Tuesday, July 31, 2007
The U.S. Attorney's Office for the Central District of California issued a press release of a plea in an export case where according to the information, the accused failed to secure the "required expert license to export vibration amplifiers, cable assemblies, and vibration processor units." The accused "was an international sales manager and was responsible for all exports at Endevco Corporation, an Orange County, California company that manufactures electronic sensors, vibration testing equipment, and other technology with both civilian and military applications. The information alleges that [the defendant] illegally exported a variety of sensitive items in 1999 and 2000 from the United States to Hindustan Aeronautics Limited (HAL), Engine Division, in Bangalore, India."
Plea Agreement -
Saturday, June 30, 2007
An English Magistrate rejected the request of the U.S. government to extradite Stanley Tollman to face bank fraud and tax evasion charges that he defrauded investors of over $100 million (opinion available below). The ground for denying the request was that the passage of time since the underlying criminal conduct would make it "unjust and oppressive" to extradite the defendant to face the charges. Among other things, the Magistrate noted that two important witnesses, one Tollman's brother, have died since the case was first indicted, and the underlying transactions took place in the early 1990s so documents may no longer be available. Interestingly, the Magistrate did not find that Tollman was a fugitive even though he left the U.S. while his lawyers were negotiating his surrender with prosecutors (see New York Times story here). The court noted that Tollman, a South African citizen, lived openly in Great Britain after the indictment. Therefore, his argument that the passage of time harmed his defense was not negated by his having been a fugitive.
While the court did not rest its decision specifically on the ground of prosecutorial misconduct, it found that the Assistant U.S. Attorney in the case had been less than honest in his dealings with foreign courts and his conduct "reprehensible." In one instance, the Magistrate determined that the prosecutor misled a Canadian court related to having Tollman's brother returned to the United States. The prosecutor was also alleged to have said that he would make Tollman's "life as miserable as possible" and would make his wife, who was also indicted, do a "perp walk" when she returned to New York -- the same Magistrate earlier turned down an extradition request for Mrs. Tollman. The prosecutor submitted an affidavit denying he made the statements, which the Magistrate found "to be untruthful." The English court sent a clear message that there was prosecutorial overreaching, a point that will not aid the Department of Justice if it appeals the decision. (ph)
The co-founder of NETeller PLC, which acted as a middleman to facilitate Americans placing bets with on-line gambling sites, entered a guilty plea to one count of conspiracy and is cooperating with the government investigation. The company did not take any bets itself, instead served as the conduit through which the money passed to the gambling concerns located off-shore and handled the proceeds of any pay-offs. The defendant was arrested in January 2007, along with the company's other founder, as part of a broad federal crackdown on internet gambling that caused the shares of a number of companies, most traded in London, to fall sharply. Federal law now prohibits virtually all internet gambling. A Reuters story (here) discusses the guilty plea. (ph)
Friday, June 8, 2007
The first hearing on the U.S. government's request to Namibia that it extradite Kobi Alexander is set to start on June 8 in Windhoek, the nation's capital. Alexander is the former CEO of Comverse Technology, and was indicted in August 2006 on securities fraud and conspiracy charges related to options backdating at the company. Comverse's former CFO and general counsel entered guilty pleas and are cooperating in the government's prosecution of Alexander, assuming it ever takes place in the Eastern District of Brooklyn where he was indicted. Alexander left the U.S. while the investigation heated up in July 2006 and then bobbed to the surface in Namibia a couple months later, where he moved with his family. He has begun investing in Namibia and spreading his largesse in the country. He has started a scholarship program for Namibian students, and billboards have appeared in Windhoek in the name of "Alexander Enterprises" stating "Yes to investment." At least they don't say "Let me stay and I'll give you money!" The extradition process promises to be slow, with appeals likely to take years if an extradition order is issued. A story from Globes (here) discusses the hearing and billboards. (ph)
Tuesday, May 29, 2007
Just when one thinks that the recent white collar sentences have been usually high (e.g. Ebbers, Skilling), one finds a comparison of a sentence given outside the United States. In this case, the sentence is death, and the place is China. According to an article on Yahoo.com (AP), a drug regulator in China has been sentenced to death for allegedly taking "bribes to approve substandard medicines." Arguably one could say that this is not a white collar crime case, despite it being bribery, as the report states that deaths resulted from the alleged activity.
Monday, May 21, 2007
Canadian pharmaceutical company Biovail Corp. and its former CEO have been running into a bit of trouble with securities regulators in the U.S. and Canada recently. On May 14, the company disclosed (here) that the SEC had sent a Wells Notice that the Enforcement Division staff intends to seek authorization from the Commission to file a civil action related to accounting problems. According to Biovail's 6-K (foreign Issuer) filing:
On May 14, 2007, the Company issued a press release acknowledging that it had received a "Wells Notice" from the staff of the SEC alleging violations of federal securities laws. The notice relates to the staff's investigation of the Company's accounting and disclosure practices for the fiscal year 2003 and certain transactions associated with a corporate entity acquired by the Company in 2002, as described above. These issues include whether the Company improperly recognized revenue and expenses for accounting purposes in relation to its financial statements in certain periods, disclosure related to those statements, and whether the Company provided misleading disclosure concerning the reasons for Biovail's forecast of a revenue shortfall in respect of the three-month period ending September 30, 2003. Under the Wells process established by the SEC, the Company has the opportunity to respond to the "Wells Notice" before the staff makes a formal recommendation regarding what action, if any, should be brought against the Company by the SEC. The Company continues to cooperate with the SEC. The Company cannot predict either the outcome or the timing of when this matter may be resolved.
Biovail noted that it had agreed to toll the five-year statute of limitations until July 31, 2007. Along with the potential civil charges comes a bit more ominous disclosure about a criminal investigation: "Recently, the Company was contacted by the United States Attorney's Office for the Eastern District of New York ("EDNY"), who informed the Company that they were conducting an investigation into the same matters that the SEC is investigating. The EDNY has also recently requested interviews of several Biovail employees. The Company intends to cooperate with the investigation. The Company cannot predict the outcome or timing of when this matter may be resolved."
Biovail's former CEO and chairman of the board, Eugene Melnyk, agreed to an administrative settlement with the Ontario Securities Commission (here) on May 18, 2007, regarding trading in company shares through four trusts set up by Melnyk in the Cayman Islands during a time when Biovail executives were not permitted to trade. The company's shares are listed on the Toronto Stock Exchange, and the settlement with the OSC requires Melnyk to pay $1 million (Cdn.) in a penalty and costs, and imposes a one-year ban on serving on the board of directors of a publicly-traded company. Melnyk resigned as Biovail's CEO in 2004, and announced recently his retirement from the board as of June 30.
If it's any consolation for Melnyk, the NHL team he owns, the Ottawa Senators, made the Stanley Cup finals for the first time in the history of this iteration of the Senators, overcoming years of underachievement in the playoffs. Getting your name on what is probably the most famous trophy in professional sports can make a lot of bad thoughts disappear. (ph)
Wednesday, May 2, 2007
The resignation of BP p.l.c. CEO Lord John Browne included his admission that he made a false statement to a British court in order to obtain an injunction preventing the publication of an embarrassing story about a personal relationship. In a statement (here) acknowledging the relationship, Lord Browne stated, "My initial witness statements, however, contained an untruthful account about how I first met Jeff. This account, prompted by my embarrassment and shock at the revelations, is a matter of deep regret. It was retracted and corrected. I have apologised unreservedly, and do so again today." He denied allegations that he allowed the person to use company resources, and BP's chairman stated that "[a]t John's explicit request, the Board instigated a review of the evidence. That review concluded that the allegations of misuse of company assets and resources were unfounded or insubstantive." I'm not sure what "insubstantive" means, although perhaps the point is the amount is insignificant and so should not be a concern to shareholders. The problem for the company is that related-party transactions must be disclosed, and any misuse of corporate resources can be a significant concern for regulators.
The British tabloid that broke the story, The Mail on Sunday, issued a statement (here) assailing Lord Browne: "That Lord Browne should have felt free to lie deliberately and repeatedly raises deeply worrying questions about the system of secret court hearings which is increasingly being used by the rich and powerful to prevent the public knowing the truth about their activities." The paper said it would make its evidence available to the Attorney-General for possible prosecution for perjury. The governing statute is the Perjury Act of 1911, which makes it a crime for a witness in a judicial proceeding to "make a statement material in that proceeding, which he knows to be false or does not believe to be true . . . ." That provision is similar to the federal perjury statute in 18 U.S.C. Sec 1621, which makes it a crime to testify about a matter "which he does not believe to be true." Lord Browne's explanation for making the false statement does not negate the intent for perjury, because a violation is based on knowledge of the falsity of the statement, not that the witness had a good explanation for lying. That said, Lord Browne is a highly-regarded business person, and the underlying story has at best a tenuous connection to BP's business, so it may be one prosecutors decide to pass on. (ph)
Wednesday, April 11, 2007
It started as a major conspiracy case, but ended with the defendant receiving probation after a plea to a charge of lying to a federal officer under 18 U.S.C. s 1001.
The accused had been the subject of a FISA warrant and the charges in the SDNY were initially violating the International Emergency Economic Powers Act (IEEPA) and in D.Conn. he was charged with acting as an agent of the Chinese government. The Hartford Courant notes that the accused "originally was accused of conspiring with Chinese officials to sell $27 million in telecommunications equipment to the Iraq government from 1999 to 2001." But in the end all that happened was the accused pleading guilty to this single charge and receiving probation. Attorney Ross Garber represented the accused. The prosecuter being quoted in the Hartford Courant is Kevin O'Connor, the U.S. Attorney in Connecticut and AG Alberto Gonzales' new chief of staff.
Tuesday, April 3, 2007
Two from South Carolina were indicted as part of a "15-count indictment, which was returned by a federal grand jury in the District of Columbia and unsealed on March 23, [that] charges the defendants with violating the International Emergency Economic Powers Act and the Arms Export Control Act and with acting as illegal agents of a foreign government." Two individuals from India was also indicted. The DOJ Press Release states that without proper export licenses:
"the defendants acquired in the United States for VSSC and BDL electrical components that could have applications in missile guidance and firing systems. According to the indictment, the defendants concealed from vendors the true end-users of the goods. In particular, the indictment alleges how, in the case of one vendor, Cirrus provided the company with fraudulent certificates that claimed that the end-user in India was a non-restricted entity, when, in fact, the items were for VSSC."
Sunday, April 1, 2007
Monday, March 5, 2007
A press release of the US Attorney's Office for the Central District of California reports that "[a] federal grand jury in Los Angeles has indicted two attorneys with one of the West Coast's largest immigration law firms on charges of filing fraudulent employment visa applications on behalf of foreign nationals, including some of the law firm's own workers." The two attorneys were charged with 33 counts including charges of "visa fraud, making false statements and conspiring to commit visa fraud." Others in this law firm had previously plead guilty.
Friday, February 23, 2007
Just in time for the end of Carnival, two Brazilians settled an SEC insider trading civil suit arising from purchases in the target of an impending tender offer. The defendants are Luiz Gonzaga Murat was the chief financial officer and investor relations director at Sadia S.A., a Sao Paulo frozen food company, and Alexandre Ponzio De Azevedo, who formerly worked for ABN AMRO's Brazilian affiliate. Sadia planned a tender offer for Perdigão S.A., another Brazilian company, and ABN AMRO's investment banking unit advised on the deal. According to the SEC's Litigation Release (here):
[O]n April 7, 2006, representatives of an investment bank met with Murat and another Sadia executive to propose that Sadia make a tender offer for Perdigão. According to the complaint, Murat proceeded to purchase American Depositary Shares ("ADSs") of Perdigão both later the same day and subsequently on June 29, 2006, on the basis of material, nonpublic information concerning the proposed acquisition, and in breach of a duty of trust and confidence he owed to Sadia. The complaint alleges that Murat's holdings totaled 45,900 ADSs of Perdigão by the time Sadia announced the tender offer. On July 17, 2006, the price of Perdigão ADSs increased to $24.50, up $4.25 (21%) from the previous closing price. According to the complaint, Murat had imputed illicit profits of $180,404 from his unlawful trading.
The Commission's complaint against Azevedo alleges that he learned of the possible tender offer on April 11, 2006, in his capacity as an employee of ABN AMRO assigned to the tender offer financing team, and that ABN AMRO later placed Perdigão on a list of securities in which ABN AMRO employees could not trade. According to the complaint, Azevedo subsequently purchased 14,000 ADSs of Perdigão on June 20, 2006, on the basis of material, nonpublic information concerning the proposed acquisition, and in breach of a duty of trust and confidence he owed to ABN AMRO. Azevedo sold 10,500 ADSs on July 17, 2006, one day after Sadia had publicly announced its tender offer for Perdigão. According to the complaint, Azevedo realized illicit profits of $52,290 on the 10,500 ADSs he sold on July 17 and had imputed profits of $14,875 on his remaining 3,500 ADSs.
Murat agreed to pay $184,028 in disgorgement and a civil penalty of $180,404, while Azevedo will pay $68,215.45 and a civil penalty of $67,165.
An interesting aspect of the case is that neither defendant ever set foot in the United States in connection with the transaction, and none of their trading involved an American company or even any communications that passed through the U.S. The jurisdictional hook is the securities of each company, which are traded on the New York Stock Exchange as ADS. Under Section 10(b) of the Securities Exchange Act, the general antifraud prohibition applies to any person who "directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange . . . ." The fact that the securities of the target trade on the NYSE brings the case under the Act, although it is a fair question whether conduct wholly outside the United States with only a tangential connection to this country should be subject to a civil enforcement action by the SEC. The trades were placed in Brazil, and the companies were incorporated and operated there, but the transaction ultimately occurred in New York, bringing it into the SEC's cross-hairs. The case shows the long arm of the insider trading prohibition. (ph)
Sunday, January 28, 2007
The sentences for two individuals who plead guilty to a 3 count indictment that related to polluting navigable waters were: 1) 5 months in prison and 2 months supervised release and 2) 3 years probation. Both individuals had restrictions placed upon them to preclude them from polluting U.S. waters. According to the DOJ press release,
"A joint factual statement filed in federal district court in New Jersey stated that on the night of Jan. 3, 2006, U.S. Coast Guard inspectors boarded the Sun New and discovered that members of the engine room crew had used bypass hoses to discharge oily wastes overboard into the ocean without using the vessel’s oily water separator. Upon further investigation, inspectors discovered that the crew of the Sun New had disposed of significant amounts of oil waste into the ocean at least twice during the voyage from South Korea to New Jersey. In September a grand jury in Newark, N.J., returned a three-count indictment charging Chang-Sig O and Mun Sig Wang with conspiracy, obstruction of justice, and a violation of the Act to Prevent Pollution from Ships in connection with the use of the two bypass hoses."
It is interesting to see the sentences given with respect to an environmental offense, albeit an obstruction of justice charge in one case and a violation of the Act to Prevent Pollution from Ships in the other case. Perhaps the greatest deterrent in this sentence was their restrictions on operating ships in U.S. navigable waters. The company, Sun Ace Shipping Company, had previously plead guilty and was "fined $400,000 [and] ordered to pat $100,000 as a community service payment. They were prohibited from "returning to the U.S. for three years for similar violations in conjunction with this case."
Sunday, December 17, 2006
Identity Theft is clearly a national problem. And when one thinks of the problem, computer fraud or credit card schemes come to mind. But DOJ has a new category to add to the list - immigration violations. The Washington Post reports in an article by Spencer Hsu and Krissah Williams that federal authorities arrested hundreds of people on identity theft charges for what in fact appears to be allegations of immigration violations.
It is nothing new for prosecutors to use a charge that may not have initially been intended for the purpose it is now being used. Years ago, one saw tax offenses used to prosecute organized crime and corruption matters. Recently, money laundering charges have been tacked onto white collar crimes. So I guess, it should not be surprising to see identity theft being pulled from the hat for alleged immigration violations.
Friday, December 15, 2006
The U.S Attorney's Office for the Northern District of California announced the first two convictions under 18 U.S.C. Sec.1831 for foreign economic espionage in a case that began with an arrest back in 2001. According to a press release (here):
Fei Ye and Ming Zhong pleaded guilty today to two counts each of economic espionage. Ming and Zhong were arrested at the San Francisco International Airport on November 23, 2001, with stolen trade secret information in their luggage while attempting to board an aircraft bound for China. The defendants today admitted to possessing stolen trade secrets from Sun Microsystems, Inc. and Transmeta Corporation with the intent to benefit the Peoples Republic of China.
Mr. Ye and Mr. Zhong today admitted that they intended to utilize the trade secrets in designing a computer microprocessor that was to be manufactured and marketed by a company that they had established, known as Supervision, Inc. In pleading guilty, Mr. Ye and Mr. Zhong admitted that Supervision was to have provided a share of any profits made on sales of chips to the City of Hangzhou and the Province of Zhejiang in China, from which Supervision was to receive funding. Mr. Ye and Mr. Zhong further admitted that their company had applied for funding from the National High Technology Research and Development Program of China, commonly known as the “863 Program.”
Federal prosecutors in the Northern District of California also announced a superseding indictment in another Sec. 1831 case. According to a press release (here), the defendant was "charged with stealing military combat and commercial simulation software and other materials from his former employer Quantum3D, a company based in San Jose, California. The economic espionage charges allege that Meng, formerly a resident of Beijing, China, and a resident of Cupertino, California, stole the trade secrets from Quantum3D with the intent that they would be used to benefit the foreign governments of China, Thailand, and Malaysia." (ph)
Saturday, November 25, 2006
While our primary focus is on the United States, instances of white collar crime can occur anywhere money flows and businesses fight for a competitive advantage. A Wall Street Journal article (here) discusses pending investigations in Germany of Siemens AG and Daimler-Chrysler AG related to potentially illegal payments. The Siemens investigation involves a fraud that involving over $200 million, and German police searched a number of the company's offices and seized over 36,000 documents. Searches are becoming more common in U.S. white collar crime investigations, although the German authorities also arrested six employees, something that tends not to happen here until charges have been filed. As one would expect to hear in an American corporate crime investigation, Siemens stated that it is cooperating with investigators. The Daimler-Chrysler case involves possible violations of the FCPA for bribes paid from allegedly secret bank accounts.
An AP story (here) discusses a report issued by China's National Audit Office that over $900 million in government pension funds have been misused or stolen. China is reputed to impose severe penalties for corruption, including the possibility of a death sentence, which is a bit more extreme than the punishments imposed in the U.S. and elsewhere. (ph)
Monday, November 20, 2006
Playing in the international market can have severe ramifications for a company. Not only must they fear the US Foreign Corrupt Practices Act (FCPA), but they also have to be apprised of the law of other countries and be knowledgeable of how best to operate in these countries. And it is not always easy.
It is, therefore, not surprising to see that that Lone Star Funds is having some difficulty with South Korean prosecutors. According to the Wall Street Jrl here, they have indicted the "Dallas private-equity firm Lone Star Funds and Korea Exchange Bank on stock-manipulation charges related to the bank's credit-card unit." And it sounds like this investigation opens up an array of accusations. The Korean Herald reports here on allegations related to a judge's failure to grant an arrest warrant in 2004 for an executive of Lone Star. Part of the question here will be whether this whole investigation really is anything new from what had previously been looked at in 2004.
Wednesday, November 1, 2006
Sony Corporation's US subsidiary, Sony Electronics Inc. stated in a corporate press release to investors here that they had "received a subpoena from the U.S. Department of Justice (DOJ) Antitrust Division seeking information about its static random access memory (SRAM) business." The company stated that it intended to cooperate with the government in its investigation.
Martin Fackler of the NYTimes reports here some background on this investigation including how four other companies have come under investigation related to SRAM business. SRAM stands for Static Random Access Memory. (See Wikepdia here)
The Wall Street Jrl reports on the raid of offices of Samsung in Germany by EU Investigators. (see here) This investigation also appears to be related to SRAM chips.
Thursday, October 26, 2006
The fallout from the collapse of futures-trading firm Refco in October 2005 has hit in Austria, where prosecutors in Vienna charged nine individuals for their role in transactions between Refco and Austrian bank Bank Fuer Arbeit und Wirtschaft AG (BAWAG) that led to large losses at the bank. BAWAG lent former Refco CEO Phillip Bennett over $400 million right before Refco's collapse, which he used to repay debts owed to Refco that were not properly accounted for by the firm. It turns out BAWAG had significant losses on trading by Wolfgang Floettl, son of a former CEO of BAWAG, in Refco accounts. The charges include embezzlement, fraud, and false entries in the bank's books, and the defendants include Floettl, two former chief executives, and an auditor from KPMG's Austrian branch. An AP story (here) discusses the charges.
Back in the U.S., federal prosecutors said in court that a new indictment will be filed in the next two weeks in prosecution of Refco executives, which comes on top of a new indictment on October 24. Bennett and former Refco CFO Robert Trosten both entered not guilty pleas to the most recent indictment, and it's not clear whether the new indictment will include additional defendants. Given the speed with which Refco collapsed, less than a week, it is not surprising that the investigation has taken time to sort out how it's demise occurred so quickly. The quick filing of charges against Bennett in November 2005 has meant that prosecutors will have to deal with an increasingly exasperated judge who wants the case pushed along, according to a New York Post story (here). (ph)