call.
It also said China Natural Gas did not properly report a $19.6 million acquisition made in the fourth quarter of 2008.
His misconduct caused China Natural Gas to file a series of false reports with the SEC and showed total disregard for his obligations as an officer and director of a company whose stock trades in the U.S.
The SEC has brought at least seven cases against U.S.-listed Chinese companies, including Longtop Financial Technologies Ltd and Puda Coal Inc.
Last week it filed administrative proceedings against Deloitte Touche Tohmatsu CPA Ltd of Shanghai for refusing to provide audit work papers related to a Chinese company being investigated for accounting fraud.
The China Natural Gas lawsuit seeks civil fines and a ban on the chairman from acting as an officer and director of a public company.
In September, China Natural Gas announced his resignation as chief executive, and said it would restate some financial results because of the loans.
A China-based natural gas company and its chairman were charged with fraud by the U.S. Securities and Exchange Commission for concealing loans designed to benefit the chairman's family.
The chairman and former chief executive of China Natural Gas Inc in January 2010 arranged for two improper loans totaling $14.3 million, and then lied about them to the company's board, investors and auditors.
The SEC has for more than a year probed accounting irregularities and other problems at Chinese companies listed on U.S. stock exchanges. Accounting issues and China Supplier Quality Management issues have led to the resignations of many of these companies' auditors, and prompted the exchanges to delist or halt trading of the companies' shares.
According to the SEC, the chairman had concealed a $9.9 million loan made through a sham borrower to a real estate firm, Demaoxing Real Estate Co, owned by his son and nephew.
It said he also concealed a $4.4 million loan to Shaanxi Juntai Housing Purchase Co, a business partner of Demaoxing and whose general manager was a friend.
The SEC said the chairman told China Natural Gas directors that the loans involved senior Chinese government officers in charge of a liquid natural gas project, and repeated this lie to investors on a May 10, 2010, quarterly earnings conference call.
It also said China Natural Gas did not properly report a $19.6 million acquisition made in the fourth quarter of 2008.
His misconduct caused China Natural Gas to file a series of false reports with the SEC and showed total disregard for his obligations as an officer and director of a company whose stock trades in the U.S.
The SEC has brought at least seven cases against U.S.-listed Chinese companies, including Longtop Financial Technologies Ltd and Puda Coal Inc.
Last week it filed administrative proceedings against Deloitte Touche Tohmatsu CPA Ltd of Shanghai for refusing to provide audit work papers related to a Chinese company being investigated for accounting fraud.
The China Natural Gas lawsuit seeks civil fines and a ban on the chairman from acting as an officer and director of a public company.
In September, China Natural Gas announced his resignation as chief executive, and said it would restate some financial results because of the loans.
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Tuesday, April 24, 2012
Chinese Energy Company in Trouble for Market Manipulation
Story first appeared in The New York Times.
The Securities and Exchange Commission has sued another China-based company and two of its executives, charging them with lying to investors about the value of the company’s assets and how it used $120 million in proceeds from its initial public offering on the Nasdaq.
In a complaint filed on Monday in a federal court in Louisiana, the S.E.C. also charged that the chairman of the company, SinoTech Energy, secretly siphoned $40 million from the company’s account at the Agricultural Bank of China last summer. A New Orleans Corporate Lawyer cites embezzlement and fraud as major issues in this case.
The legal action against SinoTech, an oil field services company de-listed by the Nasdaq in January, is the latest example of a continuing crackdown on accounting fraud and other financial crimes at Chinese companies listed in the United States.
Earlier this month, the S.E.C. charged 11 investors in AutoChina International, including a senior executive and director, with market manipulation. Also this month, the agency secured a court order freezing the assets of six Chinese citizens and an offshore holding company after accusing them of insider trading in the shares of Zhongpin Inc., a pork processor based in China.
In its complaint against SinoTech, the S.E.C. charges that the company grossly overstated the value of its primary operating assets, including hydraulic drilling equipment. The company claimed in its listing document it would spend $120 million on such equipment, but the regulator found that it bought less equipment than it said it would, lied about the equipment it did buy and overstated the value of its purchases by nearly fivefold in its financial statements.
The S.E.C. alleged that the chief executive, and the former chief financial officer, were behind the equipment purchasing fraud.
In addition, the regulator accused the company’s chairman and controlling shareholder of stealing $40 million from a company bank account and lying about it to investors.
SinoTech’s brief life as a public company in the U.S. markets has been rife with falsehoods.
SinoTech Energy raised $167.8 million in an initial offering on the Nasdaq in November 2010, in a deal underwritten by UBS, Citigroup and Lazard Capital Markets.
The company caught the attention of regulators after it was criticized last August in a negative report on the Web site alfredlittle.com, which is popular among short-sellers. The company’s auditor, Ernst & Young Hua Ming, resigned in September.
SinoTech Energy could not immediately be reached for comment. A Beijing phone number listed in the company’s stock exchange filings was out of service.
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The Securities and Exchange Commission has sued another China-based company and two of its executives, charging them with lying to investors about the value of the company’s assets and how it used $120 million in proceeds from its initial public offering on the Nasdaq.
In a complaint filed on Monday in a federal court in Louisiana, the S.E.C. also charged that the chairman of the company, SinoTech Energy, secretly siphoned $40 million from the company’s account at the Agricultural Bank of China last summer. A New Orleans Corporate Lawyer cites embezzlement and fraud as major issues in this case.
The legal action against SinoTech, an oil field services company de-listed by the Nasdaq in January, is the latest example of a continuing crackdown on accounting fraud and other financial crimes at Chinese companies listed in the United States.
Earlier this month, the S.E.C. charged 11 investors in AutoChina International, including a senior executive and director, with market manipulation. Also this month, the agency secured a court order freezing the assets of six Chinese citizens and an offshore holding company after accusing them of insider trading in the shares of Zhongpin Inc., a pork processor based in China.
In its complaint against SinoTech, the S.E.C. charges that the company grossly overstated the value of its primary operating assets, including hydraulic drilling equipment. The company claimed in its listing document it would spend $120 million on such equipment, but the regulator found that it bought less equipment than it said it would, lied about the equipment it did buy and overstated the value of its purchases by nearly fivefold in its financial statements.
The S.E.C. alleged that the chief executive, and the former chief financial officer, were behind the equipment purchasing fraud.
In addition, the regulator accused the company’s chairman and controlling shareholder of stealing $40 million from a company bank account and lying about it to investors.
SinoTech’s brief life as a public company in the U.S. markets has been rife with falsehoods.
SinoTech Energy raised $167.8 million in an initial offering on the Nasdaq in November 2010, in a deal underwritten by UBS, Citigroup and Lazard Capital Markets.
The company caught the attention of regulators after it was criticized last August in a negative report on the Web site alfredlittle.com, which is popular among short-sellers. The company’s auditor, Ernst & Young Hua Ming, resigned in September.
SinoTech Energy could not immediately be reached for comment. A Beijing phone number listed in the company’s stock exchange filings was out of service.
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Wal-Mart Mexico in Trouble for Bribery
Story first appeared in Yahoo News.
Wal-Mart Stores Inc lost $10 billion of its market value on Monday on concerns that a bribery investigation in Mexico could be very costly and hinder its plans to grow.
In a sign that the problem was widening for the world's largest retailer, two U.S. lawmakers said they were launching their own investigation into allegations in a New York Times article that Wal-Mart de Mexico had engaged in a multi-year campaign of bribery to build its business. In Mexico, the front-running presidential candidate and lawmakers also called on local authorities to investigate.
If the allegations are true, Wal-Mart may have violated the U.S. Foreign Corrupt Practices Act (FCPA), which forbids bribes to foreign government officials, as well as run afoul of Sarbanes-Oxley rules that require corporate gatekeepers to report material violations of securities laws.
Legal and retail experts also raised concerns about the Wal-Mart Chief Executive and the former CEO, who were among senior executives allegedly aware of the situation, according to the Times.
Two Democratic U.S. lawmakers said that they were launching an investigation into the matter and sent a letter requesting a meeting with the Chief Executive.
The Times report raises significant questions about the actions of top company officials in the United States who reportedly tried to disregard substantial evidence of abuse.
Shares of Wal-Mart de Mexico, which is 69 percent-owned by Wal-Mart and known as Walmex, fell 12 percent to 37.89 pesos ($2.88). The drop wiped out a 12 percent year-to-date gain in the second-most-weighted stock on Mexico's IPC index.
Shares of Wal-Mart fell 4.7 percent to $59.54, wiping some $10 billion off their market value and more than erasing this year's gains. The stock is a component of the Dow Jones industrials index, which ended 0.8 percent lower.
The news raised concerns that Wal-Mart, the world's largest retailer, may have trouble expanding into new markets.
Entering additional countries is a cornerstone of Wal-Mart's growth strategy. The authorities in some key countries, notably India, may become dramatically less welcoming to Wal-Mart following the release of the allegations.
The New York Times reported on Saturday that a senior Wal-Mart lawyer received an email from a former Walmex executive in September 2005 that described how the Mexican company had paid bribes to obtain permits to build stores in the country.
According to the Times, Wal-Mart sent investigators to Mexico City and found a paper trail of suspect payments totaling more than $24 million. But the company's leaders shut down the probe and did not notify U.S. or Mexican law enforcement officials until after the newspaper informed Wal-Mart that it was looking into the issue, the Times reported.
Wal-Mart said it was deeply concerned about the matter and began an investigation into its FCPA compliance last fall. It said it disclosed the probe to the U.S. Department of Justice and the Securities and Exchange Commission, and declined to give any more details or to make executives available for comment.
A source familiar with the matter said the Justice Department has been conducting a criminal investigation into the bribery matter for months.
In a memo entitled "Integrity" sent to Wal-Mart employees on Monday, the Chief Executive said that the company takes compliance with FCPA very seriously, and we will not tolerate violations anywhere or at any level of the company. The memo included a link to Wal-Mart's global ethics office website and phone hotline.
EXPENSIVE AND EXTENSIVE
In Mexico, the favorite candidate to succeed the conservative President, joined some opposition lawmakers in calling for the government to launch an investigation. Mexico's attorney general said that her office would act promptly if asked to do so by the Ministry of Finance or Ministry of the Economy. If licenses were given out where they shouldn't have been, there's fraud not only in the cities where that happened, but also there could have been fiscal fraud.
Bribery and corruption are pervasive in Mexico, where the justice system is weak and lower-level public sector workers earn relatively low salaries. A study last year by Transparency International showed that Mexican companies were perceived to be the third-most likely behind those in China and Russia to pay bribes abroad.
Still, the country has been taking steps to turn around this image and an anti-corruption law was recently passed by Mexico's lower house that would give the country new powers to fine companies for corruption.
A BMO Capital Markets analyst said in a research note that Wal-Mart's growth could be hurt both domestically and abroad by the bribery allegations. Articles like this will be used against the company by activists and competitors when it attempts to open stores in the U.S. and abroad.
Others said the share drop could actually provide a buying opportunity, given that Wal-Mart shares had been trading near a 52-week high on optimism over the recovery in its U.S. business. Options market activity also suggested a bullish bias on Wal-Mart stock.
Citigroup analysts said in a note that, after discussions with Wal-Mart, it believed that the retailer would conduct a thorough and transparent review and said any pressure on the stock was an enhanced buying opportunity.
The California State Teachers' Retirement System, which holds over 5.5 million shares of Wal-Mart Stores, will keep its exposure to the retail giant until it finds out what happened, CalSTRS's director of corporate governance, Anne Sheehan, told Reuters.
WALMEX RESULTS DISAPPOINT
Some hedge fund managers said Walmex was the more attractive target for short sellers.
Walmex said on Monday that it does not believe the allegations will hurt its business.
After the market close, Walmex's first-quarter earnings missed analysts' expectations. Executives on a pre-recorded call did not mention the bribery probe.
Walmex had been considered an extremely ethical company. It was a safe haven for investors.
Lawyers said Wal-Mart could face shareholder lawsuits accusing the company of securities fraud for having inflated its stock price by misleading investors about its FCPA compliance. Cosmetics maker Avon Products Inc faces similar lawsuits over its activities in China.
Wal-Mart executives and directors, like their Avon counterparts, could face "derivative" lawsuits accusing them of covering up or turning a blind eye to the alleged bribes.
These lawsuits seek to force executives, or their insurers, to pay money directly to Wal-Mart for breaching or ignoring their duties, and for the company to tighten internal controls.
Shareholders could also use the power of the ballot box. At Wal-Mart's June 1 annual meeting, they could vote out directors they deem responsible for allowing the bribery, including the four independent directors who comprise the audit committee.
Nearly 50 percent of Wal-Mart's shares are owned by the family of deceased founder, which may mute the power of other shareholders.
For more national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
Wal-Mart Stores Inc lost $10 billion of its market value on Monday on concerns that a bribery investigation in Mexico could be very costly and hinder its plans to grow.
In a sign that the problem was widening for the world's largest retailer, two U.S. lawmakers said they were launching their own investigation into allegations in a New York Times article that Wal-Mart de Mexico had engaged in a multi-year campaign of bribery to build its business. In Mexico, the front-running presidential candidate and lawmakers also called on local authorities to investigate.
If the allegations are true, Wal-Mart may have violated the U.S. Foreign Corrupt Practices Act (FCPA), which forbids bribes to foreign government officials, as well as run afoul of Sarbanes-Oxley rules that require corporate gatekeepers to report material violations of securities laws.
Legal and retail experts also raised concerns about the Wal-Mart Chief Executive and the former CEO, who were among senior executives allegedly aware of the situation, according to the Times.
Two Democratic U.S. lawmakers said that they were launching an investigation into the matter and sent a letter requesting a meeting with the Chief Executive.
The Times report raises significant questions about the actions of top company officials in the United States who reportedly tried to disregard substantial evidence of abuse.
Shares of Wal-Mart de Mexico, which is 69 percent-owned by Wal-Mart and known as Walmex, fell 12 percent to 37.89 pesos ($2.88). The drop wiped out a 12 percent year-to-date gain in the second-most-weighted stock on Mexico's IPC index.
Shares of Wal-Mart fell 4.7 percent to $59.54, wiping some $10 billion off their market value and more than erasing this year's gains. The stock is a component of the Dow Jones industrials index, which ended 0.8 percent lower.
The news raised concerns that Wal-Mart, the world's largest retailer, may have trouble expanding into new markets.
Entering additional countries is a cornerstone of Wal-Mart's growth strategy. The authorities in some key countries, notably India, may become dramatically less welcoming to Wal-Mart following the release of the allegations.
The New York Times reported on Saturday that a senior Wal-Mart lawyer received an email from a former Walmex executive in September 2005 that described how the Mexican company had paid bribes to obtain permits to build stores in the country.
According to the Times, Wal-Mart sent investigators to Mexico City and found a paper trail of suspect payments totaling more than $24 million. But the company's leaders shut down the probe and did not notify U.S. or Mexican law enforcement officials until after the newspaper informed Wal-Mart that it was looking into the issue, the Times reported.
Wal-Mart said it was deeply concerned about the matter and began an investigation into its FCPA compliance last fall. It said it disclosed the probe to the U.S. Department of Justice and the Securities and Exchange Commission, and declined to give any more details or to make executives available for comment.
A source familiar with the matter said the Justice Department has been conducting a criminal investigation into the bribery matter for months.
In a memo entitled "Integrity" sent to Wal-Mart employees on Monday, the Chief Executive said that the company takes compliance with FCPA very seriously, and we will not tolerate violations anywhere or at any level of the company. The memo included a link to Wal-Mart's global ethics office website and phone hotline.
EXPENSIVE AND EXTENSIVE
In Mexico, the favorite candidate to succeed the conservative President, joined some opposition lawmakers in calling for the government to launch an investigation. Mexico's attorney general said that her office would act promptly if asked to do so by the Ministry of Finance or Ministry of the Economy. If licenses were given out where they shouldn't have been, there's fraud not only in the cities where that happened, but also there could have been fiscal fraud.
Bribery and corruption are pervasive in Mexico, where the justice system is weak and lower-level public sector workers earn relatively low salaries. A study last year by Transparency International showed that Mexican companies were perceived to be the third-most likely behind those in China and Russia to pay bribes abroad.
Still, the country has been taking steps to turn around this image and an anti-corruption law was recently passed by Mexico's lower house that would give the country new powers to fine companies for corruption.
A BMO Capital Markets analyst said in a research note that Wal-Mart's growth could be hurt both domestically and abroad by the bribery allegations. Articles like this will be used against the company by activists and competitors when it attempts to open stores in the U.S. and abroad.
Others said the share drop could actually provide a buying opportunity, given that Wal-Mart shares had been trading near a 52-week high on optimism over the recovery in its U.S. business. Options market activity also suggested a bullish bias on Wal-Mart stock.
Citigroup analysts said in a note that, after discussions with Wal-Mart, it believed that the retailer would conduct a thorough and transparent review and said any pressure on the stock was an enhanced buying opportunity.
The California State Teachers' Retirement System, which holds over 5.5 million shares of Wal-Mart Stores, will keep its exposure to the retail giant until it finds out what happened, CalSTRS's director of corporate governance, Anne Sheehan, told Reuters.
WALMEX RESULTS DISAPPOINT
Some hedge fund managers said Walmex was the more attractive target for short sellers.
Walmex said on Monday that it does not believe the allegations will hurt its business.
After the market close, Walmex's first-quarter earnings missed analysts' expectations. Executives on a pre-recorded call did not mention the bribery probe.
Walmex had been considered an extremely ethical company. It was a safe haven for investors.
Lawyers said Wal-Mart could face shareholder lawsuits accusing the company of securities fraud for having inflated its stock price by misleading investors about its FCPA compliance. Cosmetics maker Avon Products Inc faces similar lawsuits over its activities in China.
Wal-Mart executives and directors, like their Avon counterparts, could face "derivative" lawsuits accusing them of covering up or turning a blind eye to the alleged bribes.
These lawsuits seek to force executives, or their insurers, to pay money directly to Wal-Mart for breaching or ignoring their duties, and for the company to tighten internal controls.
Shareholders could also use the power of the ballot box. At Wal-Mart's June 1 annual meeting, they could vote out directors they deem responsible for allowing the bribery, including the four independent directors who comprise the audit committee.
Nearly 50 percent of Wal-Mart's shares are owned by the family of deceased founder, which may mute the power of other shareholders.
For more national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
Wednesday, September 29, 2010
Where Are All the Prosecutions From the Crisis?
NY Times
A consistent question since the financial crisis in 2008 is why has the federal government not prosecuted any senior executives for their roles in the collapse of firms like Lehman Brothers and Bear Stearns or the risky investments that led to bailouts of onetime financial giants like the American International Group, Fannie Mae and Freddie Mac. How can companies worth billions of dollars just a few months earlier suddenly collapse in 2008 without someone being held responsible?
At a hearing before the Senate Judiciary Committee last week, Senator Ted Kaufman of Delaware summed up the frustration on Capitol Hill with the lack of any identifiable villains for the financial troubles of the last two years. “We have seen very little in the way of senior officer or boardroom-level prosecutions of the people on Wall Street who brought this country to the brink of financial ruin,” Mr. Kaufman said. “Why is that?”
Judge Ellen Segal Huvelle of the Federal District Court in Washington expressed similar frustration with the settlement between the Securities and Exchange Commission and Citigroup over the bank’s misstatements in 2007 regarding its exposure to subprime mortgage-backed securities. In its complaint, the S.E.C. refers repeatedly to “senior management” receiving information about increased losses in its portfolio from problems with subprime mortgages, but none were named in its complaint.
Although Judge Huvelle largely approved the settlement, she was confounded by the S.E.C.’s failure to at least identify which Citigroup executives were aware of the information. The judge said that “this is where the S.E.C. is doing a disservice to the public” by not providing any more details, or even charging executives for misleading shareholders.
Judge Huvelle also questioned the deterrent impact of the $75 million penalty the company will pay, or the similarly modest $100,000 and $80,000 penalties imposed in a separate administrative proceeding on two Citigroup officers for their roles in the company’s disclosures. She pointed out that “$75 million will not deter anyone from doing anything,” and that “a $100,000 fine is not a deterrent in corporate America to do a better job.”
At the Senate hearing in which Senator Kaufman questioned the dearth of prosecutions of senior executives, Robert Khuzami, director of enforcement at the S.E.C., testified that his agency has been much more aggressive in pursuing cases against Wall Street. He cited as one example the securities fraud charges filed against Goldman Sachs in April that the firm later settled for $550 million.
Like the Citigroup matter, however, the Goldman case did not name anyone in the firm’s senior management as a defendant, with only a lower-level trader, Fabrice Tourre, sued in the complaint. And in both cases the settlements involved an alleged violation of Section 17(a) of the Securities Act of 1933, which is the lowest-level fraud charge the S.E.C. can bring because it only entails negligence rather than intentional conduct.
The bankruptcy examiner’s report filed by Anton R. Valukas about Lehman Brothers that questioned the firm’s reporting of the so-called “Repo 105” transactions may provide the groundwork for civil fraud charges against former executives of the investment bank. As I discussed in a previous post, the likelihood of criminal charges arising from Lehman’s conduct in the months before its collapse in September 2008 is small, so an S.E.C. case is probably the most serious proceeding that may be pursued, if that ever occurs.
The S.E.C. has already accused executives at Countrywide Financial with civil fraud charges for making misleading statements about the company’s mortgage risks, and also accused its former chief executive, Angelo R. Mozilo, of insider trading for making approximately $140 million in profits by selling shares in the company in the months before its near collapse. The trial in that case is set to begin on Oct. 19.
Even in the Countrywide case, civil fraud charges simply do not resonate with the public in the same way as criminal charges, in large part because a term of imprisonment cannot be imposed in an S.E.C. action and the stigma is not nearly as great. The same would be true if the S.E.C. files suit against Lehman executives — it is “only” civil, not a criminal prosecution, so even just the catharsis of an unseemly perp walk will not be available.
One possible reason for the lack of prosecutions involving senior executives is the Supreme Court’s ruling in Skilling v. United States, involving Jeffrey K. Skilling, the former chief executive of Enron, that limits the right of honest services provision, 18 U.S.C. § 1346, for criminal fraud prosecutions to just those cases involving bribes and kickbacks. It is now impossible to pursue cases against corporate executives for questionable conduct that involved some measure of dishonesty that caused harm to the company unless it also resulted in the person lining his or her own pocket.
The Senate Judiciary Committee will hold a hearing on Tuesday entitled “Restoring Key Tools to Combat Fraud and Corruption After the Supreme Court’s Skilling Decision.” It will be interesting to see whether the absence of any high-profile criminal prosecutions from the financial crisis will be cited as a reason for Congress to amend the honest services law to reach corporate misconduct that does not involve some form of personal benefit to the defendant. In the Skilling case, the Supreme Court questioned whether a crime involving only a breach of fiduciary duty could pass muster.
Even if Congress were to amend the honest services statute to reach a broader range of corporate misconduct, it would not apply to anything that happened back in 2008. Mr. Kaufman’s question is likely to remain unanswered for quite a while because prosecutors have not shown much interest, at least to this point, in pursuing criminal cases against executives of companies involved in the financial crisis.
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