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Executives Charged in Connection With Accounting Failures at Government Contractor
The Securities and Exchange Commission today announced charges against two former executives at a government contractor that was the subject of an SEC enforcement action earlier this year and paid a $1.6 million penalty for accounting failures.
The SEC Enforcement Division alleges that David Pruitt, the then-vice president of finance in the Army Sustainment Division of L3 Technologies Inc., circumvented internal accounting controls and caused L3 to improperly recognize $17.9 million in revenue from a contract with the U.S. Army by creating invoices that were not actually delivered at the same time that the revenue was recorded. The extra revenue allegedly enabled employees in that division to barely satisfy an internal target for management incentive bonus payments.
The SEC Enforcement Division further alleges that Pruitt, a CPA, took steps on several occasions to conceal from L3’s corporate office and external auditor the fact that the invoices were not delivered. The matter against Pruitt will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.
The SEC separately instituted an order against Mark Wentlent, the former president of L3’s Army Sustainment Division, finding that he failed to follow up on red flags that Pruitt had caused L3 to improperly recognize revenue. Wentlent consented to the order without admitting or denying the findings, and he agreed to pay a $25,000 penalty. The bonus payment that Wentlent received as a result of the misconduct already has been rescinded by L3.
“Executives must be held accountable when they’re actively involved in corporate wrongdoing or look the other way. We allege that Pruitt circumvented critical accounting safeguards so improper revenue could be recorded to reach an internal target that enabled management to receive bonuses, and it was unreasonable for Wentlent to rely solely on Pruitt under the circumstances,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
The SEC’s investigation was conducted by H. Gregory Baker, David Oliwenstein, Christopher Mele, and Steven G. Rawlings of the New York office. The litigation against Pruitt will be led by Paul Gizzi, Mr. Baker, and Mr. Oliwenstein. The case is being supervised by Sanjay Wadhwa.
Read MoreBroker Charged With Defrauding Customers
The Securities and Exchange Commission today charged a former broker with knowingly or recklessly trading unsuitable investment products in the accounts of five customers and misappropriating more than $170,000 from one of those customers.
The SEC’s complaint alleges that Demitrios Hallas repeatedly traded unsuitable investments in his customers’ accounts, exposing customers who were unsophisticated with limited or no investing experience and modest incomes, net worth levels, and assets to a significant degree of volatility and risk. In a little more than a year, Hallas allegedly traded 179 daily leveraged exchange traded funds (ETFs) and exchange traded notes (ETNs) – products that the SEC alleges are inherently risky, complex and volatile, and only appropriate for sophisticated investors – in the customers’ accounts, generating commissions and fees of approximately $128,000. The net loss across all 179 positions was approximately $150,000. The SEC’s complaint further alleges that Hallas misappropriated more than $170,000 in funds from one customer. Instead of investing the funds on the customer’s behalf, Hallas allegedly deposited the funds into his own personal bank accounts and spent them on personal expenses, including significant bar and restaurant bills, credit card and student loan payments, and rent.
The SEC previously issued an Investor Alert warning about excessive trading and churning that can occur in brokerage accounts, and an Investor Bulletin educating investors about ETNs and the risks associated with them.
“As alleged in our complaint, Hallas enriched himself by systematically disregarding his customers’ investment profiles and repeatedly trading in risky, volatile products that were unsuitable for them,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker Dealer Task Force. “As reflected in this case and our recent case against two former JD Nicholas brokers, the SEC is very focused on brokers who seek to exploit their customers by willfully recommending unsuitable trades or strategies to them.”
The SEC’s complaint charges Hallas with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a permanent injunction as well as the return of ill-gotten gains plus interest and penalties.
The SEC’s investigation was conducted by Michael C. Ellis and Thomas P. Smith Jr. in the New York office. The litigation will be led by David Stoelting and Mr. Ellis, and the case is being supervised by Sanjay Wadhwa. The examination that led to the investigation was conducted by Ronald Krietzman, John Celio, Dee-Ann DiSalvo, and Bernard Bujak.
Read MoreBroker Charged With Defrauding Customers
The Securities and Exchange Commission today charged a former broker with knowingly or recklessly trading unsuitable investment products in the accounts of five customers and misappropriating more than $170,000 from one of those customers.
The SEC’s complaint alleges that Demitrios Hallas repeatedly traded unsuitable investments in his customers’ accounts, exposing customers who were unsophisticated with limited or no investing experience and modest incomes, net worth levels, and assets to a significant degree of volatility and risk. In a little more than a year, Hallas allegedly traded 179 daily leveraged exchange traded funds (ETFs) and exchange traded notes (ETNs) – products that the SEC alleges are inherently risky, complex and volatile, and only appropriate for sophisticated investors – in the customers’ accounts, generating commissions and fees of approximately $128,000. The net loss across all 179 positions was approximately $150,000. The SEC’s complaint further alleges that Hallas misappropriated more than $170,000 in funds from one customer. Instead of investing the funds on the customer’s behalf, Hallas allegedly deposited the funds into his own personal bank accounts and spent them on personal expenses, including significant bar and restaurant bills, credit card and student loan payments, and rent.
The SEC previously issued an Investor Alert warning about excessive trading and churning that can occur in brokerage accounts, and an Investor Bulletin educating investors about ETNs and the risks associated with them.
“As alleged in our complaint, Hallas enriched himself by systematically disregarding his customers’ investment profiles and repeatedly trading in risky, volatile products that were unsuitable for them,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker Dealer Task Force. “As reflected in this case and our recent case against two former JD Nicholas brokers, the SEC is very focused on brokers who seek to exploit their customers by willfully recommending unsuitable trades or strategies to them.”
The SEC’s complaint charges Hallas with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a permanent injunction as well as the return of ill-gotten gains plus interest and penalties.
The SEC’s investigation was conducted by Michael C. Ellis and Thomas P. Smith Jr. in the New York office. The litigation will be led by David Stoelting and Mr. Ellis, and the case is being supervised by Sanjay Wadhwa. The examination that led to the investigation was conducted by Ronald Krietzman, John Celio, Dee-Ann DiSalvo, and Bernard Bujak.
Read MoreSEC Awards Nearly $4 Million to Whistleblower
The Securities and Exchange Commission today announced an award of nearly $4 million to a whistleblower who tipped the agency with detailed and specific information about serious misconduct and provided additional assistance during the ensuing investigation, including industry-specific knowledge and expertise.
“Not only did this whistleblower step forward and report suspicious conduct, but continued to help after we opened our investigation,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “Whistleblowers with specialized experience or expertise can help us expend fewer resources in our investigations and bring enforcement actions more efficiently.”
Approximately $153 million has now been awarded to 43 whistleblowers who became eligible for an award after voluntarily providing the SEC with original and useful information that led to successful enforcement actions.
SEC enforcement actions from whistleblower tips have resulted in more than $953 million in financial remedies against wrongdoers.
By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.
For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.
Read MoreSEC Awards Nearly $4 Million to Whistleblower
The Securities and Exchange Commission today announced an award of nearly $4 million to a whistleblower who tipped the agency with detailed and specific information about serious misconduct and provided additional assistance during the ensuing investigation, including industry-specific knowledge and expertise.
“Not only did this whistleblower step forward and report suspicious conduct, but continued to help after we opened our investigation,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “Whistleblowers with specialized experience or expertise can help us expend fewer resources in our investigations and bring enforcement actions more efficiently.”
Approximately $153 million has now been awarded to 43 whistleblowers who became eligible for an award after voluntarily providing the SEC with original and useful information that led to successful enforcement actions.
SEC enforcement actions from whistleblower tips have resulted in more than $953 million in financial remedies against wrongdoers.
By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.
For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.
Read MoreInvestment Bank VP Charged With Insider Trading
The Securities and Exchange Commission today charged a vice president in the risk management department of a New York-based investment bank with insider trading on confidential information he learned in advance of a private equity firm’s acquisition of a publicly-traded technology company.
The SEC alleges that Avaneesh Krishnamoorthy learned that Golden Gate Capital planned to acquire Neustar Inc., and he then began trading in Neustar securities. The trading took place in two brokerage accounts that Krishnamoorthy allegedly kept hidden from his employer, which had been approached by Golden Gate Capital to finance the transaction. According to the SEC’s complaint, Krishnamoorthy made approximately $48,000 in illicit profits.
“As alleged in our complaint, Krishnamoorthy was entrusted with confidential, market-moving information by his employer and he misused it for personal gain,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today filed criminal charges against Krishnamoorthy.
The SEC is seeking an emergency court order to freeze the assets in the brokerage accounts belonging to Krishnamoorthy and his wife, who has been named as a relief defendant in the SEC’s complaint for purposes of recovering allegedly ill-gotten gains in the account in her name. The complaint charges Krishnamoorthy with violating Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
The SEC’s investigation is being conducted by Alison R. Levine, Preethi Krishnamurthy, Neil Hendelman, and Thomas P. Smith Jr. The litigation will be led by Ms. Krishnamurthy and Ms. Levine. The case is being supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.
Read MoreInvestment Bank VP Charged With Insider Trading
The Securities and Exchange Commission today charged a vice president in the risk management department of a New York-based investment bank with insider trading on confidential information he learned in advance of a private equity firm’s acquisition of a publicly-traded technology company.
The SEC alleges that Avaneesh Krishnamoorthy learned that Golden Gate Capital planned to acquire Neustar Inc., and he then began trading in Neustar securities. The trading took place in two brokerage accounts that Krishnamoorthy allegedly kept hidden from his employer, which had been approached by Golden Gate Capital to finance the transaction. According to the SEC’s complaint, Krishnamoorthy made approximately $48,000 in illicit profits.
“As alleged in our complaint, Krishnamoorthy was entrusted with confidential, market-moving information by his employer and he misused it for personal gain,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today filed criminal charges against Krishnamoorthy.
The SEC is seeking an emergency court order to freeze the assets in the brokerage accounts belonging to Krishnamoorthy and his wife, who has been named as a relief defendant in the SEC’s complaint for purposes of recovering allegedly ill-gotten gains in the account in her name. The complaint charges Krishnamoorthy with violating Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
The SEC’s investigation is being conducted by Alison R. Levine, Preethi Krishnamurthy, Neil Hendelman, and Thomas P. Smith Jr. The litigation will be led by Ms. Krishnamurthy and Ms. Levine. The case is being supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.
Read MorePortfolio Manager Charged With Diverting Nearly $2 Million to Personal Account
The Securities and Exchange Commission today announced fraud charges against a Massachusetts-based portfolio manager accused of diverting at least $1.95 million to his personal brokerage account from a fund over which he had trading authority.
The SEC’s complaint alleges that Kevin J. Amell carried out a fraudulent matched-trades scheme in which he prearranged the purchase or sale of call options between his own account and the brokerage accounts of the fund at prices that were disadvantageous to the fund and advantageous to him. In one series of trades involving Amazon securities, for example, Amell allegedly generated a $23,000 profit for himself in less than 23 minutes at the fund’s expense.
“As alleged in our complaint, Amell abused his trading authority at least 265 times by matching trades between the fund and his personal account at prices that he intentionally and fraudulently skewed to benefit himself,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.
In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today filed criminal charges against Amell.
The SEC’s complaint charges Amell with violating Sections 17(a)(1) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c), and Sections 17(a)(1), 17(a)(2) and 17(j) of the Investment Company Act of 1940 and Rules 17j-1(b)(1), (3) and (4). The SEC is seeking disgorgement of Amell’s ill-gotten gains plus interest and penalties as well as injunctions.
The SEC’s investigation, which is continuing, is being conducted by Melanie A. MacLean, John D. Marino, and Simona Suh of the Market Abuse Unit and Elzbieta Wraga of the New York Regional Office. The case has been supervised by Mr. Sansone. The litigation will be led by Ms. MacLean, Ms. Suh, and Martin F. Healey of the Boston Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Federal Bureau of Investigation’s Boston Field Office, and the Financial Industry Regulatory Authority.
Read MorePortfolio Manager Charged With Diverting Nearly $2 Million to Personal Account
The Securities and Exchange Commission today announced fraud charges against a Massachusetts-based portfolio manager accused of diverting at least $1.95 million to his personal brokerage account from a fund over which he had trading authority.
The SEC’s complaint alleges that Kevin J. Amell carried out a fraudulent matched-trades scheme in which he prearranged the purchase or sale of call options between his own account and the brokerage accounts of the fund at prices that were disadvantageous to the fund and advantageous to him. In one series of trades involving Amazon securities, for example, Amell allegedly generated a $23,000 profit for himself in less than 23 minutes at the fund’s expense.
“As alleged in our complaint, Amell abused his trading authority at least 265 times by matching trades between the fund and his personal account at prices that he intentionally and fraudulently skewed to benefit himself,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.
In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today filed criminal charges against Amell.
The SEC’s complaint charges Amell with violating Sections 17(a)(1) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c), and Sections 17(a)(1), 17(a)(2) and 17(j) of the Investment Company Act of 1940 and Rules 17j-1(b)(1), (3) and (4). The SEC is seeking disgorgement of Amell’s ill-gotten gains plus interest and penalties as well as injunctions.
The SEC’s investigation, which is continuing, is being conducted by Melanie A. MacLean, John D. Marino, and Simona Suh of the Market Abuse Unit and Elzbieta Wraga of the New York Regional Office. The case has been supervised by Mr. Sansone. The litigation will be led by Ms. MacLean, Ms. Suh, and Martin F. Healey of the Boston Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Federal Bureau of Investigation’s Boston Field Office, and the Financial Industry Regulatory Authority.
Read MoreTelecom Executives Agree to Pay Penalties For FCPA Violations
The Securities and Exchange Commission today announced that two former executives at Hungarian-based telecommunications company Magyar Telekom have agreed to pay financial penalties and accept officer-and-director bars to settle a previously-filed SEC case alleging they violated the Foreign Corrupt Practices Act (FCPA).
Magyar Telekom paid a $95 million penalty in December 2011 to settle parallel civil and criminal charges that the company bribed officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry. The SEC’s complaint also charged the company’s former CEO Elek Straub and former chief strategy officer Andras Balogh with orchestrating the use of sham contracts to funnel millions of dollars in corrupt payments. The two executives were set to stand trial this month.
Straub has agreed to pay a $250,000 penalty and Balogh has agreed to pay a $150,000 penalty. Both executives agreed to a five-year bar from serving as an officer or director of any SEC-registered public company. The settlements are subject to court approval.
“The executives in this case were charged with spearheading secret agreements with a prime minister and others to block out telecom competitors,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement. “We persevered in order to hold these overseas executives culpable for corrupting a company that traded in the U.S. market.”
A third Magyar Telekom executive charged in the SEC’s complaint, former director of business development and acquisitions Tamas Morvai, agreed to a settlement that was approved by the court in February requiring him to pay a $60,000 penalty for falsifying the company’s books and records in connection with the bribery scheme.
The SEC’s litigation was led by Robert I. Dodge, Thomas A. Bednar, and John D. Worland Jr. The case was investigated by Adam J. Eisner and supervised by Charles E. Cain, Deputy Chief of the Enforcement Division’s FCPA Unit. The SEC appreciates the assistance of the Fraud Section of the Department of Justice’s Criminal Division and the Federal Bureau of Investigation.
Read MoreTelecom Executives Agree to Pay Penalties For FCPA Violations
The Securities and Exchange Commission today announced that two former executives at Hungarian-based telecommunications company Magyar Telekom have agreed to pay financial penalties and accept officer-and-director bars to settle a previously-filed SEC case alleging they violated the Foreign Corrupt Practices Act (FCPA).
Magyar Telekom paid a $95 million penalty in December 2011 to settle parallel civil and criminal charges that the company bribed officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry. The SEC’s complaint also charged the company’s former CEO Elek Straub and former chief strategy officer Andras Balogh with orchestrating the use of sham contracts to funnel millions of dollars in corrupt payments. The two executives were set to stand trial this month.
Straub has agreed to pay a $250,000 penalty and Balogh has agreed to pay a $150,000 penalty. Both executives agreed to a five-year bar from serving as an officer or director of any SEC-registered public company. The settlements are subject to court approval.
“The executives in this case were charged with spearheading secret agreements with a prime minister and others to block out telecom competitors,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement. “We persevered in order to hold these overseas executives culpable for corrupting a company that traded in the U.S. market.”
A third Magyar Telekom executive charged in the SEC’s complaint, former director of business development and acquisitions Tamas Morvai, agreed to a settlement that was approved by the court in February requiring him to pay a $60,000 penalty for falsifying the company’s books and records in connection with the bribery scheme.
The SEC’s litigation was led by Robert I. Dodge, Thomas A. Bednar, and John D. Worland Jr. The case was investigated by Adam J. Eisner and supervised by Charles E. Cain, Deputy Chief of the Enforcement Division’s FCPA Unit. The SEC appreciates the assistance of the Fraud Section of the Department of Justice’s Criminal Division and the Federal Bureau of Investigation.
Read MoreSEC Freezes Brokerage Accounts Behind Alleged Insider Trading
The Securities and Exchange Commission today announced an emergency court order to freeze assets in two brokerage accounts used last week to reap more than $1 million in alleged insider trading profits in connection with a merger announcement by telecommunications companies.
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, highly suspicious transactions have been detected surrounding last week’s announcement that Liberty Interactive Corp. had agreed to acquire General Communication Inc. The traders, who are currently unknown, allegedly used foreign brokerage accounts in the United Kingdom and Lebanon to purchase call option contracts through U.S.-based brokerages and on U.S.-based exchanges in the days leading up to the April 4 public announcement of the acquisition. The court’s order freezes the foreign accounts’ assets contained in the U.S. brokerages.
According to the SEC’s complaint, some of the risky options positions taken in these accounts represented virtually 100 percent of the market for those options. Following the acquisition announcement, General Communication’s shares rose more than 62 percent and the brokerage account customers allegedly sold the bulk of the contracts.
“As alleged in our complaint, the timing, size, and profitability of the trades as well as the absence of any recent trading by the accounts in these particular securities make the transactions highly suspicious,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “We don’t hesitate to act quickly and proactively to freeze accounts and prevent proceeds from dissipating while we continue to investigate dubious transactions and identify the traders behind them.”
The emergency court order obtained by the SEC requires the traders to repatriate any funds or assets located outside the U.S. that were obtained from the alleged insider trading. The traders are prohibited from destroying any evidence. The SEC’s complaint charges the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The SEC is seeking a final judgment ordering the traders to disgorge their allegedly ill-gotten gains plus interest and penalties and permanently enjoining them from future violations.
The SEC’s investigation is being conducted by Patricia Pei, Andy Ganguly, Marc Blau, and Spencer Bendell of the Los Angeles office. The SEC’s litigation is being led by Lynn M. Dean and Amy Longo. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
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