SEC CHARGES PENNY STOCK COMPANY WITH FRAUD IN ALLEGED SOLAR ENERGY SCAM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Securities and Exchange Commission v. MSGI Technology Solutions, Inc., and J. Jeremy Barbera, Civil Action No. 14-CV-5820 (S.D.N.Y.)

The Securities and Exchange Commission announced fraud charges against a penny stock company and its CEO linked to a scam artist whom the agency separately charged earlier this month.

The SEC alleges that MSGI Technology Solutions and its CEO J. Jeremy Barbera defrauded investors by touting a joint venture to develop and manage solar energy farms across the country on land purportedly owned by an electricity provider operated by Christopher Plummer. Barbera and Plummer co-authored press releases falsely portraying MSGI as a successful renewable energy company on the brink of profitable solar energy projects. However, MSGI had no operations, customers, or revenue at the time, and Plummer's company did not actually possess any of the assets or financing needed to develop the purported solar energy farms.

The SEC previously charged Plummer and a different penny stock company and CEO that similarly issued false press releases depicting a thriving business that in reality was struggling financially.

Barbera and MSGI agreed to settle the SEC's charges.

According to the SEC's complaint filed in federal court in Manhattan, in addition to co-authoring misleading press release with Plummer, Barbera himself made other material misstatements about MSGI's operations. For example, he described MSGI in press releases and on its website as an operational security company with customers all over the world, despite the fact that MSGI had long lacked the financial means to manufacture any security products on a commercial scale. Barbera also falsely claimed in press releases that another sham entity operated by Plummer had purchased MSGI's sizable outstanding debt, and he falsely touted nonexistent solar energy projects with an entity unrelated to Plummer.

The SEC's complaint charges Barbera and MSGI with violating antifraud provisions of the federal securities laws. The defendants have consented to the entry of final judgments permanently enjoining them from future violations of the antifraud provisions. In addition, Barbera has agreed to pay a $100,000 penalty and be permanently barred from acting as an officer or director of a public company or from participating in a penny stock offering. Barbera and MSGI neither admitted nor denied the charges. The settlement is subject to court approval.

The SEC's investigation was conducted by Justin P. Smith and George N. Stepaniuk of the New York office and supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney's Office for the District of Connecticut and the Federal Bureau of Investigation.

SEC CHARGES COMPUTER EQUIPMENT CO. CEO, FORMER CFO OF MISREPRESENTING STATE OF INTERNAL FINANCIAL CONTROLS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced charges against the CEO and former CFO of a Florida-based computer equipment company for misrepresenting to external auditors and the investing public the state of its internal controls over financial reporting.

The Sarbanes-Oxley Act of 2002 requires a management’s report on internal controls over financial reporting to be included in a company’s annual report.  The CEO and CFO must sign certifications confirming they’ve disclosed all significant deficiencies to the outside auditors, reviewed the annual report, and attest to its accuracy.

The SEC’s Enforcement Division alleges that CEO Marc Sherman and former CFO Edward L. Cummings represented in a management’s report accompanying the fiscal year 2008 annual report for QSGI Inc. that Sherman participated in management’s assessment of the internal controls.  However, Sherman did not actually participate.  The Enforcement Division further alleges that Sherman and Cummings each certified that they had disclosed all significant deficiencies in internal controls to the outside auditors.  On the contrary, Sherman and Cummings misled the auditors – chiefly by withholding that inadequate inventory controls existed within the company’s Minnesota operations.  They also withheld from auditors and investors that Sherman was directing and Cummings participating in a series of maneuvers to accelerate the recognition of certain inventory and accounts receivables in QSGI’s books and records by up to a week at a time.  The improper accounting maneuvers, which rendered QSGI’s books and records inaccurate, were performed in order to maximize the amount of money that QSGI could borrow from its chief creditor.

Cummings agreed to settle the charges, and the SEC’s Enforcement Division will litigate its case against Sherman in a separate administrative proceeding.

“Corporate executives have an obligation to take the Sarbanes-Oxley disclosure and certification requirements very seriously. Sherman and Cummings flouted these regulatory requirements and misled investors and external auditors in the process,” said Scott W. Friestad, associate director in the SEC’s Enforcement Division.

According to the SEC’s orders for the administrative proceedings, QSGI’s efforts in 2008 to introduce new internal controls to the operations at its Minnesota facility largely failed.  The deficiencies existed throughout that fiscal year and continued until the company filed for bankruptcy in July 2009.  QSGI failed to design inventory control procedures that took into account the existing control environment, such as employees’ qualifications and experience levels.  For example, sales and warehouse personnel often failed to document their removal of items from inventory.  When they did prepare the paperwork, accounting personnel often failed to process it and adjust inventory in the company’s financial reporting system.

The SEC’s Enforcement Division alleges that in management representation letters and other communications with QSGI’s external auditors, Sherman and Cummings claimed they had disclosed all significant deficiencies in internal controls over financial reporting.  Yet they did not disclose or direct anyone else to disclose the ongoing inventory and accounts receivable issues, nor did they disclose the improper acceleration of recognition and the resulting falsification of QSGI’s books and records.  In fact, Sherman and Cummings withheld information from the external auditors.  Had they disclosed the deficiencies and the circumvention of inventory controls as well as the improper acceleration of accounts receivable and inventory recognition, the auditors would have changed the nature, timing, and extent of their procedures in conducting the audit of QSGI’s financial statements. 

According to the SEC’s orders, Sherman and Cummings signed a Form 10-K and Sherman signed a Form 10-K/A each containing the false management’s report on internal controls over financial reporting.  And each signed certifications required under Section 302 of the Sarbanes-Oxley Act in which they falsely represented that they had evaluated the report and disclosed all significant deficiencies to the auditors. 

The SEC’s Enforcement Division alleges that Sherman violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2.  Sherman also is charged with causing QSGI’s violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). 

Without admitting or denying the SEC’s findings, Cummings consented to a cease-and-desist order finding that he willfully violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2.  The order also finds that he caused QSGI’s violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).  Cummings agreed to pay a $23,000 penalty, and to be barred from serving as an officer and director of a publicly traded company for five years.  Cummings also agreed to be suspended for at least five years from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.

The SEC’s investigation was conducted by Victor Tabak, Ryan Farney, and Bertram Braganza, under the supervision of Nina B. Finston.  Mr. Farney, Mr. Tabak, and Ms. Finston will handle the litigation against Sherman with assistance from Britt Biles.

HP TO PAY $32.5 MILLION FOR ALLEGED OVER-BILLING OF USPS

FROM:  U.S. JUSTICE DEPARTMENT 

Friday, August 1, 2014

Hewlett-Packard Company Agrees to Pay $32.5 Million for Alleged Overbilling of the U.S. Postal Service

The Justice Department announced today that Hewlett-Packard Co. (HP) has agreed to pay $32.5 million to resolve allegations under the False Claims Act that HP overcharged the U.S. Postal Service (USPS) for products between October 2001 and December 2010.  HP is a manufacturer and vendor of information technology products and services headquartered in Palo Alto, California.

“Protecting the federal procurement process from false claims is central to the mission of the Department of Justice,” said Assistant Attorney General Stuart F. Delery for the Justice Department’s Civil Division.  “We will continue to ensure that when the government purchases commercial products, it receives the prices to which it is entitled.”

The United States alleged that under a contract between HP and the USPS, HP overcharged USPS by failing to comply with pricing terms of the contract, including a requirement that HP provide prices that were no greater than those offered to HP customers with comparable contracts.  The United States also alleged that HP made misrepresentations during the negotiation of the contract regarding its pricing and its plans to ensure it would provide the required most favored customer pricing.

“The Major Fraud Investigations Division (MFID) within the Postal Service Office of Inspector General fully investigates those contractors who wrongly take advantage of the Postal Service,” said Thomas Frost, MFID's Special Agent in Charge.  “The Postal Service and the public must have complete confidence in the procurement process and MFID will continue to work diligently to make that happen.”

This matter was jointly investigated by the U.S. Postal Service, Office of the Inspector General and the Department of Justice’s Civil Division.  The claims resolved by the settlement are allegations only and there has been no determination of liability.

CFTC CHARGES J.P. MORGAN SUBSIDIARY WITH SUBMITTING INACCURATE LARGE TRADER REPORTS

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges J.P. Morgan Securities LLC with Repeatedly Submitting Inaccurate Large Trader Reports and Imposes a $650,000 Civil Monetary Penalty

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against J.P. Morgan Securities LLC (JPMS), a wholly-owned subsidiary of JPMorgan Chase & Co. and a CFTC-registered Futures Commission Merchant (FCM), for submitting inaccurate reports to the CFTC relating to the required reporting of positions held by certain large traders whose accounts are carried by JPMS. The reporting violations occurred despite the CFTC notifying JPMS of numerous errors in its reports. The CFTC Order requires JPMS to pay a $650,000 civil monetary penalty to address its unlawful conduct.

The reports are known as the “large trader” reports and are used by the CFTC in order to evaluate potential market risks and monitor compliance with CFTC requirements.

CFTC Director of Enforcement Aitan Goelman commented: “The large trader reports are vital to the CFTC’s role in monitoring market behavior and are important to members of the public, many of whom rely on that information in forming trading strategies. Therefore, submission of accurate and reliable data to the CFTC is essential. The CFTC will be vigilant in enforcing these rules in order to ensure the integrity of the regulatory structure and to maintain transparency in the markets.”

The CFTC Order specifically finds that since at least 2012, the CFTC was notifying JPMS about errors in its large trader reports, which increased in frequency throughout the year. CFTC Regulations require FCMs to submit information on a daily basis for certain large traders, such as the number of open futures or options positions; the number of delivery notices issued or stopped; and the number of Exchange For Related Positions (EFRPs). In December 2012, the CFTC notified JPMS that the on-going problems were unacceptable. JPMS, relying on its third-party vendor that generated the reports for JPMS, assured CFTC staff that the problems would be resolved on or before the end of January 2013. However, JPMS continued to submit large trader reports that contained hundreds of errors throughout the period from February 1, 2013 to February 2014.

Accordingly, the CFTC Order finds that JPMS violated Section 4g(a) of the Commodity Exchange Act (CEA), 7 U.S.C. § 6g(a) (2012), and CFTC Regulation 17.00(a)(1), 17 C.F.R. § 17.00(a)(1) (2013), with respect to its large trader reporting of delivery notices and EFRPs in connection with futures positions.

In addition to imposition of the $650,000 civil monetary penalty, the CFTC ordered JPMS to submit a certified statement of compliance within 120 days of the entry of the CFTC Order stating that it has completed enhancements to its systems and procedures related to reporting of delivery notices and EFRPs, and has tested such systems and procedures to ensure that they now comply with the requirements of the CEA and CFTC Regulations.

The CFTC Division of Enforcement staff members responsible for this matter are Allison Baker Shealy, George H. Malas, and Paul G. Hayeck, with assistance from CFTC Office of Data and Technology staff Jorge Herrada, Margaret Sweet, Howard Rosen, Marshall Horn, and Yolonda Herron.

COMPANY & MARKETING PARTNERS SETTLE FTC CHARGES OF DECEPTIVE MARKETING OF RESALE TICKETS

FROM:  U.S. FEDERAL TRADE COMMISSION 

TicketNetwork and Marketing Partners Ryadd and Secure Box Office Settle Charges of Deceptively Marketing Resale Tickets

FTC, Connecticut AG Allege that Ryadd and SBO Websites Mimicked Entertainment Venues

Online resale ticket exchange TicketNetwork, Inc., and two of its marketing partners, Ryadd, Inc. and SecureBoxOffice, LLC, have settled Federal Trade Commission and State of Connecticut allegations that their advertisements and websites misled consumers into thinking they were buying event tickets from the original venue at face value. Instead, the complaint alleges, the defendants’ websites actually were ticket reseller sites with event tickets often priced above the venue’s original price.

Under the terms of the settlements, the defendants are prohibited from deceptively advertising their resale ticket services, and will pay $1.4 million into a Connecticut fund for consumer education and enforcement.

TicketNetwork operates an electronic exchange enabling ticket brokers and other ticket-holders to resell their tickets to consumers on the secondary market. It promotes the sale of these tickets through its own websites and through affiliate marketers and private-label marketing “partners.” The joint complaint alleges that TicketNetwork and two of its top partners, Ryadd and SBO, violated the FTC Act and the Connecticut Unfair Trade Practices Act by misrepresenting that they were the “official” site or “box office” for the actual venue where an event was being held.

“With today’s settlements, the FTC and the Connecticut Attorney General’s office send a strong message to all online ticket sellers that they must clearly disclose who they are and what they are offering,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “These are basic rules of the road for marketers of any product or service, and consumers deserve no less.”

Ryadd, for example, placed the following paid Google ad that appeared at or near the top of the search results page when consumers searched for “radio city music hall”:

Radio City Music Hall/ RadioCity MusicHall-NY.com
radiocity.musichall-ny.com
Official Ticket Source Online for Radio City Music Hall Tickets in NY

The ad conveyed the impression that it was for the official Radio City Music Hall site, according to the complaint. Consumers who clicked on the ad were taken to a website prominently titled “Radio City Music Hall” which featured photos, text, and other material designed to look like the official Radio City Music Hall website. It was actually a Ryadd site, selling resale tickets, often at a price higher than original face value.

SBO allegedly used a similar approach, mimicking actual venues by using the term “box office” in its ads and websites. For example, SBO placed the following paid Google ad that appeared at or near the top of the results page when consumers searched “Providence Performing Arts Center”:

Providence PAC Tickets / pac.providenceboxoffice.com
pac.providenceboxoffice.com
Buy Providence PAC Tickets. Official ProvidenceBoxOffice Site

Consumers who clicked on this ad landed on a website featuring a headline and text designed to look like the official website for the Providence Performing Arts Center, in Providence, Rhode Island, when, in fact, it was an SBO site selling resale tickets, often for more than their face value.

Accordingly, the complaint alleges that Ryadd and SBO routinely misrepresented their resale ticket sites as actual venue sites; failed to adequately disclose that the sites offered tickets for resale and that prices often exceeded the tickets’ face value; and that the websites were neither owned by the venue, sports team, performer, or promoter, nor authorized to sell tickets on their behalf.

The complaint further alleges that TicketNetwork participated in Ryadd’s and SBO’s misleading marketing. TicketNetwork allegedly helped create the deceptive portions of certain ads, provided legal cover through inadequate disclosures, and helped to maintain the deception by defusing complaints and bad publicity, among other means. The complaint states that TicketNetwork knowingly profited from Ryadd’s and SBO’s deceptive practices.

The complaint also names Charles A. Lineberry and Ryan J. Bagley, who are officers of Ryadd, Inc., and James P. Moran, who is the owner and manager of SBO, as defendants.

Under the three proposed settlements:

All of the defendants are prohibited from misrepresenting, directly or by implication, that a resale ticket site is a venue site or is offering tickets at face value;
 The defendants are prohibited from using the word “official” in any ad, URL, website, or other advertising for resale tickets, except in very narrow circumstances;
The defendants must affirmatively disclose that: their websites are resale marketplaces and not venues or box offices; the ticket price may exceed the ticket’s face value; and the website is not owned by the venue, sports team, performer, or promoter;
TicketNetwork must require all partners to sign written contracts promising to adhere to the order, and must take disciplinary action when partners violate the order and appropriately handle consumer complaints about venue confusion; and
The three defendants will pay a total of $1.4 million to the state of Connecticut, with $750,000 coming from Ticket Network, $550,000 from Ryadd, and $100,000 from SBO.

The Commission vote authorizing the staff to file the complaint and approving the three proposed settlement orders was 5-0. The FTC filed the complaint and the proposed orders in the U.S. District Court for the District of Connecticut on July 24, 2014. They are subject to court approval.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. Settlement orders have the force of law when approved and signed by the district court judge.

AMERICAN PLASTIC LUMBER CASE SETTLEMENT APPROVED BY FTC

FROM:  U.S. FEDERAL TRADE COMMISSION 

FTC Approves Final Order in ‘Green Marketing’ Case Against American Plastic Lumber

Following a public comment period, the Federal Trade Commission has approved a final order settling charges that American Plastic Lumber, Inc. (APL), a company that markets plastic lumber and related products, misled consumers about the environmental attributes of its products.

The FTC’s June 2014 complaint states that from at least 2011 through 2013, APL’s ads and marketing materials implied that its products – and the recycled plastics they contain – were made virtually all out of post-consumer recycled content, such as milk jugs and detergent bottles. In reality, the products contained less than 79 percent post-consumer content, on average. The FTC also charged that about eight percent of APL’s products contained no post-consumer recycled content at all, and nearly seven percent of the products were made with only 15 percent post-consumer content.

The final consent order prohibits APL from making deceptive claims regarding environmental benefits for any product or package.

The Commission votes approving the final order was 5-0. (FTC File No. 132-3200; the staff contact is Robert M. Frisby, Bureau of Consumer Protection, 202-326-2098)

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

Contact Information
MEDIA CONTACT:
Mitchell J. Katz
Office of Public Affairs

TEXT MESSAGE "FREE" GIFT CARD SPAMMER AGREES TO SETTLE FTC CHARGES

FROM:  FEDERAL TRADE COMMISSION  Scammer Settles FTC Charges He Sent Consumers Millions of Unwanted Texts Deceptive Messages Promised “Free” Gift Cards for Consumers A text message spammer and his company have agreed to settle Federal Trade Commission charges that they were responsible for sending millions of unwanted messages to consumers across the country, which contained false promises of “free” $1,000 gift cards for major retailers like Walmart, Target and Best Buy. Under the terms of the settlement with the FTC, Rishab Verma and his company, Verma Holdings, LLC, will be permanently banned from sending unwanted or unsolicited commercial text messages or assisting others in doing so. In addition, the two will be prohibited from misrepresenting to consumers that a product is “free,” that they have won a prize or been selected for a gift, or that consumers’ personal information is needed to send free merchandise. Verma and his company were among the defendants in the Commission’s 2013 sweep against text message spammers and affiliate marketers who used false promises of gift cards to draw consumers to websites that collected sensitive personal information. The sites also required consumers to provide credit card information to sign up for trial offers. The settlement contains a monetary judgment of $2,863,000, which is suspended due to the defendants’ inability to pay after Verma and the company pay $26,100.   The Commission vote approving the proposed stipulated final judgment was 5-0. It is subject to court approval. The FTC filed the proposed stipulated final judgment in the U.S. District Court for the Southern District of Texas, Houston Division. NOTE: Stipulated final judgments have the force of law when approved and signed by the District Court judge.