SEC and Other Investigations of Illegal Trading

Top 81. May 7, 2003 11:34 AM

» Kirk - Re: Re: Spitzer for National Office

In response to message posted by lcha:

What pisses me off is this seems to be a buyout by the stockholders to save the sorry asses of the people running the show AND those engaging in fradulent advice.

IF they think this was wrong or illegal, then someone should go to jail.

Most of us have index funds or pension plans so we all are paying this fine while those that got rich from it don't do much. Blodget and Grubman are soiled for life but they are proven to be liars and opportunists. If what they did was illegal and worth $1.4B in fines, then we need to have some people spend time behind bars, in stripes with no internet access or good meals.

I think the solution is as bad as the problem as it is JUST MONEY paid by stockholders. Sure, Grubman and Blodget had to give SOME of their money back but they will write a book or two, go on speaking tours on how to fleece folks for a fee, etc. and make it up. I think Grubman's fine is less than a year's salary...

and we put people in jail for life if it is a 3rd strike just for robbing a 7-11 for food to feed themselves or their families... sickening!

-- posted by Kirk

Top 82. May 7, 2003 12:59 PM

» SteveT - Re: Spitzer for National Office

In response to message posted by Kirk:

You can get a Transcript pdf file here.
http://banking.senate.gov/03_05hrg/05070...

-- posted by SteveT

Top 83. May 13, 2003 8:21 AM

» Kirk - Highflying penny-stock promoter now man behind bars

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Highflying penny-stock promoter now man behind bars
By Jayne O'Donnell, USA TODAY

FORT DIX, N.J. — You'd have to look hard to find someone who has fallen farther than Robert Brennan. A decade ago, the former penny-stock promoter had a golf course, three horse tracks and three multimillion-dollar houses.

It was an everyman's dream come true for the once-poor kid from Newark, N.J.

Today, Brennan is three years into a nine-year prison term here for bankruptcy fraud and money laundering, cleaning the rooms and toilets of drug dealers and gang kingpins, apparently penniless and financially beholden to the federal government for life. After unsuccessfully fighting to reduce or overturn his sentence, Brennan, 59, is battling a contempt charge that could add three more years to it.

<img src=http://images.usatoday.com/money/_photos... width=180 height=444 align=left>
Pie charts show Robert Brennan"s depiction of his portfolio in 1993 and now. Cans of mackerel are used as currency in prison.

The founder of now-defunct First Jersey Securities who appeared with his helicopter in 1980s TV ads beckoning "Come grow with us" appears almost gaunt from the strict diet and exercise program that followed two heart attacks, one which went undetected in prison for weeks.

During a two-hour interview in the visiting room at the Federal Correctional Institution here, there were still signs of the smooth salesman who lured hundreds of millions of dollars to his penny-stock deals and rankled securities regulators for decades.

Brennan is both chastened and combative: He was wrong, and he was wronged.

The only thing Brennan is ready to own up to is taunting prosecutors by flaunting his wealth. He offers no excuses for his business, which investigators say reinvented the stock boiler room, earned excessive fees and duped investors. Brennan says the commissions that investigators said were several times higher than the norm were "fair."

Brennan's bankruptcy fraud conviction in 2000 followed 20 years of Securities and Exchange Commission investigations, federal lawsuits and civil actions against him.

Donald Conway, a New Jersey CPA who is the bankruptcy trustee for Brennan's estate, has spent most of the past six years untangling his assets and selling them to pay creditors. He says Brennan spent years "manipulating assets and transferring assets" to countries including Gibraltar and Mauritius. "It was much more complex than I ever imagined," Conway says. "Bob is a very bright man."

Brennan says Conway is squandering money for creditors by dragging out the process.

Brennan declared Chapter 11 bankruptcy in 1995, but that didn't slow him down. After filing, he cashed in about $500,000 in chips at the Mirage casino in Las Vegas and never reported it to the bankruptcy court. More damning ultimately were the $4 million in bonds his now ex-wife testified he had stashed in their basement after the bankruptcy filing. Former assistant U.S. attorney Paul Weissman says Brennan gave the bonds to an Isle of Man-based businessman who helped turn them into a $22 million investment. Brennan then used some of the money to pay for an around-the-world trip with friends. Brennan pleaded not guilty and was convicted in a trial.

Brennan has plenty of time to mull his offenses. He spends much of his day, which starts at 6 a.m., in his special two-person cell, allotted for those with medical conditions. He seldom goes to the cafeteria, eating microwave oatmeal for breakfast and canned chicken or tuna for lunch and dinner.

He reads and writes letters — so many, in fact, that he says guards suspected he was running a business from prison. In a November plea for a reduced criminal contempt sentence, he told Judge Richard Owen that he's being treated for alcoholism because starting in the mid-1980s he "drank excessively and destructively on a daily basis."

Brennan says he rarely socializes with other inmates, though he has met former Providence mayor Vincent "Buddy" Cianci.

His closest acquaintance is convicted drug dealer Michael Santos, who has earned two degrees and written three books on prison life while incarcerated. The two walk for miles around the prison yard.

In a letter to USA TODAY, Santos said they met when Brennan entered Fort Dix. Santos saw Brennan shouting basketball tips to an inmate known as "Ironhead" who had "gangster" tattooed across his back. Santos expected some "drama might come from Bob's interference" but watched in amazement as the two wound up shooting hoops together.

Santos says Brennan has adjusted to prison far better than most.

Brennan says, "It's extraordinary to be somewhere with absolutely no privacy, constant noise and a profound sense of loneliness."

About the only time there's a crack in Brennan's feisty and often-funny facade is when he talks about his young grandchildren, who often visit with his son, Robert Jr., or a Parisian girlfriend, with whom he recently split.

Then, and when he's heading back to life behind barbed wire.

As he bids a visitor goodbye, the trademark twinkle is in evidence: "Stay out of trouble," he says with a wink. Then his eyes glaze over, and he slouches toward the visiting room exit for the mandatory strip search before he returns to his room.

Find this article at:
http://www.usatoday.com/money/companies/...

-- posted by Kirk

InfoSpace founder made insider trades, judge rules

Top 84. May 16, 2003 8:27 PM

» Jen_ - Naveen Jain - InfoSpace Founder

.
This from 5/16 Seattle Times....

<img src="http://seattletimes.nwsource.com/ABPub/4..." width=400 height=234 align="left">MIKE SIEGEL / THE SEATTLE TIMES, JANUARY 2003
Naveen Jain made more than $400 million from selling InfoSpace stock. Three sales totaled $207 million, which he now may have to pay back.

By David Heath and Sharon Pian Chan
Seattle Times staff reporters

InfoSpace founder Naveen Jain made illegal insider stock trades while he was chief executive officer of the Internet company, a federal judge here ruled in a shareholder lawsuit.

Jain may have to pay $207 million plus interest to InfoSpace, the amount the plaintiff is seeking. That would make it the largest insider-trading award of its kind.

U.S. District Judge Marsha Pechman will determine the exact amount. In an earlier court filing, Jain's lawyers said he might have to pay $237 million if he lost the case.

"I don't know much about it," said Jain, 43, who was fired as CEO by the InfoSpace board in December. "It makes no sense to me whatsoever."

InfoSpace did not comment on Pechman's Wednesday decision.

During the dot-com craze, InfoSpace, an Internet and wireless services company, was among the greatest successes on the stock market. At its peak, InfoSpace was worth more than Boeing. Jain owned more than $8 billion in InfoSpace stock alone.

Jain made more than $400 million from selling InfoSpace stock. Three of the sales totaled $207 million, which he now may have to pay back to the company.

Pechman ruled that Jain had made several illegal stock transfers within six months, including improperly taking control of shares he had given to his children's trusts.

The Securities and Exchange Act of 1934 makes it illegal for a corporate insider to sell shares within six months of buying them. This strict law is intended to prevent officers and others with insider information from exploiting that knowledge for quick profits.

As penalty for illegal trades, the insider must pay the company the largest profit the insider could have made, regardless of whether any profit was realized.

In this case, Jain argued that he did not profit from the illegal trades. However, the maneuvers gave him greater voting control of the company and at one point could have saved him up to $1 billion in federal taxes, said David Simmonds, attorney for the shareholder.

The plaintiff, Thomas Dreiling, a Seattle lawyer, won't recover any money from the lawsuit. The award goes to InfoSpace.

The complicated case stems mainly from two separate events.

The first occurred just before the Bellevue company went public in December 1998. InfoSpace discovered possible lawsuits facing the company because of deals Jain had made. In several cases, Jain promised stock options to employees but never delivered.

To protect InfoSpace shareholders, Jain was required to put 1 million of his own InfoSpace shares into an escrow account. The shares were needed to pay for claims from potential lawsuits.

Instead of using personal shares, Jain used shares owned by a trust for his children.

This action was an illegal trade, Pechman ruled, because Jain took control of shares he did not own, in essence buying them for free.

In a strange twist in the lawsuit, Jain argued that the escrow account was never established, even though he signed and filed numerous reports with the Securities and Exchange Commission stating that the account, with its 1 million shares, did exist.

He claimed that his company was supposed to establish the account, but did not. Furthermore, he testified that he did not read SEC documents before signing them.

The second event took place in May 1999. Jain and his wife, Anuradha, made another transfer, giving 2 million InfoSpace shares, worth $2 billion at one point, to special tax-free trusts for their children.

When shares of the company split 2-for-1, however, the new stock certificates for some reason were sent to Jain's office.

Instead of returning the shares to the trusts, Jain and his wife signed documents to have the new shares put into their personal account. He claimed in the lawsuit that he didn't understand what he was signing.

When the improper transfer was discovered the following year, Jain and his wife returned the shares to the trusts.

After Jain was ousted as CEO in December, he started Intelius, a Bellevue technology firm across the street from his old company.

InfoSpace is now suing Jain and another former InfoSpace engineer for violating agreements that they would not compete against the company. Last month Jain resigned from the InfoSpace board.

Another defendant in the shareholder lawsuit is Stiles Kellett Jr., an Atlanta investor who recently agreed to pay back $5.5 million to InfoSpace for illegal trades.

According to court documents, Kellett had been fed confidential insider information by an InfoSpace director, John Cunningham, who was president of Kellett's investment company. Pechman ruled that because of their relationship, Kellett was an insider making illegal trades.

Steve Sirianni, one of the shareholder's lawyers, said corporate insiders should have known better. "There's really no excuse for violating the law that's set up to be a deterrent," he said.

<img src="http://chart.yahoo.com/c/5y/i/insp.gif" width=512 height=288>
INSP 5 YR Chart

....Jen

-- posted by Jen_

Top 85. May 21, 2003 6:25 AM

» Kirk - Coke investigates internal fraud allegations

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Coke investigates internal fraud allegations

Elliot Blair Smith USA TODAY
http://news.yahoo.com/news?tmpl=story2&c...

Coca-Cola said Tuesday that it is investigating allegations by a former internal auditor who says the soft-drink company engaged in massive fraud to inflate annual revenue by millions of dollars.

The Coke board of directors audit committee, which includes investor Warren Buffett (news - web sites), ordered the probe by outside lawyers and accountants after executives repeatedly ignored the allegations by the fountain division's ex-director of finance. Buffett controls 8.1% of Coke stock.

In a statement, Coke described ''whistle-blower'' Matthew Whitley as a ''disgruntled former employee'' who had demanded $44.4 million to remain quiet after being fired in March. Coke added, ''Until the investigation is complete, we cannot have a basis on which to respond to these allegations.''

In an interview, Whitley said, ''I repeatedly stood for what I thought were good, appropriate business practices.'' Late Monday, he filed an 85-page wrongful termination lawsuit in Fulton County, Ga., Superior Court alleging:

* Phantom sales. Just before midnight at the end of each quarter in 2002, Whitley alleges, fully loaded Coke trucks ''would be ordered to drive about two feet away from the loading dock'' so the company could book ''phantom'' syrup sales as part of a scheme to inflate revenue by tens of millions of dollars.

* Marketing fraud. Coke allegedly manipulated a test-market rollout of ''Frozen Coke'' at several Burger King stores in Richmond, Va., in early 2000 by paying for hundreds of children's ''value meals'' that featured the frozen soft drink. Based on the manipulated test data, the lawsuit alleges, Burger King endorsed a $65 million nationwide rollout of ''Frozen Coke'' that later failed.

The lawsuit says Coke director Peter Ueberroth became ''extremely angry'' about the alleged deception when it was discovered in a routine internal audit. Ueberroth, who heads the board's audit committee, declined to comment.

A Burger King spokeswoman called the lawsuit an ''internal'' matter for Coke.

* Slush fund. Coke allegedly conspired with equipment vendor Lancer in a complicated scheme of fraudulent bookings to create a ''slush fund'' to disguise the commercial failure of a new dispenser. According to the lawsuit, Lancer's auditor, KPMG, threatened to alert the Securities and Exchange Commission (news - web sites) about the fund. But Coke created false paperwork to cover Lancer's trail.

A Lancer spokesman said the company's financial reporting was ''proper and correct.'' KPMG declined to comment. The U.S. attorney's office in Atlanta had no comment.

-- posted by Kirk

http://story.news.yahoo.com/news?tmpl=st...

Top 86. Jun 3, 2003 1:01 PM

» SteveT - Former Top Enron Executive Arrested

Former Top Enron Executive Arrested

SAN FRANCISCO (Reuters) - A former top Enron energy-trading executive was arrested by federal agents on Tuesday on charges stemming from the company's manipulation of power markets during California's energy crisis.

John Forney, 41, is the third former Enron Corp. executive charged with a federal crime in connection with Enron schemes to manipulate energy prices during California's 2000-01 energy crisis, which is estimated to have cost the state up to $42 billion.

Forney was arrested at the headquarters of American Electric Power Co. Inc. in Columbus, Ohio, where he is currently employed. His arrest was announced by Kevin Ryan, U.S. Attorney for the Northern District of California.

Forney was the head of Enron's western "real-time" power-trading operations in Portland, Oregon, from June 1999 until the end of 2000.

Attorneys representing Forney were not immediately available for comment. Forney was released on a bond secured after posting his house in Ohio as collateral.

The charges against him allege that he was the architect of several illegal trading strategies used by Enron to inflate power prices, including one scheme called "ping pong" that aimed to evade federal price caps slapped on the volatile California market in 2001.

In February, former Enron executive Jeffrey Richter pleaded guilty to conspiracy to commit wire fraud in connection with Enron's schemes in California. That followed a similar plea in October 2002 by Timothy Belden, Enron's former top West Coast energy trader.

The prosecutor's office, joined by the Department of Justice (news - web sites) and the San Francisco division of the FBI (news - web sites), said the investigation into the manipulation of California's energy market would continue.

"Our investigation of illegal activities during the energy crisis is active and continuing and remains one of this office's and the Justice Department (news - web sites)'s top priorities," Ryan said in announcing Forney's arrest.

-- posted by SteveT

http://reuters.com/newsArticle.jhtml?typ...

Top 87. Jun 3, 2003 1:33 PM

» Kirk - Feds Seek to Indict Martha Stewart

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Feds Seek to Indict Martha Stewart

Feds Seek to Indict Martha Stewart
Tue June 3, 2003 04:06 PM ET

By Cyntia Barrera Diaz
NEW YORK (Reuters) - Martha Stewart, who built a catering business into a media and design empire, faces a criminal indictment related to her sale of shares in ImClone Systems Inc., a biotech firm run by a close friend.

The U.S. Attorney's Office for the Southern District of New York intends to seek a grand jury indictment against Stewart, her company, Martha Stewart Living Omnimedia Inc., said in a statement. It also said it expects a civil complaint by the Securities and Exchange Commission.

The latest development in the year-long probe dragged the stock down 18 percent, as investors were gathering for the company's annual meeting in New York.

CNBC television said Stewart could be indicted and arrested on obstruction of justice charges as early as Wednesday, citing unnamed sources familiar with the matter. CNBC said Stewart also was likely to resign as chairman and CEO of the company following any indictment.

But, in a videotaped message played at the annual meeting on Tuesday, Stewart said that she would not resign from the company, according to Carolyn Stack, a shareholder who attended the meeting. It was not clear when the message was taped.

Stewart, 61, is under investigation for selling ImClone shares in December 2001, a day before the biotechnology firm said federal regulators had turned down a review of an experimental cancer drug.

Stewart and ImClone's co-founder, Sam Waksal, were close friends, often seen and photographed together at events in New York. Investigators have been probing whether she was among a group of friends and family members whom Waksal is accused of having tipped about the U.S. Food and Drug Administration's plans to reject company's experimental cancer treatment.

A federal law enforcement source said the investigation has focused on whether Stewart engaged in insider trading and whether she lied to congressional investigators.

BEST CASE SCENARIO NO LONGER SEEN POSSIBLE

The new developments were viewed by analysts as ending all remaining hope that Stewart could dodge deeper entanglement and mend the costly damage inflicted on her magazine, television and merchandising businesses.

"The best-case scenario -- that the investigations would conclude without resulting in formal charges -- is apparently no longer a possible outcome," Alissa Goldwasser, an analyst with William Blair & Co, said in a note.

Stewart's attorney, Robert Morvillo, said that if indicted, Stewart would plead not guilty and pursue the case through trial. Morvillo could not be reached for comment on the CNBC report.

At Morvillo's office in midtown Manhattan, a staff member said Stewart had been in and out of that office on Tuesday morning.

At the Martha Stewart Living shareholders' meeting, company director Arthur Martinez responded to a shareholder question by saying it was "categorically untrue" that Stewart had resigned.

"Martha remains chairman and CEO, " said Martinez, who is a former chairman of Sears Roebuck & Co.

"It was a very quiet meeting," Martinez said to reporters after the meeting. "There were strong statements of support for Martha through this difficult time. She expressed her gratitude for that support." He was flanked Sharon Patrick, president of Stewart's company.

Martha Stewart Living said in a statement that the company "and its board of directors have been planning for a number of possible contingencies, are evaluating the current situation and will take action as appropriate."

STEWART SOLD IMCLONE SHARES FOR $227,000

Stewart sold nearly 4,000 shares of ImClone on Dec. 27, 2001, at $58 each for a total of $227,824. At that time, her stake in her own company was worth about $500 million. On Dec. 28, 2001, ImClone said the FDA had rejected application for its cancer drug, Erbitux, sending ImClone shares plummeting.

Stewart has steadfastly maintained that she engaged in no wrongdoing.

Waksal, 55, was removed as head of ImClone a year ago and last fall pleaded guilty to six of the 13 charges in the case. He will be sentenced next week for insider trading and for tax evasion, which grew from a separate investigation into high-dollar art purchases.

In recent days, ImClone shares have risen sharply after the company disclosed positive results from new clinical trials of Erbitux, reaching their highest level since January 2002.

Martha Stewart Living shares plunged as much as 20 percent on Tuesday, their worst one-day pummeling in nearly a year. They were down $1.79, or almost 16 percent, at $9.41 in late afternoon trading on the New York Stock Exchange, where the stock was the top percentage loser.

(Additional reporting by Kenneth Li, Reshma Kapadia, Timothy Dobbyn, Emily Kaiser)

-- posted by Kirk

http://www.suite101.com/discussion.cfm/i...

Top 88. Jun 4, 2003 12:59 AM

» Jen_ - Re: Feds Seek to Indict Martha Stewart

.
In response to message posted by Kirk:

well Kirk - he/she who laughs last may not be Sam Waksal and Martha ....but it may be the investors that rode the IMCL rollercoaster throughout their cancer drug speculatory hype, FDA rejection, and the scandals - oh the scandals - don't look now but this little stock looks like it may be a winner after all....see this post on the Biotech thread....

....Jen

-- posted by Jen_

http://www.marketwatch.com/news/yhoo/sto...

Top 89. Jun 10, 2003 2:24 PM

» SteveT - Waksal gets maximum sentence

Waksal gets maximum sentence
Former head of ImClone to serve 7+ years, pay $4 million
By Luisa Beltran, CBS.MarketWatch.com
Last Update: 4:47 PM ET June 10, 2003

NEW YORK (CBS.MW) -- A federal judge on Tuesday sentenced Sam Waksal, the disgraced former chief executive of ImClone Systems, to 87 months in prison as his family watched from the front row of the courtroom, his father sobbing.

A gasp was audible in the standing room-only courtroom as U.S. District Judge William Pauley read out the maximum under federal sentencing guidelines.

Waksal, 55, also received three years of supervised release following his prison time and was fined $3 million for insider trading, perjury and other charges. He will also pay $1.2 million in back taxes.

"The serious crimes to which you pleaded guilty aren't a 24 hour window of catastrophic poor judgment," said Judge Pauley, who called the former CEO's actions a "pattern of lawlessness and arrogance."

Waksal will surrender to authorities to begin his sentence on July 2, and will be required to wear an electronic anklet to track his location until then.

Mark Pomerantz, Waksal's lead defense attorney, asked that the former CEO be sentenced to a federal prison camp in Elgin, Florida.

With the stiff sentence, Judge Pauley is sending a message to corporate executives, legal experts said.

"The judge is making an example of Waksal," said attorney Robert Heim, of law firm Meyers & Heim. "This was designed to deter other Wall Street executives from trying to take advantage of their privileged positions."

There is no parole in the federal system, said Robert Mintz of McCarter & English. "Absent a departure from guidelines, which this case did not warrant, probation was not an option," he said.

Waksal will earn time off because of good behavior and will likely serve 85 percent, or 74 months, of his sentence.

In October, Waksal pleaded guilty to six counts for trying to sell his shares of ImClone stock, including securities fraud, obstruction of justice, perjury and bank fraud. Two additional counts, centering on his attempt to evade $1.2 million in sales tax on art purchases, were also included in the sentencing.

An apology

During the hearing Waksal apologized to his family, ImClone employees and all the people he has hurt. The former CEO and socialite was very emotional and at times choked up and had to stop to compose himself.

"I feel great remorse for what I did." Waksal said. " But I don't feel bitter." The child of Holocaust survivors then told the court, "I feel gratitude for all this country has allowed me to do."

To his parents, who survived a concentration camp, Waksal specifically expressed regret. "They didn't need for me to inflict this pain at this point of their lives," he said.

Seated in the front row of the courtroom was the Waksal family, including brother Harlan, daughter Aliza and father Jack. At times, Jack Waksal was in tears and frequently sat forward, with his head in his hands.

Sam and his brother Harlan Waksal started ImClone Systems(IMCLE: news, chart, profile) in 1984. ImClone's stock gained 84 cents, or 2.4 percent, to close at $36.30 Tuesday.

An impulse

In December 2001, Waksal attempted to dump his ImClone shares because the Food & Drug Administration was going to reject the company's cancer drug application, Erbitux. Ironically, the company said this month it plans to resubmit its marketing application for Erbitux in the second half of this year

"To the cancer patients. I am so sorry there was any delay in the approval of Erbitux because of my action," Waksal said.

He then pleaded for the judge to consider all that he had done for charities and others.

Waksal tipped off family members before the FDA's decision was publicly announced, and his broker, who was also Martha Stewart's broker, sold her shares ahead of the news, according to prosecutors.

Defense attorney Pomerantz, in an impassioned statement to judge William Pauley, said Waksal's crime was "committed as a matter of impulse."

The former ImClone CEO was a driven man who was facing a cash crunch in December 2001. For 20 years, Waksal had "poured his heart and soul into ImClone," and he lied to federal investigators in an attempt to protect what he had built, Pomerantz said.

"Obstruction did not take place because [Waksal] was an evil person," he said. "Essentially this was a crime of weakness."

Waksal's defense team presented 120 letters from friends and family citing charitable acts including providing an apartment near New York cancer center Sloan Kettering Hospital for a cancer-stricken ImClone employee, Angel Santiago, as well as providing an experimental version of ImClone cancer drug Erbitux for another person.

That person wrote that without the drug he would have died.

Michael Schachter, the government's lead attorney, said Waksal's good acts were not in dispute. "One does not have anything to do with the other," Schachter said.

Prosecutors had asked Judge Pauley to impose even more than the 70 to 87 months called for by the federal sentencing guidelines.

Arrogance

Judge Pauley rejected both the government's call for a stiffer sentence and Waksal's appeal for leniency. Pauley said the letters submitted on Waksal's behalf and the former CEO's good works were commendable but not the type and magnitude that deserve the label "extraordinary."

Waksal also does not deserve to take credit for all the good produced by ImClone scientists and employees, Pauley said.

"You abused your position of trust as Chief Executive Officer of a major corporation and undermined the public's confidence in the integrity of the capital markets," Pauley said. "Then you tried to lie your way out of it, showing a complete disregard of the fair administration of justice."
Luisa Beltran is a reporter for CBS.MarketWatch.com in New York. Greg Morcroft contributed to this report.

-- posted by SteveT