Saturday, October 5, 2013

SEC OFFICIAL'S SPEECH ON FINANCIAL REPORTING AND ACCOUNTING FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION 

Financial Reporting and Accounting Fraud

 Andrew Ceresney

Co-Director of the Division of Enforcement

American Law Institute Continuing Legal Education, Washington, D.C.
Sept. 19, 2013
  1. Introduction
Thank you for that kind introduction.  At the outset, let me give the requisite reminder that the views I express today are my own and do not necessarily represent the views of the Commission or its staff.
It is great to be here today.  I am excited to speak about a topic that is near and dear to me – financial reporting and accounting fraud, and the SEC’s efforts to combat it.  I recently read a New York Times article with a headline about the SEC bringing sexy back and referencing our efforts to combat accounting fraud – I had a hearty chuckle over that.  I couldn’t stop laughing about both the idea that the SEC was sexy and that the sexiness was due to a focus on accounting fraud.  But I guess it is all about context – you definitely take that kind of press whenever you can get it.  Better for the press to be talking about us as sexy than lots of other things. 
My own experience with accounting fraud goes way back.  When I was at the U.S. Attorney’s Office, I investigated one of the early pre-Enron accounting fraud cases – Aurora Foods.  This was a good old-fashioned accounting fraud involving the under reporting of trade marketing expenses, resulting in the CEO, CFO and others going to prison. 
And then I tried one of the first pre-Enron accounting fraud cases against a CEO – Mickey Weissman, the former CEO of American Banknote.  It was a great trial, as it involved a timing issue in the recognition of revenue – essentially it turned on a 2-week period at the end of one year and beginning of the next, and revenue being shifted back to the prior year, which helped make the financials for that year look better in connection with a planned IPO.  Getting a jury to understand the importance of that sort of timing issue was difficult, and opposing counsel, the former US Attorney in the SDNY was a challenge, but we were successful – Mr. Weissman was convicted.  To tell you the truth, sometimes I wish I were back trying those kinds of cases because I am a trial lawyer at heart and I find accounting fraud cases so interesting – although calling the work sexy might still be a stretch.
And in private practice, I also did some accounting fraud work, representing accounting firms and issuers. 
  1. Accounting Fraud
In the wake of the financial crisis, the SEC was very focused on financial crisis cases – cases involving CDOs, RMBS, Ponzi schemes, and other transactions that resulted in massive losses to investors.  Consequently, we devoted fewer resources to accounting fraud.  During this period, we have had fewer accounting fraud investigations.  So for example, in FY2012, we opened 124 financial fraud/issuer disclosure investigations compared to 304 in FY2006 and 228 in FY2007.  As for accounting fraud cases, we saw a reduction here as well:  we filed 79 financial fraud/issuer disclosure actions in FY2012 compared to 219 in FY2007.
Another trend we have seen over the last few years is a reduction in restatements.  So for example, across all public companies, restatements fell from a peak of 1,771 in 2006 to 768 in 2012.[1]  Although I should also note that the number of large companies (market capitalization over $75 million) restating their financials actually jumped from 153 in 2009 to 245 last year.[2]
Some have suggested that these reductions resulted from Sarbanes-Oxley and the improvement in financial reporting caused by related reforms.  Sarbanes was indeed very significant - the enhancements in auditing, the creation of the PCAOB, the implementation of certification requirements of financial statements, the establishment of testing and certification of internal controls over financial reporting, the enhancements to corporate governance and audit committees - all were very significant changes.  And there is no question we are in a better place today than we were pre-Sarbanes.   The transparency with which companies report their financial results has definitely improved.  Indeed, I would venture to say that the focus on accounting issues has increased significantly in the last 10 years.
But I have my doubts about whether we have experienced such a drop in actual fraud in financial reporting as may be indicated by the numbers of investigations and cases we have filed.  It may be that we do not have the same large-scale accounting frauds like Enron and Worldcom.  But I find it hard to believe that we have so radically reduced the instances of accounting fraud simply due to reforms such as governance changes and certifications and other Sarbanes-Oxley innovations.  The incentives are still there to manipulate financial statements, and the methods for doing so are still available.  We have additional controls, but controls are not always effective at finding fraud.
In the end, our view is that we will not know whether there has been an overall reduction in accounting fraud until we devote the resources to find out, which is what we are doing.
  1. Renewed Focus
The importance of pursuing financial fraud cannot be overstated. Comprehensive, accurate and reliable financial reporting is the bedrock upon which our markets are based because false financial information saps investor confidence and erodes the integrity of the markets.  For our capital markets to thrive, investors must be able to receive an unvarnished assessment of a company's financial condition.  Financial reports must provide transparency for investors, and must not obscure the truth, even if that truth is inconvenient.  The last decade is full of painful reminders of how important reliable information is to investors, to markets and to regulators. And so, in a post-crisis world, the SEC must renew its focus on financial reporting and accounting so that investors and regulators receive the accurate information that sustains our markets.
We decided the best way to pivot away from the financial crisis cases and refocus on accounting fraud was through the task force model.  As you know, three years ago, we created five specialized units to handle specific areas of the securities laws.  We did not at that time create an accounting fraud unit.  There were many reasons for that, including that such a unit would need to be very large, would have to include many lawyers and accountants, and that accounting fraud cases are the bread and butter of many different parts of the Division.  Those same concerns are still with us now, as we look to the future.  We decided instead that what we needed was a small group of people focused on case generation – on exploring proactive initiatives that would generate new accounting fraud investigations for staff in the Division to pursue. 
There are a lot of promising methods out there for determining the companies on which we should be focused.  We have new ways of crunching data that allow us to isolate potential red flags and trends; other regulators are uncovering potential issues; whistleblowers are bringing us invaluable information (18.2% of FY 2012 whistleblower reports related to corporate financial and disclosures); and we have significant sources of information throughout the Agency.  But we thought we needed a group of people to focus on harnessing all of these resources. 
Often, when you get a group of smart people in a room focused on a problem, you can find the answer.  Kind of reminds me of that scene in Apollo 13 where they bring all of the disparate tools available on the space capsule into a room, dump it on to a table in front of a bunch of smart people, and say find a way to fix the problem. 
And so we created the Financial Reporting and Auditing Task Force – what we like to call the Fraud Task force.  This is our Apollo 13 moment.
  1. Fraud Task Force
The task force has about 12 staffers, both lawyers and accountants.  Its objective is to improve our ability to detect and prevent financial statement and other accounting fraud.  It will be devoted to developing state-of-the-art methodologies that better uncover accounting fraud and incubating cases that will then be handled by other groups within the Division.
To fulfill its mandate and find promising investigations, the Task Force plans to launch various initiatives.  These may include closely monitoring high-risk companies to identify potential misconduct, analyzing performance trends by industry, reviewing class action and other filings related to alleged fraudulent financial reporting, tapping into academic work on accounting and auditing fraud, and conducting street sweeps in particular industries and accounting areas.  
The Task Force will also utilize recently developed technologies such as our Accounting Quality Model and related tools, which uses data analytics to assess the degree to which a company’s financial statement appears anomalous.  With this tool, we can better compare performance among firms and detect outliers that suggest possible fraud. 
As for specific areas of focus, I anticipate that the Task Force and our investigative staff will continue to cover a wide variety of issues.  For example:
  • We are very interested in the manner in which management and auditors make decisions with respect to reserves.  Over the past year, we have brought several cases involving erroneous judgments regarding losses and reserves, including actions against Capital One Bank, TierOne Bank, Anchor Bancorp Wisconsin and several former executives at those institutions.  And we will continue to pursue actions against individuals and entities that ignore inconvenient truths about losses and the need to increase reserves.  We recognize that accounting requires that management (and auditors) use their professional judgment but we will not tolerate decisions that are reached in bad faith, recklessly or without proper consideration of the facts and circumstances.
  • Revenue recognition issues will remain a staple of our financial fraud caseload – this fraud often takes many forms, whether by recognizing revenue through sham transactions, prematurely recognizing revenue, distorting percentage of completion accounting, using schemes to inflate sales numbers, or billing for uncompleted products through a “pre-booking” scheme.
  • We are also focused on investigating independence violations.  Although our actions against auditors for violating the SEC’s independence rules typically involve public companies, such rules are not limited to public company audits.  Auditors for broker-dealers must also be independent from their audit clients.  In fact, this summer we brought an action against an audit firm and a partner because the partner allegedly performed Financial and Operations Principal services for a broker-dealer client, while his firm was serving as the broker-dealer’s auditor.  I anticipate that we will be investigating these types of conflicts of interest with increased frequency.
  • I think it is also important to focus on Audit Committees, which serve as a sort of gatekeeper for audit quality.  These committees play a critical role by overseeing and monitoring the financial reporting process.  We have brought actions against audit committees in the past for failing to recognize red flags and we intend to continue holding committees and their members accountable when they shirk their responsibilities. 
  • And our Cross-Border Working Group has been, and will remain, quite busy as it focuses on companies with substantial foreign operations that are publicly traded in the U.S.  To date, the Group’s efforts have enabled the SEC to file fraud cases against more than 65 foreign issuers or executives and deregister the securities of more than 50 companies. 
  • In addition, we will continue to focus on auditors.  As the Supreme Court noted nearly thirty years ago in U.S. v. Arthur Young & Co., 465 U.S. 805 (1984), auditors play a crucial role in the financial reporting process by serving as the “public watchdog.”  So, it is important that we carefully monitor their work and ensure that they fully comply with their professional obligations.  If there is a significant restatement or if we learn about improper accounting from a whistleblower, our proactive efforts, or the media, then you can expect that we will scrutinize not only the CEO, CFO and Controller, but also the engagement partner, engagement quality reviewer, and the auditing firm as a whole.  We are going to probe the quality of the audit and determine whether the auditors missed or ignored red flags, whether they have proper documentation, and whether they followed the professional standards.
    • And it is important to remember that our ability to bring Rule 102(e) bars against auditors extends beyond instances where there are accounting irregularities at a public company.  Our Rule 102(e) program is remedial in nature and meant to protect the integrity of the Commission’s processes.  As a result, we can and have investigated auditors when their audits fail to meet the most basic standards, regardless of whether there was an actual problem with the auditing client. By pursuing actions over these bad audits, we can fully leverage the Division’s resources and close off access to those who shirk their responsibilities as gatekeepers to the securities markets. 
While we expect that the Task Force will develop additional methodologies for uncovering fraud, and will generate additional cases, it is also important to note that we recently brought several significant financial reporting cases and have plenty more in the pipeline.   
For example, we charged three top executives at a publicly-traded fund with overstating the company’s assets during the financial crisis by failing to fairly value its debt securities and certain collateralized loan obligations.  We also charged BP with misleading investors during the Deepwater Horizon oil spill by significantly understating the oil flow rate in multiple reports filed with the SEC.  And we charged a Fortune 200 company for various accounting deficiencies that distorted their financial reporting to investors in the midst of the financial crisis.  We also brought an action against the Chinese affiliates of the Big Four accounting firms for refusing to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against U.S. investors.  The coming weeks will see some additional accounting fraud and disclosure cases being brought.
Ultimately, the Task Force demonstrates our renewed commitment to prosecute those who betray the trust of the public markets.  But bringing actions after the fact is no substitute for full and honest disclosure at the outset.  Enforcement actions are little comfort for investors who lost their savings after relying on misrepresentations and half-truths.  Shareholders should be able to rely on accurate accounting, effective auditing, and transparent financial reporting.   And we believe that our renewed focus on accounting and financial reporting fraud will result in better compliance within the industry by sending a clear, strong message that deters both current and future wrongdoers. 
Finally, let me be clear that we will use all the tools in our arsenal, including disgorgement, monetary penalties and 102(e) bars against accountants.  Sarbanes Section 304 also provides us with the ability to claw back bonus money or the proceeds of stock sales that resulted from overstated financial statements.  And in appropriate cases we will exercise this authority. 
I should add that accounting fraud cases take lots of resources and effort.  They often require a lot of financial analysis, mounds of documents, and lots of testimony.  But we are prepared to devote the resources.  These are important cases and our performance should be judged by the quality, and not the quantity, of our cases. 
  1. Admissions Policy
And we will in appropriate cases seek admissions to the misconduct under our new settlement approach of seeking admissions of facts in certain types of cases. 
As many of you know, our settlement approach, much like numerous other federal regulators, had been to settle essentially all of our cases on a no-admit-no-deny basis.  The SEC has been incredibly successful in achieving great settlements with this policy and it will still be an important approach that applies in most cases.  This settlement approach has allowed us to achieve quick results and provide prompt relief to investors, while also allowing us to conserve resources and eliminate litigation risk.  This interest in obtaining quick relief, conserving resources, and avoiding litigation risk will typically trump the need for admissions in order to better achieve the goals of our enforcement program.  
We recently modified our traditional approach in cases where there has been a criminal or regulatory settlement with admissions.  In such cases, we have eliminated the no admit/no deny language and referenced the admissions. 
But there is also a group of cases where a public airing of unambiguous facts – whether through admissions or a trial – serve such an important public interest that we will demand admissions, and if the defendant is not prepared to admit the conduct, litigate the case at trial.  I analogize to a guilty plea in a criminal case – there is a certain amount of accountability that comes from a defendant admitting to unambiguous, uncontested facts.  It is in many respects a cathartic moment.  And there can be no denying the facts under those circumstances.   
This could include matters involving a large number of harmed investors, where the conduct presented a significant risk to the market, where admissions would safeguard the investing public from risks posed by defendants, and where a recitation of unambiguous facts is important to send a message to the market about a particular case.  At the same time, the majority of cases will continue to be resolved on a no admit no deny basis, as the interest in quick resolutions and settlements will, in most cases, outweigh the interests in obtaining admissions.  We believe this new policy will strengthen our hand in enforcement actions without hampering our ability to effectively and efficiently enforce our securities laws.
And the policy is already starting to bear fruit as we recently had our first instance of obtaining these sorts of admissions.  In the Harbinger case, Mr. Falcone agreed to admissions in connection with both the loan and short squeeze cases against him – serious misconduct that amounted to violations of the securities laws.  In particular, Falcone improperly borrowed $113.2 million from his fund, at an interest rate less than his fund was paying to borrow money, to pay his personal tax obligation, at a time when Falcone had barred other fund investors from making redemptions, and did not disclose the loan to investors for approximately five months.  In that case, we felt that the egregiousness of the conduct, as well as the fact that Falcone is still dealing with investors who should know the unvarnished truth, justified this approach and that admissions brought accountability and acceptance of responsibility. 
By implementing this change we have no desire to delay or prolong the resolution process.  We still want to achieve settlements promptly where we can and we do not believe this new policy will necessarily change that.  But the possibility of more litigation does not deter us from implementing this change – perhaps that’s just the former prosecutor in me.  If we end up litigating more frequently, we will shift around resources as necessary.  I have great confidence in our trial team and I am more than willing to try more cases – particularly if they all go as well as the Tourre trial.
Ultimately, our goal is to send the message that every potential defendant should think twice before engaging in misconduct. 
  1. Conclusion
To wrap this all up, our markets depend not only on strong regulators but on confident investors – investors who have the information necessary to compare performance, evaluate risk, and make rational decisions.  Although effective enforcement can increase the confidence that investors bring to the markets, ultimately we will only succeed if investors believe the numbers reported on the bottom line.  So it is imperative that we amplify our efforts to root out financial fraud and ensure that investors receive accurate, transparent, and complete financial information.  
I generally like to say that the SEC is back and better than ever – and that certainly is the case when it comes to pursuing financial reporting and accounting fraud.
Thanks again for letting me talk to you today.

Friday, October 4, 2013

JUSTICE AND INFINITY GROUP TO RESOLVE ALLEGATIONS OF IMMIGRATION-RELATED UNFAIR EMPLOYMENT PRACTICES

FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, September 25, 2013
Justice Department Reaches Settlement with Infinity Group to Resolve Immigration-Related Unfair Employment Practices

The Justice Department announced today that it has reached an agreement with Infinity Group (IG) and its related entities resolving allegations that the companies violated the anti-discrimination provision of the Immigration and Nationality Act (INA).  IG is based in Clute, Texas and provides project-based temporary skilled labor to client companies.  IG employs over a thousand individuals in the United States.

The Department’s investigation was initiated based on a referral from U.S. Citizenship and Immigration Services (USCIS).  The investigation determined that IG entities, which utilized the E-Verify system, required non-citizens to present specific U.S. Department of Homeland Security-issued documents to establish their identity and employment authorization while not making similar requests of U.S. citizens.  The INA’s anti-discrimination provision prohibits employers from
discriminating against noncitizens in the employment eligibility verification process by demanding more or different documents than U.S. citizens are required to present.  After receiving notice of the Office of Special Counsel for Immigration-Related Employment Practices’ (OSC) investigation, IG immediately changed its employment policies and practices to conform to the anti-discrimination provision of the INA.

Under the terms of the settlement agreement, IG will train its human resources personnel on the INA’s anti-discrimination provision; pay $53,800 in civil penalties to the United States; create a $35,000 back pay fund to compensate any individuals who suffered lost wages as a result of its practices; and be subject to monitoring by the department and reporting requirements for a period of two years.
 
“Employers, including those who use E-Verify, must ensure that their human resources personnel do not violate the anti-discrimination provision of the INA,” said Jocelyn Samuels, Acting Assistant Attorney General for the Civil Rights Division.  “Infinity Group is commended for immediately changing its policies upon notice of OSC’s investigation to address its discriminatory documentary practices.”

OSC is responsible for enforcing the anti-discrimination provision of the INA.  The case was handled by OSC Trial Attorney Liza Zamd.

Thursday, October 3, 2013

CALIFORNIA COMPANY TO PAY $17.5 MILLION TO SETTLE ALLEGED MEDICARE AND MEDI-CAL FRAUD

FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, September 25, 2013

California Mobile Lab and X-ray Provider, Diagnostic Laboratories and Radiology, to Pay $17.5 Million for Falsely Billing Medicare and Medi-CAL
Kan-Di-Ki LLC, formerly known as Kan-Di-Ki Inc., doing business as Diagnostic Laboratories and Radiology (Diagnostic Labs), will pay $17.5 million to settle allegations that the California-based company violated the federal and California False Claims Acts by paying kickbacks for referral of mobile lab and radiology services subsequently billed to Medicare and Medi-Cal (the state of California’s Medicaid program), the Justice Department announced today.

“This settlement demonstrates the Department of Justice’s continuing efforts to protect public funds,” said Stuart F. Delery, Assistant Attorney General for the Civil Division.  “We will continue to work with our state partners to recover misspent monies from companies that abuse government health care programs.”

Diagnostic Labs allegedly took advantage of Medicare’s different reimbursement system for inpatient and outpatient services by charging Skilled Nursing Facilities (SNFs) in California discounted rates for inpatient services paid by Medicare in exchange for the facilities’ referral of outpatient business to Diagnostic Labs.  For inpatient services, Medicare pays a fixed rate based on the patient’s diagnosis, regardless of specific services provided.  For outpatients, Medicare pays for each service separately.  Diagnostic Labs’ scheme enabled the SNFs to maximize profit earned for providing inpatient services by decreasing SNFs’ costs of providing these services.  It also allegedly allowed Diagnostic Labs to obtain a steady stream of lucrative outpatient referrals that it could directly bill to Medicare and Medi-Cal.  The provision of inducements, including discounted rates, to generate referrals is prohibited by federal and state law.

“When medical facility owners illegally offer discounts to customers to generate business, it results in inflated claims to government health care programs and increases costs for all taxpayers,” said Glenn R. Ferry, Special Agent in Charge for the Los Angeles Region of the Department of Health and Human Services’ Office of Inspector General.  “This $17.5 million settlement demonstrates OIG’s ongoing commitment to safeguarding federal health care programs and taxpayer dollars against all types of fraudulent activities.”

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $16.6 billion through False Claims Act cases, with more than $11.8 billion of that amount recovered in cases involving fraud against federal health care programs.

This settlement resolves a lawsuit filed by former Diagnostic Lab employees, Jon Pasqua and Jeff Hauser, under the qui tam, or whistleblower, provisions of the federal and state False Claims Acts.  The acts allow private citizens with knowledge of fraud to bring civil actions on behalf of the government and to share in any recovery .  Together, Pasqua and Hauser will receive $3,755,500 as their share of the federal government’s recovery.

The investigation was jointly handled by the U.S. Attorney’s Office for the Central District of California, the Justice Department’s Civil Division, Commercial Litigation Branch and the Department of Health and Human Services’ Office of the Inspector General.

Wednesday, October 2, 2013

PANASONIC EXECUTIVE INDICTED FOR ROLE IN FIXING PRICES ON AUTOMOBILE PARTS SOLD TO TOYOTA TO BE INSTALLED IN U.S. CARS

FROM:  U.S. JUSTICE DEPARTMENT 


WASHINGTON — A Detroit federal grand jury returned an indictment against a Panasonic Automotive Systems Corporation executive for his role in an international conspiracy to fix prices of switches and steering angle sensors sold to Toyota and installed in U.S. cars, the Department of Justice announced today.

The indictment, filed today in U.S. District Court for the Eastern District of Michigan, in Detroit, charges that Shinichi Kotani, a Japanese national, participated in a conspiracy to suppress and eliminate competition in the automotive parts industry by agreeing to rig bids for, and to fix, stabilize, and maintain the prices of, switches and steering angle sensors sold to Toyota Motor Corporation and Toyota Motor Engineering & Manufacturing North America Inc. for installation in vehicles manufactured and sold in the United States and elsewhere. Kotani is the Director of Global Automotive Marketing and Sales at Panasonic.

Panasonic is an Osaka, Japan-based manufacturer of automotive parts, including steering wheel switches, turn switches, wiper switches, combination switches, and steering angle sensors.  Panasonic pleaded guilty in August 2013, to its role in the conspiracy and was sentenced to pay a $45.8 million criminal fine.

The indictment alleges, among other things, that from at least as early as January 2004 until at least February 2010, Kotani and his co-conspirators attended meetings to reach collusive agreements to rig bids, allocate the supply and fix the prices of switches and steering angle sensors sold to Toyota.  The indictment alleges that Kotani and his co-conspirators had further communications to monitor and enforce the collusive agreement.

“The Antitrust Division remains vigilant in its ongoing efforts to hold executives accountable when they engage in anticompetitive conduct that harms American consumers,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program.  “As a result of the Antitrust Division’s ongoing investigation into bid rigging and price fixing in the auto parts industry, 19 executives have been charged.”

“I am proud of the hard work done by the FBI agents and the Department of Justice attorneys who worked on this case,” said John Robert Shoup, Acting Special Agent in Charge, FBI Detroit Division.  “The global resources of the FBI are always ready to respond when these complex financial conspiracies threaten our national economy.”

Kotani is charged with price fixing in violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.  The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Including Kotani, 11 companies and 19 executives have been charged in the Justice Department’s ongoing investigation into the automotive parts industry.  To date, more than $874 million in criminal fines have been imposed and 14 individuals have been sentenced to pay criminal fines and to serve jail sentences ranging from a year and a day to two years each.  One other executive has agreed to serve time in prison and is scheduled to be sentenced on Sept. 25, 2013.

The charges are the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by each of the Antitrust Division’s criminal enforcement sections and the FBI.  Today’s charges were brought by the Antitrust Division’s National Criminal Enforcement Section and the FBI’s Detroit Field Office, with the assistance of the FBI headquarters’ International Corruption Unit.

Tuesday, October 1, 2013

SEC CHARGES THOUGHT DEVELOPMENT, INC. AND OWNERS WITH SECURITIES REGISTRATION VIOLATIONS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Thought Development, Inc. and its Owner with Securities Registration Violations

The Securities and Exchange Commission filed a civil injunctive action on September 26, 2013, charging Thought Development, Inc. (TDI) and its founder and chairman Alan Amron with violations Sections 5(a) and 5(c) of the Securities Act of 1933 in connection with the offer and sale of unregistered TDI stock. Without admitting or denying the allegations, the defendants offered to settle all charges and agree to full injunctive relief, and as to Amron, the payment of a $10,000 civil penalty.

According to the SEC’s complaint, filed in the United States District Court for the Southern District of Florida, alleges that, between approximately October 2010 until at least February 2012, TDI and Amron directly, and through of an unaffiliated company, offered and or sold unregistered offerings of TDI to at least 90 investors located throughout the United States.

The complaint also alleges that no registration statement was filed or in effect with the Commission pursuant to the Securities Act with respect to TDI stock and no exemption from registration existed with respect to these securities. In addition, TDI and Amron sold stock to investors without inquiring or obtaining information as to whether they were qualified as accredited investors. Some of these investors were, in fact, unaccredited.

The SEC’s investigation, which is continuing, has been conducted by Kevin B. Hart and Fernando Torres in the Miami office, and supervised by Jason R. Berkowitz.

Monday, September 30, 2013

COMPANY TO PAY $140,000 FINE FOR FAILURE TO PROPERLY SUPERVISE EMPLOYEES

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders Vision Financial Markets LLC to Pay a $140,000 Civil Monetary Penalty for Failing to Diligently Supervise its Employees

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Vision Financial Markets LLC (Vision), a CFTC-registered Futures Commission Merchant (FCM) headquartered in Stamford, Connecticut, for failing to diligently supervise by failing to aggregate a customer’s multiple accounts, failing to use the proper delta, and utilizing a faulty software program in calculating the customer’s net position. The CFTC Order requires Vision to pay a civil monetary penalty of $140,000 and to cease and desist from violating the CFTC’s Regulation 166.3.

The Order finds that in May 2012, Vision failed to diligently supervise its employees in the handling of a customer’s commodity interest accounts. Specifically, the Order finds that Vision failed to aggregate a customer’s multiple trading accounts held at Vision when calculating that customer’s feeder cattle futures speculative positions traded on the CME and that Vision failed to use the proper delta in calculating this customer’s aggregate futures equivalent net positions. The Order further finds that Vision relied on a faulty back-office software program, which incorrectly calculated aggregate futures equivalent net positions and which was used to identify potential speculative limit violations for all of its customer accounts. The software program was not corrected until six months after Vision discovered the software program’s calculation error, according to the Order.

CFTC Division of Enforcement staff members responsible for this case are Michael R. Berlowitz, Mark Picard, Trevor Kokal, David Acevedo, Lenel Hickson, Jr., Stephen J. Obie and Vincent McGonagle. Assistance was provided by Margaret Sweet of the CFTC Office of Data Technology.

Sunday, September 29, 2013

BOA TO PAY NEARLY $2.2 MILLION FOR RACIAL DISCRIMINATION AGAINST AFRICAN-AMERICAN JOB SEEKERS

FROM:  U.S. JUSTICE DEPARTMENT 
Judge orders Bank of America to pay almost $2.2 million for racial discrimination against more than 1,100 African-American job seekers

CHARLOTTE, N.C. — U.S. Department of Labor Administrative Law Judge Linda S. Chapman has ordered Bank of America Corp. to pay 1,147 African American job applicants $ 2,181,593 in back wages and interest for race-based hiring discrimination at the company's Charlotte facility. In an earlier ruling, the judge determined that the bank applied unfair and inconsistent selection criteria resulting in the rejection of qualified African American applicants for teller and entry-level clerical and administrative positions. The ruling represents a major victory in a case that has spanned nearly two decades, during which Bank of America repeatedly challenged the authority of the department's Office of Federal Contract Compliance Programs. Bank of America is a federally-insured financial institution that provides a variety services and products, making it a federal contractor under the purview of OFCCP's regulatory requirements.

"Wherever doors of opportunity are unfairly closed to workers, we will be there to open them — no matter how long it takes," said OFCCP Director Patricia A. Shiu. "Judge Chapman's decision upholds the legal principle of making victims of discrimination whole, and these workers deserve to get the full measure of what is owed to them."

The ruling awards $964,033 to 1,034 applicants who were rejected for jobs in 1993 and $1,217,560 to 113 individuals who were rejected between 2002 and 2005. It further orders Bank of America to extend job offers, with appropriate seniority, to 10 class members as positions become available. After hearing from experts on both sides, the judge agreed with the government's positions on every issue in dispute. Notably, she rejected the bank's arguments for a lower award on the grounds that they could not take advantage of missing records that they had failed to keep.

On Nov. 24, 1993, OFCCP initiated a routine compliance review that revealed indications of systemic hiring discrimination affecting African American job seekers at the Charlotte facility. After conciliation efforts failed, the Solicitor of Labor in 1997 filed an administrative complaint against the company for violating Executive Order 11246, which prohibits federal contractors from discriminating in employment practices on the basis of race.

"Our investigators and attorneys prevailed despite decades of stalling tactics," said Solicitor of Labor M. Patricia Smith. "This case demonstrates that the department will not be deterred in our pursuit of justice for job seekers."
In addition to Executive Order 11246, OFCCP enforces Section 503 of the Rehabilitation Act of 1973 and the Vietnam Era Veterans' Readjustment Assistance Act of 1974. These three laws require those who do business with the federal government, both contractors and subcontractors, to follow the fair and reasonable standard that they not discriminate in employment on the basis of sex, race, color, religion, national origin, disability or status as a protected veteran.