GOLD STANDARD MINING CORP. CHARGED WITH MAKING FALSE AND MISLEADING STATEMENTS

FROM:  U.S. SECURITES AND EXCHANGE COMMISSION
July 3, 2012
SEC CHARGES GOLD STANDARD MINING CORP. AND OTHERS FOR FALSE AND MISLEADING STATEMENTS CONCERNING RUSSIAN GOLD MINING OPERATIONS.
On June 29, 2012, the Securities and Exchange Commission filed a civil action in the United States District Court for the Central District of California against Gold Standard Mining Corp. (“Gold Standard”), its Chief Executive Officer/Chief Financial Officer Panteleimon Zachos, attorney Kenneth G. Eade, auditor E. Randall Gruber and his firm Gruber & Company LLC.

In its complaint, the Commission alleges that, between May 2009 and April 2011, Gold Standard filed numerous reports about its purported Russian gold mining operations that were materially false and misleading in various respects. According to the complaint, Gold Standard represented that it had acquired a Russian gold mining company known as Ross Zoloto Co., Ltd. (“Ross Zoloto”), but did not inform investors that it had agreed to allow the prior owner of Ross Zoloto to keep profits from existing operations or of issues surrounding Russian government registration or approval of the business combination. The complaint also alleges that Gold Standard filed false or misleading financial statements.

The complaint alleges that Gold Standard and Zachos were responsible for these misstatements, and that Eade, Gruber and Gruber & Co. substantially assisted Gold Standard in making these false and misleading statements. The complaint further alleges that Gruber & Co., through its sole member Edward Randall Gruber, misrepresented in an audit opinion that it had audited the company’s 2007, 2008 and 2009 consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board.

Without admitting or denying the allegations in the Commission’s complaint, Gold Standard and Zachos consented to final judgments pursuant to which Gold Standard will be enjoined from violating Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rules 10b-5, 12b-20, 13a-11 and 13a-13 thereunder, and Zachos will be enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. Zachos will also be barred from serving as an officer or director of a public company. The judgments are subject to court approval.

The complaint alleges that Eade and Gruber aided and abetted Gold Standard’s violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; Gruber & Co. violated Sections 10(b) and 10A(a) of the Exchange Act and Rule 10b-5(b) thereunder, and aided and abetted the violations of Gold Standard of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; and Gruber violated Section 10A(a) of the Exchange Act and aided and abetted the violations of Gruber & Co. of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder or, in the alternative, in liable as a control person of Gruber & Co. LLC with respect to those violations pursuant to Section 20(a) of the Exchange Act. The Commission seeks permanent injunctions, disgorgement, prejudgment interest and civil penalties against Eade, Gruber and Gruber & Co. and seeks to bar Eade from serving as an officer or director of a public company.

CONNECTICUT BASED CO. RESOLVES ALLEGED FALSE CLAIMS ACT REGARDING PURCHASES OF NAT. GAS FROM U.S. GOVERNMENT

FROM:  U.S. DEPARTMENT OF JUSTICE
Tuesday, July 3, 2012
Louis Dreyfus Energy Services Pays $4 Million to Resolve Allegations That It Violated the False Claims ActConnecticut-based Company Allegedly Failed to Pay Money Owed on Natural Gas Acquired from Government

Louis Dreyfus Energy Services has paid the United States $4,084,000 to settle allegations that it violated the False Claims Act by failing to pay money owed on natural gas acquired from the Department of the Interior, the Justice Department announced today.   Louis Dreyfus, which is based in Connecticut, is an energy company that is involved in merchandising, transportation, trading and storage of natural gas.

The settlement agreement resolves contentions by the United States that from December 2004 to March 2008, Louis Dreyfus Energy Services made false claims or misleading statements to the Department of the Interior involving contracts to buy natural gas produced from federal oil and gas leases in the Gulf of Mexico.   Starting in 2004, Louis Dreyfus agreed to pay the Interior Department for natural gas based on a price associated with the delivery of the gas at a fixed point along a natural gas pipeline. After its contracts with the Interior Department were executed, the company requested and received a discount in the price it would pay the Interior Department for the natural gas obtained under the contracts.   The United States contends that this price discount applied only when there was a complete or near-complete constraint in the natural gas pipeline such that Louis Dreyfus was unable to transport natural gas along the pipeline.   However, the energy services company claimed and obtained the price discounts even on days when it was able to ship natural gas along the pipeline.   Thus, the United States contends that Louis Dreyfus was not entitled to the price discounts that it sought and received from the Department of the Interior.

“Companies that deal with the United States have to live up to their commitments, whether they relate to the use of the nation’s natural resources or to other government programs or benefits,” said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department’s Civil Division.   “The American taxpayers will not tolerate those that claim price discounts from the United States to which they are not entitled.”
“Oil and natural gas companies must understand that using false or misleading claims to get a better price is unfair and unlawful.   For companies that make such claims, there are significant consequences,” said John Walsh, U.S. Attorney for the District of Colorado.  

“This settlement is a message to industry and the public that federal government agencies, working together, are focused on the promise that the American taxpayers will get their fair share of all monies owed from public resources,” said Mary L. Kendall, Acting Inspector General of the Department of the Interior.

“Energy companies have a responsibility to respect the public trust in their efforts to help fuel this nation’s energy needs,” said Paul Mussenden, the Department of the Interior’s Deputy Assistant Secretary for Natural Resources Revenue Management.   “It is imperative they honor that trust and pay the appropriate revenues that are due to American taxpayers for these precious natural resources.”   Mussenden added that “ONRR will remain diligent in its efforts to collect every dollar due to the public and the U.S. Government.”

In addition to resolving the company’s False Claims Act liability, the settlement today also resolves certain administrative claims between the Interior Department’s Office of Natural Resources Revenue and Louis Dreyfus.

The investigation and settlement of this matter were jointly handled by the U.S. Attorney for the District of Colorado, the Justice Department’s Civil Division, the Office of Natural Resources Revenue, the Department of the Interior’s Office of the Solicitor and the Energy Investigations Unit of the Department of the Interior’s Office of Inspector General.   The claims settled by this agreement are allegations only.   There has been no determination of liability.

ARIZONA BASE COMPANY WILL PAY $10 MILLION TO RESOLVE FALSE CLAIMS ACT ALLEGATIONS

FROM:  U.S. DEPARTMENT OF JUSTICE
Monday, July 2, 2012
Arizona-based Nextcare Inc. to Pay US $10 Million to Resolve False Claims Act AllegationsAllegedly Charged for Unnecessary Testing and Inflated Billing for Urgent Care Medical Services
NextCare Inc., an Arizona-based company, has agreed to pay $10 million to settle federal and state allegations that it submitted false claims, the Justice Department announced today.  NextCare is an owner of a chain of urgent care facilities with locations in Arizona, Colorado, Texas, North Carolina, Ohio and Virginia.

The settlement resolves allegations that NextCare submitted false claims to Medicare, TRICARE and the Federal Employees Health Benefits Program, as well as the Medicaid programs of Colorado, Virginia, Texas, North Carolina and Arizona, by billing for unnecessary allergy, H1N1 virus and respiratory panel testing.   The United States also alleged that NextCare inflated billings for urgent care medical services in the years under review, a practice known as upcoding.

“This settlement demonstrates the Justice Department’s commitment to ensuring that federal health care dollars are spent appropriately,” said Stuart Delery, Acting Assistant Attorney General for the Civil Division. “Health care providers who administer unnecessary services or who overcharge for care will be held accountable.”

Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina, noted that, “Today’s $10 million settlement with NextCare demonstrates our commitment to putting a stop to improper billing practices that exploit Medicare and drain vital resources from our health care system.   NextCare’s upcoding and unnecessary medical testing wasted taxpayers’ dollars.  This is a strong message to companies and individuals who engage in such conduct.   We are here, we are watching, and we will use all of our resources to safeguard the integrity of important public programs and protect consumers across the nation.”

Daniel R. Levinson, Inspector General of the Department of Health and Human Services (HHS-OIG), added, “P roviders who subject beneficiaries to unnecessary medical testing, as alleged against NextCare, compromise the well-being of their patients and squander Federal health care funds .”

As a condition of the settlement, NextCare Inc. is also required to enter into a Corporate Integrity Agreement with HHS-OIG under which the company will be monitored for a period of five years to ensure that in the future it complies with all federal healthcare program rules.

The allegations resolved by today’s settlement were initially raised in a lawsuit filed against NextCare by former NextCare employee Lorin Cohen.   Under the False Claims Act, private citizens acting as relators can bring suit on behalf of the United States and share in the recovery.  Ms. Cohen will receive $1.614 million as her share of the recovery.

This resolution is part of the government’s emphasis on combating health care fraud and another step forward for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, a collaborative effort launched in May 2009 by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services (HHS).  Settlements such as this one emphasize both the Department of Justice and HHS's commitment to the reduction and prevention of Medicare and Medicaid financial fraud.   Through the False Claims Act alone, the Justice Department has recovered more than $7.7 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 $11.3 billion.

This matter was handled jointly by the Civil Division of the United States Department of Justice, the U.S. Attorney’s Office for the Western District of North Carolina, the FBI, the North Carolina Attorney General’s Office, the Office of Inspector General of the Department of Health and Human Services (HHS-OIG), the TRICARE Management Activity and the Office of Personnel Management (OPM), which administers the FEHBP.   The claims settled by this agreement are allegations only, and there has been no determination of liability.

JUSTICE DEPARTMENT OFFICIAL COMMENTS ON $3 BILLION GSK SETTLEMENT

FROM:  U.S. DEPARTMENT OF JUSTICE
Acting Assistant Attorney General for the Civil Division Stuart F. Delery Speaks at the GSK Press Conference Washington, D.C. ~ Monday, July 2, 2012
Thank you, Bill, for that introduction.

As Deputy Attorney General Cole mentioned, today’s $3 billion resolution resolves several major investi gations of the company.  Specifically, t he global settlement resolves allegations relating to three major issues:

First, GSK will pay $1.8 billion to resolve criminal and civil liability related to off-label marketing.   This includes $757 million in criminal fines and forfeitures for misbranding the drugs Paxil and Wellbutrin, and $1.043 billion under the False Claims Act to resolve civil allegations regarding off-label promotion and the payment of kickbacks involving these and other drugs.

The second investigation resolved today relates to the diabetes drug Avandia.   GSK will pay a $243 million criminal fine for failing to report required safety data to FDA.   In the related civil settlement, GSK will pay $657 million to resolve allegations about representations it made concerning Avandia’s safety and efficacy.

The third investigation involves allegations of false best prices and the underpaying of rebates owed under the Medicaid Drug Rebate Program. GSK will pay $300 million to resolve civil liability under the False Claims Act related to these allegations.

In a moment, U.S. Attorney Carmen Ortiz will describe the conduct revealed by our investigations.   But today’s resolution is significant not just because GSK’s conduct was egregious or because it is the largest health care fraud settlement in the Department’s history.
 
Health care fraud is an epidemic that touches every aspect of our lives. And yet, for far too long, we have heard that the pharmaceutical industry views these settlements merely as the cost of doing business.   That is why this Administration is committed to using every available tool to defeat health care fraud.

As we did with Abbott Laboratories a few weeks ago, today’s resolution seeks not only to punish wrongdoing and recover taxpayer dollars, but to ensure GSK’s future compliance with the law.  The Corporate Integrity Agreement, which Department of Health and Human Services Inspector General Dan Levinson will describe in a moment, exemplifies best practices in compliance.  Both that agreement and the plea agreement require GSK to maintain certain compliance policies that the company has recently put into effect.

In addition, for the next five years, the plea agreement requires GSK to report to the Department of Justice any probable violations of the Federal Food, Drug, and Cosmetic Act concerning promotional activities and reporting obligations.   And GSK’s U.S. President and Board of Directors must personally certify the company’s compliance with the law every year.
And for every day that one of these reports or certifications is late, or one of these policies is not maintained, GSK agrees to pay the government $20,000 in stipulated damages.

The changes we are requiring of GSK and others may not end health care fraud, but they will go a long way to bringing about much-needed change in the way the pharmaceutical industry conducts business.   And because we know that many companies already play by the rules, these changes will help level the playing field, reduce the incentives to cut corners, and make clear that good compliance is also good business.

I want to echo the Deputy Attorney General’s comments about all of the many public servants in Boston, Colorado and across the country that contributed to this matter.   In particular, I want to recognize the dedicated attorneys, investigators and support staff of the Civil Division – here in Washington – who are the backbone of all of our health care fraud enforcement efforts.

Now, it’s my pleasure to introduce Carmen Ortiz, the U.S. Attorney for the District of Massachusetts.

N.C. RESIDENT PLEADS GUILTY IN $63 MILLION MEDICARE FRAUD

FROM:  U.S. DEPARTMENT OF JUSTICE
Monday, July 2, 2012Asheville, North Carolina, Resident Pleads Guilty to Participating in $63 Million Medicare Fraud Scheme

WASHINGTON – An Asheville, N.C., resident pleaded guilty today in U.S. District Court in Miami for her role in a health care fraud scheme that resulted in the submission of more than $63 million in fraudulent claims to Medicare and Medicaid in Miami and Hendersonville, N.C., announced the Department of Justice, the FBI and the Department of Health and Human Services (HHS).

Serena Joslin, 31, a Licensed Psychological Associate, pleaded guilty before U.S. District Judge Cecilia M. Altonaga in Miami to one count of conspiracy to commit health care fraud.  Joslin admitted to participating in a fraud scheme that was orchestrated through an entity called Health Care Solutions Network (HCSN).  HCSN operated purported partial hospitalization programs (PHPs), a form of intensive mental health treatment for severe mental illness, in both Miami and Hendersonville.

According to an indictment unsealed on May 2, 2012, HCSN obtained Medicare beneficiaries to attend HCSN for purported PHP treatment that was unnecessary and, in many instances, not provided.  HCSN obtained those beneficiaries by paying kickbacks to owners and operators of assisted living facilities (ALFs) or by otherwise recruiting them from ALFs and nursing homes.  According to court documents, Joslin admitted that she was aware that HCSN recruited patients who were inappropriate for PHP treatment.  Nevertheless, Joslin agreed with other HCSN employees to, among other things, fabricate therapy notes and other medical records, and to direct therapists to fabricate therapy notes and other medical records, all to make it appear as if HCSN patients received appropriate PHP services.  Joslin was aware that fraudulent claims to Medicare would be submitted on behalf of these patients.

At sentencing, scheduled for Jan. 11, 2013, Joslin faces a maximum of 10 years in prison and a $250,000 fine.

Eight other charged defendants, including the owner and operators of HCSN, await trial before Judge Altonaga.  Defendants are presumed innocent until proven guilty at trial.
Today’s guilty plea was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; Xanthi C. Mangum, Acting Special Agent-in-Charge of the FBI’s Miami Field Office; and Special Agent-in-Charge Christopher B. Dennis of the HHS Office of Inspector General (HHS-OIG), Office of Investigations Miami office.
The case is being prosecuted by Trial Attorneys Steven Kim, William Parente and Allan Medina of the Criminal Division’s Fraud Section.  The case was investigated by the FBI, HHS-OIG and Medicaid Fraud Control Unit and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Florida.

Since their inception in March 2007, Medicare Fraud Strike Force operations in nine locations have charged more than 1,330 defendants who collectively have falsely billed the Medicare program for more than $4 billion.  In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

UITED TECHNOLOGIES SUBSIDIARY PLEADS GUILTY TO HELPING CHINA DEVELOP MODERN ATTACK HELICOPTER

FROM:  U.S. DEPARTMENT OF JUSTICE 
Thursday, June 28, 2012
United Technologies Subsidiary Pleads Guilty to Criminal Charges for Helping China Develop New Attack Helicopter United Technologies, Pratt & Whitney Canada and Hamilton Sundstrand Corporations Also Agree to Pay More Than $75 Million to U.S. Government

BRIDGEPORT, Conn. – Pratt & Whitney Canada Corp. (PWC), a Canadian subsidiary of the Connecticut-based defense contractor United Technologies Corporation (UTC), today pleaded guilty to violating the Arms Export Control Act and making false statements in connection with its illegal export to China of U.S.-origin military software used in the development of China’s first modern military attack helicopter, the Z-10.

In addition, UTC, its U.S.-based subsidiary Hamilton Sundstrand Corporation (HSC) and PWC have all agreed to pay more than $75 million as part of a global settlement with the Justice Department and State Department in connection with the China arms export violations and for making false and belated disclosures to the U.S. government about these illegal exports.  Roughly $20.7 million of this sum is to be paid to the Justice Department.  The remaining $55 million is payable to the State Department as part of a separate consent agreement to resolve outstanding export issues, including those related to the Z-10.  Up to $20 million of this penalty can be suspended if applied by UTC to remedial compliance measures.  As part of the settlement, the companies admitted conduct set forth in a stipulated and publicly filed statement of facts.
 
Today’s actions were announced by David B. Fein, U.S. Attorney for the District of Connecticut; Lisa Monaco, Assistant Attorney General for National Security; John Morton, Director of U.S. Immigration and Customs Enforcement (ICE); Ed Bradley, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service (DCIS); Kimberly K. Mertz, Special Agent in Charge of the FBI New Haven Division; David Mills, Department of Commerce Assistant Secretary for Export Enforcement; and Andrew J. Shapiro, Assistant Secretary of State for Political-Military Affairs.

The Charges
Today in the District of Connecticut, the Justice Department filed a three-count criminal information charging UTC, PWC and HSC.  Count One charges PWC with violating the Arms Export Control Act in connection with the illegal export of defense articles to China for the Z-10 helicopter.  Count Two charges PWC, UTC and HSC with making false statements to the U.S. government in their belated disclosures relating to the illegal exports.  Count Three charges PWC and HSC with failure to timely inform the U.S. government of exports of defense articles to China.

While PWC has pleaded guilty to Counts One and Two, the Justice Department has recommended that prosecution of UTC and HSC on Count Two, and PWC and HSC on Count Three be deferred for two years, provided the companies abide by the terms of a deferred prosecution agreement with the Justice Department.  As part of the agreement, the companies must pay $75 million and retain an Independent Monitor to monitor and assess their compliance with export laws for the next two years.
The Export Scheme

Since 1989, the United States has imposed a prohibition upon the export to China of all U.S. defense articles and associated technical data as a result of the conduct in June 1989 at Tiananmen Square by the military of the People’s Republic of China.  In February 1990, the U.S. Congress imposed a prohibition upon licenses or approvals for the export of defense articles to the People’s Republic of China.  In codifying the embargo, Congress specifically named helicopters for inclusion in the ban.

Dating back to the 1980s, China sought to develop a military attack helicopter.  Beginning in the 1990s, after Congress had imposed the prohibition on exports to China, China sought to develop its attack helicopter under the guise of a civilian medium helicopter program in order to secure Western assistance.  The Z-10, developed with assistance from Western suppliers, is China’s first modern military attack helicopter.

During the development phases of China’s Z-10 program, each Z-10 helicopter was powered by engines supplied by PWC.  PWC delivered 10 of these development engines to China in 2001 and 2002.  Despite the military nature of the Z-10 helicopter, PWC determined on its own that these development engines for the Z-10 did not constitute “defense articles,” requiring a U.S. export license, because they were identical to those engines PWC was already supplying China for a commercial helicopter.

Because the Electronic Engine Control software, made by HSC in the United States to test and operate the PWC engines, was modified for a military helicopter application, it was a defense article and required a U.S. export license.  Still, PWC knowingly and willfully caused this software to be exported to China for the Z-10 without any U.S. export license.  In 2002 and 2003, PWC caused six versions of the military software to be illegally exported from HSC in the United States to PWC in Canada, and then to China, where it was used in the PWC engines for the Z-10.

According to court documents, PWC knew from the start of the Z-10 project in 2000 that the Chinese were developing an attack helicopter and that supplying it with U.S.-origin components would be illegal.  When the Chinese claimed that a civil version of the helicopter would be developed in parallel, PWC marketing personnel expressed skepticism internally about the “sudden appearance” of the civil program, the timing of which they questioned as “real or imagined.”  PWC nevertheless saw an opening for PWC “to insist on exclusivity in [the] civil version of this helicopter,” and stated that the Chinese would “no longer make reference to the military program.” PWC failed to notify UTC or HSC about the attack helicopter until years later and purposely turned a blind eye to the helicopter’s military application.

HSC in the United States had believed it was providing its software to PWC for a civilian helicopter in China, based on claims from PWC.  By early 2004, HSC learned there might an export problem and stopped working on the Z-10 project.  UTC also began to ask PWC about the exports to China for the Z-10.  Regardless, PWC on its own modified the software and continued to export it to China through June 2005.

According to court documents, PWC’s illegal conduct was driven by profit.  PWC anticipated that its work on the Z-10 military attack helicopter in China would open the door to a far more lucrative civilian helicopter market in China, which according to PWC estimates, was potentially worth as much as $2 billion to PWC.
Belated and False Disclosures to U.S. Government

These companies failed to disclose to the U.S. government the illegal exports to China for several years and only did so after an investor group queried UTC in early 2006 about whether PWC’s role in China’s Z-10 attack helicopter might violate U.S. laws.  The companies then made an initial disclosure to the State Department in July 2006, with follow-up submissions in August and September 2006.

The 2006 disclosures contained numerous false statements.  Among other things, the companies falsely asserted that they were unaware until 2003 or 2004 that the Z-10 program involved a military helicopter.  In fact, by the time of the disclosures, all three companies were aware that PWC officials knew at the project’s inception in 2000 that the Z-10 program involved an attack helicopter.

Today, the Z-10 helicopter is in production and initial batches were delivered to the People’s Liberation Army of China in 2009 and 2010.  The primary mission of the Z-10 is anti-armor and battlefield interdiction.  Weapons of the Z-10 have included 30 mm cannons, anti-tank guided missiles, air-to-air missiles and unguided rockets.

“PWC exported controlled U.S. technology to China, knowing it would be used in the development of a military attack helicopter in violation of the U.S. arms embargo with China,” said U.S. Attorney Fein.  “PWC took what it described internally as a ‘calculated risk,’ because it wanted to become the exclusive supplier for a civil helicopter market in China with projected revenues of up to two billion dollars.  Several years after the violations were known, UTC, HSC and PWC disclosed the violations to the government and made false statements in doing so.  The guilty pleas by PWC and the agreement reached with all three companies should send a clear message that any corporation that willfully sends export controlled material to an embargoed nation will be prosecuted and punished, as will those who know about it and fail to make a timely and truthful disclosure.”

“Due in part to the efforts of these companies, China was able to develop its first modern military attack helicopter with restricted U.S. defense technology.  As today’s case demonstrates, the Justice Department will spare no effort to hold accountable those who compromise U.S. national security for the sake of profits and then lie about it to the government,” said Assistant Attorney General Monaco.  “I thank the agents, analysts and prosecutors who helped bring about this important case.”

“This case is a clear example of how the illegal export of sensitive technology reduces the advantages our military currently possesses,” said ICE Director Morton.  “I am hopeful that the conviction of Pratt & Whitney Canada and the substantial penalty levied against United Technologies and its subsidiaries will deter other companies from considering similarly ill-conceived business practices in the future.  American military prowess depends on lawful, controlled exports of sensitive technology by U.S. industries and their subsidiaries, which is why ICE will continue its present campaign to aggressively investigate and prosecute criminal violations of U.S. export laws relating to national security.”

“Today’s charges and settlement demonstrate the continued commitment of the Defense Criminal Investigative Service (DCIS) and fellow agencies to protect sensitive U.S. defense technology from being illegally exported,” said DCIS Special Agent in Charge Bradley.  “Safeguarding our military technology is vital to our nation’s defense and the protection of our war fighters both home and abroad.  We know that foreign governments are actively seeking U.S. defense technology for their own development.  Thwarting these efforts is a top priority for DCIS.  I applaud the agents and prosecutors who worked tirelessly to bring about this result.”

“Preventing the loss of critical U.S. information and technologies is one of the most important investigative priorities of the FBI,” said FBI Special Agent in Charge Mertz.  “Our adversaries routinely target sensitive research and development data and intellectual property from universities, government agencies, manufacturers, and defense contractors.  While the thefts associated with economic espionage and illegal technology transfers may not capture the same level of attention as a terrorist incident, the costs to the U.S. economy and our national security are substantial.  Violations of the Arms Export Control Act put our nation at risk and the FBI, along with all of our federal agency partners, are committed to ensuring that embargoed technologies do not fall into the wrong hands.  Those who violate these laws should expect to be held accountable.  An important part of the FBI’s strategy in this area involves the development of strategic partnerships.  In that regard, the FBI looks forward to future coordination with UTC and its subsidiaries to strengthen information sharing and counterintelligence awareness.”

“Protecting national security is our top priority,” said Assistant Secretary of Commerce for Export Enforcement Mills.  “Today’s action sends a clear signal that federal law enforcement agencies will work together diligently to prevent U.S. technology from falling into the wrong hands.”

Assistant Secretary Shapiro, of the State Department’s Bureau of Political and Military Affairs, said, “Today’s $75 million settlement with United Technologies Corporation sends a clear message:  willful violators of U.S. arms export control regulations will be pursued and punished.  The successful resolution of this case is the byproduct of the tireless work of our compliance officers and highlights the relentless commitment of the State Department to protect sensitive American technologies from being illegally transferred.”

U.S. Attorney Fein commended the many agencies involved in this investigation, including ICE’s Homeland Security Investigations (HSI) in New Haven; the DCIS in New Haven; the New Haven Division of the FBI; the Department of Commerce’s Boston Office of Export Enforcement.  He also praised the Office of the HSI Attaché in Toronto, which was essential to the initiation and investigation of this matter, and the State Department’s Office of Defense Trade Controls Compliance in the Bureau of Political-Military Affairs, for its critical role in the global resolution of this matter.

The prosecution is being handled by Assistant U.S. Attorneys Stephen B. Reynolds and Michael J. Gustafson from the U.S. Attorney’s Office for the District of Connecticut, with assistance from Steven Pelak and Ryan Fayhee of the Counterespionage Section of the Justice Department’s National Security Division.

COMPANY HIT WITH $200 MILLION PENALTY FOR ATTEMPTING TO MANIPULATE GLOBAL INTEREST RATES

FROM:  COMMODITY FUTURES TRADING COMMISSION
CFTC Orders Barclays to pay $200 Million Penalty for Attempted Manipulation of and False Reporting concerning LIBOR and Euribor Benchmark Interest Rates.
The Order finds that Barclays attempted to manipulate interest rates and made related false reports to benefit its derivatives trading positions. The Order also finds that Barclays made false LIBOR reports at the direction of members of senior management to protect its reputation during the global financial crisis.

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) issued an Order today filing and settling charges against Barclays PLC, Barclays Bank PLC (Barclays Bank) and Barclays Capital Inc.(Barclays Capital) (collectively Barclays or the Bank). The Order finds that Barclays attempted to manipulate and made false reports concerning two global benchmark interest rates, LIBOR and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as early as 2005.

According to the Order, Barclays, through its traders and employees responsible for determining the Bank’s LIBOR and Euribor submissions (submitters), attempted to manipulate and made false reports concerning both benchmark interest rates to benefit the Bank’s derivatives trading positions by either increasing its profits or minimizing its losses. This conduct occurred regularly and was pervasive. In addition, the attempts to manipulate included Barclays’ traders asking other banks to assist in manipulating Euribor, as well as Barclays aiding attempts by other banks to manipulate U.S. Dollar LIBOR and Euribor.

The Order also finds that throughout the global financial crisis in late August 2007 through early 2009, as a result of instructions from Barclays’ senior management, the Bank routinely made artificially low LIBOR submissions to protect Barclays’ reputation from negative market and media perceptions concerning Barclays’ financial condition.

The CFTC Order requires Barclays to pay a $200 million civil monetary penalty, cease and desist from further violations as charged, and take specified steps, such as making the determinations of benchmark submissions transaction-focused (as set forth in the Order), to ensure the integrity and reliability of its LIBOR and Euribor submissions and improve related internal controls.

“The American public and our markets rely upon the integrity of benchmark interest rates like LIBOR and Euribor because they form the basis for hundreds of trillions of dollars of transactions and affect nearly every corner of the global economy,” said David Meister, the CFTC’s Director of Enforcement. “Banks that contribute information to those benchmarks must do so honestly. When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank’s reputation, the integrity of benchmark interest rates is undermined. The CFTC launched this investigation to protect the markets and the public from such illegal conduct, and today’s action demonstrates that we will bring the full force of our authority to bear as we carry out that mission.”
LIBOR and Euribor

LIBOR – the London Interbank Offered Rate – is among the most important benchmark interest rates in the world’s economy, and is a key rate in the United States. LIBOR is based on rate submissions from a relatively small and select panel of major banks, including Barclays, and is calculated and published daily for several different currencies by the British Banker’s Association (BBA). Each panel bank’s submission is also made public, and the market can therefore see each bank’s independent assessment of its own borrowing costs. LIBOR is supposed to reflect the cost of borrowing unsecured funds in the London interbank market.

Euribor, which is calculated in a similar fashion by the European Banking Federation (EBF), is another globally important rate that measures the cost of borrowing in the Economic and Monetary Union of the European Union.

LIBOR impacts enormous volumes of swaps and futures contracts, commercial and personal consumer loans, home mortgages and other transactions. For example, U.S. Dollar LIBOR is the basis for the settlement of the three-month Eurodollar futures contract traded on the Chicago Mercantile Exchange (CME), which had a traded volume in 2011 with a notional value exceeding $564 trillion. In addition, according to the BBA, swaps with a notional value of approximately $350 trillion and loans amounting to $10 trillion are indexed to LIBOR. Euribor is also used internationally in derivatives contracts. In 2011, over-the-counter interest rate derivatives referenced to Euro rates had a notional value in excess of $220 trillion, according to the Bank for International Settlements. LIBOR and Euribor are relied upon by countless large and small businesses and individuals who trust that the rates are derived from candid and reliable submissions made by each of the banks on the panels.

Barclays’ Unlawful Conduct to Benefit Derivatives Trading Positions
As the Order shows, Barclays, in pursuit of its own self-interest, disregarded the fundamental principle that LIBOR and Euribor are supposed to reflect the costs of borrowing funds in certain markets. Barclays’ traders located at least in New York, London and Tokyo asked Barclays’ submitters to submit particular rates to benefit their derivatives trading positions, such as swaps or futures positions, which were priced on LIBOR and Euribor. Barclays’ traders made these unlawful requests routinely, and sometimes daily, from at least mid-2005 through at least the fall of 2007, and sporadically thereafter into 2009. The Order relates that, for example, one trader stated in an email to a submitter: “We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible.”

In addition, certain Barclays Euro swaps traders, led at the time by a senior trader, coordinated with and aided and abetted traders at other banks in each other’s attempts to manipulate Euribor, even scheming to impact Euribor on key standardized dates when many derivatives contracts are settled or reset.

The traders’ requests were frequently accepted by Barclays’ submitters, who emailed responses such as “always happy to help,” “for you, anything,” or “Done…for you big boy,” resulting in false submissions by Barclays to the BBA and EBF. The traders and submitters also engaged in similar conduct on fewer occasions with respect to Yen and Sterling LIBOR.

Barclays’ Unlawful Conduct at the Direction of Senior Management
The CFTC Order also finds that Barclays, acting at the direction of senior management, engaged in other serious unlawful conduct concerning LIBOR. In late 2007, Barclays was the subject of negative press reports raising questions such as, “So what the hell is happening at Barclays and its Barclays Capital securities unit that is prompting its peers to charge it premium interest in the money market?” Such negative media speculation caused significant concern within Barclays and was discussed among high levels of management within Barclays Bank. As a result, certain senior managers within Barclays instructed the U.S. Dollar LIBOR submitters and their supervisor to lower Barclays’ LIBOR submissions to be closer to the rates submitted by other banks and not so high as to attract media attention.

According to the Order, senior managers even coined the phrase “head above the parapet” to describe high LIBOR submissions relative to other banks. Barclays’ LIBOR submitters were told not to submit at levels where Barclays was “sticking its head above the parapet.” The directive was intended to fend off negative public perceptions about Barclays’ financial condition arising from its high LIBOR submissions relative to the submissions of other panel banks, which Barclays believed were too low given the market conditions.
Despite concerns being raised by the submitters that Barclays and other banks were, for example, “being dishonest by definition” and that they were submitting “patently false” rates, the submitters followed the directive and submitted artificially lower rates. The senior management directive for low U.S. Dollar LIBOR submissions occurred on a regular basis during the global financial crisis from August 2007 through early 2009, and, at limited times, for Yen and Sterling LIBOR during the same period. As the U.S. Dollar senior submitter said in October 2008 to his supervisor at the time, “following on from my conversation with you I will reluctantly, gradually and artificially get my libors in line with the rest of the contributors as requested. I disagree with this approach as you are well aware. I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices.”

Barclays’ Obligations to Ensure Integrity and Reliability of Benchmark Interest Rates
In addition to the $200 million penalty, the CFTC Order requires Barclays to implement measures to ensure that its submissions are transaction-focused, based upon a rigorous and honest assessment of information and not influenced by conflicts of interest. See pages 31-44 of the CFTC’s Order. Among other things, the Order requires Barclays to:
Make its submissions based on certain specified factors, with Barclays’ transactions being given the greatest weight, subject to certain specified adjustments and considerations;
Implement firewalls to prevent improper communications including between traders and submitters;
Prepare and retain certain documents concerning submissions, and retain relevant communications;
Implement auditing, monitoring and training measures concerning its submissions and related processes;
Make regular reports to the CFTC concerning compliance with the terms of the Order;
Use best efforts to encourage the development of rigorous standards for benchmark interest rates; and Continue to cooperate with the CFTC.

* * * *
The Order recognizes Barclays’ significant cooperation with the CFTC during the investigation of this matter.
In a related matter, as part of an agreement with the Fraud Section of the U.S. Justice Department’s Criminal Division, Barclays agreed to pay a $160 million penalty and to continue to cooperate with the Department. Furthermore, the United Kingdom’s Financial Services Authority (FSA) issued a Final Notice regarding its enforcement action against Barclays Bank PLC, and has imposed a penalty of £59.5 million against the Bank.

The CFTC thanks the FSA, the U.S. Department of Justice, the Washington Field Office of the Federal Bureau of Investigation and the U.S. Securities and Exchange Commission for their assistance in the CFTC’s investigation.

CFTC Division of Enforcement staff members responsible for this case are Anne M. Termine, Stephen T. Tsai, Maura M. Viehmeyer, Brian G. Mulherin, Gretchen L. Lowe and Vincent A. McGonagle, with assistance from Philip P. Tumminio, Rishi K. Gupta, Russell Battaglia, Jeremy Cusimano, Elizabeth Padgett, Terry Mayo, Jason T. Wright, Aimée Latimer-Zayets, Timothy M. Kirby, Jonathan K. Huth, Susan A. Berkowitz and staff from the Division of Market Oversight and Office of the Chief Economist.