FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Addressing Conflicts of Interest In the Credit Ratings Industry
by
Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission
Remarks at the Credit Ratings Roundtable
Washington, D.C.
May 14, 2013
Good morning. I am very pleased to be here at the Roundtable on Credit Ratings. I strongly support the Commission’s effort to evaluate ways to improve our credit ratings system. Effective oversight of Nationally Recognized Statistical Rating Organizations ("NRSROs") is critical to ensuring accurate ratings and promoting investor confidence. Before I begin, however, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the U.S. Securities and Exchange Commission ("SEC" or "Commission"), my fellow Commissioners, or members of the staff.
As an SEC Commissioner, I have focused singularly on how the SEC can best serve the needs of investors. It is clear that the role played by credit rating agencies can have an impact on the integrity of our markets and investor confidence.
Today’s roundtable and the Commission’s December 2012 Report to Congress on Assigned Credit Ratings are direct outgrowths of industry practices that permitted inaccurate ratings to undermine the securities market and the integrity of the credit ratings industry.
A number of studies have concluded that inflated credit ratings, among other factors, contributed to the financial crisis by masking the true risk of many mortgage-related securities. For example, prior to the financial crisis, NRSROs issued credit ratings for tens of thousands of U.S residential mortgage backed securities ("RMBS") and collateralized debt obligations ("CDO"). A majority of the products received AAA and other investment-grade credit ratings despite their risky features. Although AAA-rated securities have historically had less than 1% probability of incurring defaults, over 90% of the AAA ratings given to subprime RMBS securities that originated in 2006 and 2007 were later downgraded by the NRSROs to junk status.
These large numbers of downgrades resulted in great harm and requires that we make sure they don’t reflect a faulty systemic process. Too that end, one of the key concerns raised by commentators regarding the current structure of the credit ratings process is the issue of conflicts of interest associated with the "issuer-pays" model. This model allows the party planning on issuing a financial instrument to pay an NRSRO for assigning the rating. A number of commentators have argued that this business model encourages ratings shopping by the issuers and investment banks selling the securities, and results in undue pressure for NRSROs to give favorable ratings to attract business.
Investors use credit ratings to make investment decisions, generally opting for "investment-grade" products – those rated as AAA to BBB-. Products that carry a greater risk are labeled "below investment grade." Obviously, products that receive an investment grade rating have a much broader market in which to sell. As a result, there can be a great deal of incentive to have a product rated at investment grade level. Therefore, it is important to establish processes to ensure that a product receive the appropriate rating level. A faulty system of assigning credit ratings can devastate the best financial planning and destroy financial security, particularly for investors that are retired or nearing retirement. Given the importance of credit ratings, it is critical that credit ratings be issued with integrity and transparency.
It is clear that the past cannot be repeated. The financial crisis cost Americans $3.4 trillion in retirement savings and it triggered the worst crisis since the Great Depression. The Financial Crisis Inquiry Committee concluded that "the failures of the credit rating agencies were essential cogs in the wheel of financial destruction … [and] were key enablers of the financial meltdown."
I want to thank all of the panelists for being here today to share your views. All of you have important information to share with us about the credit ratings system, and I appreciate that you’ve taken the time to be with us.
As today’s discussion unfolds, we should remember the needs of investors, who deserve a credit ratings system that is transparent, orderly, and that is not derailed by conflicts of interest.
Thank you.
Saturday, May 18, 2013
Friday, May 17, 2013
C.R. BARD INC. WILL PAY OVER $48 MILLION TO RESOLVE ALLEGED FALSE CLAIMS ACT VIOLATIONS
FROM: U.S. DEPARTMENT OF JUSTICE
Monday, May 13, 2013
C.R. Bard Inc. to Pay U.S. $48.26 Million to Resolve False Claims Act Claims
C.R. Bard Inc. has agreed to pay the U nited States $48.26 million to resolve claims that it knowingly caused false claims to be submitted to the Medicare program for brachytherapy seeds used to treat prostate cancer in violation of the False Claims Act. Bard is a New Jersey based corporation that develops, manufacturers, and markets medical products used for a variety of conditions, including prostate cancer.
The settlement requires that Bard pay $48.26 million and it resolves claims relating to Bard’s sale of brachytherapy seeds, a form of radiation therapy, to hospitals. The United States alleged that from 1998 to 2006, Bard provided illegal remuneration to customers and physicians to induce them to purchase Bard’s seeds, in violation of the Anti-Kickback Statute. The illegal remuneration allegedly took the form of certain grants, guaranteed minimum rebates, conference fees, marketing assistance and/or free medical equipment that Bard paid to customers and/or physicians who used the seeds to perform treatment for prostate cancer. Hospitals ultimately submitted bills to Medicare for these seeds, which the government alleged were rendered false by Bard’s illegal kickback activity. The government alleged that Bard was liable under the False Claims Act for causing the submission of those false claims.
"This settlement is part of the United States’ on-going effort to comb at the payment of illegal kickbacks to health care providers," said Stuart F. Delery, Acting Assistant Attorney General for the Department of Justice’s Civil Division. "Such illegal payments subvert the medical marketplace and provide an unfair advantage to those who break the law."
"Illegal kickbacks in any form pervert our health care system, which is designed to insure that health care providers make decisions based solely on what is best for the patient," said U.S. Attorney for the Northern District of Georgia Sally Quillian Yates.
"We will continue to work with our various law enforcement partners in the pursuit of those who abuse publicly funded health care programs such as Medicare and Medicaid, through criminal prosecutions or civil settlements under the False Claims Act," stated Mark F. Giuliano, Special Agent in Charge, FBI Atlanta Field Office. "Such abuses as we’ve seen in this case will not be tolerated."
"Medicare beneficiaries should never have to question whether treatment recommendations are based on their doctors’ best financial interests rather than their best medical advice," said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services. "Companies paying these kickback bribes should expect aggressive investigation and prosecution."
The civil settlement resolves a lawsuit filed in the U.S. District Court for the Northern District of Georgia by Julie Darity, a former Bard manager for brachytherapy contracts administration under the qui tam, or whistleblower provisions, of the False Claims Act. United States ex rel. Darity v. C.R. Bard, Inc., et al., Civ. Action No. 1:06-cv-0208-SCJ (N.D. Ga.). Under the False Claims Act, private citizens may bring suit for false claims on behalf of the United States and share in any recovery obtained by the government. The former manager will receive $10,134,600 as her share of the civil settlement.
In addition, according to a non-prosecution agreement with the United States, Bard has agreed to pay an additional $2.2 million and to take numerous remedial steps, many of which the company identified and began to implement prior to the criminal investigation, to enhance its corporate compliance program to prevent similar illegal actions in the future. For example, Bard has agreed to refine its Code of Conduct and other written policies and procedures that promote Bard’s commitment to full compliance with all Federal health care program requirements and to develop an effective program to monitor medical education grants provided by Bard to ensure compliance with those requirements.
The resolutions announced today are part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover nearly $10.3 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $14.3 billion.
These settlements were the result of a coordinated effort by the U.S. Attorney’s Office for the Northern District of Georgia; the Department of Justice, Civil Division, Commercial Litigation Branch; the FBI and HHS-OIG, in investigating the allegations in this case.
Monday, May 13, 2013
C.R. Bard Inc. to Pay U.S. $48.26 Million to Resolve False Claims Act Claims
C.R. Bard Inc. has agreed to pay the U nited States $48.26 million to resolve claims that it knowingly caused false claims to be submitted to the Medicare program for brachytherapy seeds used to treat prostate cancer in violation of the False Claims Act. Bard is a New Jersey based corporation that develops, manufacturers, and markets medical products used for a variety of conditions, including prostate cancer.
The settlement requires that Bard pay $48.26 million and it resolves claims relating to Bard’s sale of brachytherapy seeds, a form of radiation therapy, to hospitals. The United States alleged that from 1998 to 2006, Bard provided illegal remuneration to customers and physicians to induce them to purchase Bard’s seeds, in violation of the Anti-Kickback Statute. The illegal remuneration allegedly took the form of certain grants, guaranteed minimum rebates, conference fees, marketing assistance and/or free medical equipment that Bard paid to customers and/or physicians who used the seeds to perform treatment for prostate cancer. Hospitals ultimately submitted bills to Medicare for these seeds, which the government alleged were rendered false by Bard’s illegal kickback activity. The government alleged that Bard was liable under the False Claims Act for causing the submission of those false claims.
"This settlement is part of the United States’ on-going effort to comb at the payment of illegal kickbacks to health care providers," said Stuart F. Delery, Acting Assistant Attorney General for the Department of Justice’s Civil Division. "Such illegal payments subvert the medical marketplace and provide an unfair advantage to those who break the law."
"Illegal kickbacks in any form pervert our health care system, which is designed to insure that health care providers make decisions based solely on what is best for the patient," said U.S. Attorney for the Northern District of Georgia Sally Quillian Yates.
"We will continue to work with our various law enforcement partners in the pursuit of those who abuse publicly funded health care programs such as Medicare and Medicaid, through criminal prosecutions or civil settlements under the False Claims Act," stated Mark F. Giuliano, Special Agent in Charge, FBI Atlanta Field Office. "Such abuses as we’ve seen in this case will not be tolerated."
"Medicare beneficiaries should never have to question whether treatment recommendations are based on their doctors’ best financial interests rather than their best medical advice," said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services. "Companies paying these kickback bribes should expect aggressive investigation and prosecution."
The civil settlement resolves a lawsuit filed in the U.S. District Court for the Northern District of Georgia by Julie Darity, a former Bard manager for brachytherapy contracts administration under the qui tam, or whistleblower provisions, of the False Claims Act. United States ex rel. Darity v. C.R. Bard, Inc., et al., Civ. Action No. 1:06-cv-0208-SCJ (N.D. Ga.). Under the False Claims Act, private citizens may bring suit for false claims on behalf of the United States and share in any recovery obtained by the government. The former manager will receive $10,134,600 as her share of the civil settlement.
In addition, according to a non-prosecution agreement with the United States, Bard has agreed to pay an additional $2.2 million and to take numerous remedial steps, many of which the company identified and began to implement prior to the criminal investigation, to enhance its corporate compliance program to prevent similar illegal actions in the future. For example, Bard has agreed to refine its Code of Conduct and other written policies and procedures that promote Bard’s commitment to full compliance with all Federal health care program requirements and to develop an effective program to monitor medical education grants provided by Bard to ensure compliance with those requirements.
The resolutions announced today are part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover nearly $10.3 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $14.3 billion.
These settlements were the result of a coordinated effort by the U.S. Attorney’s Office for the Northern District of Georgia; the Department of Justice, Civil Division, Commercial Litigation Branch; the FBI and HHS-OIG, in investigating the allegations in this case.
Thursday, May 16, 2013
COMPANY WILL PAY $1 MILLION FINE FOR FILLING PROTECTED WETLANDS
FROM: U.S. DEPARTMENT OF JUSTICE
Wednesday, May 15, 2013
Mississippi Corporation Pleads Guilty and Agrees to $ 1 Million Fine for Illegally Filling Protected Wetlands
Mississippi-based Hancock County Land LLC (HCL) pleaded guilty today to the unpermitted filling of wetlands near Bay St. Louis, Miss., and agreed to pay a $1 million fine and take remedial measures for two felony violations of the Clean Water Act, announced Assistant Attorney General Ignacia S. Moreno of the Justice Department’s Environment and Natural Resources Division and U.S. Attorney for the Southern District of Mississippi Gregory K. Davis. HCL admitted causing the unauthorized excavation and filling of wetlands on a 1,710 acre parcel of undeveloped property in Hancock County, west of the intersection of Route 603 and Interstate 10.
According to the charges filed in federal court in Jackson, Miss., when HCL purchased the property, it had been informed by a wetland expert that as much as 80 percent of its land was federally protected wetland connected by streams and bayous to the Gulf of Mexico and, therefore, that the property could not be developed without a permit from the U.S. Army Corps of Engineers. Such permits typically require that developers protect and preserve other wetlands to compensate for those they are permitted to fill and destroy.
The charges allege that in spite of additional notice of the prohibition against filling and draining wetlands without authorization, HCL, principally through its minority owner /general contractor, hired an excavation contractor to trench, drain and fill large portions of the property to lower the water table and thus to destroy the wetland that would otherwise have been an impediment to commercial development. In pleading guilty, HCL admitted that it knowingly ditched, drained and filled wetlands at multiple locations on the Hancock County property without having obtained a permit from the Army Corps of Engineers as required under the Clean Water Act.
It is a felony under the Clean Water Act for any person knowingly to discharge pollutants into waters of the United States, including wetlands, without a permit. A corporation convicted of this offense is subject to a penalty of not more than $500,000 per count.
HCL agreed and was ordered to pay to the federal government a total penalty of $1 million ($500,000 for each of the two counts). HCL also agreed and was ordered by the court to restore and preserve the damaged wetlands as provided in separate agreements HCL reached with the U.S. Environmental Protection Agency (EPA) and a citizen group, the Gulf Restoration Network. The agreements require HCL to re-grade and then re-plant, with appropriate native vegetation, the wetland area it excavated and filled and donate approximately 272 acres of the southwest quadrant of its property to the Land Trust for the Mississippi Coastal Plain to be preserved in perpetuity. HCL is also required to fund its management and maintenance, to pay $100,000 toward the litigation costs of the Gulf Restoration Network, and to pay a civil penalty to the U.S. Treasury of $95,000.
HCL entered its plea before senior U.S. District Judge Walter J. Gex III.
U.S. Attorney Davis praised the efforts of the EPA’s Office of Criminal Investigation for its diligent work in the investigation of this matter. Senior Trial Attorney Jeremy F. Korzenik of the Justice Department’s Environmental Crimes Section of the Environment and Natural Resources Division, and Assistant U.S. Attorney Gaines Cleveland are the prosecutors in charge of the case.
Real estate developer and HCL minority owner, William R. Miller, was charged in November 2012 with Clean Water Act violations related to the same unauthorized excavation and filling of wetlands near Bay St. Louis. That case is expected to be scheduled for trial over the next few months.
Wednesday, May 15, 2013
Mississippi Corporation Pleads Guilty and Agrees to $ 1 Million Fine for Illegally Filling Protected Wetlands
Mississippi-based Hancock County Land LLC (HCL) pleaded guilty today to the unpermitted filling of wetlands near Bay St. Louis, Miss., and agreed to pay a $1 million fine and take remedial measures for two felony violations of the Clean Water Act, announced Assistant Attorney General Ignacia S. Moreno of the Justice Department’s Environment and Natural Resources Division and U.S. Attorney for the Southern District of Mississippi Gregory K. Davis. HCL admitted causing the unauthorized excavation and filling of wetlands on a 1,710 acre parcel of undeveloped property in Hancock County, west of the intersection of Route 603 and Interstate 10.
According to the charges filed in federal court in Jackson, Miss., when HCL purchased the property, it had been informed by a wetland expert that as much as 80 percent of its land was federally protected wetland connected by streams and bayous to the Gulf of Mexico and, therefore, that the property could not be developed without a permit from the U.S. Army Corps of Engineers. Such permits typically require that developers protect and preserve other wetlands to compensate for those they are permitted to fill and destroy.
The charges allege that in spite of additional notice of the prohibition against filling and draining wetlands without authorization, HCL, principally through its minority owner /general contractor, hired an excavation contractor to trench, drain and fill large portions of the property to lower the water table and thus to destroy the wetland that would otherwise have been an impediment to commercial development. In pleading guilty, HCL admitted that it knowingly ditched, drained and filled wetlands at multiple locations on the Hancock County property without having obtained a permit from the Army Corps of Engineers as required under the Clean Water Act.
It is a felony under the Clean Water Act for any person knowingly to discharge pollutants into waters of the United States, including wetlands, without a permit. A corporation convicted of this offense is subject to a penalty of not more than $500,000 per count.
HCL agreed and was ordered to pay to the federal government a total penalty of $1 million ($500,000 for each of the two counts). HCL also agreed and was ordered by the court to restore and preserve the damaged wetlands as provided in separate agreements HCL reached with the U.S. Environmental Protection Agency (EPA) and a citizen group, the Gulf Restoration Network. The agreements require HCL to re-grade and then re-plant, with appropriate native vegetation, the wetland area it excavated and filled and donate approximately 272 acres of the southwest quadrant of its property to the Land Trust for the Mississippi Coastal Plain to be preserved in perpetuity. HCL is also required to fund its management and maintenance, to pay $100,000 toward the litigation costs of the Gulf Restoration Network, and to pay a civil penalty to the U.S. Treasury of $95,000.
HCL entered its plea before senior U.S. District Judge Walter J. Gex III.
U.S. Attorney Davis praised the efforts of the EPA’s Office of Criminal Investigation for its diligent work in the investigation of this matter. Senior Trial Attorney Jeremy F. Korzenik of the Justice Department’s Environmental Crimes Section of the Environment and Natural Resources Division, and Assistant U.S. Attorney Gaines Cleveland are the prosecutors in charge of the case.
Real estate developer and HCL minority owner, William R. Miller, was charged in November 2012 with Clean Water Act violations related to the same unauthorized excavation and filling of wetlands near Bay St. Louis. That case is expected to be scheduled for trial over the next few months.
Wednesday, May 15, 2013
FORMER COMPANY PRESIDENT PLEADS GUILTY FOR PART IN EMPLOYEE DEATH,
FROM: U.S. DEPARTMENT OF JUSTICE
Thursday, May 9, 2013
Former President of Port Arthur Company Guilty of Federal Crimes Related to Employee Deaths
The former president of Port Arthur Chemical and Environmental Services, LLC (PACES) has pleaded guilty in federal court to occupational safety crimes which resulted in the death of an employee, announced Ignacia S. Moreno, Assistant Attorney General of the Justice Department’s Environment and Natural Resources Division and John M. Bales, U.S. Attorney for the Eastern District of Texas.
Matthew Lawrence Bowman, 41, of Houston, pleaded guilty to violating the Occupational Safety and Health Act (OSH Act) and making a false statement. Bowman admitted to not properly protecting PACES employees from exposure to hydrogen sulfide, a poisonous gas resulting in the death of truck driver Joey Sutter on Dec. 18, 2008. In addition, Bowman admitted to directing employees to falsify transportation documents to conceal that the wastewater was coming from PACES after a disposal facility put a moratorium on all wastewater shipments from PACES after received loads containing hydrogen sulfide. The guilty plea was entered today before U.S. Magistrate Judge Zack Hawthorn.
"Bowman’s actions showed a preference for profit above the safety of his employees, putting them and the public in life threatening situations by not properly identifying the dangerous materials PACES was handling," said Assistant Attorney General Moreno. "The Justice Department will continue to vigorously enforce laws enacted for the protection of human health and the environment."
"In this day and age, it seems inconceivable that workers would be exposed to the level of danger that was routine at PACES," said U.S. Attorney Bales. "Mr. Bowman’s actions as the leader of the company were more than just cavalier, they were criminal and he is being held to account. We continue to grieve for the needless loss of life and the pain and suffering of Mr. Sutter’s family and friends. This investigation and prosecution is the result of an excellent combined effort of the identified agencies and I am grateful for their hard work."
"The plea agreement reached today sends a strong signal to all who would illegally transport hazardous materials," said Max Smith, regional Special Agent-in-Charge, U.S. Department of Transportation, Office of Inspector General. "Working with our law enforcement and prosecutorial colleagues, we will continue our efforts to ensure safety in the transport of these materials and vigorously pursue those who violate the law."
"Laws regarding the safe and legal handling of hazardous materials are in place for a reason – to save lives," said Ivan Vikin, Special Agent in Charge of the U.S. Environmental Protection Agency’s (EPA) criminal enforcement program in Texas. "The defendant admitted that his actions directly led to the death of one of his employees. This plea demonstrates that EPA and its partner agencies, the Texas Commission on Environmental Quality’s Environmental Crimes Unit and the Department of Transportation’s Office of the Inspector General, will prosecute anyone whose actions place the public at risk."
According to information presented in court, Bowman was president and owner of PACES, located in Port Arthur, Texas, and CES Environmental Services (CES) located in Houston. PACES was in operation from November 2008 to November 2010, and was in the business of producing and selling caustic materials to paper mills. The production of caustic materials involved hydrogen sulfide, a poisonous gas. According to the National Institute for Occupational Safety and Health, hydrogen sulfide is an acute toxic substance that is the leading cause of sudden death in the workplace. Employers are required by the Occupational Safety and Health Administration (OSHA) to implement engineering and safety controls to prevent employees from exposure above harmful limits of hydrogen sulfide.
Bowman was responsible for approving and directing
PACES production operations, the disposal of hydrogen sulfide wastewater, and ensuring implementation of employee safety precautions. In some cases, Bowman personally handled the investigation of work-related employee injuries, directed the transportation of PACES wastewater, and determined what safety equipment could be purchased or maintained. In the cases at issue, hazardous materials were transported illegally with false documents and without the required placards. Most importantly, the workers were not properly protected from exposure to hazardous gases. The exposure resulted in the deaths of two employees, Joey Sutter and Charles Sittig, who were truck drivers, at the PACES facility on Dec. 18, 2008, and Apr. 14, 2009. Placarding is critical to ensure the safety of first responders in the event of an accident or other highway incident. Bowman and PACES were indicted by a federal grand jury on July 18, 2012.
Bowman faces up to five years in federal prison and a fine of up to $250,000 at sentencing. A sentencing date has not been set. Charges remain pending against PACES. The corporation faces a fine of up to $500,000 per count.
This case was investigated by EPA Criminal Investigation Division; the U.S. Department of Transportation Office of Inspector General; the Texas Commission on Environmental Quality - Environmental Crimes Unit, part of the Texas Environmental Enforcement Task Force; the Texas Parks & Wildlife Department - Environmental Crimes Unit; the Houston Police Department - Major Offenders, Environmental Investigations Unit; the Travis County, Texas - District Attorney’s Office; the Harris County, Texas, District Attorney’s Office - Environmental Crimes Division; the Houston Fire Department; OSHA; the U.S. Coast Guard; the Port Arthur Police Department; and the Port Arthur Fire Department.
The case was prosecuted by the U.S. Attorney’s Office for the Eastern District of Texas and the Environmental Crimes Section of the Justice Department’s Environment and Natural Resources Division.
Thursday, May 9, 2013
Former President of Port Arthur Company Guilty of Federal Crimes Related to Employee Deaths
The former president of Port Arthur Chemical and Environmental Services, LLC (PACES) has pleaded guilty in federal court to occupational safety crimes which resulted in the death of an employee, announced Ignacia S. Moreno, Assistant Attorney General of the Justice Department’s Environment and Natural Resources Division and John M. Bales, U.S. Attorney for the Eastern District of Texas.
Matthew Lawrence Bowman, 41, of Houston, pleaded guilty to violating the Occupational Safety and Health Act (OSH Act) and making a false statement. Bowman admitted to not properly protecting PACES employees from exposure to hydrogen sulfide, a poisonous gas resulting in the death of truck driver Joey Sutter on Dec. 18, 2008. In addition, Bowman admitted to directing employees to falsify transportation documents to conceal that the wastewater was coming from PACES after a disposal facility put a moratorium on all wastewater shipments from PACES after received loads containing hydrogen sulfide. The guilty plea was entered today before U.S. Magistrate Judge Zack Hawthorn.
"Bowman’s actions showed a preference for profit above the safety of his employees, putting them and the public in life threatening situations by not properly identifying the dangerous materials PACES was handling," said Assistant Attorney General Moreno. "The Justice Department will continue to vigorously enforce laws enacted for the protection of human health and the environment."
"In this day and age, it seems inconceivable that workers would be exposed to the level of danger that was routine at PACES," said U.S. Attorney Bales. "Mr. Bowman’s actions as the leader of the company were more than just cavalier, they were criminal and he is being held to account. We continue to grieve for the needless loss of life and the pain and suffering of Mr. Sutter’s family and friends. This investigation and prosecution is the result of an excellent combined effort of the identified agencies and I am grateful for their hard work."
"The plea agreement reached today sends a strong signal to all who would illegally transport hazardous materials," said Max Smith, regional Special Agent-in-Charge, U.S. Department of Transportation, Office of Inspector General. "Working with our law enforcement and prosecutorial colleagues, we will continue our efforts to ensure safety in the transport of these materials and vigorously pursue those who violate the law."
"Laws regarding the safe and legal handling of hazardous materials are in place for a reason – to save lives," said Ivan Vikin, Special Agent in Charge of the U.S. Environmental Protection Agency’s (EPA) criminal enforcement program in Texas. "The defendant admitted that his actions directly led to the death of one of his employees. This plea demonstrates that EPA and its partner agencies, the Texas Commission on Environmental Quality’s Environmental Crimes Unit and the Department of Transportation’s Office of the Inspector General, will prosecute anyone whose actions place the public at risk."
According to information presented in court, Bowman was president and owner of PACES, located in Port Arthur, Texas, and CES Environmental Services (CES) located in Houston. PACES was in operation from November 2008 to November 2010, and was in the business of producing and selling caustic materials to paper mills. The production of caustic materials involved hydrogen sulfide, a poisonous gas. According to the National Institute for Occupational Safety and Health, hydrogen sulfide is an acute toxic substance that is the leading cause of sudden death in the workplace. Employers are required by the Occupational Safety and Health Administration (OSHA) to implement engineering and safety controls to prevent employees from exposure above harmful limits of hydrogen sulfide.
Bowman was responsible for approving and directing
PACES production operations, the disposal of hydrogen sulfide wastewater, and ensuring implementation of employee safety precautions. In some cases, Bowman personally handled the investigation of work-related employee injuries, directed the transportation of PACES wastewater, and determined what safety equipment could be purchased or maintained. In the cases at issue, hazardous materials were transported illegally with false documents and without the required placards. Most importantly, the workers were not properly protected from exposure to hazardous gases. The exposure resulted in the deaths of two employees, Joey Sutter and Charles Sittig, who were truck drivers, at the PACES facility on Dec. 18, 2008, and Apr. 14, 2009. Placarding is critical to ensure the safety of first responders in the event of an accident or other highway incident. Bowman and PACES were indicted by a federal grand jury on July 18, 2012.
Bowman faces up to five years in federal prison and a fine of up to $250,000 at sentencing. A sentencing date has not been set. Charges remain pending against PACES. The corporation faces a fine of up to $500,000 per count.
This case was investigated by EPA Criminal Investigation Division; the U.S. Department of Transportation Office of Inspector General; the Texas Commission on Environmental Quality - Environmental Crimes Unit, part of the Texas Environmental Enforcement Task Force; the Texas Parks & Wildlife Department - Environmental Crimes Unit; the Houston Police Department - Major Offenders, Environmental Investigations Unit; the Travis County, Texas - District Attorney’s Office; the Harris County, Texas, District Attorney’s Office - Environmental Crimes Division; the Houston Fire Department; OSHA; the U.S. Coast Guard; the Port Arthur Police Department; and the Port Arthur Fire Department.
The case was prosecuted by the U.S. Attorney’s Office for the Eastern District of Texas and the Environmental Crimes Section of the Justice Department’s Environment and Natural Resources Division.
Monday, May 13, 2013
FORMER MEDICAL DEVICE COMPANY EXECUTIVE PLEADS GUILTY IN SECURITES FRAUD SCHEME
FROM: U.S. DEPARTMENT OF JUSTICE
Thursday, May 9, 2013
Former Senior Executive of Arthrocare Corp. Pleads Guilty in $400 Million Securities Fraud Scheme
A former senior executive of Texas-based ArthroCare Corp., a publicly traded medical device company, pleaded guilty today for his role in a scheme to defraud the company’s shareholders and members of the investing public by falsely inflating ArthroCare’s earnings, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney Robert Pitman for the Western District of Texas.
David Applegate, 54, pleaded guilty before U.S. Magistrate Judge Mark Lane in Austin, Texas, to two counts of a superseding information which charges him with conspiracy to commit securities, mail and wire fraud and with a false statements violation. Applegate was the senior vice president in charge of ArthroCare’s Spine Division. Applegate admitted that he and other co-conspirators inflated falsely ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors and that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 with the U.S. Securities and Exchange Commission that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings.
According to court documents, Applegate and others determined the type and amount of product to be shipped to distributors, notably ArthroCare’s largest distributor, DiscoCare Inc., based on ArthroCare’s need to meet sales forecasts, rather than the distributors’ actual orders. Applegate and others then caused ArthroCare to "park" millions of dollars’ worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter. ArthroCare would then report these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to meet or exceed internal and external earnings forecasts.
According to the superseding information, DiscoCare agreed to accept shipment of approximately $37 million of product in exchange for substantial, upfront cash commissions, extended payment terms and the ability to return product, as well as other special conditions, allowing ArthroCare to inflate falsely its revenue by tens of millions of dollars. To conceal the fact that DiscoCare owed ArthroCare a substantial amount of money on the unused inventory, ArthroCare, with Applegate’s knowledge, caused ArthroCare to acquire DiscoCare on Dec. 31, 2007.
According to court documents, between December 2005 and December 2008, ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock. On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.
Applegate faces a maximum prison sentence of five years in prison for each charge. A sentencing date has yet to be scheduled.
David Applegate’s co-defendant John Raffle is scheduled for trial on July 15, 2013. Defendants are presumed innocent unless and until proven guilty at trial.
This case was investigated by the FBI’s Austin Field Office. The case is being prosecuted by Deputy Chief Benjamin D. Singer and Trial Attorney Henry P. Van Dyck of the Criminal Division’s Fraud Section. The Department recognizes the substantial assistance of the U.S. Securities and Exchange Commission.
Thursday, May 9, 2013
Former Senior Executive of Arthrocare Corp. Pleads Guilty in $400 Million Securities Fraud Scheme
A former senior executive of Texas-based ArthroCare Corp., a publicly traded medical device company, pleaded guilty today for his role in a scheme to defraud the company’s shareholders and members of the investing public by falsely inflating ArthroCare’s earnings, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney Robert Pitman for the Western District of Texas.
David Applegate, 54, pleaded guilty before U.S. Magistrate Judge Mark Lane in Austin, Texas, to two counts of a superseding information which charges him with conspiracy to commit securities, mail and wire fraud and with a false statements violation. Applegate was the senior vice president in charge of ArthroCare’s Spine Division. Applegate admitted that he and other co-conspirators inflated falsely ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors and that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 with the U.S. Securities and Exchange Commission that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings.
According to court documents, Applegate and others determined the type and amount of product to be shipped to distributors, notably ArthroCare’s largest distributor, DiscoCare Inc., based on ArthroCare’s need to meet sales forecasts, rather than the distributors’ actual orders. Applegate and others then caused ArthroCare to "park" millions of dollars’ worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter. ArthroCare would then report these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to meet or exceed internal and external earnings forecasts.
According to the superseding information, DiscoCare agreed to accept shipment of approximately $37 million of product in exchange for substantial, upfront cash commissions, extended payment terms and the ability to return product, as well as other special conditions, allowing ArthroCare to inflate falsely its revenue by tens of millions of dollars. To conceal the fact that DiscoCare owed ArthroCare a substantial amount of money on the unused inventory, ArthroCare, with Applegate’s knowledge, caused ArthroCare to acquire DiscoCare on Dec. 31, 2007.
According to court documents, between December 2005 and December 2008, ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock. On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.
Applegate faces a maximum prison sentence of five years in prison for each charge. A sentencing date has yet to be scheduled.
David Applegate’s co-defendant John Raffle is scheduled for trial on July 15, 2013. Defendants are presumed innocent unless and until proven guilty at trial.
This case was investigated by the FBI’s Austin Field Office. The case is being prosecuted by Deputy Chief Benjamin D. Singer and Trial Attorney Henry P. Van Dyck of the Criminal Division’s Fraud Section. The Department recognizes the substantial assistance of the U.S. Securities and Exchange Commission.
Sunday, May 12, 2013
DOL AND COAL COMPANY REACH AGREEMENT OVER MINER'S TERMINATION
FROM: U.S. DEPARTMENT OF LABOR
MSHA, New Elk Coal reach settlement
Miner who filed discrimination complaint to receive $115,000
ARLINGTON, Va. — The U.S. Department of Labor's Mine Safety and Health Administration today announced that New Elk Coal Co. has agreed to pay approximately $115,000 to a miner whose employment was terminated shortly after he filed a hazard complaint. The company also has agreed to pay MSHA a civil penalty of $10,000.
In April 2012, an electrician working at the New Elk Mine in Trinidad, Colo., contacted MSHA about hazardous conditions along a beltline that he claimed were not being properly addressed by his supervisors. The day after he filed the complaint, MSHA issued several citations to the mine. His position and shift changed multiple times over the next three weeks and, on May 12, he was terminated. One month later, the miner filed a complaint of discrimination with MSHA, alleging that he had been fired for notifying the agency of the mine's hazardous conditions.
In a complaint filed with the Federal Mine Safety and Health Review Commission, MSHA sought a finding that New Elk Coal Co. unlawfully had discriminated against the employee in violation of Section 105(c) of the Federal Mine Safety and Health Act of 1977. The statute protects miners, their representatives and applicants for employment from retaliation for engaging in safety and/or health-related activities such as identifying hazards, asking for MSHA inspections or refusing to engage in an unsafe act.
An administrative law judge ordered during an August 2012 hearing that the miner be temporarily reinstated. However, based on an agreement by the parties, the miner received approximately seven months of pay in lieu of returning to work. Prior to a scheduled hearing on the merits of the miner's discrimination claim, the parties settled the case, with New Elk Mining Co. agreeing to compensate him for an additional 10 months of pay.
In a separate case last January, the parties reached agreement that resolved a claim of discriminatory termination of a supervisor at the same mine. In that case, too, New Elk agreed to pay a civil penalty of $10,000 to MSHA, plus approximately $88,000 to the terminated employee. Additionally, the company agreed to provide company-wide training regarding miners' rights.
"All miners, supervisors and contractors have the right to identify hazardous conditions and refuse unsafe work without fear of discrimination or retaliation," said Joseph A. Main, assistant secretary of labor for mine safety and health. "They also have the right to be trained in the health and safety aspects of tasks, including recognizing hazards at the mine and the proper procedures for reporting those hazards."
Working with the Labor Department's Office of the Solicitor, MSHA filed 46 temporary reinstatement requests and 34 105(c) discrimination cases on behalf of miners in 2012, the most ever in a year.
MSHA, New Elk Coal reach settlement
Miner who filed discrimination complaint to receive $115,000
ARLINGTON, Va. — The U.S. Department of Labor's Mine Safety and Health Administration today announced that New Elk Coal Co. has agreed to pay approximately $115,000 to a miner whose employment was terminated shortly after he filed a hazard complaint. The company also has agreed to pay MSHA a civil penalty of $10,000.
In April 2012, an electrician working at the New Elk Mine in Trinidad, Colo., contacted MSHA about hazardous conditions along a beltline that he claimed were not being properly addressed by his supervisors. The day after he filed the complaint, MSHA issued several citations to the mine. His position and shift changed multiple times over the next three weeks and, on May 12, he was terminated. One month later, the miner filed a complaint of discrimination with MSHA, alleging that he had been fired for notifying the agency of the mine's hazardous conditions.
In a complaint filed with the Federal Mine Safety and Health Review Commission, MSHA sought a finding that New Elk Coal Co. unlawfully had discriminated against the employee in violation of Section 105(c) of the Federal Mine Safety and Health Act of 1977. The statute protects miners, their representatives and applicants for employment from retaliation for engaging in safety and/or health-related activities such as identifying hazards, asking for MSHA inspections or refusing to engage in an unsafe act.
An administrative law judge ordered during an August 2012 hearing that the miner be temporarily reinstated. However, based on an agreement by the parties, the miner received approximately seven months of pay in lieu of returning to work. Prior to a scheduled hearing on the merits of the miner's discrimination claim, the parties settled the case, with New Elk Mining Co. agreeing to compensate him for an additional 10 months of pay.
In a separate case last January, the parties reached agreement that resolved a claim of discriminatory termination of a supervisor at the same mine. In that case, too, New Elk agreed to pay a civil penalty of $10,000 to MSHA, plus approximately $88,000 to the terminated employee. Additionally, the company agreed to provide company-wide training regarding miners' rights.
"All miners, supervisors and contractors have the right to identify hazardous conditions and refuse unsafe work without fear of discrimination or retaliation," said Joseph A. Main, assistant secretary of labor for mine safety and health. "They also have the right to be trained in the health and safety aspects of tasks, including recognizing hazards at the mine and the proper procedures for reporting those hazards."
Working with the Labor Department's Office of the Solicitor, MSHA filed 46 temporary reinstatement requests and 34 105(c) discrimination cases on behalf of miners in 2012, the most ever in a year.
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