FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 22, 2013 — The Securities and Exchange Commission today announced a non-prosecution agreement (NPA) with Ralph Lauren Corporation in which the company will disgorge more than $700,000 in illicit profits and interest obtained in connection with bribes paid by a subsidiary to government officials in Argentina from 2005 to 2009. The misconduct was uncovered in an internal review undertaken by the company and promptly reported to the SEC.
The SEC has determined not to charge Ralph Lauren Corporation with violations of the Foreign Corrupt Practices Act (FCPA) due to the company's prompt reporting of the violations on its own initiative, the completeness of the information it provided, and its extensive, thorough, and real-time cooperation with the SEC's investigation. Ralph Lauren Corporation's cooperation saved the agency substantial time and resources ordinarily consumed in investigations of comparable conduct.
The NPA is the first that the SEC has entered involving FCPA misconduct. NPAs are part of the SEC Enforcement Division's Cooperation Initiative, which rewards cooperation in SEC investigations. In parallel criminal proceedings, the Justice Department entered into an NPA with Ralph Lauren Corporation in which the company will pay an $882,000 penalty.
"When they found a problem, Ralph Lauren Corporation did the right thing by immediately reporting it to the SEC and providing exceptional assistance in our investigation," said George S. Canellos, Acting Director of the SEC's Division of Enforcement. "The NPA in this matter makes clear that we will confer substantial and tangible benefits on companies that respond appropriately to violations and cooperate fully with the SEC."
Kara Brockmeyer, the SEC's FCPA Unit Chief, added, "This NPA shows the benefit of implementing an effective compliance program. Ralph Lauren Corporation discovered this problem after it put in place an enhanced compliance program and began training its employees. That level of self-policing along with its self-reporting and cooperation led to this resolution."
According to the NPA, Ralph Lauren Corporation's cooperation included:
Reporting preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts.
Voluntarily and expeditiously producing documents.
Providing English language translations of documents to the staff.
Summarizing witness interviews that the company's investigators conducted overseas.
Making overseas witnesses available for staff interviews and bringing witnesses to the U.S.
According to the NPA, the bribes occurred during a period when Ralph Lauren Corporation lacked meaningful anti-corruption compliance and control mechanisms over its Argentine subsidiary. The misconduct came to light as a result of the company adopting measures to improve its worldwide internal controls and compliance efforts, including implementation of an FCPA compliance training program in Argentina.
As outlined in the NPA, Ralph Lauren Corporation's Argentine subsidiary paid bribes to government and customs officials to improperly secure the importation of Ralph Lauren Corporation's products in Argentina. The purpose of the bribes, paid through its customs broker, was to obtain entry of Ralph Lauren Corporation's products into the country without necessary paperwork, avoid inspection of prohibited products, and avoid inspection by customs officials. The bribe payments and gifts to Argentine officials totaled $593,000 during a four-year period.
Under the NPA, Ralph Lauren Corporation agreed to pay $593,000 in disgorgement and $141,845.79 in prejudgment interest.
The SEC took into account the significant remedial measures undertaken by Ralph Lauren Corporation, including a comprehensive new compliance program throughout its operations. Among Ralph Lauren Corporation's remedial measures have been new compliance training, termination of employment and business arrangements with all individuals involved in the wrongdoing, and strengthening its internal controls and its procedures for third party due diligence. Ralph Lauren Corporation also conducted a risk assessment of its major operations worldwide to identify any other compliance problems. Ralph Lauren Corporation has ceased operations in Argentina.
The SEC's investigation was conducted by Kristin A. Snyder and Tracy L. Davis in the San Francisco Regional Office. The SEC appreciates the assistance of the U.S. Department of Justice's Fraud Section, the U.S. Attorney's Office for the Eastern District of New York, and the Federal Bureau of Investigation in this matter.
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Federal Court Orders Wisconsin Resident Eric N. Schmickle and his Company, Q Wealth Management Inc., to Pay over $5 Million in Restitution and a Civil Monetary Penalty for a Multi-Million Dollar Commodity Futures Fraud
In a related criminal action, Schmickle pleaded guilty to wire fraud and was sentenced to 36 months in prison
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained an Order requiring Defendants Eric N. Schmickle, of Cedarburg, Wisconsin, and his company, Q Wealth Management Inc., to pay approximately $3.6 million of restitution and jointly to pay a $1.5 million civil monetary penalty in connection with operating a commodity futures Ponzi scheme.
The Consent Order for Permanent Injunction, entered on April 19, 2013, by Judge Rudolph T. Randa of the U.S. District Court for the Eastern District of Wisconsin, also imposes permanent trading and registration bans against the Defendants and prohibits them from violating the Commodity Exchange Act and a CFTC Regulation, as charged.
The Order finds that, from May 2009 through approximately April 2012, Schmickle operated a fraudulent commodity futures scheme through two entities: Q Wealth Management Inc., a Commodity Trading Advisor, and Aquinas SF LLC, a Commodity Pool Operator. Through these entities, Schmickle solicited approximately $5.2 million from one managed client and ten pool participants. Of those customer funds, Schmickle lost more than $2.9 million in trading and fees and misappropriated approximately $647,000 for his own personal benefit.
The Order further finds that to perpetrate the fraud, Schmickle fabricated and issued false account statements and tax forms that showed fake investment gains, instead of the actual losses. In addition, Schmickle sent invoices to the managed client, charging that client for commission on fake investment gains, according to the Order.
In a related criminal proceeding, on August 31, 2012, Schmickle pleaded guilty to wire fraud, and on February 26, 2013, Judge Randa sentenced him to 36 months in prison (see United States v. Schmickle, No. 12-cr-149 (E.D. Wis. Mar. 12, 2013)).
The CFTC appreciates the assistance of the U.S. Attorney’s Office (Eastern District of Wisconsin) and the Federal Bureau of Investigation (Milwaukee Division).
The CFTC Division of Enforcement staff members responsible for this case are David Chu, Mary Beth Spear, Ava Gould, Scott Williamson, Rosemary Hollinger, and Richard Wagner.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 24, 2013 — The Securities and Exchange Commission today charged Capital One Financial Corporation and two senior executives for understating millions of dollars in auto loan losses incurred during the months leading into the financial crisis.
An SEC investigation found that in financial reporting for the second and third quarters of 2007, Capital One failed to properly account for losses in its auto finance business when they became higher than originally forecasted. The profitability of its auto loan business was primarily derived from extending credit to subprime consumers. As credit markets began to deteriorate, Capital One’s internal loss forecasting tool found that the declining credit environment had a significant impact on its loan loss expense. However, Capital One failed to properly incorporate these internal assessments into its financial reporting, and thus understated its loan loss expense by approximately 18 percent in the second quarter and 9 percent in the third quarter.
Capital One agreed to pay $3.5 million to settle the SEC’s charges. The two executives – former Chief Risk Officer Peter A. Schnall and former Divisional Credit Officer David A. LaGassa – also agreed to settle the charges against them.
"Accurate financial reporting is a fundamental obligation for any public company, particularly a bank’s accounting for its provision for loan losses during a time of severe financial distress," said George Canellos, Co-Director of the Division of Enforcement. "Capital One failed in this responsibility by underreporting expenses relating to its loan losses even as its own internal forecasting tool had signaled an increase in incurred losses due to the impending financial crisis."
According to the SEC’s order instituting settled administrative proceedings, beginning in October 2006 and continuing through the third quarter of 2007, Capital One Auto Finance (COAF) experienced significantly higher charge-offs and delinquencies for its auto loans than it had originally forecasted. The elevated losses occurred within every type of loan in each of COAF’s lines of business. Its internal loss forecasting tool assessed that its escalating loss variances were attributable to an increase in a forecasting factor it called the "exogenous" – which measured the impact on credit losses from conditions external to the business such as macroeconomic conditions. A change in this exogenous factor generally had a significant impact on COAF’s loan loss expense, and it was closely monitored by the company through its loss forecasting tool. Capital One determined that incorporating the full exogenous levels into its loss forecast would have resulted in a second quarter allowance build of $72 million by year-end. Since no such expense was incorporated for the second quarter, it would have resulted in a third quarter allowance build of $85 million by year-end.
However, according to the SEC’s order, instead of incorporating the results of its loss forecasting tool, Capital One failed to include any of COAF’s exogenous-driven losses in its second quarter provision for loan losses and included only one-third of such losses in the third quarter. The exogenous losses were an integral component of Capital One’s methodology for calculating its provision for loan losses. As a result, Capital One’s second and third quarter loan loss expense for COAF did not appropriately estimate probable incurred losses in accordance with accounting requirements.
The SEC’s order also finds that Schnall and LaGassa caused Capital One’s understatements of its loan loss expense by deviating from established policies and procedures and failing to implement proper internal controls for determining its loan loss expense. Schnall, who oversaw Capital One’s credit management function, took inadequate steps to communicate COAF’s exogenous treatment to the senior management committee in charge of ensuring that the company’s allowance was compliant with accounting requirements. Despite warnings, he also failed to ensure that the exogenous treatment was properly documented. LaGassa, who managed the COAF loss forecasting process, failed to ensure that the proper exogenous levels were incorporated into the COAF loss forecast. He also failed to ensure that the exogenous treatment was documented consistent with policies and procedures.
"Financial institutions, especially those engaged in subprime lending practices, must have rigorous controls surrounding their process for estimating loan losses to prevent material misstatements of those expenses," said Gerald W. Hodgkins, Associate Director of the Division of Enforcement. "The SEC will not tolerate deficient controls surrounding an issuer’s financial reporting obligations, including quarterly reporting obligations."
Capital One’s material understatements of its loan loss expense and internal controls failures violated the reporting, books and records, and internal controls provisions of the federal securities laws, namely Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-13. Schnall and LaGassa caused Capital One’s violations of Section 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a-13 thereunder and violated Exchange Act Rule 13b2-1 by indirectly causing Capital One’s books and records violations.
Schnall agreed to pay an $85,000 penalty and LaGassa agreed to pay a $50,000 penalty to settle the SEC’s charges. Capital One and the two executives neither admitted nor denied the findings in consenting to the SEC’s order requiring them to cease and desist from committing or causing any violations of these federal securities laws.
FROM: U.S. JUSTICE DEPARTMENT
Monday, April 22, 2013
Clean Air Act Settlement with Wisconsin Utilities to Reduce Emissions by More Than 50,000 Tons Annually
The Department of Justice, the U.S. Environmental Protection Agency (EPA), and the United States Attorney’s Office for the Western District of Wisconsin announced a Clean Air Act (CAA) settlement with Wisconsin Power and Light Company (WPL) that will significantly reduce air pollution from three coal-fired power plants located near Portage, Sheboygan, and Cassville, Wis.
WPL operates the plants that are covered by the settlement, and the other defendants, Wisconsin Public Service Corporation (WPSC), Madison Gas and Electric Company, and Wisconsin Electric Power Company, are co- and former owners of the units. WPL and its co-defendants agreed to invest more than $1 billion in pollution control technology, spend a total of $8.5 million on environmental mitigation projects, and pay a civil penalty of $2.45 million to resolve alleged violations of the CAA.
"This settlement will improve air quality in Wisconsin and downwind areas by significantly reducing releases of sulfur dioxide, nitrogen oxide and other harmful pollutants," said Ignacia S. Moreno, Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice. "This agreement also demonstrates the Justice Department’s commitment to enforcing the New Source Review provisions of the Clean Air Act, which help ensure clean air for those communities affected by large sources of air pollution."
"EPA is committed to protecting communities by reducing air pollution from the largest sources of emissions," said Cynthia Giles, assistant administrator for EPA’s Office of Enforcement and Compliance Assurance. "The pollution reductions and the significant investment in local environmental projects required under this agreement will ensure that the people of Wisconsin and neighboring states have cleaner, healthier air."
"One of the many things that makes Wisconsin special is our clean air," said John W. Vaudreuil, United States Attorney for the Western District of Wisconsin. "With this settlement, the facilities’ owners are held accountable and required to mitigate the harm caused by their unlawful pollution of Wisconsin’s air. Cleaner air protects the health of our citizens, our forests, crops, and water, and all of us who treasure Wisconsin’s clean environment. The United States Attorney’s Office for the Western District of Wisconsin is committed to taking a leadership role in protecting the environment in Wisconsin."
Under the settlement, the defendants must install new pollution control technology on the three largest units, continuously operate the new and existing pollution controls, and comply with stringent pollutant emission rates and annual tonnage limitations. The settlement also requires WPL and WPSC to permanently retire, refuel or repower four additional coal-fired units at the Edgewater and Nelson Dewey plants. The actions taken to comply with this settlement will result in annual reductions of sulfur dioxide (SO2), oxides of nitrogen (NOx) and particulate matter (PM) of approximately 54,000 tons from 2011 levels. This settlement covers all seven coal-fired boilers at the Columbia, Edgewater, and Nelson Dewey power plants.
The settlement also requires the defendants to spend $8.5 million on projects that will benefit the environment and human health in communities located near the facilities, including $260,500 to the U.S. Forest Service and $260,500 to the National Park Service, to be used on projects to address the damage done from the emissions. The remaining $7.479 million will be spent on a combination projects, including up to $2.1 million on land acquisition and restoration; up to $5 million on a long term major solar photovoltaic (PV) power purchase agreement or a solar PV panels installation project; and up to $2 million on renewable energy resource enhancements for existing wind farms and hydroelectric facilities.
Reducing air pollution from the largest sources of emissions, including coal-fired power plants, is one of EPA’s National Enforcement Initiatives for 2011-2013. SO2 and NOx, two key pollutants emitted from power plants, have numerous adverse effects on human health and are significant contributors to acid rain, smog and haze. These pollutants are converted in the air to fine particles of particulate matter that can cause severe respiratory and cardiovascular impacts, and premature death. Reducing these harmful air pollutants will benefit the communities located near the facilities, particularly communities disproportionately impacted by environmental risks and vulnerable populations, including children. Because air pollution from power plants can travel significant distances downwind, this settlement will also reduce air pollution outside the immediate region.
This is the 26th judicial settlement secured by the Justice Department and EPA as part of a national enforcement initiative to control harmful emissions from power plants under the CAA’s New Source Review requirements. The total combined sulfur dioxide and nitrogen oxides emission reductions secured from these settlements will exceed 2 million tons each year once all the required pollution controls have been installed and implemented.
Sierra Club is co-plaintiff to the settlement.
The settlement was lodged with the U.S. District Court for the Western District of Wisconsin, and is subject to a 30-day public comment period and final court approval
FROM: U.S. DEPARTMENT OF JUSTICE
Thursday, April 18, 2013
Owner of Texas Durable Medical Equipment Companies Sentenced to 41 Months
Hugh Marion Willett, the owner of two Texas-based durable medical equipment companies, was sentenced today to 41 months in prison, followed by three years of supervised release, and ordered to pay $182,450 in restitution, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division.
Willett, 69, of Fort Worth, Texas, was found guilty in January by U.S. District Judge Jane J. Boyle in the Northern District of Texas on all seven counts of a June 2012 second superseding indictment: one count of conspiracy to commit health care fraud and six counts of health care fraud stemming from a durable medical equipment (DME) fraud scheme. His wife, Jean Willett, previously pleaded guilty to the same charges and was sentenced in September 2012 to 50 months in prison.
The evidence at trial showed that between 2006 and 2010, the Willets co-owned and operated JS&H Orthopedic Supply LLC and Texas Orthotic and Prosthetic Systems Inc., which claimed to provide orthotics and other DME to beneficiaries of Medicare and private insurance benefit programs including Aetna, Blue Cross Blue Shield and CIGNA.
Evidence presented in court proved that both of these companies intentionally submitted claims to Medicare and other insurers for products that were materially different from and more expensive than what was actually provided, and that Hugh Marion Willett was a knowing and willful participant in the fraud.
The case was investigated by the FBI and the Department of Homeland Security’s Office of Inspector General and brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section. The case was prosecuted by Fraud Section Trial Attorney Ben O’Neil.
Since their inception in March 2007, strike force operations in nine locations have charged more than 1,480 defendants who collectively have falsely billed the Medicare program for more than $4.8 billion. In addition, the Centers for Medicare and Medicaid Services, working in conjunction with the Office of Inspector General for the U.S. Department of Health and Human Services, are taking steps to increase accountability and decrease the presence of fraudulent providers.
FROM: U.S. DEPARTMENT OF JUSTICE
Thursday, April 18, 2013
Tennessee Salvage Company Owners and Operators Plead Guily to Conspiring to Violate the Clean Air Act
Three owners and operators of a Tennessee salvage and demolition company, A&E Salvage, Inc., pleaded guilty today in federal court in Greeneville, Tenn., for conspiring to violate the Clean Air Act.
Newell (a.k.a., "Nick") Smith, Armida Di Santi, and Milto Di Santi pleaded guilty before U.S. District Court Judge Greer for the Eastern District of Tennessee to one criminal felony count for conspiring to violate the Clean Air Act’s "work practice standards" salient to the proper wetting, stripping, bagging, and disposal of asbestos. According to the charges, Smith and the Di Santis, along with other co-conspirators, engaged in a multi-year scheme in which substantial amounts of regulated asbestos containing materials were improperly removed from components of the former Liberty Fibers Plant or were illegally left in place during demolition.
Smith and the Di Santis face up to five years in prison and a fine of up to $250,000 or twice the gross gain or loss to the victims.
Asbestos has been determined to cause lung cancer, asbestosis and mesothelioma, an invariably fatal disease. The Environmental Protection Agency has determined that there is no safe level of exposure to asbestos.
This case was investigated by Special Agents of the Environmental Protection Agency. The case is being prosecuted by Assistant U.S. Attorney Matthew T. Morris of the U.S. Attorney’s Office for the Eastern District of Tennessee and Trial Attorney Todd W. Gleason of the Environmental Crimes Section of the Justice Department’s Environment and Natural Resources Division.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 18, 2013 — The Securities and Exchange Commission charged the CEO of Chicago-based investment advisory firm Simran Capital Management with lying to the California Public Employers' Retirement System (CalPERS) and other current and potential clients about the amount of money managed by the firm.
Institutional investors such as CalPERS often use assets under management (AUM) as a metric to screen prospective investment advisers soliciting their business. An SEC investigation revealed that while pitching Simran's services, Mesh Tandon falsely certified to CalPERS that his firm satisfied its minimum AUM requirements. After fraudulently obtaining the business from CalPERS, Tandon also falsely inflated Simran's AUM in communications with other potential clients with whom he touted his firm's relationship with CalPERS. Tandon also fraudulently reported an inflated AUM in filings with the SEC, and he later attempted to mislead SEC examiners during a routine examination of Simran.
Tandon, who previously lived in Chicago and now resides in Texas, has agreed to settle the SEC's fraud charges.
"Tandon deliberately undermined the CalPERS screening process by grossly misrepresenting his firm's purported assets under management," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office. "To make matters worse, he then used his association with CalPERS to lure other public institutional investors under false pretenses."
According to the SEC's order instituting settled administrative proceedings against Tandon, he represented to CalPERS in May 2008 that Simran met explicit AUM requirements and managed at least $200 million as of Dec. 31, 2007. In fact, Simran managed approximately $80 million at that time. Evidence indicates that Tandon was aware that Simran did not meet the CalPERS requirements for AUM.
According to the SEC's order, Tandon touted Simran's relationship with CalPERS to other prospective clients from 2008 to 2011, and he instructed other Simran employees to do the same. On more than a dozen occasions, Tandon and Simran employees falsely inflated the firm's AUM in communications with employee retirement systems and other prospective clients. Tandon and Simran also overstated the AUM in at least four of the firm's Form ADVs filed with the SEC. In February 2012, Simran withdrew its SEC registration as an investment adviser and has since ceased operations.
According to the SEC's order, Tandon violated Sections 206(1), 206(2), and 207 of the Investment Advisers Act of 1940. Tandon neither admitted nor denied the findings, and agreed to be barred from the securities industry and pay disgorgement of $20,018, prejudgment interest of $1,680, and a penalty of $100,000.
The SEC's investigation was conducted by Peter K.M. Chan along with Jonathan I. Katz and Andrew O'Brien in the Chicago Regional Office. They were assisted by members of the Chicago Regional Office's examination staff including Susan M. Weis, Jeson G. Patel, and Max J. Gillman.
