SEC and Other Investigations of Illegal Trading

Top 71. Feb 19, 2003 11:02 AM

» Kirk - SEC Charges Minnesota Man With Stock Fraud-

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SEC Charges Minnesota Man With Stock Fraud-
By Judith Burns
Dow Jones Newswires
Wednesday February 19, 10:15 AM

WASHINGTON -- Securities regulators filed a lawsuit against a Minnesota man who allegedly used mass e-mail spam to commit stock fraud. Samuel Meltzer, 37 years old, of St. Paul, Minn., operated under at least 30 different assumed identities online to push penny stocks, the Securities and Exchange Commission alleged in a complaint filed in federal court in Brooklyn, N.Y.

Mr. Meltzer claimed to recommend investments based on his own research when he was touting stocks he was paid to promote, the SEC said. The SEC also claims Mr. Meltzer included false and misleading information about the stocks in his e-mails and Web sites.

Regulators estimate Mr. Meltzer received about $160,000 in stock and cash to promote a dozen or more stocks from 1998 to 2001. The SEC is seeking a court order that would force Mr. Meltzer to stop the alleged fraud, return his fees, pay a fine and be barred from the penny-stock business.

Stocks promoted by Mr. Meltzer include CityView Energy Corp., Bach-Hauser Inc., Envirokare Tech Inc. and Silk Botanicals.com Inc., according to court documents. The companies weren't sued by the SEC in connection with the alleged scheme.

Mark Schonfeld, an associate regional director in the SEC's New York office, said the suit shows the SEC's willingness to target those who disseminate fraudulent information, including through high-volume e-mail spam.

Mr. Meltzer's attorney, Daniel Boivin, said Mr. Meltzer's e-mails and Web sites included a disclaimer that he was paid to promote stocks. "Sam is a young guy who thought he did everything right," said Mr. Boivin. "He provided full disclosure." Mr. Boivin declined further comment, saying he hadn't seen the SEC's lawsuit against Mr. Meltzer.

-- posted by Kirk

http://www.forbes.com/home/2003/02/21/cz...

Top 72. Feb 21, 2003 10:30 AM

» Sinewave - Wall Street Braces For Damning Evidence

Neil Weinberg, 02.21.03, 8:54 AM ET

NEW YORK - Wall Street firms are bracing for the release by U.S. regulators in the next few weeks of detailed evidence to support allegations that they foisted tainted stock research on retail clients, which lead to a $1.4 billion settlement last December. Release of the evidence of alleged analyst conflicts of interest is the subject of feverish behind-the-scenes lobbying inside the industry and threatens to set off a new avalanche of bad publicity and private litigation for the besieged companies.

The U.S. Securities and Exchange Commission, New York State Attorney General Eliot Spitzer and other authorities are likely to file court documents within a few weeks outlining the laws they believe the Wall Street firms broke and offering evidence to support their claims, according to Darren Dopp, a spokesman for Spitzer's office (the SEC declined comment).

"The evidence will show blatant conflicts of interest," Dopp said, referring to the alleged practice of compensating analysts for flattering the companies they cover in a bid to land investment banking deals. "It will further embarrass many brokerage firms that swore they were not engaging in such behavior."

Spitzer may also be looking to the evidence as a face-saving measure. In acting as point man in pushing through the $1.4 billion settlement, the elected official was criticized for using as leverage the threat of criminal prosecutions--a violation of state ethics rules--and for misquoting and taking out of context e-mail messages between analysts and others. Spitzer attributed comments to Henry Blodget, once an analyst at Merrill Lynch (nyse: MER - news - people ), for example, that were actually made to him by a client.

Under the December agreement, Salomon Smith Barney, a unit of Citigroup (nyse: C - news - people ), agreed to the largest payment of $400 million. It was followed by Merrill Lynch and Credit Suisse Group's (nyse: CSR - news - people ) Credit Suisse First Boston at $200 million each, Morgan Stanley (nyse: MWD - news - people ) at $125 million and Goldman Sachs (nyse: GS - news - people ) at $110 million. The firms neither admitted nor denied wrongdoing, but did agree to separate research from investment banking, offer clients independent research and ban the issuance of shares in initial public offerings to executives and directors of corporate clients.

The firms also now face hundreds of suits in which clients are seeking compensation for losses via arbitration in front of the National Association of Securities Dealers or New York Stock Exchange. Many of the cases charge the firms with causing the losses by plying biased stock research. The release of details of how analysts were compensated and how they interacted with investment bankers could bolster such claims and spark new ones.

The employment contract of former Salomon Smith Barney telecom analyst Jack Grubman granted him compensation both for bringing in specific investment banking deals and for generating stock trading volume in the issues he covered, according to an attorney familiar with the document. A spokesman for Grubman declined to comment. Salomon Smith Barney did not respond to a request for comment.

Wall Street firms have been lobbying feverishly to limit the release of evidence, and the court filings are likely to contain certain employment details but not entire contracts, people familiar with the matter say. They have also been battling their own liability insurers, who have asked regulators to explicitly state that the $1.4 billion settlement is nonrecoverable. On that score, at least, Wall Street appears likely to get its way and have the insurers' request turned down. Some policies state that they will pay for both client restitution and fines over misconduct, while others cover only payouts to clients.

-- posted by Sinewave

http://biz.yahoo.com/rc/030227/telecoms_...

Top 73. Feb 27, 2003 10:21 AM

» SteveT - Grubman coached WorldCom chief on speech

Reuters
Grubman coached WorldCom chief on speech -NY Times
Thursday February 27, 6:42 am ET

NEW YORK, Feb 27 (Reuters) - WorldCom Inc. (Other OTC:WCOEQ.PK - News) founder Bernard Ebbers received help with a rousing script for a conference call last year from Jack Grubman (News), the telecommunications stock analyst at Salomon Smith Barney, the New York Times reported on Thursday.

According to an e-mail message uncovered by securities regulators in their investigation of Wall Street research practices, Grubman offered the advice to Ebbers for his speech that swatted down rumors about the company's problems as shares of WorldCom were falling on rumbles of a pending financial crisis, the report said.

There is nothing illegal about an analyst advising a chief executive how to approach a crucial conference call, the Times said.

Grubman, who resigned in August 2002 amid harsh criticism over poorly performing stock picks, in December settled with regulators for $15 million and a lifetime ban from the securities industry. Critics had accused him of tailoring his research to help Salomon, a unit of Citigroup Inc. (NYSE:C - News), win underwriting mandates.

Comparing the e-mail message's contents, which were obtained from two people briefed on the investigations, with a recording of the WorldCom conference call suggests that Ebbers relied heavily on Grubman's advice, the article said. On the call, scheduled to discuss fourth-quarter earnings,

Ebbers walked through Grubman's suggestions on subjects like WorldCom's accounting and its liquidity almost exactly as Grubman had advised, according to the Times.

Grubman did not return phone calls seeking comment on the e-mail message, the Times said. His lawyer could not immediately be reached for comment on the story.

Grubman, who issued a steady stream of bullish reports on WorldCom until just days before it collapsed, has acknowledged that he had an intimate relationship with the company but has said that he had no knowledge of the accounting irregularities that led to WorldCom's collapse.

Ebbers, WorldCom's former chief executive, resigned in April as its financial and legal problems mounted.

Spokesmen for WorldCom and Citigroup also were not immediately available for comment early on Thursday morning.

-- posted by SteveT

http://biz.yahoo.com/djus/030227/1435000...

Top 74. Feb 27, 2003 1:34 PM

» SteveT - Keeping up the pressure

I sure all of us can join our voices to make a difference. This could be yet another step in a long journey.

Pension Fund Group May Press SEC On Shareholder Proxies
Thursday February 27, 2:35 pm ET
By Phyllis Plitch, Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--An influential organization of pension funds plans to weigh the possibility of calling on the Securities and Exchange Commission (News - Websites) to take steps that would give investors greater power to elect their own board candidates.

Members of the Council of Institutional Investors will vote next month on whether to ask the SEC to enact rules that would allow shareholder director nominees to be listed on corporate proxies, an official of the Washington organization said Thursday.

Speaking at the Institutional Shareholder Services' annual meeting, the council's deputy director, Ann Yerger, said that the group's policy committee decided to add the "access" issue to the agenda of its upcoming spring meeting, which will be held on March 26.

"Clearly, over the past year, there was a concern that shareholders didn't have a meaningful, cost-effective way to shape who sits on boards," Yerger said.

The Council has 130 members, controlling more than $3 trillion in assets, including large public, labor, and corporate pension funds.

Word of the group's pending consideration comes amid a flurry of activity around the challenges investors face nominating their own directors in the wake of a string of corporate scandals. Union activists are already locked in a campaign to press the SEC to allow shareholders' nominees on corporate proxies, which would make it easier and cheaper to float board candidates. Not having direct access to the corporate ballot means investors must spend huge sums of money in what is essentially a proxy contest, a step that usually only takes place in the context of a hostile takeover attempt.

The AFL-CIO recently said it plans to similarly petition the SEC to create an absolute right to allow shareholders direct access to the proxy.

Also, on Wednesday, the American Federation of State, County and Municipal Employees union appealed a decision by SEC staffers that allowed Citigroup Inc. (NYSE:C - News; C) to omit a related shareholder proposal from its annual meeting resolutions. Afscme wants shareholders to vote on a binding proposal that would permit a shareholder or group of shareholders owning at least 3% of shares to include a director nominee in the corporation's proxy materials. The union's employee pension fund, which owns 791,000 Citigroup shares - or less than 1% of the bank's shares outstanding - asked the five commissioners to reverse the decision.

-By Phyllis Plitch, Dow Jones Newswires; 201-938-2357

-- posted by SteveT

http://quote.bloomberg.com/fgcgi.cgi?pti...

Top 75. Mar 31, 2003 9:51 PM

» Sinewave - WorldCom's Accounting Errors Will Total $11 Billion (Update1)

What...did you all expect spoon-fed happy talk?
Bite this...

WorldCom's Accounting Errors Will Total $11 Billion (Update1)

03/31 16:27
By Dana Cimilluca

Clinton, Mississippi, March 31 (Bloomberg) -- WorldCom Inc., which filed the largest U.S. bankruptcy last year, has uncovered $11 billion in overstated profit, $2 billion more than what has been publicly disclosed, people familiar with the matter said.

WorldCom, the No. 2 U.S. long-distance telephone company, likely will announce by June that it will restate earnings to reflect the errors, which date back to 1999, people familiar said. WorldCom doesn't expect to find more mistakes, the people said.

The new irregularities show the lengths to which former WorldCom executives went to hide the phone company's deteriorating performance. Federal prosecutors are trying to build a criminal case against former Chief Executive Officer Bernard Ebbers and have already charged ex-Chief Financial Officer Scott Sullivan with securities fraud. He has pleaded not guilty.

New CEO Michael Capellas is trying to clean up WorldCom's books to guide it out of bankruptcy this year. The Clinton, Mississippi-based company filed for Chapter 11 protection in July after initially revealing it hid $3.85 billion in costs. The people familiar declined to give details on the new errors.

WorldCom spokeswoman Claire Hassett declined to comment. A lawyer for Ebbers, who resigned from the company in April 2002, didn't return a call or e-mail seeking comment. Ebbers has denied wrongdoing.

Shifting Expenses

As part of WorldCom's drive to keep its WorldCom Group data unit looking profitable, executives shifted $3.3 billion of expenses onto the books of the MCI Group consumer long-distance phone unit in 2001, people familiar said. The size of WorldCom's restatement won't be affected by the cost shifting.

An e-mail sent to Ebbers by MCI's then-Chief Operating Officer Wayne Huyard was ignored, the Wall Street Journal reported earlier today. Parent-company executives including Ebbers owned more shares in the data unit than they did in MCI. Both businesses trade publicly.

WorldCom in June said it would restate results for 2001 and the first quarter of 2002 because it improperly recorded as capital investments $3.85 billion in expenses from using rivals' networks. WorldCom in August boosted the estimated restatement to $7.18 billion and in November said the tally might exceed $9 billion.

WorldCom this month announced plans to wipe $79.8 billion off the recorded value of its assets, the most ever at one time for a U.S. company.

Four other former WorldCom executives have pleaded guilty to criminal charges and are cooperating with prosecutors.

-- posted by Sinewave

Top 76. Apr 1, 2003 6:08 AM

» lcha - Re: WorldCom's Accounting Errors Will Total $11 Billion (Update

In response to message posted by Sinewave_03:

More amazing than the fact they overstated earnings by $11 billion is the fact that it was done under the noses of hundreds of analyst and mutual fund managers that are supposed to be doing in depth research(Ha!) on the companies they follow/recommend.

-- posted by lcha

Top 77. Apr 1, 2003 6:57 AM

» Kirk - Re: Re: WorldCom's Accounting Errors Will Total $11 Billion (Up

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In response to message posted by lcha:

I've looked at many analyst and mutual fund manager bio's and they are often history majors or some other liberal arts degree in college. They seem to just know enough to understand a balance sheet and depend on the likes of Arthur Anderson to tell them the numbers on the balance sheet are ok.

Most of us, even with experience doing business plans and designing new products to meet profit goals still relied on Arthur Anderson to verify that WorldCom had the numbers in the right place. In effect, WorldCon said it spent money to buy capital equipment that would later generate revenue when in fact it was using the money to pay operating expenses. It was a deliberate fraud. They were hiding the fact they were losing money. The ONLY way to guard against this is to personally go over all purchases made for capital equipment and verify that it was indeed for capital equipment. That is why we have major accounting firms verify the books. That is why Arthur Anderson is out of business. That is why I think the US Government should go after ALL Anderson partners and have them disgorge their profits as it was the partnership's duty to make sure the numbers were accurate. Bankruptcy is not enough. They should be held personally liable as well and not allowed to pull money out.

I think the lack of an agressive attack on these crooks is a big reason the Stock Market has had problems. AG Ashcroft is more interested in the barbaric practice of executing people than he is in restoring investor confidence.

-- posted by Kirk

http://www.siliconinvestor.com/stocktalk...

Top 78. Apr 28, 2003 11:14 AM

» Kirk - Wallstreet to pay $1.4B for fraud

Sandy "Teflon" Weil gets stockholders of Citibank to foot the bill once again but at least they got two of the analysts to give back some of their pay.

WASHINGTON (April 28) - Federal and state regulators on Monday released details of a settlement in which nine of Wall Street's biggest investment firms will pay at least $1.4 billion and adopt reforms to resolve allegations that they issued biased ratings on stocks to lure investment-banking business.

It calls for one of the largest penalties ever levied by securities regulators and will change the way major investment firms - including Citigroup, Merrill Lynch and J.P. Morgan Chase - do business.

Financial-services giant Citigroup, for example, will pay $400 million in fines and for funds to promote better research under the settlement, which is based on a tentative agreement reached in December.

The accord was being announced at the Securities and Exchange Commission's headquarters in Washington, following approval of the deal in recent days by the five SEC commissioners.

Under the settlement, two former star analysts - Internet expert Henry Blodget of Merrill Lynch and telecommunications analyst Jack Grubman of Citigroup's brokerage business, Salomon Smith Barney - have agreed to pay $19 million in fines and penalties and be banned permanently from the securities industry to settle fraud charges. Blodget and Grubman are neither admitting nor denying any wrongdoing.

Grubman will pay $15 million for undisclosed alleged conflicts and charges that the firm engaged in improper distribution of shares in newly public companies to favored clients. He faces a lifetime ban from working for an investment firm or acting as an investment adviser, dealer or broker. His penalty can't be reimbursed or indemnified and the penalty portion can't be written off on taxes.

Blodget will pay $4 million.

The settlement with the brokerage firms will require that certain analysis from an investment house would have to be made public within 90 days after each quarter concludes to allow investors to compare the performance of analysts from different firms and promote objective rankings.

Brokerages will also be banned from allocating to executives and board directors preferential access to initial public offering shares of firms they have courted as investment banking clients.

An independent monitor will be assigned to each firm to make sure the terms of settlement are met. An $85 million investor education program is also being created at the expense of the brokerages. Brokerages would pay $450 million over five years into the independent research fund.

The firms neither admitted nor denied allegations that they had misled investors, although Citigroup agreed to a statement of ''contrition.'' The investigation was based on internal e-mails in which the firms' financial analysts privately derided stocks they were touting to the public.

Salomon Smith Barney will pay the heaviest fine: $300 million. In addition, parent Citigroup will also provide $75 million toward an independent research fund and $25 million toward an investor education program. But Citigroup CEO Sanford Weill won a guarantee that he would not be prosecuted.

The settlement requires Citibank's chief executive to report to separate committees of the board of directors on the objectivity, independence and quality of research. No executive can be part of the meetings.

Regulators alleged that Citigroup published fraudulent and misleading research that promoted banking clients and harmed investors while ignoring strong criticism from inside the company about the quality of research.

At Morgan Stanley Co., regulators found the firm failed to manage conflicts of interests between its investment banking and research divisions and failed to properly supervise senior researchers including Mary Meeker, the top telecommunications stock analyst. Morgan Stanley will pay a $50 million penalty as well as $75 million toward the independent research fund.

Credit Suisse First Boston will pay $150 million in the settlement. Goldman Sachs, J.P. Morgan Chase, Bear Stearns, Lehman Brothers, Deutsche Bank and UBS Paine Webber will each pay $50 million.

Last May, Merrill Lynch, the nation's largest brokerage, agreed to a separate settlement that included a $100 million fine and the separation of its analysts from investment banking.

The amounts were based on evidence collected against the firms, according to officials.

-- posted by Kirk

Top 79. May 7, 2003 9:47 AM

» Kirk - Spitzer for National Office

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I am listening to Elliot Spitzer on TV testifying before the Senate Banking Cmte.... and scolding them for being too late despite the warnings of many for years.

Our own Roger was warning about this stuff back in 1998 and it wasn't clear to me he was right until Grubman, WorldCon, Enron, Anderson and Golbal Crossing happened. Even AOL and Lucent were cooking the books it seems to make revenue look higher than it was to show growth...

I think Spitzer should be appointed to national office and given the task to clean up the industry.

He is speaking quite clearly what was screwed up, how we were hurt, how the big money benefits from insurance to bank companies who are now turning to congress to make them whole after they made contracts or screwed the pooch themselves.

If anyone can get the transcript of his testimoney, please post it.

Grasso speaking... He sure got paid a ton to oversee the screwing, didn't he?

-- posted by Kirk