SEC and Other Investigations of Illegal Trading

Top 91. Jun 10, 2003 4:00 PM

» KLR - Re: Waksal Wants Club Fed Please

In response to message posted by SteveT:

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Ha! Sammy wants to go to Club Fed.

Elgin the white-collar prison known as 'Club Fed'. Elgin Federal Prison in Fort Walton has no bars or fences and offers yoga classes, tennis courts and sunbathing. It was rated as the best place to serve a sentence by the business magazine Forbes.

There's a whole new breed of scum-bag lawyers who arrange nice digs for these convicted fat-cat swindlers, drug dealers, politicians etc.

As The New York Times reported recently, in the past decade dozens of consultants have opened up shop to fulfill one of society's grand needs: sentence mitigation for white-collar crime.

These "post-conviction specialists" will act like Hollywood agents for wealthy executives -- or anyone who has tens of thousands of dollars to fork over -- negotiating prison time and wheeling and dealing to get the best cells or the "prison" that has tennis courts, etc.

Ya do the crime, ya do the time....ain't so bad if ya gotta dime I guess.

-- posted by KLR

http://www.washingtonpost.com/wp-dyn/art...

Top 92. Jul 4, 2003 9:18 AM

» Sinewave - SEC's Financial Reports Found to Be Inadequate

In response to message posted by Sinewave_03:

Audit Cites Weak Controls Over Funds

By David S. Hilzenrath
Washington Post Staff Writer
Thursday, July 3, 2003; Page E03

The Securities and Exchange Commission, which disciplines corporations for accounting failures, has had trouble keeping its own books properly.

The agency's financial reports "are not presented in accordance with applicable federal accounting requirements," an audit conducted for its inspector general found.

The report, by the Alexandria accounting firm Cotton & Co., said the SEC lacks adequate controls over agency funds. It fails, for example, to verify that stock exchanges are paying it all the fees they owe.

Those fees, based on volume of trades, are verified in the exchanges' audited reports, and "there's never been a suggestion" that the SEC was not receiving the fees it was owed, SEC spokesman Herb Perone said. "These are acknowledged problems," he added. "There is nothing in this report that we were not already aware of and taking action to correct."

The audit, completed in March, was reported yesterday by Bloomberg News.

The SEC has long been stretched thin financially, according to lawmakers and agency officials. Amid a wave of Wall Street scandals that highlighted the SEC's limitations, Congress boosted the agency's funding this year to $716 million from $487.3 million.

One of the bookkeeping problems the audit cited was the SEC's accounting for disgorgements -- the ill-gotten gains that companies or individuals are ordered to give up in enforcement actions. The SEC seemed to have recorded disgorgements as revenue, but most disgorgements are due to other parties, the report said.

The audit said that, as a result of shortcomings, the SEC's financial records "may be misstated."

Security for the SEC's information system also fell short of federal requirements, the report said. The weaknesses increase the risk that people could gain unauthorized access to sensitive information about corporations or the agency itself -- or that someone could change financial data in the agency's records, it said.

Perone said the National Security Agency, charged with protecting government data from intrusion, has assessed the SEC's systems and found no penetration.

-- posted by Sinewave

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http://www.nynewsday.com/business/ny-bzb...

Top 93. Jul 21, 2003 6:24 AM

» Kirk - Belfort Gets 4 Years in Stocks Scam

Belfort Gets 4 Years in Stocks Scam

By Susan Harrigan
Staff Writer

July 18, 2003, 6:50 PM EDT

Jordan Belfort, co-mastermind of one of the most notorious small-stock manipulation schemes in history, was sentenced in Brooklyn Federal Court Friday to four years in prison.

U.S. federal Judge John Gleeson also ordered Belfort to pay about $110.4 million in restitution to victims of Stratton Oakmont, the Lake Success-based "boiler room" operation run by Belfort and his former partner, Daniel Porush. The money will be paid in installments amounting to 50 percent of Belfort's monthly gross income after his release, Gleeson said. "Mr. Belfort's going to earn a lot of money," he said. "I have no doubt."

Stratton Oakmont, founded in 1989 and closed by regulators in December, 1996, specialized in "pump and dump" schemes. Brokers using banks of telephones ran up the prices of small stocks with aggressive and fraudulent sales pitches. Insiders then sold out, causing prices to collapse and leaving thousands of investors holding nearly worthless shares.

Belfort and Porush pleaded guilty to money-laundering and securities fraud in May, 1999. Since then, Belfort has served as a cooperating witness, with his case handled by Daniel R. Alonso, chief of the criminal division in the Eastern District of New York, and David Pitofsky, deputy chief of that division. Belfort has helped win convictions in more than two dozen cases connected with Stratton's schemes, Gleeson said.

Porush lost his effectiveness as a witness in 2001, when officials in Florida charged him with unlicensed telemarketing. He pleaded guilty to two misdemeanors in that case, and received a 13-month sentence that runs concurrently with a four-year jail term he received from Gleeson in May, 2002.

At yesterday's hearing, Belfort, 41, said he regrets his former actions. "I just feel so bad about it," he said. "I've hurt a lot of people, including family. I knew exactly what I was doing -- I just couldn't stop. Now, I try to always do the right thing."

[Kirk Comment: With violin music in the background I ask "why don't I believe him?" ]

Gleeson said Belfort's cooperation "lopped many years off" the jail term he would otherwise have gotten, but that it must be balanced against "many years of brazen, arrogant fraud." In addition to hurting investors, Belfort "corrupted hundreds of young people" who worked at Stratton and took regulators "to the cleaners, basically" by failing to honor the terms of a 1994 settlement with the SEC, he said.
Copyright © 2003, Newsday, Inc.

-- posted by Kirk

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

Top 94. Aug 17, 2003 10:52 AM

» SteveT - Retiree Sues Citigroup Over Life Savings

Retiree Sues Citigroup Over Life Savings
Fri Aug 15, 4:53 AM ET
Add Business - AP to My Yahoo!

By JILL BARTON, AP Business Writer

WEST PALM BEACH, Fla. - A retiree who lost his $2 million life savings when WorldCom stock plummeted amid the company's collapse last year has sued Citigroup for pain and suffering.

The lawsuit, filed Thursday against the nation's largest bank, could signal a new option for thousands of Americans who lost their fortunes in accounting scandals.

Anthony Amodio claims that he is penniless and ill with heart problems because he was advised to keep his 23,820 shares of WorldCom stock amid claims that the share price would climb to $150, even when it was valued in April 2002 at only $7.

The suit would be the first to compel depositions from former WorldCom chief executive Bernie Ebbers, Citigroup chairman Sanford Weill and its former telecoms analyst, Jack Grubman, said Ted Babbitt, Amodio's attorney.

The suit blames the trio for recklessly and intentionally inflating claims about the stock's potential, making them millions while countless Americans lost money.

"There isn't any dispute that these people were doing things to the detriment of their own clients, and yet they walk away without one person being indicted, without one criminal act being alleged, without one penny in civil suits personally against them," Babbitt said. "They've gotten away with it so for. But this is going to be the key that opens the door."

Mary Ellen Hillery, a spokeswoman for Salomon Smith Barney, the brokerage arm of Citigroup that's also named in the lawsuit, said the company had no comment because it had not seen the complaint.

Many investors burned by securities fraud have few options to recover their losses when a company such as WorldCom, which was brought down by an $11 billion accounting scandal, seeks bankruptcy protection. Shareholders must rely largely on lawsuits and regulatory fines to recover some of what they lost.

Shareholders also are often barred from suing their brokerage firms because investors usually sign waivers agreeing to arbitration to settle disputes.

Amodio claims he signed no waiver because his shares, acquired during his 26-year employment, were held in a Citigroup account.

He had no account with Salomon Smith Barney, but Citigroup referred him to the firm for advice when he repeatedly called with concern about the stock's plunging value.

"They painted such a picture to me to hold the shares because I was going to make my fortune," Amodio said. "I looked forward to the golden years and now I look forward to the bitter years."

He retired as a national account manager executive in 1997 after spending nearly three decades at MCI. He invested in the company's stock and was required to trade it for shares in WorldCom when it purchased MCI, according to his suit.

He called Citigroup and Salomon as early as July 1999, when his shares would have been valued at $2.1 million, and said he was advised that Grubman predicted the stock to break triple digits by the year's end.

Suing under Florida's legal tort of "outrage," his lawsuit could be the first to demand losses for emotional distress over a financial loss, according to legal experts.

Last April, Citigroup paid the highest penalty of any Wall Street firm — $400 million — to settle charges that its Smith Barney unit issued fraudulent and misleading research. Regulators also fined Grubman, and are investigating his former boss, Weill.

-- posted by SteveT

http://www.nytimes.com/2003/08/15/busine...

Top 95. Aug 19, 2003 3:09 PM

» SteveT - Investment Firms Settle Case After Broker Cheated Clients

Investment Firms Settle Case After Broker Cheated Clients
By THE ASSOCIATED PRESS

CLEVELAND, Aug. 14 — Two brokerage firms that employed a stockbroker who cheated clients out of millions of dollars have agreed to pay a combined $7.5 million in penalties and to review clients' requests for lost investment profits, securities regulators said today.

The SG Cowen Securities Corporation agreed to pay a penalty of $5 million and Lehman Brothers agreed to pay $2.5 million as part of a settlement announced by the Securities and Exchange Commission and the New York Stock Exchange. The money will be split equally between the S.E.C. and the exchange.

The S.E.C. and the Big Board determined that SG Cowen and Lehman Brothers had failed to adequately supervise a stockbroker, Frank Gruttadauria, and had not maintained complete and accurate records.

The firms agreed to the settlement without admitting or denying the findings. Both firms said they had cooperated with the investigation.

The S.E.C. said Mr. Gruttadauria misappropriated $115 million from investors from 1987 to 2002.

About $47 million of that total was stolen during the 27 months that SG Cowen employed Mr. Gruttadauria, and $21.5 million was misappropriated during the 15 months that he worked for Lehman Brothers, the S.E.C. and the exchange said.

The settlement established an arbitration process for customers to make requests for payment for money they probably would have earned from investments. Lehman Brothers said the process would permit it to settle any remaining claims quickly.

Lehman repaid its clients last year for the money taken from their accounts, the S.E.C. said. SG Cowen said today that it had paid its clients more than $125 million, including money to cover lost investment profits.

Mr. Gruttadauria was sentenced on Nov. 14 in United States District Court in Cleveland to seven years in prison. He pleaded guilty a year ago to securities, wire and bank frauds and identity theft.

-- posted by SteveT

Top 96. Sep 11, 2003 8:15 AM

» Kirk - Grasso: The Well-Paid Regulator

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The Well-Paid Regulator [WSJ 9/11/03]
AHEAD OF THE TAPE By JESSE EISINGER
http://www.siliconinvestor.com/stocktalk...

Investors have had two major revelations in the past several weeks that suggest the stock market continues to be a rigged game.

Major mutual-fund companies were taking fees to allow hedge funds to make trades that stripped profits directly out of the pockets of their own retail-investor customers. And then there is the flap over Dick Grasso's pay.

While the stock rally has been strong this year, individual investors are only just getting back in. The scandals come at an inopportune time.

When the New York Stock Exchange last month sneezed out the $140 million compensation plan for its blessed chairman, we were told the controversy was put to rest. But then this week, Mr. Grasso and the NYSE were forced, only after pressure from the Securities and Exchange Commission, to reveal that indeed the blessings actually surpassed the original number. There was a heretofore undisclosed addition of $48 million. It's compensation enough to make the Simpsons' C. Montgomery Burns ashamed.

Sure, Mr. Grasso made a show of giving up this money, which nobody outside the NYSE knew he was entitled to in the first place. And then he declared: "I've put this issue behind me."

That's not good enough. That the NYSE said it had fully disclosed Mr. Grasso's pay package, when, in fact, it hadn't, is minor. The wider issue here is that the package smacks of a clandestine payback. Mr. Grasso is not just a CEO, he is a regulator. His paymasters are from the firms he is charged with regulating.

Mr. Grasso explained that there never was a "two-way" dialogue about his pay. Of course there wasn't. The regulated don't need such things explained to them. There is a reason that Merck and Pfizer don't set FDA's commissioner Mark McClellan's pay.

The NYSE supporters are right: Whatever the NYSE wants to pay its CEO is fine. But only if the NYSE is stripped of its regulatory authority. It's untenable for a regulator to simultaneously be running a business, especially one besieged by superior competition.

Investors need to trust that when those who run the markets throw out pieties about disclosure and fairness, they are sincere. The way to restore investor trust is not for Mr. Grasso to give back fractions of his wealth, but to give up a bit of his power.

-- posted by Kirk

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

Top 97. Sep 11, 2003 8:20 AM

» Kirk - Grasso's days are numbered

Grasso's days are numbered
Commentary: Pay scandal ruins image of 9/11 valor

By David Callaway, CBS.MarketWatch.com
Last Update: 12:05 AM ET Sept. 11, 2003

SAN FRANCISCO (CBS.MW) - He was by no means a New York City fireman, risking his life to run into the collapsing towers, but Dick Grasso nonetheless became a symbol of the bravery and resolve that characterized that city and this nation two years ago this week.

The New York Stock Exchange chairman, overseer of the very symbol of American financial greatness the terrorists sought to destroy, almost single-handedly rallied a frightened Wall Street by opening the exchange back up only six days after the attacks.

Sitting there at press conferences in the days after the attacks, proclaiming that the terrorists would not stop the engine of the global financial markets, Grasso helped launch the surge of patriotic pride that got America back on its feet.

But now, only two years later, Grasso is under fire, a symbol of the greed and lack of integrity at the very top of the financial food chain that has come to underline the corporate corruption scandals of the latest bear market.

The Dow Jones average ($INDU: news, chart, profile) and the Nasdaq ($COMPQ: news, chart, profile) may be just barely above where they were two years ago when the planes hit, but on the corner of Wall and Broad in lower Manhattan, the image of the NYSE has changed forever.

That Grasso had accumulated some $140 million in compensation during his 36-year career at the exchange, the vast majority in the last decade, was surprising enough for a man whose position is more regulator and cheerleader on Wall Street than risk taker. And it was inevitable that when the NYSE finally disclosed it last month, it would provoke a hailstorm of criticism.

But when the exchange came out this week to say that he was entitled to another $48 million, but that he would honorably not take it, this scandal vaulted into the realm of the absurd. What could the directors of the exchange possibly have been thinking when they awarded this package, other than that they could expect similar treatment from him for their companies or themselves at some point?

To be honest, you can't blame Grasso. Like everybody else who makes a living grubbing for money on Wall Street, he took what he could get. I'm sure he feels he worked hard all his career and was entitled to at least some of the wealth that his friends and neighbors in the securities industry customarily accumulated.

But if he had stepped away from the opening bell and the balcony overlooking the trading floor for just one minute to really think about how the investing public looks to him and the NYSE as a symbol of fairness and integrity in the American capital markets, he would see what a terrible mistake he and the board have made.

I only met Dick Grasso once, seven or eight years ago in Luxembourg or all places, where he gave a speech at a conference for European exchange leaders. The speech was unremarkable; basically a list of facts about why the NYSE was so great.

What was remarkable, however, was the way the crowd treated him. Despite his squeaky voice and small stature, he moved like a giant through the post-speech cocktail party, shaking hands and pontificating on Europe and the U.S., his handlers at his side clearing the way as if for a rock star.

By comparison, the leaders of Europe's exchanges at the time seemed puny; NYSE and Nasdaq wannabees who melted into the background when Mr. Big entered the room.

Those were the days when folks still talked seriously about a global stock market, with a 24-hour, rolling trading day across Asia, Europe and the U.S., and the NYSE at the heart of it. Those dreams died along with the technology bubble and the advent of the bear market, however, and this latest debacle has surely put a stake in their heart.

Grasso stood defiantly in front of reporters Wednesday and vowed not to resign in the face of the growing scandal, but he won't have a choice at the end of the day. William Donaldson, head of the Securities and Exchange Commission, and Grasso's (obviously underpaid) predecessor at the NYSE, can't afford to have the world's largest exchange at the center of Wall Street's biggest pay scandal in years.

Grasso is biding time until he gets the $140 million. Once he has it, he will quit, walking into the sunset with little care about his legacy. That's the way Wall Street has always worked, and probably always will.

But if the NYSE ever wants to regain the credibility it enjoyed under Grasso at the height of the bull market, its board should resign too. Alas, after Enron (ENRNQ: news, chart, profile), WorldCom (MCWEQ: news, chart, profile), Martha Stewart, and the Wall Street analyst research scandals, it has finally become clear.

The fish is rotten at the head.

[Kirk Comment: I agree you can't blame Dick Grasso. His job is to get as much as possible from those that pay him. The trouble is the whole system is odd in that he is paid by those he regulates and they made him very, very rich!]

-- posted by Kirk

Top 98. Sep 16, 2003 12:05 PM

» DavidWShane - New York Attorney General Investigation of Mutual Funds

Kirk and others: I hold Strong mutual funds, one of the four companies named in the recent complaints brought by the New York Attorney General. These funds represent about 15% of our total retirement portfolio.

Strong is presently issuing what I would characterize as "bland denials" of the allegations in the complaints. My wife and I are uneasy about continuing to hold Strong Funds. I am concerned that if the suit progresses, shareholders will abandon the funds and therefore force Strong to sell holdings to meet all the requests to liquidate.

Are my fears grounded? What would you consider doing in a situation like this? I have been a shareholder with Strong for two decades and have basically been impressed with how they communicate with shareholders. Their performance hasn't always been stellar, but I'd say average to a bit above.

Thanks for your thoughts on this issue.

David W. Shane

-- posted by DavidWShane

Top 99. Sep 16, 2003 12:20 PM

» Kirk - Re: New York Attorney General Investigation of Mutual Funds

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In response to message posted by DavidWShane:

I am not going to get into legal trouble advising folks to buy or sell ANYTHING here.

but... I'd sure be concerned having my money in the hands of ANYONE who was convicted of cheating me.

Sort of the old, fool me once, shame on you. Fool me twice, shame on me.

on the flip side, you might consider this just part of the cost of doing business and if they can earn returns in excess of index funds to cover their expenses, then you really don't care if they are paying illegal bribes to Saudi's or driving expensive cars.

I am happy to learn folks will probably go to jail for this as a fine is not punishment at all since shareholders pay it.

-- posted by Kirk