Archive for the ‘Uncategorized’ Category

It is no Madoff Ponzi but It is bad enough: SEC on the ball in stopping a Ponzi scheme

Sunday, March 7th, 2010

This type of scheme is not unique or novel in any way. It has been happening, and undoubtedly is currently happening, for decades and probably centuries. This particular scheme targeted Los Angeles bus drivers on the verge of or just about to retire. The alleged fraudsters apparently convinced bus drivers to take lump sum retirement benefits and entrust them to the alleged fraudsters.
The Savage Law Firm had dealt with victimes of this type of scheme before and unfortunately probably will again.
Kudos to the SEC for stopping this before it got too large, but these schemes are difficult to detect unless an investor or potential investor alerts a law firm and/or the SEC or other governmental organization to look into it.

In this case the alleged fraudsters were telling investors that they were investing in promissory notes supposedly issued by two companies, both owned by the alleged fraudsters – a fact not disclosed to victims. Instead, the alleged fraudsters simply used new investor money to pay interest to existing investors.

SEC Settles Tyco Fraud Case

Thursday, February 25th, 2010

L. Dennis Kozlowski and Mark H. Swartz have been in jail since 2005, but were not officially prevented from engaging in their business after committing accounting fraud. The SEC final judgments against Kozlowski (former CEO of Tyco) and Swartz (former CFO). The judgements bar the men from serving as directors of public companies.

Sarah N. Lynch reports:

“The judgments bar the men for life from serving as a director of a public company and enjoin them from violating securities laws. The SEC had accused them in its civil case of failing to disclose hundreds of millions in executive indebtedness and executive compensation.

They were convicted for their roles in the criminal case and sentenced to serve terms [of various lengths]. They also paid $134 million in restitution to Tyco and criminal fines of $70 million and $35 million, respectively.

The final settlements are still subject to approval by a federal New York judge.”

SEC is just jumping right into these things, huh?  Part of the problem is that soo many of these scams/failures can be detected long before they blow up.  The SEC needs to get more aggressive in their approach.

For more on the story click here.

SEC Proposes Several New Measures Aimed at Increasing Corporate Accountability and Improving Investor Confidence

Thursday, February 25th, 2010

On July 1st, the SEC voted on several new measures that were aimed primarily to increase investor confidence by providing investors with tools to increase corporate accountability. First, the commission approved a measure that requires a shareholder vote on executive pay in proxy solicitations involving companies that receive money from the Troubled Asset Relief Program (TARP).  The Commission also voted to propose a measure requiring public companies  better disclosure of executive pay in their proxy statements. A New York Stock Exchange rule was changed as well, as the SEC now prohibits brokers from voting proxies in corporate elections without customer input.

These types of programs are all well and good but a fundamental issue remains and that is the SEC actually taking action against the fraudsters in the industry.  Until the SEC starts using the tools it has to catch the fraudsters, even the very obvious ones (for example: Madoff), investor confidence will remain lower than it could and should be.

For more information on this story ,click here.

Madoff Fallout: SEC Charges Madoff Solicitors and Feeder with Fraud

Thursday, February 25th, 2010

A New York broker-dealer and four other individuals were charged with securities fraud by the SEC. It was alleged that they collectively raised billions of dollars illegally from investors to feed Bernie Madoff’s Ponzi scheme.

The legal complaint filed in a Southern District of New York U.S District Court lists the Cohmad Securities Corporation of being at fault. Chairman Maurice J. Cohn, COO Marcia B. Cohn, and representative Robert M. Jaffe were charged of marketing investment with Madoff without regarding the illegality of his Ponzi scheme. The same court filed a complaint against Stanley Chais, an investment adviser who handled three funds valued nearly at 1 billion dollars that were totally invested with Madoff.

Robert Khuzami, Director of the SEC’s Division of Enforcement, noted that:

“Madoff cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors..In fact, he needed a constant in-flow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them.”

The Cohmad defendants were indicted for fraud due to their peculiar apathy towards Madoff’s suspicious activities. For example the Cohns filed Forms BD and FOCUS reports that were falsified to hide Cohmad’s business of attracting investors to Bernard L. Madoff Investment Securities LLC  (BMIS). The referral business was 90 percent of Cohmad’s revenue bringing in over 800 accounts and billions of dollars for BMIS. BMIS paid 100 million for Cohmad’s referral services. The compensation arraignment between the two entities created fraudulent conduct as well, with clients unable to withdraw money from accounts with false account statements.

Jaffe, the registered representative at Cohmad, brought in more than 1 billion into BMIS. Jaffe though he was getting overcompensated by Madoff when really BMIS employees were taking money out of Jaffe’s BMIS account.

Chais’s charges centered around his false role in managing the funds and for distributing false account statements. Chais built himself up as a qualified investor managing hundreds of millions of dollars worth of money with three partnerships. But Chais only sent them money out of one of his partnerships to BMIS and then proceeded to charge that partnership for his “service.”  Chais apparently also ignored blatant inconsistencies with Madoff’s reported returns, and even encouraged them.

The article is linked here.