U.S. JUSTICE DEPARTMENT RETURNS $44 MILLION TO VICTIMS OF QWEST COMMUNICATIONS FRAUD

FROM:  U.S. DEPARTMENT OF JUSTICE
Thursday, May 3, 2012
Justice Department Returns $44 Million to Victims of Qwest Communications Fraud
WASHINGTON – The Justice Department has returned approximately $44 million to victims of a securities fraud scheme related to Qwest Communications International Inc., Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney John F. Walsh for the District of Colorado and Special Agent in Charge James F. Yacone of the FBI’s Denver Division announced today.

The $44 million in funds were forfeited to the United States as a result of the 2007 federal conviction of Qwest’s chief executive officer, Joseph P. Nacchio, for securities fraud.  The forfeited funds are being returned to 112,210 victims who incurred losses on Qwest securities purchased during the fraud scheme.

Between 1999 and 2002, Nacchio publicly announced unrealistic revenue projections for Qwest and then caused Qwest to issue false and misleading statements to the public about the company’s financial condition, as part of his scheme to commit securities fraud.  After the irregularities were discovered, Qwest stock, which had traded as high as $60 per share, plummeted to about $1 per share.

Following his conviction, Nacchio was sentenced to 70 months in prison and was ordered to forfeit $44 million in funds, the net proceeds he received from the fraud scheme.  Nacchio was also ordered to pay a $19 million fine, which, by law, was paid to a fund for victims of crime.

“Securities fraud is a particularly insidious crime because it undermines public confidence in the financial markets,” said U.S. Attorney Walsh.  “I am pleased that we were able to recover more than $44 million in criminal proceeds and return it to innocent Qwest investors.”

“Following his conviction for securities fraud, Mr. Nacchio was ordered to forfeit $44 million,” said Assistant Attorney General Breuer.  “Today, we are fulfilling a central objective of the Criminal Division’s Victim Asset Recovery Program and returning those funds to the victims of Mr. Nacchio’s crime.”

“In addition to seeking criminal prosecutions to protect our financial markets, seizing and forfeiting ill-gotten gains is a priority for the FBI,” said FBI Special Agent in Charge Yacone.  “We are hopeful the money being returned will remedy some of the damage caused by Nacchio.”  

The criminal case against Joseph Nacchio was prosecuted by the U.S. Attorney’s Office for the District of Colorado and the Justice Department’s Criminal Division.  The case was investigated by the FBI.

The distribution of funds to victims was authorized and overseen by the Department of Justice’s Victim Asset Recovery Program in the Criminal Division’s Asset Forfeiture and Money Laundering Section.  The Victim Asset Recovery Program is comprised of a team of experienced professionals, including attorneys, accountants, auditors and claims analysts, who work with federal prosecutors, regulatory agencies, financial investigators, claims administrators and the private bar to recover assets from financial crimes and return them to the victims.  In hundreds of cases, the program has successfully utilized its specialized expertise to efficiently convert forfeited assets into victim recoveries.

HYOSUNG CORPORATION EXECUTIVE PLEADS GUILTY TO OBSTRUCTION OF JUSTICE, FALSE CLAIMS DOCUMENTS

FROM:  U.S. DEPARTMENT OF JUSTICE
Thursday, May 3, 2012
Hyosung Corporation Executive Agrees to Plead Guilty to Obstruction of Justice for Submitting False Documents in an ATM Merger Investigation

WASHINGTON – An executive of South Korean-based Hyosung Corporation has agreed to plead guilty and to serve time in a U.S. prison for obstruction of justice charges in connection with an automated teller machine (ATM) merger investigation conducted by the Antitrust Division, the Department of Justice announced today.

According to a two-count felony charge filed today in the U.S. District Court in Washington, D.C., Kyoungwon Pyo, in his role as senior vice president for corporate strategy of Hyosung Corporation, an affiliate of Nautilus Hyosung Holdings Inc. (NHI), altered and directed subordinates to alter numerous existing corporate documents before they were submitted to the Department of Justice and the Federal Trade Commission (FTC) in conjunction with mandatory premerger filings. The department said that Pyo’s actions took place in or about July and August 2008.  At the time, the department was investigating Korea-based NHI’s proposed acquisition of Triton Systems of Delaware Inc.  NHI abandoned the proposed acquisition of competitor Triton Systems before the Antitrust Division reached a decision determining whether to challenge the transaction.

On Oct. 20, 2011, NHI pleaded guilty and paid a $200,000 criminal fine for its role in the obstruction of justice charges. According to the plea agreement, which is subject to court approval, Pyo has agreed to serve five months in prison.

“Maintaining the integrity of the merger review and investigation process is one of our highest priorities,” said Acting Assistant Attorney General Joseph Wayland in charge of the Department of Justice’s Antitrust Division. “Senior corporate executives should understand that anyone who attempts to corrupt the process by falsifying materials submitted to the U.S. government will be held accountable for their actions.”

After receiving the premerger filings, the Antitrust Division opened a civil merger investigation of the proposed acquisition. The department said that in or about August and September 2008, Pyo falsified additional documents in response to a document request from the Antitrust Division with the intention of impairing their integrity and availability for use in an official proceeding. The department said that, among other things, the alterations misrepresented and minimized the competitive impact of the proposed acquisition.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, requires companies contemplating mergers and acquisitions valued above certain thresholds to make filings with the Department of Justice and the FTC. The federal antitrust agencies have authority to investigate and challenge such proposed transactions under Section 7 of the Clayton Act, if the transactions may substantially lessen competition.

NHI was previously charged with obstruction of justice, which carries a maximum criminal fine for a corporation of $500,000 per count.  NHI’s agreed-upon criminal fine of $100,000 per count takes into consideration the nature and extent of the company’s disclosure of wrongdoing and its cooperation in the department’s investigation.

Pyo is charged with obstruction of justice, which carries a maximum penalty of 20 years in prison and a criminal fine of $250,000 for individuals.

WALMART TO PAY $4.83 MILLION TO SETTLE OVERTIME DISPUTE

FROM:  U.S. DEPARTMENT OF LABOR
US Department of Labor recovers $4.83 million in back wages, damages for more than 4,500 Wal-Mart workers
Misapplied exemption resulted in pay violations; nearly $464,000 assessed in penalties
WASHINGTON — Wal-Mart Stores Inc., headquartered in Bentonville, Ark., has agreed to pay $4,828,442 in back wages and damages to more than 4,500 employees nationwide following an investigation by the U.S. Department of Labor's Wage and Hour Division that found violations of the federal Fair Labor Standards Act's overtime provisions. Additionally, Wal-Mart will pay $463,815 in civil money penalties.

The violations affected current and former vision center managers and asset protection coordinators at Wal-Mart Discount Stores, Wal-Mart Supercenters, Neighborhood Markets and Sam's Club warehouses. Wal-Mart failed to compensate these employees with overtime pay, considering them to be exempt from the FLSA's overtime requirements. The Labor Department's investigation found that the employees are nonexempt and consequently due overtime pay for any hours worked beyond 40 in a week.

"Misclassification of employees as exempt from FLSA coverage is a costly problem with adverse consequences for employees and corporations," said Secretary of Labor Hilda L. Solis. "Let this be a signal to other companies that when violations are found, the Labor Department will take appropriate action to ensure that workers receive the wages they have earned."

Under the terms of the settlement, Wal-Mart has agreed to pay all back wages the department determined are owed for the violations plus an equal amount in liquidated damages to the employees. The FLSA provides that employers who violate the law are, as a general rule, liable to employees for back wages and an equal amount in liquidated damages. The civil money penalties assessed stem from the repeat nature of the violations. Wal-Mart, which operates more than 3,900 establishments in the United States, corrected its classification practices for these workers in 2007, and negotiation over the back pay issues has been ongoing since that time. A third-party administrator will disburse the payments to the affected employees.

"Our department has been working with Wal-Mart for a long time to reach this agreement," said Nancy J. Leppink, deputy administrator of the Wage and Hour Division. "I am very pleased that staff in our Southwest region persevered, ensured these employees will be paid the back wages they are owed and brought this case to conclusion. Thanks to this resolution, thousands of employees will see money put back into their pockets that should have been there all along. The damages and penalties assessed in this case should put other employers on notice that they cannot avoid their obligations to their employees by inappropriately classifying their workers as exempt."

The FLSA provides an exemption from both minimum wage and overtime pay requirements for individuals employed in bona fide executive, administrative, professional and outside sales positions, as well as certain computer employees. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee's specific job duties and salary must meet all the requirements of the department's regulations.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers also are required to maintain accurate time and payroll records.

PRESIDENT OF REINSURANCE BOND SALES COMPANY CONVICTED OF FRAUD

FROM:  U.S. DEPARTMENT OF JUSTICE
Monday, April 30, 2012
President of Costa Rican Company Convicted in Half a Billion Dollar Fraud Scheme with Thousands of Victims Worldwide
WASHINGTON – The president of a Costa Rican company that sold reinsurance bonds to life settlement companies was found guilty by a federal jury in Richmond, Va., today for carrying out a half-billion-dollar fraud scheme that affected more than 2,000 victims throughout the United States and abroad.

U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division made the announcement following the jury’s verdict.

“Mr. Vargas lied to investors across the globe to sell almost half a billion dollars worth of ‘guaranteed’ bonds, which turned out to be worthless,” said U.S. Attorney MacBride.  “His fraud affected thousands of victims around the world, many of whom invested their life savings with life settlement companies because of the worthless guarantees PCI made.  Mr. Vargas may have thought he was safe operating his scheme from overseas, but his conviction is yet another example to global fraudsters: You can run, but you can’t hide.  This verdict demonstrates our ability to pursue justice on behalf of U.S. victims regardless of where the fraudsters may be hiding.”

“Mr. Vargas reaped millions in profit from a sprawling scheme to defraud investors seeking to hedge their risk in the life settlements market,” said Assistant Attorney General Breuer.  “He used his ill-gotten gains to fund a soccer team and to provide financial comfort for his family and for himself.  Today, a Virginia jury told Mr. Vargas that he would be held accountable, hopefully bringing some measure of peace to the investors he defrauded.”

Minor Vargas Calvo, 60, a citizen and resident of Costa Rica, is the present and majority owner of Provident Capital Indemnity (PCI) Ltd., an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica.  He was convicted of one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, three counts of wire fraud and three counts of money laundering.  He faces a maximum penalty of 20 years in prison on each fraud count and up to 10 years in prison on each money-laundering count when he is sentenced on Oct. 23, 2012.

According to court records and evidence at trial, PCI sold financial guarantee bonds to companies selling life settlements, or securities backed by life settlements, to investors.  These bonds were marketed to PCI’s clients as a way to alleviate the risk of insured beneficiaries living beyond their life expectancy.  The clients, in turn, typically explained to their investors that the financial guarantee bonds ensured that the investors would receive their expected return on investment irrespective of whether the insured on the underlying life settlement lived beyond his or her life expectancy.

Evidence at trial showed that Calvo and PCI’s purported independent auditor for PCI, Jorge Castillo, 56, of New Jersey, used lies and omissions to mislead PCI’s clients and investors regarding its ability to pay claims when due on the financial guarantee bonds that PCI issued.  Calvo caused Castillo to prepare audited financial statements that falsely claimed that PCI had entered into reinsurance contracts with major reinsurance companies.  These false claims, which were supported by a letter from Castillo stating that he conducted an audit of PCI’s financial records, were used to assure PCI’s clients that the reinsurance companies were backstopping the majority of the risk that PCI had insured through its financial guarantee bonds.  The fraudulent financial statements PCI distributed showed significant assets and relatively small liabilities.

From 2004 through 2010, PCI sold at least $485 million of bonds to life settlement investment companies located in various countries, including the United States, the Netherlands, Germany, Canada and elsewhere.  PCI’s clients, in turn, sold investment offerings backed by PCI’s bonds to thousands of investors around the world.  Purchasers of PCI’s bonds were required to pay up-front payments of six to 11 percent of the underlying settlement as “premium” payments to PCI before the company would issue the bonds.

Evidence at trial showed that Vargas sent more than $23 million of his ill-gotten gains to fund his professional soccer team in Costa Rica, to his unrelated companies, to his family and to himself.  Due, in part, to these expenditures, when it came time to make good on PCI’s promises to pay bond holders, Vargas resorted to yet more lies to justify PCI’s inability to do so.

Castillo, who was a PCI employee prior to becoming PCI’s “outside auditor,” pleaded guilty on Nov. 21, 2011, to conspiring to commit mail and wire fraud, which carries a maximum penalty of 20 years in prison.  Castillo is scheduled to be sentenced on May 22, 2012.  In addition, the corporation, PCI, pleaded guilty on April 18, 2012, to conspiring to commit mail and wire fraud, which carries a maximum term of five years’ probation.
This continuing investigation is being conducted by the U.S. Postal Inspection Service, Internal Revenue Service and FBI, with assistance from the Virginia State Corporation Commission, the Texas State Securities Board and the New Jersey Bureau of Securities.  This case is being prosecuted by Assistant U.S. Attorneys Michael S. Dry and Jessica Aber Brumberg of the Eastern District of Virginia and Trial Attorney Albert B. Stieglitz Jr. of the Criminal Division’s Fraud Section.

The U.S. Securities and Exchange Commission (SEC) conducted a parallel investigation and in January 2011 filed a parallel civil enforcement action against PCI, Vargas and Castillo.   The department thanks the SEC for its assistance in this matter.

The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia specifically.  The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.

HITACHI-LG DATA STORAGE INC. EXECUTIVE AGREES TO PLEAD GUILTY FOR PARTICIPATING IN BID-RIGGING CONSPIRACIES INVOLVING OPTICAL DISK DRIVES

FROM:  U.S DEPARTMENT OF JUSTICE ANTITRUST DIVISION
Korean Executive Agrees to Serve Time in U.S. Prison
WASHINGTON — An executive of Korean-based Hitachi-LG Data Storage Inc. (HLDS) has agreed to plead guilty and to serve time in a U.S. prison for his participation in a series of conspiracies to rig bids for the sale of optical disk drives, the Department of Justice announced today.

According to the four-count felony charge filed today in the U.S. District Court for the Northern District of California in San Francisco, Senior Sales Manager Woo Jin Yang, also known as Eugene Yang, conspired with others to suppress and eliminate competition by rigging bids for optical disk drives sold to Hewlett-Packard Co. (HP). Yang participated in the conspiracies at various times between approximately August 2006 and June 2009. Under the plea agreement, which is subject to court approval, Yang has agreed to serve six months in prison, to pay a $25,000 criminal fine and to cooperate with the department’s ongoing investigation. HLDS is a joint venture between Hitachi Ltd, a Japanese corporation, and LG Electronics Inc., a Republic of Korea corporation.

“Today’s charges demonstrate the Antitrust Division’s commitment to prosecute and deter conduct that harms American businesses and consumers,” said Acting Assistant Attorney General Joseph Wayland in charge of the Department of Justice’s Antitrust Division. “The division will continue to pursue those who participated in these bid-rigging and price-fixing conspiracies so they are held accountable for their actions.”

Optical disk drives are devices such as CD-ROMs, CD-RWs (ReWritable), DVD-ROMs and DVD-RWs (ReWritable) that use laser light or electromagnetic waves to read and/or write data and are often incorporated into personal computers and gaming consoles.

According to the charges, from approximately August 2006 until February 2009, HP hosted optical disk drive procurement events in which participants would be awarded varying amounts of optical disk drive supply depending on where their pricing ranked. According to court documents, Yang and co-conspirators participated in a series of conspiracies involving meetings and discussions to predetermine bidding strategies and prices of optical disk drives, resulting in the submission of collusive and noncompetitive bids for HP’s procurement events. Yang and co-conspirators also exchanged information on sales, market share and the pricing of optical disk drives to monitor and enforce adherence to the agreements.

Including Yang, the department has charged four individuals and one company as a result of its ongoing investigation into the optical disk drive industry. On Nov. 8, 2011, HLDS pleaded guilty in the U.S. District Court for the Northern District of California in San Francisco to 14 counts of violating the federal antitrust laws between approximately June 2004 and September 2009. HLDS also pleaded guilty to one count of participating in a scheme to defraud in connection with an April 2009 procurement event. On the same day, HLDS was sentenced to pay a $21.1 million criminal fine and agreed to assist the department in its ongoing investigation into the optical disk drive industry.

HLDS executives Y.K. Park, S.H. Kim and Sik Hur pleaded guilty to multiple violations of the Sherman Act on March 27, 2012, April 17, 2012 and April 10, 2012 respectively. Park, Kim and Hur are currently awaiting sentencing.

Yang is charged with violating the Sherman Act. Each count carries a maximum fine of $1 million and up to 10 years in prison. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

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