MORTGAGE FRAUD CRIMES: REVENGE, A DISH SERVED COLD

The following excerpt is from the Department of Justice website:

“Friday, January 27, 2012
WASHINGTON – Attorney General Eric Holder along with Housing and Urban Development (HUD) Secretary Shaun Donovan, Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami and New York Attorney General Eric T. Schneiderman today announced the formation of the Residential Mortgage-Backed Securities Working Group under President Obama’s Financial Fraud Enforcement Task Force (FFETF).

At the direction of the President, this Working Group brings together the Department of Justice (DOJ), several state attorneys general and other federal entities to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities.  This effort will be in coordination with and in addition to the ongoing efforts and investigations by the Justice Department, FFETF members and state and federal law enforcement investigating and prosecuting other types of financial fraud.

Attorney General Holder announced that the new Working Group will consist of at least 55 Department of Justice attorneys, analysts, agents and investigators from around the country.  Currently, 15 civil and criminal attorneys are part of the Working Group, along with 10 FBI agents and analysts who will be assigned to the Working Group efforts.  An additional 30 attorneys, investigators and other staff around the country will join the Working Group efforts in the coming weeks.  This team will join existing state and federal resources investigating similar misconduct under those authorities.

The goals of this collaboration will be: to hold accountable any institutions that violated the law; to compensate victims and help provide relief for homeowners struggling from the collapse of the housing market, caused in part by this wrongdoing; and to help Americans finally turn the page on this destructive period in our nation’s history.

“This Working Group brings together federal and state partners to strengthen current and future efforts to investigate and prosecute instances of wrongdoing in the residential mortgage-backed securities market,” said Attorney General Holder.  “With this focus on collaboration – and by bringing our government’s full enforcement resources to bear – I have no doubt that we will improve our ability to recover losses, to prevent fraud, to bring abuses to light, and to hold those who violate the law accountable.  That’s what the challenge before us demands, and that’s what the American people deserve.”
The working group will be co-chaired by senior officials at the Department of Justice and SEC, including Lanny Breuer, Assistant Attorney General, Criminal Division, DOJ; Robert Khuzami, Director of Enforcement, SEC; John Walsh, U.S. Attorney, District of Colorado; and Tony West, Assistant Attorney General, Civil Division, DOJ.
The working group will also be co-chaired by New York Attorney General Schneiderman, who will lead the effort from the state level.  Other state Attorneys General have been and will be joining this effort.

“I am pleased to co-chair this important effort.  Each of us offers different tools and talents, but we are all united by a common and continuing desire to identify misconduct in the mortgage securitization process,” said SEC Enforcement Director Khuzami.  “The SEC has issued scores of subpoenas, obtained millions of documents, and interviewed dozens and dozens of key witnesses related to mortgage-backed securities.  This collaborative effort will enable us pool our knowledge and leverage our resources.”
“Millions of American families have been harmed by the foreclosure crisis,” said HUD Secretary Donovan.  “These families deserve justice.  They deserve relief.  That is why this investigation is so important.  With a new Residential Mortgage-Backed Securities Working Group led by Attorney General Holder and state leaders like New York Attorney General Schneiderman, we will build on the work of the President’s Financial Fraud Enforcement Task Force by investigating misconduct we know led directly to the financial crisis.  And I’m proud that the Office of the HUD Inspector General David Montoya —which over the past year has been central to uncovering wrongdoing with respect to faulty foreclosure servicing practices—will play a critical role in the mortgage origination component of this review.”

“I would like to thank President Obama and Attorney General Holder for their leadership in combating financial fraud in this country and I look forward to co-chairing this working group that marshals state and federal resources to build on those efforts by bringing justice on behalf the victims of the misconduct that caused the mortgage crisis,” said Attorney General Schneiderman.  “In coordination with our federal partners, our office will continue its steadfast commitment to holding those responsible for the mortgage crisis accountable, providing meaningful relief for homeowners commensurate with the scale of the misconduct, and getting our economy moving again.  The American people deserve a thorough investigation into the global financial meltdown to ensure nothing like it ever happens again, and today’s announcement is a major step in the right direction.”
The Obama Administration is committed to ensuring that justice and relief are provided for the millions of American families harmed by the financial crisis.

President Obama created the Financial Fraud Enforcement Task Force by executive order in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorneys’ Offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud and bring to bear a powerful array of criminal and civil enforcement resources.

Since its formation, the Task Force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Task Force members have charged a record number of  mortgage fraud cases in the past two years, trained more than 100,000 professionals responsible for awarding and overseeing Recovery Act funds and held regional summits around the country to discuss strategies, resources and initiatives as well as to meet with communities most affected by the financial crisis.”
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OWNER AND EMPLOYEE OF HEALTH CARE COMPANY IN FLORIDA PLEAD GUILTY TO FRAUD

The following excerpt is from the U.S. Department of Health and Human Services:

January 26, 2012
Owner and Employee of Miami Home Health Company Plead Guilty in $22 Million Health Care Fraud Scheme

WASHINGTON – The owner and an employee of a Miami health care agency pleaded guilty for their participation in a $22 million home health Medicare fraud scheme, the Department of Justice, the FBI and the Department of Health and Human Services (HHS) announced today.
Marietha Morales, 38, pleaded guilty on Jan. 24, 2012, before U.S. District Judge Seitz to one count of conspiracy to commit health care fraud and Eduardo Saborit-Dominguez, 48, pleaded guilty today before Judge Seitz to one count of conspiracy to violate the Anti-Kickback Statute. Sentencing for both defendants is scheduled for May 23, 2012.  The charge of conspiracy to commit health care fraud carries a maximum prison sentence of 10 years.

According to the court documents, Morales was the president and Saborit-Dominguez was an employee of Prime Home Health Services Inc., a Florida home health agency that purported to provide home health care and physical therapy services to eligible Medicare beneficiaries.

According to plea documents, Morales conspired with patient recruiters for the purpose of billing the Medicare program for unnecessary home health care and therapy services. Morales and her co-conspirators paid kickbacks and bribes to patient recruiters in return for these recruiters providing patients to Prime Home Health, as well as prescriptions, plans of care and certifications for medically unnecessary therapy and home health services for Medicare beneficiaries. Saborit-Dominguez distributed the kickbacks and bribes to co-conspirator patient recruiters and knew that the payment of kickbacks and bribes was in violation of federal criminal laws. Morales used these prescriptions, plans of care and medical certifications to fraudulently bill the Medicare program for home health care services, which Morales knew was in violation of federal criminal laws.

According to plea documents, at Prime Home Health, nurses and office staff falsified patient files for Medicare beneficiaries to make it appear that such beneficiaries qualified for home health care and therapy services from Prime Home Health. Morales admitted that she knew the beneficiaries did not actually qualify for and did not receive such services. Morales knew that these files were falsified so that the Medicare program could be billed for medically unnecessary therapy and home health related services.
From approximately February 2005 through April 2011, Morales and her co-conspirators submitted approximately $22 million in false and fraudulent claims to Medicare and Medicare paid approximately $14 million on those claims.

The plea was announced by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; John V. Gillies, Special Agent-in-Charge of the FBI’s Miami Field Office; and Special Agent-in-Charge Christopher Dennis of the HHS Office of Inspector General (HHS-OIG), Office of Investigations Miami Office.

This case is being prosecuted by Trial Attorney Joseph S. Beemsterboer of the Criminal Division’s Fraud Section. The case was investigated by the FBI and HHS-OIG, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Miami.

Since their inception in March 2007, Medicare Fraud Strike Force operations in nine locations have charged more than 1,140 defendants who collectively have falsely billed the Medicare program for more than $2.9 billion.  In addition, the HHS Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.”

HEDGE FUND ADVISER AGREES TO PAY $9 MILLION TO SETTLE INSIDER-TRADING CHARGES

The following excerpt is from a SEC e-mail: 

01/23/2012 10:33 AM EST

"Washington, D.C., Jan. 23, 2012 — The Securities and Exchange Commission today announced that Diamondback Capital Management LLC has agreed to pay more than $9 million to settle insider-trading charges brought by the Commission on Jan. 18. The proposed settlement is subject to the approval of Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York. As part of the proposed settlement, the Stamford, Conn.-based hedge fund adviser also has submitted a statement of facts to the SEC and federal prosecutors, and entered into a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York.

Under the proposed settlement, Diamondback will give up more than $6 million of allegedly ill-gotten gains and pay a $3 million civil penalty. In addition, Diamondback consented to a judgment that permanently enjoins it from future violations of federal anti-fraud laws. The proposed settlement would resolve charges of insider trading by Diamondback in shares of Dell Inc. and Nvidia Corp. in 2008 and 2009.

“We are pleased to have reached a prompt resolution of the charges against Diamondback,” said George S. Canellos, Director of the SEC’s New York Regional Office. “If approved by the court, we believe that the proposed settlement appropriately sanctions the misconduct while giving due credit to Diamondback for its substantial assistance in the government’s investigation and the pending actions against former employees and their co-defendants.”

Last week, the SEC filed insider-trading charges against Diamondback, a second hedge fund advisory firm, and seven individuals, including a former Diamondback analyst and former Diamondback portfolio manager. In reaching the proposed settlement announced today, the SEC considered the substantial cooperation that Diamondback provided, including conducting extensive interviews of staff, reviewing voluminous communications, analyzing complex trading patterns to determine suspicious trading activity, and presenting the results of its internal investigation to federal investigators."

MIAMI-BASED BANK EXECUTIVE PLEADS GUILTY TO ACCEPTING BRIBES AND INCOME TAX FRAUD

The following excerpt  is from the Department of Justice website:

Wednesday, January 25, 2012

"WASHINGTON – A former executive of Miami-based Ocean Bank pleaded guilty today in U.S. District Court in Miami to participating in a scheme to accept bribes and to failing to report the income on federal income tax returns, the Department of Justice announced.

Danilo P. Perez, a former vice president of Ocean Bank, pleaded guilty today to felony charges filed on Jan. 18, 2012, in U.S. District Court in Miami. The charges against Perez stem from his accepting nearly $500,000 in cash and other items from unnamed co-conspirators in connection with his supervision of certain unnamed customer business with the bank.

According to court documents, as vice president, Perez generally oversaw Ocean Bank’s lending relationships with corporate customers of the bank.   The department said that beginning in or about February 2001 and continuing thereafter through on or about April 25, 2007, Perez accepted bribes, including payments for expensive watches, Super Bowl Tickets and other items for his personal use, as well as substantial amounts of cash. Perez accepted the payments intending to be rewarded and influenced in connection with his role in approving Ocean Bank’s issuance of letters of credit, loans and overdraft privileges to his co-conspirators. The court documents also show that he failed to report income from the bribes for the tax years 2005, 2006 and 2007, resulting in lost tax revenue of approximately $91,000 to the federal government.

Perez was charged with one count of conspiracy to solicit or demand money and other things of value to influence an employee of a financial institution and three counts of tax offenses. The conspiracy count carries a maximum sentence of five years in prison and a $250,000 criminal fine. The tax charges each carry a maximum sentence of three years in prison and $250,000 fine. The maximum fine for each count may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either amount is greater than the statutory maximum fine."

COMPANIES RESOLVE VIOLATIONS OF HAZARDOUS WASTE FINANCIAL ASSURANCE REQUIREMENTS

The following excerpt is from the EPA website:

“Southern Wood Piedmont Company Settles Financial Assurance Claims
WASHINGTON — The U.S. Environmental Protection Agency (EPA) announced that Southern Wood Piedmont Company and its parent company, Rayonier Inc., have agreed to pay a $317,000 penalty to resolve violations of hazardous waste financial assurance requirements and have obtained more than $41.7 million in financial assurance. Financial assurance protects public health and the environment by ensuring that financial resources are available to properly close and clean up facilities in the event that an owner or operator defaults on its closure, post-closure, or cleanup obligations under environmental laws.
“EPA is committed to bringing hazardous waste facilities into compliance with financial assurance requirements that prevent shifting future cleanup costs onto taxpayers,” said Cynthia Giles, assistant administrator for EPA’s Office of Enforcement and Compliance Assurance. “Today’s settlement will reduce the likelihood of improper handling of hazardous waste and ensure that environmental damage at these facilities can be properly cleaned up.”

On February 4, 2010, EPA sent a notice of violation to Southern Wood Piedmont Company notifying the company that its hazardous waste facilities were not in compliance with applicable financial assurance requirements under the Resource Conservation and Recovery Act (RCRA) and it needed to obtain qualifying financial assurance for these obligations.


 Southern Wood Piedmont Company also had inadequate RCRA financial assurance coverage at a facility in Chattanooga, Tenn. not covered by EPA’s administrative agreement. In 2010, EPA worked with Tennessee to ensure that Southern Wood Piedmont Company obtained an additional $1.6 million in financial assurance for that facility.


 Southern Wood Piedmont Company is a wholly-owned subsidiary of Rayonier, Inc., a global forest products company, involved in the ownership, leasing, and management of forest resources and related real estate, and the production of performance fibers.”

SEC ALLEGES LAVISH MANAGEMENT LIFESTYLES WERE FUNDED BY INVESTMENT MONEY

The following excerpt is from the SEC website:

January 23, 2012
“The Securities and Exchange Commission today announced that, on January 19, 2012, the Honorable Jed S. Rakoff of the United States District Court for the Southern District of New York entered a default judgment that imposes a permanent injunction against future violations of the registration and antifraud provisions of the federal securities laws against PermaPave Industries, LLC, PermaPave USA Corp., PermaPave Distributions, Inc., and Verigreen, LLC (the PermaPave Entities) and that also imposes a permanent injunction against future violations of the reporting and antifraud provisions of the federal securities laws against Interlink-US-Network, Ltd.

As to monetary relief, the judgment orders the PermaPave Entities to pay disgorgement, prejudgment interest, and civil penalties and orders Interlink to pay civil penalties. The judgment also orders relief defendants DASH Development, LLC, Aron Holdings, Inc., PermaPave Construction Corp., Dymoncrete Industries, LLC, Dymon Rock LI, LLC, and Lumi-Coat, Inc. to disgorge the ill-gotten gains they received from defendants.

This judgment resolves the Commission’s claims and grants all relief sought against the PermaPave Entities, Interlink, DASH, Aron Holdings, PermaPave Construction, Dymoncrete Industries, Dymon Rock, and Lumi-Coat in a civil action filed on October 6, 2011.

The Commission’s Complaint alleged that, from 2006 to 2010, the PermaPave Entities raised more than $26 million from the sale of promissory notes and “use of funds” agreements to over 140 investors. Their management told investors that there was a tremendous demand for the product that the PermaPave Entities ostensibly sold – permeable paving stones – and that investors would be repaid by the profits generated by the guaranteed sales of this product. In reality, however, there was little demand for the product, and defendants used investor proceeds to make “interest” and “profit” payments to earlier investors and to fund management’s lavish lifestyles. The management of the PermaPave Entities also caused Interlink to issue a Form 8-K stating that a company that had never heard of Interlink had agreed to invest $6 million in Interlink.

The judgment (i) permanently enjoins the PermaPave Entities from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5, (ii) permanently enjoins Interlink from future violations of Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, and 13a-11, (iii) orders the PermaPave Entities to pay $7,734,983 in disgorgement, $281,268 in prejudgment interest, and $7.7 million in civil penalties, (iv) orders Interlink to pay $375,000 in civil penalties, and (v) orders relief defendants DASH, Aron Holdings, PermaPave Construction, Dymoncrete Industries, Dymon Rock, and Lumi-Coat to disgorge ill-gotten gains received from defendants totaling $4,236,252 and prejudgment interest totaling $214,233.

The Commission’s civil action continues against Defendants Eric Aronson, Vincent Buonauro, Robert Kondratick, Fredric Aaron, and Permeable Solutions, Inc. and Relief Defendants Caroline Aronson and Deborah Buonauro.”

ZOMBIE DEBT MORTGAGE COMPANY PAYS FINE

The following excerpt is from The Department of Justice website: 

Monday, January 30, 2012

"WASHINGTON – Asset Acceptance LLC, a Michigan-based debt buyer, has agreed to a consent decree to settle a civil lawsuit regarding its debt collection activities, the Justice Department announced today. In the decree, Asset agrees to implement a range of new practices to protect consumers and to pay a $2.5 million civil penalty. Asset specializes in purchasing old consumer debts from other companies, and then holding and collecting on these debts over a long period of time. According to the complaint, as of Sept. 30, 2010, Asset held more than 34 million individual accounts with an original value of more than $42 billion, making it one of the nation’s largest debt buyers and a market leader.

If accepted by the court, the proposed consent decree, filed today in the U.S. District Court for the Middle District of Florida in Tampa, will settle charges alleging that Asset violated the Federal Trade Commission Act, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. The complaint bringing these civil charges was also filed today.  

According to the complaint, many of the debts Asset purchased are outside of the statute of limitations and consumers have no enforceable legal obligation to pay that debt. In some states, consumers can reset the statute of limitations if they promise to pay the debt or make a partial payment on the debt. Asset is alleged to have collected on this so-called “zombie” debt without informing consumers that these debts were not legally enforceable, or that in making a partial payment or promise to pay, they may have unwittingly breathed life back into these debts.  

The complaint also charges additional violations of federal consumer protection laws, including that Asset systematically failed to conduct a reasonable investigation when a consumer told the company that a debt Asset called about was not the consumer’s debt, that the debt had already been paid or that the consumer had been the victim of identity theft. Similarly, when learning of a consumer dispute from a consumer reporting agency, the company is alleged to have systematically failed to conduct a reasonable investigation of the dispute. Asset also allegedly reported negative information about consumers to credit bureaus, even when the company was aware that a consumer had not received a written notice of that fact because the notice was returned as undelivered mail. According to the complaint, some of these consumers would only learn that Asset had reported them to a credit bureau when applying for a mortgage or auto loan. Even if they believed the debt was invalid, some consumers would pay Asset to avoid losing out on a new loan they needed to get quickly.  

The complaint further charges that Asset repeatedly called the wrong person when attempting to collect on a debt, even after being told that the company had reached the wrong number.

“Debt collectors can play a legitimate role in our economy, but only if they follow the law,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice.   “As this resolution demonstrates, those who do not deal fairly and honestly with consumers will be held accountable.   The consent decree we are filing today – which requires Asset Acceptance to pay a stiff penalty and change the way it does business – can serve as a model for the entire debt collection industry.”    

Under the terms of the settlement, when Asset attempts to collect a debt that may be beyond the statute of limitations, the company must inform the consumer that he or she will not be sued on the debt; further, the company must remind consumers of this promise in any situation where the consumer is likely to have forgotten the disclosure or its effects.  

The settlement also requires other changes to Asset’s business practices that create safeguards for consumers. For example, the company must conduct a reasonable investigation into the legitimacy of a debt when it becomes aware of a consumer dispute or if the company who sold a debt to Asset provided unreliable information about the original debt. The company can no longer consider undelivered mail to constitute notice that information about a consumer is being reported to a credit reporting agency or repeatedly contact third parties in a way that violates the Fair Debt Collection Practices Act.

“We are proud to announce this landmark consumer protection settlement in an area that is of great concern to our residents and to this office,” stated Robert E. O'Neill, U.S. Attorney for the Middle District of Florida. “We hope that this consent decree will have the added benefit of deterring other debt collectors from engaging in the sharp practices that we are addressing here.”

The Department of Justice’s Consumer Protection Branch and the U.S. Attorney for the Middle District of Florida filed the complaint and proposed consent decree on behalf of the Federal Trade Commission (FTC), which investigated the violations and referred the case to the Department of Justice. The agreed civil penalty is the second-largest ever in an FTC debt collection case and should deter other debt buyers and debt collectors from engaging in similar misleading practices as those alleged in the complaint.  

This matter was investigated by Tracy S. Thorleifson and Julie Mayer of the FTC. The case is being prosecuted by Adrienne Fowler and Sang Lee of the Justice Department’s Consumer Protection Branch.

NOTE :   The stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Stipulated orders have the full force of law only when signed by the judge."

A FOUNDER OF NINJA VIDEO.NET SENTENCED FOR COPYRIGHT CONSPIRACY

The following excerpt is from the Department of Justice website:


Friday, January 20, 2012
"WASHINGTON – Matthew David Howard Smith, 24, of Raleigh, N.C., was sentenced today in Alexandria, Va., to 14 months in prison for his role in founding NinjaVideo.net, a website that provided millions of users with the ability to illegally download high-quality copies of copyright-protected movies and television programs, announced the Department of Justice and U.S. Immigration and Customs Enforcement (ICE).
At sentencing, U.S. District Judge Anthony J. Trenga also ordered Smith to serve two years of supervised release following his prison term, to pay $172,387 and to forfeit to the United States five financial accounts and various computer equipment involved in the crimes. Smith pleaded guilty on Sept. 23, 2011, to conspiracy and criminal copyright infringement.
Smith was one of the founders of the NinjaVideo.net website, which operated from February 2008 until it was shut down by law enforcement in June 2010. NinjaVideo.net provided millions of website visitors with the ability to illegally download infringing copies of copyright-protected movies and television programs in high-quality formats. Many of the movies offered on the website were still playing in theaters, while others had not yet been released. According to court documents, Smith designed many operational elements of the website, including an “applet” that was required to view infringing content on the NinjaVideo.net website. Smith admitted that he made agreements with online advertising entities to generate income for the website, and he and his co-conspirators collected more than $500,000 during the website’s two-and-a-half years of operation. Smith kept $172,387 of the illegal proceeds for himself.
On Sept. 9, 2011, Smith was indicted along with four of the other top administrators of NinjaVideo.net. Co-defendant Hana Amal Beshara was sentenced on Jan. 6, 2012, to 22 months in prison and ordered to repay nearly $210,000 for her role as another co-founder of NinjaVideo.net. Two additional co-defendants are awaiting sentencing. An arrest warrant remains outstanding for the fourth indicted co-defendant, Zoi Mertzanis of Greece. Another co-founder of NinjaVideo.net who was charged separately has also pleaded guilty.
The case was prosecuted by the U.S. Attorney’s Office for the Eastern District of Virginia and the Criminal Division’s Computer Crime & Intellectual Property Section.
The investigation was conducted by the ICE’s Homeland Security Investigations-led National Intellectual Property Rights Coordination Center (IPR Center). The IPR Center is one of the U.S. government’s key weapons in the fight against criminal counterfeiting and piracy. As a task force, the IPR Center uses the expertise of its 19 member agencies to share information, develop initiatives, coordinate enforcement actions and conduct investigations related to IP theft. Through this strategic interagency partnership, the IPR Center protects the public's health and safety, the U.S. economy and the war fighters.
To report IP theft or to learn more about the IPR Center, visit www.IPRCenter.gov.
This case is part of efforts being undertaken by the Department of Justice Task Force on Intellectual Property (IP Task Force) to stop the theft of intellectual property. Attorney General Eric Holder created the IP Task Force to combat the growing number of domestic and international intellectual property crimes, protect the health and safety of American consumers and safeguard the nation’s economic security against those who seek to profit illegally from American creativity, innovation and hard work. The IP Task Force seeks to strengthen intellectual property rights protection through heightened criminal and civil enforcement, greater coordination among federal, state and local law enforcement partners, and increased focus on international enforcement efforts, including reinforcing relationships with key foreign partners and U.S. industry leaders. To learn more about the IP Task Force, go towww.justice.gov/dag/iptaskforce.

SEC ALLEGES INSIDER TRADING SCHEME IN DELL AND NVIDIA

The following excerpt is from the SEC website:

“On January 18, 2012, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging two multi-billion dollar hedge fund advisory firms as well as seven fund managers and analysts involved in a $78 million insider trading scheme based on nonpublic information about Dell’s quarterly earnings and other similar inside information about Nvidia Corporation.

The charges stem from the SEC’s ongoing investigation into the trading activities of hedge funds. The U.S. Attorney for the Southern District of New York today announced criminal charges against the same seven individuals.

The SEC alleges that a network of closely associated hedge fund traders at Stamford, Conn.-based Diamondback Capital Management LLC and Greenwich, Conn.-based Level Global Investors LP illegally obtained the material nonpublic information about Dell and Nvidia. Investment analyst Sandeep “Sandy” Goyal of Princeton, N.J., obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008. Goyal tipped Diamondback analyst Jesse Tortora of Pembroke Pines, Fla., with the inside information, and Tortora in turn tipped several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds.

According to the SEC’s complaint, the illicit gains in the Dell insider trades exceeded $62.3 million, and the illicit gains in the Nvidia insider trades exceeded $15.7 million. For his role in the scheme, Goyal was paid $175,000 in soft dollar payments that were deposited in a brokerage account of an individual affiliated with him.
The SEC alleges that after obtaining the inside information from Goyal in advance of Dell’s first and second quarter earnings announcements in 2008, Tortora tipped his portfolio manager at Diamondback, Todd Newman of Needham, Mass. Newman traded on the information on behalf of the Diamondback hedge funds he controlled. Tortora also tipped Spyridon “Sam” Adondakis, an analyst at Level Global. Adondakis tipped his manager Anthony Chiasson, who then traded on the inside information on behalf of Level Global hedge funds. During this time period, both Adondakis and Chiasson lived in New York City.

According to the SEC’s complaint, Tortora also tipped two others at firms other than Diamondback or Level Global with the Dell inside information: Jon Horvath of New York City and Danny Kuo of San Marino, Calif. Horvath caused insider trades at his firm that resulted in approximately $1.4 million of illicit gains. Kuo similarly caused the firm where he worked to execute profitable insider trades in Dell securities.
The SEC further alleges that Kuo also obtained inside information about Nvidia Corporation’s calculation of its revenues, gross profit margins, and other financial metrics in advance of the company’s first quarter 2010 earnings announcements, which was made in May 2009. Kuo again caused his firm to trade on inside information. Kuo’s insider trades in Dell and Nvidia resulted in approximately $270,000 in ill-gotten gains. Kuo also tipped Tortora at Diamondback and Adondakis at Level Global with the nonpublic information about Nvidia. Tortora again tipped Newman, who made more insider trades on behalf of the Diamondback hedge funds. The illegal trades in Dell and Nvidia securities resulted in $3.9 million in illicit gains for Diamondback. At Level Global, Adondakis tipped Chiasson who made the insider trades on behalf of those hedge funds. Chiasson’s insider trades in Dell and Nvidia resulted in approximately $72.6 million of illicit gains for the Level Global hedge funds.

The SEC’s complaint charges each of the defendants with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and, additionally, charges Goyal, Tortora, Newman, Adondakis, Chiasson, Horvath and Kuo with aiding and abetting others’ violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s complaint seeks a final judgment ordering the defendants to disgorge their ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.”

SEC ALLEGES MISAPPROPRIATION OF $9 MILLION THROUGH INVESTMENT FUNDS AND MANAGEMENT COMPANIES

The following excerpt is from the SEC website:

January 18, 2012

"The Securities and Exchange Commission today announced that it has filed charges and obtained emergency relief, including an asset freeze and the appointment of a receiver, against several St. Louis, Missouri private investment funds and management companies. The SEC alleges that Burton Douglas Morriss, the principal of these entities, misappropriated over $9 million of investor assets.

The SEC alleges that Morriss told investors that his private investment funds and management companies would invest their money in a portfolio of financial services and technology companies. However, investors were unaware that for the past several years, Morriss had been misappropriating their money to the tune of millions of dollars through a series of fraudulent transfers to himself and another entity he controlled. To conceal his fraud, Morriss later disguised these fraudulent transfers as personal loans.

According to the SEC’s complaint filed in federal court in St. Louis, Missouri, at various times between approximately 2003 and 2011, Morriss, his two private investment funds, MIC VII, LLC and Acartha Technology Partners, LP, and his management firms, Gryphon Investments III, LLC and Acartha Group, LLC, raised at least $88 million from at least 97 investors to invest in preferred shares or membership interests in the defendant entities. The defendants represented to investors that the investment funds would invest in early to mid-stage companies in the financial services and technology sectors.

The SEC alleges that unbeknownst to investors, for the past several years, Morriss has misappropriated investor funds through transfers from his companies to himself and another entity he controlled, Morriss Holdings, LLC, to pay for personal expenses, including, mortgage and alimony payments, payment of personal loans, pleasure trips, and household expenses. In an attempt to conceal his scheme, the fraudulent transfers that Morriss made to himself were recorded as “loans” on the defendant entities’ books. In fact, these transfers were never truly loans because Morriss did not intend to repay them at the time of his misappropriation. Moreover, the funds transferred to Morriss for his personal use were inconsistent with the disclosures contained in the offering materials provided to investors.

The SEC’s complaint also alleges that Morriss concocted a scheme to recruit new investors to purchase membership interests in one of his private investment funds without the unanimous consent of existing investors, as required. This diluted the investments of the fund’s existing investors.

On January 17, 2012, the Honorable Carol E. Jackson granted the SEC’s request for asset freezes, the appointment of a receiver over the entity defendants, and other emergency relief to prevent further dissipation of investor assets. The SEC seeks permanent injunctive relief and financial penalties against Morriss and the entity defendants, as well as disgorgement of all ill-gotten gains from them and the relief defendant Morriss Holdings, LLC. The SEC also seeks an officer-and-director bar against Morriss. In addition, the SEC’s action names Morriss Holdings, LLC as a relief defendant.

The SEC’s complaint charges:

• Morriss with violations of Section 17(a)(1), (2), and (3) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5(a) and (c) thereunder, his aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder, and his violations or, in the alternative, aiding and abetting violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8(a)(2);
• Acartha Group and Gryphon III with violations of Section 17(a)(1), (2), and (3) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5(a),(b), and (c) thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8(a)(2), thereunder; and
• MIC VII and ATP with violations of Section 17(a)(1), (2), and (3) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5(a), (b), and (c) thereunder."