Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

On Thursday, the U.S. District  Court for the Northern District of Georgia issued an order freezing the assets of SJK Investment Management, an investment advisor firm, as well as the assets of SJK's Chief Executive Officer Stanley Kowalewski, in an action by the Securities and Exchange Commission against SJK which sought an emergency freeze of the assets, according to a press release by Courthouse News Service. The SEC claims in its complaint, filed on Thursday, that SJK allegedly defrauded investors in two hedge funds worth approximately $65 million. Mr. Kowalewski is alleged to have placed $16.5 million of the funds into a separate account which he allegedly used for personal uses. Government officials claim that Kowalewski allegedly paid himself $1 million for personal and business expenses, charged an alleged $4 million "administrative fee" which he allegedly took as a salary draw, and allegedly lived rent free in a home that he caused the fund to purchase. SJK is also alleged to have sent investors false account statements showing fictitious returns on their investments, according to the complaint.  The complaint seeks permanent injunctions, penalties, disgorgement of profits and a ruling to bar Mr. Kowalewski from the financial industry.
 

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As reported in the Salt Lake Tribune, Thomas Repke of Holladay, Nevada, has been indicted in the U.S. District Court for the Northern District of Georgia on 22 counts of conspiracy, mail fraud and wire fraud. The charges are based on allegations that Mr. Repke, through the companies Coadum Capital and Mansell Acquisition Co., allegedly defrauded more than 100 investors of more than $30 million. Mr. Repke and James Jeffrey, a Canadian citizen, are alleged to have promised investors monthly returns of 5 percent on their investments. The indictment charges that Mr. Repke and Mr. Jeffrey promised investors that their money would be kept safe in escrow accounts, but allegedly transferred $20 million in investor funds to accounts in Switzerland and Malta, as well as allegedly diverting substantial funds to themselves, companies which they controlled and investments of family members. The defendants are alleged to have made false statements to investors about their monthly gains and account balances and to have used funds from investors to pay off other investors in what a Ponzi scheme.

Mr. Repke's and Mr. Jeffrey's uses of investor funds do not appear to have been totally selfish, however. Coadum is alleged to have used $425,000 of the funds to commission a 40-foot bronze statue of New York City firefighters for the National Fallen Firefighters Foundation for a memorial to September 11, 2001. Furthermore, in a novel twist, comments by Pat Huddleston, a receiver appointed to oversee companies operated by Mr. Repke and Mr. Jeffries, indicates that the two men might have been victims themselves, deceived by individuals in Europe who they dealt with. "My investigation shows they were conned out of that money," Huddleston stated. "They might have believed they were making legitimate investments over there, but the person was essentially conning them."

Mr. Repke pleaded not guilty to the charges yesterday and was released on a $250,000 bond. The U.S.Securities and Exchange Commission has also sued Mr. Repke and Mr. Jeffrey.

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Ashby Jones of the Wall Street Journal Law Blog writes today that Firearms manufacturer Smith & Wesson is being investigated by the U.S. Department of Justice for alleged violations of the Foreign Corrupt Practices Act (FCPA). The company disclosed the investigation and potential future criminal indictments of the company and its officers and employees to investors in filings with the U.S. Securities and Exchange Commission. Smith & Wesson also acknowledged that it could face debarment by the U.S. State Department. The investigation is related to an FCPA sting operation which resulted in the indictment of 22 individuals in the arms industry.

According to Law.com, Stuart Rosenfeldt, of Rothstein Rosenfeldt Adler--as in Scott Rothstein, the convicted $1.2 billion Ponzi schemer--was deposed last week by the law firm's bankruptcy trustee concerning his law firm's finances and political contributions. Rosenfeldt repeatedly invoked his Fifth Amendment privilege against self-incrimination in response to many of the questions. Rosenfeldt stated that he never looked at the firm's books. Also, when asked about groups which he made donations to, such as Common Sense Coalition and Broward Coalition for Truth, Rosenfeldt denied being familiar with the groups or what they stood for. Rosenfeldt's attorney has stated the U.S. Attorney's Office for the Southern District of Florida is investigating Rosenfeldt's contributions.

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Eddie Ray Kahn, Stephen C. Hunter, Danny True and Allan J. Tanguay, who operated American Rights Litigators/Guiding Light of God Ministries (ARL), were about making money. Specifically--making over $1 billion in false bills of exchange which purported to be drawn on the U.S. Treasury. A jury in the U.S. District Court for the District of Columbia convicted Florida residents Kahn, Hunter, True and Tanguay of conspiracy to defraud the United States and to commit mail fraud yesterday following an 18-day trial, according to a Department of Justice press release. Khan, the head of ARL, had previously gained notoriety for giving false tax advice to actor Wesley Snipes, who was found guilty of failure to file tax returns in February of 2008.

The government alleged that, from 1996 through 2004, the defendants, through ARL, enrolled more than 4,000 customers nationwide in tax defiance schemes based on deliberate misrepresentations of the legal foundation of the tax system. The defendants were alleged to have manufactured and sold more than 1,000 phony bills of exchange which were sent to the Treasury Inspector General for Tax Administration in Washington for payment of taxes. The defendants also allegedly continued to submit false and obstructionist correspondence to the Internal Revenue Service even after a preliminary injunction was entered in December of 2003 directing the defendants to stop engaging in their schemes.

Image courtesy of www.msnbc.msn.com/id/22955757/

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 As reported in the Wall Street Journal and virtually everywhere else, Morgan Stanley has joined Goldman Sachs as the latest target of the federal government's criminal investigation of financial firms relating to the financial crisis which began in 2007, under the government's theory of criminality of failing to disclose to investors that the firms were "betting" on the failure of certain collateralized debt obligations, or CDOs. According to Federal prosecutors, Morgan Stanley designed CDOs, while at the same time Morgan Stanley's trading desk allegedly placed bets that their value would decrease. Similar to the government's investigation of Goldman Sachs, the investigation, headed by the U.S. Attorney's Office for the Southern District of New York, is focusing on whether Morgan Stanley made proper representations to investors about its role.

The investigation has focused in particular on two investments created in 2006, named after former U.S. Presidents James Buchanan and Andrew Jackson, known as the "Dead Presidents" deals by traders. Each deal issued approximately $200 million in bonds. Morgan Stanley did not market the deals to customers--the Jackson deal was underwritten and marketed by Citigroup and the Buchanan deal was underwritten and marketed by UBS AG. Citigroup has stated that it is cooperating with the government in the investigation.

However, as in the investigation of Goldman, prosecutors face an uphill climb against numerous obstacles and defenses. Morgan Stanley did make money on its "Dead Presidents" deals, however it lost $9 billion overall on mortgage-backed securities in 2007. Morgan Stanley has informed the media that it did not mislead investors, and that it has examined the "Dead Presidents" transactions and that it does not believe that the investigation has any substance. The allegations are based on documents which Morgan Stanley voluntarily provided to the U.S. Securities and Exchange Commission in response to a subpoena. 

Both the Goldman and Morgan Stanley criminal investigations were the result of a civil fraud investigation of a dozen Wall Street firms begun by the SEC in 2009. Analysts have stated that all Wall Street investment banks have been receiving subpoenas about CDOs and CDO marketing. The SEC has been inquiring with firms regarding whether any of their clients were betting against CDOs.

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Goldman Sachs alleged securities fraud and role in the financial collapse has dominated the news this week, as reported by ABC News, NBC news and Bloomberg. It is difficult to evaluate the evidence against or supporting Goldman at this stage, but Goldman's fortunes were not helped by an inquisitorial and highly publicized hearing by the Senate Permanent Subcommittee on Investigations. The Subcommittee scheduled the hearing less than two weeks after the U.S. Securities and Exchange Commission filed a complaint against Goldman alleging that the firm committed securities fraud.

Goldman officers and employees testified that Goldman was managing its risk on individual transactions, and not betting against the future of the housing market. Six Goldman officers and employees, including its Chief Executive, Lloyd Blankfein, were summoned to testify. Senators asked the witnesses to look through binders of evidence containing internal e-mails and communications.

Goldman defended that the Subcommittee had reached its conclusions before the hearing. The firm also released documents showing that any gains it made from short sales of mortgage backed securities in 2007 were entirely erased by its losses when higher quality mortgages failed in 2008. Goldman's representatives pointed out that the firm had no special advance knowledge that the market would collapse.

The Senators asked Mr. Blankfein if it was morally correct to sell securities to clients while betting against the securities at the same time. Mr. Blankfein promised Goldman would "tighten up" the practices subject to criticism. Michigan Democratic Senator Carl Levin scolded Mr. Blankfein for Goldman selling securities, allegedly described by Goldman's own employees as "crap," and betting against them. Mr. Blankfein told the Committee that it was not Goldman's responsibility to tell its clients how to trade or invest. Blankfein had testified in January before the Financial Crisis Inquiry Commission led by former California Treasurer Phil Angelides.

In an e-mail from November 18, 2007, Blankfein allegedly stated to a colleague that Goldman was making more money from short bets on mortgages than it had lost on its investments in home loans. However, Blankfein also states in the same e-mail that Goldman did not dodge the mortgage crisis, and noted that the crisis was not over. Another document discussed during the hearing was an e-mail between Goldman's Chief Financial Officer, David Viniar, and its President and Chief Operating Officer, Gary Cohn, regarding a profit and loss statement from July 2007 and short sales of stock by Goldman.

Goldman's mortgage chief Dan Sparks admitted in his testimony that Goldman made poor decisions in hindsight.

The Senators frequently interrupted witnesses. Their questioning was also not confined to the allegations of the SEC's complaint. Senator Levin seized on an e-mail between the head of Goldman's mortgage desk, Thomas Montag, and Sparks, in which Montag called a set of mortgage linked investments "one shitty deal." Republican Senator Tom Coburn criticized Goldman for making Goldman bond trader Fabrice Tourre a "whipping boy" and releasing his personal e-mails. In response to Goldman's contention that the Committee had cherry picked its evidence, Senator Levin retorted that the evidence was the "whole bowl of cherries," and reflected the history of what happened.

Tourre also tesfied and asserted his innocence, claiming that he did not mislead any parties in dealings relating to a collateralized debt obligation which he helped to develop. He told the panel that he would defend himself in court against the "false" allegations.

Protestors attending the hearing wore striped prison uniforms and held signs stating "shame" and "Goldman banksters," recalling a term coined by Ferdinand Pecora, an Assistant District Attorney appointed by the Senate to head the Pecora Commission which investigated the causes of the 1929 stock market crash.

Goldman received $10 billion in stimulus money from the federal government following the financial collapse. It repaid the monies with interest eight months later.

It will be interesting to see if the SEC or the Subcommittee--coincidentally the same panel led by Wisconsin Republican Senator Joseph McCarthy in the 1950s--has any more damning evidence up its sleeve. In the meantime, in happier news for Goldman, shares in the company have risen from a low of $152 per share on April 26, to $160 in current trading.

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Since last year, we've followed the government's investigation and prosecution of Texan and Antiguan financier Sir Robert Allen Stanford for allegedly defrauding investors of billions in a Ponzi scheme. Well, as set forth in a 150 page Report of Investigation by the U.S. Securities and Exchange Commission Office of the Inspector General (OIG), the SEC has been following Stanford and his companies for much, much longer. OIG made the Report public yesterday. The Report reveals a stunning pattern of lack of diligence in SEC enforcement.

Stanford's investment advisor registered with the SEC in 1995. By 1997, the SEC's Fort Worth Office Examination Group had conducted an examination and concluded that the CDs Stanford and his companies were marketing were most likely a Ponzi scheme and that Stanford was allegedly engaging in fraud. However, despite the fact that the 1997 examination concluded that Stanford was likely engaging in a Ponzi scheme and referred the matter to the Fort Worth Office Enforcement Office, Enforcement staff did not open an investigation, or "matter under inquiry" (MUI), until May 1998. Enforcement sent Stanford Group Company (SGC) a voluntary request for documents. SGC refused to provide many of the requested documents, and the MUI was closed in August 1998.

The Examination Group conducted another examination of Stanford in 1998, and again concluded that the investments being offered by Stanford were highly suspicious. However, Enforcement staff did not listen to the Examination Group or review its report in deciding to close the investigation of Stanford and his companies.

A third examination of SGC was conducted in 2002 and once again concluded that the consistent above-market returns claimed by SGC were highly unlikely to be legitimate investments. The SEC again did not follow up on the examination, despite receiving conflicting representations from SGC regarding its due diligence and a growing number of complaints from outside entities confirming their suspicions.

In October of 2003, the SEC received a letter from the National Association of Securities Dealers (NASD) stating that Stanford's companies were engaged in an alleged massive Ponzi scheme. The Examination Group was asked to conduct a fourth investigation, which it did in October 2004. The investigation concluded that the CDs were part of "a very large Ponzi scheme." However, in March of 2005, senior Enforcement officials in Fort Worth learned of the Examination Group's fourth examination of Stanford and told them that "[Stanford] was not something they were interested in.”

Shortly thereafter, the head of Enforcement for the Fort Worth Office stepped down. The former head later sought to represent Stanford himself in proceedings by the SEC, despite the fact that he was involved in quashing the investigation of Stanford and his companies.

Enforcement sent Stanford International Bank (SIB) a second voluntary request for documents in August 2005. SIB refused to produce the requested documents. In November of 2005, Enforcement again closed its investigation of Stanford and his companies.

After the exposure of the Ponzi scheme of Bernard Madoff in December 2008, the SEC began to receive complaints regarding the fact that it had allowed Stanford and his companies to continue to engage in a Ponzi scheme. The SEC finally shut down Stanford's companies and froze their assets in February 2009. In October of 2009, Senator David Vitter and Senator Richard Shelby wrote a letter to the SEC asking it to conduct a comprehensive inquiry into its investigation and handling of the Stanford matter.

The OIG Report found that Enforcement staff were reluctant to pursue cases which were novel or complex, preferring to focus on cases which were "quick hits" or "slam dunks." The Report notes that, in the 12 years between the time that the SEC first gained knowledge that Stanford and his companies might be engaging in a Ponzi scheme and the time that the SEC took action to freeze their assets, investments in Stanford's CDs grew from $250 million to $1.5 billion. A survey was taken of investors in Stanford's scheme with 95% responding that knowledge of an inquiry by the SEC would have affected their decision to invest.

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Today's Wall Street Journal Law Blog reveals that Dallas Mavericks owner, Landmark Theaters owner and Chairman of HDNet Mark Cuban has gone on the offensive against the Securities and Exchange Commission. The SEC made widely publicized charges against Mr. Cuban for insider trading in selling shares of Mamma.com, an internet search technology company now known as Copernic, in 2008. Mr. Cuban disputed the charges, and a federal court dismissed the charges last year.

Not satisfied, Mr. Cuban demanded evidence regarding whether the SEC had acted in in bad faith in bringing the charges, and the SEC provided documents to his counsel. Now Mr. Cuban is attempting to force the SEC to turn over still more documents. If the court holds that the SEC acted in bad faith, it could impose sanctions and force the Commission to pay Mr. Cuban's legal fees.

Christopher Aguilar, former general counsel for a broker-dealer who did work for Mamma.com, has submitted an affidavit stating that Julie Riewe, an SEC attorney, informed him in August 2007 that she would prefer if employees of the broker-dealer did not speak to Mr. Cuban's attorneys, although Mr. Aguilar "could do what he wanted." Mr. Aguilar stated that he believed that the statement was an attempt to not make a witness available to the subject or target of an SEC investigation. Mr. Aguilar eventually allowed Mr. Cuban's counsel to speak with the employee.

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The Securities and Exchange Commission has charged prominent Miami businessman Gaston E. Cantens and his wife, Teresita Cantens, with allegedly running a $135 million Ponzi scheme targeting elderly Cuban-Americans, according to the Miami New Times.

Specifically, the Cantens allegedly used their development company, Royal West Properties, to sell promissory notes to finance the purchase of properties, representing that the investments were safe and would yield annual returns of 9 to 16 percent. When property owners began to default on their mortgages, however, the Cantens purportedly used monies from new investors to pay returns to previous investors. The Cantens are alleged to have persuaded investors by using their prominent standing in the community and claiming that Jesuit priests and other religious leaders had entrusted their money to them, targeting investors at social and religious gatherings and through national television ads on Spanish language channels. The Cantens were allegedly never authorized to sell the securities by the SEC. They furthermore are alleged to have diverted $20 million of the funds to themselves, their children and their grandchildren, and to finance their other businesses. 

Gaston Cantens was an advisory board member for Belen Jesuit Preparatory School. The Cantens are the parents of former Florida State Representative Gaston I. Cantens, who served from 1998 to 2006 as a Republican representing District 114, and is currently is a Vice President at Florida Crystals Corporation.

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Yesterday, a federal judge dismissed alleged drug charges against Henry Nicholas, the former Chief Executive of Broadcom Corp., a manufacturer of integrated circuits for broadband communications. In a related civil action, the judge, U.S. District Judge Cormac Carney of the U.S. District Court for the Central District of California, also ordered the Securities and Exchange Commission to amend alleged fraud charges against Mr. Nicholas and other former Broadcom executives within seven days, stating that he found "serious problems of proof" with the SEC's complaint against the former executives and inquired as to what proof the SEC had against them, as reported by The National Law Journal. The court had previously dismissed the SEC's complaint without prejudice.

Last month, during the trial of Mr. Nicholas and former Broadcom Chief Financial Officer William Ruehle, the court had granted Nicholas' and other defendants' motions to dismiss charges of backdating stock options based on prosecutorial misconduct and entered judgments of acquittal. Judge Carney found that the government "distorted the truth-finding process" and infringed on the defendants' due process rights to a fair trial. The court also questioned the evidence supporting the charges, noting that there was "considerable debate" regarding certain accounting practices used by Broadcom and many other major companies, including Microsoft and Apple.

The defendants made their prosecutorial misconduct claims after the court granted immunity to former Broadcom executives David Dull and Henry Samueli at the request of counsel for Mr. Ruehle so that the witnesses would not refused to answer based upon their Fifth Amendment privilege against self incrimination. Mr. Ruehle wanted Mr. Dull and Mr. Samueli to testify in order to rebut the testimony of Nancy Tullos, former Broadcom Chief of Human Resources, a witness for the government who had pled guilty in 2007 to obstruction of justice charges. The court found that the prosecution had improperly influenced Dull's, Samueli's and Tullos' testimony. Judge Carney also reprimanded the government for leaking misleading information regarding the grand jury proceedings to the news media. It set a hearing for the government to show cause as to why the narcotics case against Mr. Nicholas should continue.

At trial, he court also set aside Mr. Samueli's plea of guilty to making alleged false statements to the SEC following his testimony in Mr. Ruehle's and Mr. Nicholas' trial, stating that he had difficulty finding how Mr. Samueli had committed any crime. Judge Carney found that the government had pressured Broadcom into terminating Mr. Samueli, calling the government's treatment of him "shameful."

The court furthermore criticized the government for leaving Mr. Dull "hanging in the wind" for two years, treating him as an alleged co-conspirator but not charging him. The prosecution had entered a nonprosecution agreement with Mr. Dull after threatening to charge him with perjury based upon statements which Mr. Dull intended to make in his testimony in the Ruehle/Nicholas trial.

The extensive allegations of prosecutorial misconduct in the case against Mr. Nicholas and the other defendants included an allegation by the defense that the government had used Mr. Nicholas' 13 year-old son to gather evidence against his father.

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So whatever happened to indicted billionaire Sir Robert Allen Stanford? Well, not much, as reported by the Houston Chronicle. Stanford, who is charged with allegedly defrauding investors of more than $7 billion, is still incarcerated, despite his extensive efforts to secure release prior to his trial since his arrest in June of last year. Stanford has submitted a report from a physician to U.S. District Judge David Hittner of the U.S. District Court for the Southern District of Texas, in which the physician opines that Stanford is close to “a complete nervous breakdown.” Two psychiatrists have diagnosed Stanford with severe depression as a result of his confinement.

Stanford's counsel complained to the court that Stanford needed to have frequent communication with his defense team in order to review the more than 7 million documents in the case and answer questions by his counsel. Unmoved, Judge Hittner denied Stanford's latest motion for release in an order issued two days before Christmas, and Stanford has appealed the denial.

Stanford's trial is still a year away, scheduled to begin in January 2011. He has denied the government's charges, as well as civil fraud charges brought by the U.S. Securities and Exchange Commission.

Also reported in the Chronicle, similar to confessed attorney/Ponzi schemer, Scott Rothstein, Stanford allegedly had many ties to politicians. The Department of Justice is investigating approximately $2.3 million dollars in alleged contributions from Stanford and his staff to politicians over the past decade, as well as $5 million paid to lobbyists.  Donations by Stanford and his staff included $40,000 to the Senate Republican Campaign Committee, $100,000 to the inaugural committee of George W. Bush and $500,000 to the Democratic Senatorial Campaign Committee. He furthermore set up his own lobbying firm in Washington, D.C. Stanford is alleged to have successfully lobbied to defeat legislation in Congress relating to financial secrecy and offshore banking which would have allegedly revealed his activities.

Stanford allegedly treated politicians to trips to the Carribean, hosting dinners with lobster and caviar. Illustrative of Stanford's high level government contacts was the fact that, mere hours after Stanford was arrested last year, Representative Pete Sessions of Texas, Chairman of the National Republican Congressional Committee, sent Stanford an e-mail stating that he "loved" Stanford and believed in him, and offering his advice or to listen to Stanford. Stanford and his staff contributed $44,375 to Sessions. Stanford entertained numerous Congressional delegations to the Carribean nation of Antigua, where Stanford was based, at a total cost of $311,307. Stanford also hosted a wedding dinner for New York Representative John Sweeney at a five-star restaurant owned by Stanford in Antigua, and held a cocktail fundraiser for Ohio Representative Bob Ney in Miami. Ney was later sentenced to 30 months imprisonment for accepting money and gifts from convicted lobbyist Jack Abramoff.

Stanford opened a trust office in Miami in 2001, which allegedly enabled his bank to sell millions in certificates of deposit. This event allegedly prompted him to become involved in politics in order to prevent legislation which would have forced Stanford to reveal the source of the flow of monies to the office.

19 politicians have returned a total of $87,800 in contributions from Stanford to the court-appointed receiver. Other politicians have stated that they have donated money contributed by Stanford to charity, including $45,000 by Senator Bill Nelson of Florida, and $11,800 by Representative Charlie Rangel.

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The Securities and Exchange Commission announced this week a new initiative to encourage private individuals and corporations to cooperate in SEC investigations and enforcement. The SEC will revise its Enforcement Division's enforcement manual to add a new section entitled "Fostering Cooperation." The section will allow SEC investigators to use the following "tools":

Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.

Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.

Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.

The proposed changes also streamline the process for requesting immunity from the Justice Department for witnesses assisting in SEC investigations and enforcement actions. They futhermore set forth considerations for evaluating cooperation by individuals, including:

The assistance provided by the cooperating individual.
The importance of the underlying matter in which the individual cooperated.
The societal interest in ensuring the individual is held accountable for his or her misconduct.
The appropriateness of cooperation credit based upon the risk profile of the cooperating individual.
As the announcement recognizes, the "tools" are tools which the Department of Justice has long employed to secure cooperation and obtain information. Professor Ellen S. Podgor of Stetson University College of Law and the White Collar Crime Prof Blog has listed concerns regarding the SEC's new cooperation criteria.

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On Monday, the SEC filed a Complaint for Injunctive and Other Relief, in Federal court in Tampa, Florida, which may be viewed here, against Neil V. Moody and Christopher D. Moody, managers of the hedge funds Valhalla Investment Partners, L.P., Viking IRA Fund, LLC, and Viking Fund, LLC. Neil Moody, 71, and his son Christopher D. Moody, 35, are co-owners of the funds, based in Sarasota, Florida.

The Complaint charges that the Moodys allegedly recklessly violated anti-fraud provisions of Federal securities laws. Specifically, the SEC alleges that, from 2003 to 2009, the Moodys allegedly overstated investment returns and the value of the funds' assets by as much as $160 million in account statements provided to investors and offering materials provided to prospective investors. The Complaint also charges that the Moodys allegedly recklessly misrepresented to investors that they actively managed the funds, when in fact the investment and trading activities of the funds were managed by a third-party, namely Arthur Nadel of Scoop Management. Nadel, however, was the operator of a large Ponzi scheme involving hundreds of investors, including investors in the Moodys' hedge funds. Nadel allegedly fabricated false performance and account information which overstated the value of the Moodys' funds, and shared management and performance fees with the Moodys. The SEC filed an emergency action against Nadel in the Middle District of Florida last January, and was indicted in the Southern District of New York in April on six counts of securities fraud, eight counts of wire fraud, and one count of mail fraud.

Counsel for Christopher Moody has responded to the Complaint. “The SEC's complaint does not allege that Chris Moody knowingly intended to harm investors. The complaint alleges recklessness which Mr. Moody neither admits nor denies. Mr. Moody has cooperated from the outset with the receiver in the recovery of assets and will continue to do so,” said Mr. Moody’s attorney, Jeffrey L. Cox, of Sallah & Cox, LLP.

The Complaint alleges violations of Sections 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b); Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a); Section 206(4) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-6(4); Exchange Act Rule 10b-5, 17 C.F.R. § 240.10b-5; and Advisers Act Rule 206(4)-8, 17 C.F.R. § 275.206(4)-8. It seeks declaratory relief, a permanent injunction against the Moodys, disgorgement of all profits and civil penalties. A Receiver has been appointed for the funds.

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As reported by the Wall Street Journal and DOJ, UTStarcom Inc., a California-based global communications corporation which designs, manufactures and sells network equipment and handsets has agreed to pay $1.5 million in penalties to the government for alleged acts of bribery in the People’s Republic of China in violation of the Foreign Corrupt Practices Act (FCPA). The company simultaneously reached a settlement with the Securities and Exchange Commission over the same conduct in which it agreed to pay an additional $1.5 million.

UTStarcom entered an agreement with the government--in which UTStarcom neither admitted nor denied the allegations--which states that, between 2002 and 2007, the company's employees and agents allegedly arranged and paid for employees of Chinese state-owned telecommunications companies and UTStarcom customers to travel to popular tourist destinations in the U.S., including New York City, Las Vegas and Hawaii, purportedly to participate in training at UTStarcom facilities. However, UTStarcom purportedly had no facilities in the locations and conducted no training. UTStarcom recorded the trips as alleged "training" expenses. The government charged that the trips were for the alleged purpose of securing telecommunications contracts in China. The value of the trips and other gifts to foreign employees was alleged to be approximately $7 million.

The SEC has also alleged that UTStarcom obtained work visas for employees of its foreign customers to work in the U.S. and paid the individuals salaries and benefits although the individuals allegedly did no work. It claims that UTStarcom allegedly falsely accounted for payments to the individuals as employee compensation and created false annual performance reviews for personnel files of the individuals.

In addition to paying penalties, the agreement requires UTStarcom to implement various internal controls and to cooperate fully with the Department of Justice. The agreement also recognizes UTStarcom's voluntary disclosures to, and cooperation with, the government, and the company's efforts to correct the conduct. DOJ has agreed not to prosecute UTStarcom or its subsidiaries in exchange for its cooperation and its compliance with the agreement.

UTStarcom's focus has been Asian markets, in particular China. The company does business in China through UTStarcom China Co. Ltd., a wholly-owned subsidiary.

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As reported by Law.com, New York-based Comverse Technology, Inc., the worlds largest manufacturer of voice mail software, has entered into a $225 million settlement in a class action brought against it stemming from a backdating scandal. William Sorin, Comverse's former general counsel, and Comverse's former CEO, Jacob "Kobi" Alexander, were charged by the SEC and Federal prosecutors in 2006 with fraudulenty changing the grant dates of stock option awards from 1998 to 2000. In all, Sorin realized $14 million in profits from stock options, approximately $1 million of which was due to backdating. Sorin pled guilty in the U.S. District Court for the Eastern District of New York to conspiracy to commit securities fraud, mail fraud and wire fraud in 2006, and has already served his sentence of a year and a day in prison. Alexander an Israeli citizen, fled to Namibia to avoid prosecution.

Plaintiffs brought a derivative actions against Comverse in New York Federal and State courts based on the backdating. Alexander has agreed to pay $60 million and Sorin has agreed to pay $1 million to fund the settlement. In exchange, Comverse will drop its lawsuit against the former executives, who will also drop their counterclaims against the company.  The company earlier settled claims relating to the improper backdating and other accounting problems with federal regulators.

Sorin had previously entered into a settlement with the SEC, agreeing to pay $3 million in fines. However, his attorneys have asked the Court to vacate the SEC settlement and judgment, claiming that Federal prosecutors violated promises they made as part of his plea deal. Sorin claims that prosectors agreed not to object to his request to avoid jail time when he agreed to plead guilty to criminal charges and pay the SEC $3 million to settle civil charges, however he alleges that the government reneged on its promise and opposed his request at sentencing.

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As we check back with Sir Robert Allen Standford, the most noteworthy development is perhaps that the Bellagio, a Las Vegas casino and luxury resort, filed suit against Stanford last week in a Clark County Nevada district court for an alleged $258,480 in unpaid gambling debts.The lawsuit alleges that Stanford signed for 14 markers between January 15 and 22 of this year.

Oddly enough, Stanford is allegedly a self-professed Southern Baptist who reportedly infused the boardroom culture in his companies with religion, surrounded himself with individuals he met through church and used church contacts to find customers. Furthermore, Stanford's adoptive home, Antigua and Barbuda, is one of the leading host nations for the multi-billion dollar international online gambling  industry. Stanford, however, reportedly refused to deal with persons involved in gambling in his business dealings. While Stanford's companies based in Antigua have ceased operations, its online gambling sector has continued to thrive.

The Securities and Exchange Commission, which has frozen Stanford's assets, is investigating the Bellagio markers.

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