Friday, September 12, 2014
Thursday, September 11, 2014
SEC CHARGES TELECOMMUNICATIONS EQUIPMENT COMPANY, FORMER EXECS WITH IMPROPERLY RECOGNIZING REVENUE
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced charges against a Newport Beach, Calif.-based telecommunications equipment company and two former executives accused of improperly recognizing as revenue more than a million dollars’ worth of inventory that was shipped to a Florida warehouse but not actually sold.
They’re also accused of defrauding an investor from whom they secured a $2 million loan for the company based on misstatements and omissions associated with the inventory shipments.
The SEC’s Enforcement Division alleges that AirTouch Communications Inc., former president and CEO Hideyuki Kanakubo, and former CFO Jerome Kaiser orchestrated a fraudulent revenue recognition scheme that violated Generally Accepted Accounting Principles (GAAP), which establish that revenue cannot be recognized unless it is “realized or realizable” and “earned.” When AirTouch reported net revenues of a little more than $1.03 million in its quarterly report for the third quarter of 2012, it included approximately $1.24 million in inventory that had been shipped to a company in Florida that agreed to warehouse AirTouch’s products in anticipation of future sales. AirTouch’s revenue recognition was improper because the Florida company had not purchased the inventory, and AirTouch had not sold the inventory to any of its customers. AirTouch would have had zero revenue to report for the quarter if it had not recorded the shipments as purported revenue from the Florida company.
“Kanakubo and Kaiser created a facade of sales activity in AirTouch’s quarterly report to falsely depict a healthy and growing company when in fact it was struggling without any positive revenue,” said Michele Layne, director of the SEC’s Los Angeles Regional Office. “They also deceptively obtained financing from an investor based on a similar false portrayal of the company’s sales activity.”
According to the SEC’s order instituting an administrative proceeding, AirTouch develops and sells telecommunications equipment, including a product called the U250 SmartLinx that was designed in early 2012 for sale to Mexico’s largest provider of landline telephone services. Later that year, AirTouch contacted the Florida company about the possibility of it warehousing U250 SmartLinx units for potential future sale to the Mexican entity or other AirTouch customers. During contract negotiations for the warehousing arrangement, the CEO of the Florida company told Kanakubo that it would not buy the product from AirTouch, but rather warehouse the U250 SmartLinx inventory and provide logistics for eventual delivery to the Mexican entity or other AirTouch customers who purchased the product. AirTouch shipped approximately $1.24 million of inventory to the Florida company. Despite not receiving any payment from the Florida company or any commitment from the Mexican entity or any other customer that it would actually buy product, Kanakubo and Kaiser reported the shipped inventory as revenue on AirTouch’s Form 10-Q. They also signed certifications falsely attesting to the accuracy of the company’s financial results.
The SEC’s Enforcement Division further alleges that Kanakubo and Kaiser made false and misleading statements and omissions to an investor they solicited for a $2 million short-term bridge loan to the company in exchange for a promissory note and a warrant to purchase common stock. Among other things, Kanakubo falsely told the investor via e-mail that the inventory to be shipped by AirTouch to the Florida company pertained to an existing purchase order from the Mexican entity, and Kaiser did not disclose the existence of the agreement wherein the Florida company agreed merely to warehouse the inventory and provide associated fulfillment and logistics services. On Oct. 17, 2012, AirTouch received the loan of $2 million from the investor, and two days later Kanakubo approved a $15,000 bonus payment to Kaiser for his work on raising capital. The same day, Kanakubo authorized a $15,000 payment to himself in connection with unused vacation time.
According to the SEC’s order, Kanakubo, who lives in Irvine, Calif., and Kaiser, who lives in Chowchilla, Calif., withheld key information about the inventory shipments to the Florida entity from AirTouch’s board of directors and controller as well as its outside independent accountant.
The SEC’s order alleges that AirTouch, Kanakubo, and Kaiser violated the antifraud provisions of the federal securities laws, and asserts that Kaiser’s violations constituted willful conduct.
The SEC’s investigation was conducted by Peter Altman, Rhoda Chang, and Diana Tani of the Los Angeles office. The SEC’s litigation will be led by Amy Longo, Gary Leung, David VanHavermaat, and Mr. Altman.
Wednesday, September 10, 2014
Tuesday, September 9, 2014
SOUTH AFRICAN BANK SETTLES CFTC CHARGES FOR UNLAWFUL EXECUTION OF PREARRANGED, NONCOMPETITIVE TRADES
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
August 27, 2014
CFTC Orders FirstRand Bank, Ltd. to Pay $150,000 Civil Monetary Penalty for Unlawfully Executing Prearranged, Noncompetitive Trades on the CBOT
FirstRand and another foreign-based company prearranged noncompetitive corn and soybean futures trades
Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) issued an Order filing and simultaneously settling charges against financial services company FirstRand Bank, Ltd. (FirstRand), headquartered in Johannesburg, South Africa, for executing unlawful prearranged, noncompetitive trades involving corn and soybean futures contracts on the Chicago Board of Trade (CBOT), a designated contract market of the CME Group. FirstRand has never been registered with the CFTC.
The CFTC’s Order requires FirstRand to pay a $150,000 civil monetary penalty as a result of its unlawful conduct. The Order also requires FirstRand to comply with certain undertakings, including instituting, updating, and/or strengthening policies and procedures designed to detect, deter, discipline, and correct any potential prearranged, fictitious, or noncompetitive trading in violation of the Commodity Exchange Act (CEA) and CFTC Regulations. Finally, the Order requires FirstRand to cease and desist from further violations of Section 4c(a)(1) of the CEA and CFTC Regulation 1.38(a), as charged.
The CFTC order finds that on several occasions, from June 2009 to August 2011, FirstRand and another foreign-based company entered into prearranged noncompetitive trades involving CBOT corn and soybean futures contracts. Before these trades were entered on the CBOT, employees for FirstRand and the other company had telephonic conferences with each other during which they agreed upon the contract, quantity, price, direction, and timing of those trades. These prearranged trades negated market risk and price competition and constituted fictitious sales, in violation of the CEA. Further, by entering into prearranged trades for corn and soybean futures contracts, FirstRand also engaged in noncompetitive transactions in violation of a CFTC Regulation, according to the Order.
In settling this matter, the CFTC has taken into account FirstRand’s cooperation during the CFTC’s investigation.
The CFTC thanks the CME Group for its assistance.
CFTC Division of Enforcement staff members responsible for this case are Kara Mucha, Steven Kim, Kassra Goudarzi, Michael Solinsky, and Charles D. Marvine.
Monday, September 8, 2014
DOJ ANNOUNCES SETTLEMENT WITH EXXONMOBIL OVER TORBERT, LOUISIANA, OIL SPILL
FROM: U.S. JUSTICE DEPARTMENT
Tuesday, August 26, 2014
ExxonMobil Pipeline Company to Pay Civil Penalty Under Proposed Settlement for Torbert, Louisiana, Oil Spill
Settlement Resolves Clean Water Act Violation Stemming from 2012 Spill
ExxonMobil Pipeline Company (ExxonMobil) has agreed to pay a civil penalty for an alleged violation of the Clean Water Act stemming from a 2012 crude oil spill from ExxonMobil’s “North Line” pipeline near Torbert, Louisiana, the Department of Justice and the Environmental Protection Agency (EPA) announced today. Under the consent decree lodged today in federal court, ExxonMobil will pay $1,437,120 to resolve the government’s claim.
The United States’ complaint, which was also filed today in the U.S. District Court for the Middle District of Louisiana, alleges that ExxonMobil discharged at least 2,800 barrels (or 117,000 gallons) of crude oil in violation of Section 311 of the Clean Water Act. On April 28, 2012, ExxonMobil’s 20/22-inch-diameter pipeline ruptured near Torbert, about 20 miles west of Baton Rouge, and crude oil spilled into the surrounding area and flowed into an unnamed tributary connected to Bayou Cholpe.
“Oil spills into our nation’s waters endanger public health and the environment and warrant concerted enforcement efforts,” said Sam Hirsch, Acting Assistant Attorney General for the Justice Department’s Environment and Natural Resources Division. “Today’s settlement achieves a just result and furthers our enforcement mission.”
“All businesses have an obligation to protect their workers, the local community and the environment in which they operate,” said Cynthia Giles, Assistant Administrator for Enforcement and Compliance Assurance at EPA. “EPA is committed to protecting communities by enforcing laws that reduce pollution in local waterways.”
The $1.4 million penalty is in addition to the costs incurred by ExxonMobil to respond to the oil spill and to replace the segment of ruptured pipeline. ExxonMobil is completing cleanup actions pursuant to an administrative order issued by the Louisiana Department of Environmental Quality. The company also continues to do follow-up work and to operate under a Corrective Action Order issued by the United States Department of Transportation, Pipeline and Hazardous Materials Safety Administration.
The Clean Water Act makes it unlawful to discharge oil or hazardous substances into or upon the navigable waters of the United States or adjoining shorelines in quantities that may be harmful to the environment or public health. The penalty paid for this spill will be deposited in the federal Oil Spill Liability Trust Fund managed by the National Pollution Fund Center. The Oil Spill Liability Trust Fund is used to pay for federal response activities and to compensate for damages when there is a discharge or substantial threat of discharge of oil or hazardous substances to waters of the United States or adjoining shorelines.
Sunday, September 7, 2014
FORMER EXECUTIVES SENTENCED IN $18 MILLION PONZI SCHEME FRAUD CASE
FROM: U.S. JUSTICE DEPARTMENT
Monday, August 25, 2014
Former Investment Company Executives Sentenced for Roles in $18 Million Ponzi Scheme
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney David Rivera of the Middle District of Tennessee, Special Agent in Charge Todd McCall of the FBI’s Memphis Division and Special Agent in Charge Christopher Henry of the Internal Revenue Service-Criminal Investigation (IRS-CI) in Nashville made the announcement today after the sentences were handed down by U.S. District Judge Todd J. Campbell in the Middle District of Tennessee.
According to court documents, Daryl Bornstein, 55, of Kinston Springs, Tennessee, a former Hanover salesman, and Robert Haley, 55, of Lebanon, Tennessee, the former Hanover CFO, colluded with Hanover CEO, Terry Kretz, to steal $18 million of investors’ money in a Ponzi scheme. Specifically, Kretz and Bornstein solicited investors with the promise that the monies would be invested in stock options and startup companies. More than half of the money, however, was actually used to repay earlier investors, to pay Hanover’s salaries and overhead, and to benefit the defendants personally. Such personal benefits included golf memberships and $100,000 in cash for Bornstein. Kretz and Bornstein also issued Hanover promissory notes to reimburse individuals who had previously lost money investing in ventures recommended by Bornstein before he joined Hanover. In some cases, these former investors contributed new money to Hanover, therefore unwittingly paying off their old investment losses with their new investments.
Haley furthered the fraud by sending investors checks for purported “interest,” knowing that they were simply monies recently taken in from new investors. He also prepared a false balance sheet that overstated Hanover’s financial health to be shown to investors.
The case was investigated by the FBI, IRS-CI, Tennessee Bureau of Investigation, and Tennessee Department of Commerce and Insurance. The case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Scarlett S. Nokes of the Middle District of Tennessee.
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