Another guilty plea in TARP-related fraud case

Raymond Bowman, former president of Taylor, Bean and Whitaker Mortgage Corp., pleaded guilty to bank, wire and securities fraud conspiracy charges, according to Courthouse News Service. The government had accused Bowman and his co-conspirators of selling non-existant mortgage loans to Colonial Bank, which caused it to go under in late 2009. He could face up to 10 years in prison at his sentencing in June.

Colonial BancGroup Inc., the Montgomery, Ala.-based parent company of Colonial Bank, had sought more than $500 million in taxpayer aid through the Troubled Asset Relief Program in 2008. Authorities alleged that the fraudulent or impaired mortgages that Taylor, Bean and Whitaker sold Colonial were presented as high-quality liquid assets during of the TARP application process.

 

Securities fraud suit against Boeing dismissed

The judge said, in her ruling dismissing the case, that “the cast of characters” — Boeing, several high-powered and high-profile lawyers, private investigators and a confidential informant –, were worthy of a “a contemporary novel,” according to the Chicago Tribune. But, it turned out the confidential informant wasn’t much of an informant at all. He admitted to never having seen the documents that the plaintiff’s attorneys claimed he did. Investors who brought the case alleged that Boeing misrepresented the status of its new 787 Dreamliner passenger jet. 

Colorado attorney forces the SEC to give up information in ‘porn-gate’ scandal

Kevin Evans, an attorney in Colorado, sued the SEC under the Freedom of Information Act and the agency has now revealed that employees and contractors across the country have been caught looking at porn on the government’s — and taxpayers’ — dime. “In response to the suit, the SEC has disclosed that the employees and contractors reprimanded for online randiness worked at SEC offices in Atlanta, Boston, Chicago, Denver, Fort Worth, Los Angeles and at agency headquarters in D.C.,” says the Wall Street Journal. Evans, though, won’t be getting the names of the employees disciplined. A judge ruled those are private.

Before you ‘friend’ the SEC …

You might want to think about what’s on your Facebook wall. “The SEC is now asking registered advisers about their social media policies, and we have heard that examiners are writing up findings on firms that do not have written policies and documented procedures around the use of social media,” says Moshe Silver, at CNNMoney.com. The warning for financial professionals is that the agency might view even personal communications through sites like Twitter, Facebook and LinkedIn as attributable to the firms they work for (if they say, for example, link to company press release or otherwise talk about work) and are therefore responsible for the content.

SEC is understaffed, new report says

The agency is short about 400 jobs to manage its current workload, a new report mandated by recent financial reform laws says. “The preliminary findings by Boston Consulting Group Inc. reinforce arguments by SEC officials that the agency is underfunded and understaffed as it takes on oversight of derivatives, credit-rating firms and municipal bonds,” said Bloomberg News

Military contractor and its ex-directors sued by the SEC

In the latest twist for Point Blank Solutions Inc.(Pink Sheets: PBSOQ.PK), the body-armor supplier (formerly known as DHB Industries Inc.) whose business with the government boomed after the Sept. 11 attacks, the SEC has sued three of the company’s former outside directors, claiming they ignored red flags that allowed DHB’s former executive, David Brooks, to loot the company to pay for things like cars, boats, his daughter’s multi-million dollar birthday party and prostitutes.

Brooks was found guilty in a criminal case last year. Point Blank — sued by the SEC along with the outside directors — has settled with the government by accepting a permanent injunction. The settlement still requires approval of the judge overseeing the company’s bankruptcy. 

Former Vicis Capital executive pleads guilty to conspiracy

Christopher D. Phillips, former managing director of Vicis Capital LLC, has pleaded guilty to conspiracy to commit wire fraud in connection with a scheme to collect on medical receivables that he and others knew to be fraudulent.

The hedge fund executive, who also was on the board of directors of two small public companies that had purchased the receivables, was sentenced to two years of probation and fined $250,000.

Vicis had invested millions of dollars in both of the companies that bought the receivables — Medical Solutions Management Inc. (Pink Sheets: MSMT.PK), and MDWerks Inc. (Pink Sheets: MDWK.PK).


The hedge fund’s activities, and its possible involvement with the insurance-fraud scheme, were the subject of a Sharesleuth investigation last year.

Phillips was sentenced Wednesday in federal court in New Hampshire, where a grand jury began hearing evidence in the fraud case after a tipster there reported the scheme to authorities.

Phillips’ plea agreement, the criminal information detailing the charges against him, and a statement of facts related to the scheme were filed under seal last January. They were made public for the first time last week, possibly because the government wanted to keep Phillip’s cooperation with prosecutors a secret from co-conspirators and others involved with Vicis.

Seth R. Aframe, the assistant United States attorney who prosecuted Phillips, said he could not comment “on any other investigations that may be ongoing as a result of any information Mr. Phillips may have provided.”

Phillips faced a maximum of five years in prison.

His plea agreement contained boilerplate language that said if he provided “substantial assistance” to the government in the prosecution or investigation of others, prosecutors would file a motion advising the court of his help and requesting a sentence reduction.

According to court documents, Vicis invested more than $7.5 million in Medical Supply Management so that it could buy receivables from a California company called Deutsche Medical Services Inc. Those receivables were connected to insurance claims for medicine-laden skin creams supposedly given to workers compensation patients in that state.

Vicis also provided MDWerks with roughly $790,000 to purchase additional receivables.

The two companies, however, had a hard time collecting on the $8.3 million in receivables. Medical Solutions Management hired a New Hampshire medical claims company to bill insurance companies, and put MDWerks in charge of filtering out bad claims.

In July 2008, according to court documents, the president of the New Hampshire billing company, Janine Boudreau, told the then-chairman and chief executive of MDWerks, Howard Katz, there were problems with the Deutsche Medical receivables and that many of the claims were probably fraudulent. Among other things, they listed incorrect dates of service, billed for charges on services that had never been provided and even claimed an expense for skin cream purportedly dispensed to a dead person.

Court documents say the Katz met with Phillips in August 2008 to tell him about what he’d been told by Boudreau. At some point, Boudreau contacted the FBI and they opened an investigation.

At the agency’s direction, Boudreau called Katz with a possible solution to their collections problem: they could backdate many of claims to obscure the problems with the dates of service. In late 2008, court documents say, Katz met with Philips at Vicis’ offices to get him to agree with the plan and to pay Boudreau’s expenses, which would ultimately amount to $260,000.

After that meeting, Phillips called Boudreau from New York and gave her the go ahead.

Eventually, the government says, Phillips wired Boudreau $260,000 for her expenses — an “overt act in furtherance of the conspiracy” that prosecutors would have proven at trial.

Katz pleaded guilty to one count of health care fraud in connection with the Duetsche scheme in May. Court documents show he started cooperating with the FBI in late 2008, shortly after he was indicted. Federal prosecutors described Katz’s assistance as “significant, useful, timely and reliable,” For his help, received three years of probation and 24 consecutive weeks of weekend prison time in addition to a $25,000 fine.

Vicis, which began 2009 with nearly $5 billion under management, received a wave of redemption requests after its performance faltered. It announced last year that it was winding down its funds.

Its most recent summary of its holdings, filed with the SEC in November, listed less than $25 million in assets.

What’s at stake in the SEC’s budget

“While five years sounds like a long time to complete an investigation, the complexity of securities fraud cases and problems with staffing an investigation when higher priorities demand attention makes it all too possible for a case to slip between the cracks,” says Peter Henning in The New York Time’s Dealbook. Henning, a law professor at Wayne State University, was writing about a fraud case that was dismissed by a federal judge in Texas because the Securities and Exchange Commission failed to file its suit within the statute of limitations. For some reason, the SEC let its investigation into the case go dark for a two-year period, and only came back to it after the company in question — Microtune — announced it was investigating itself in public filings. Henning says we can expect more of the same if the SEC’s budget is cut by Congress. “A budget cutback, or even a budget freeze, while the S.E.C. is in the midst of dealing with its new responsibilities for drafting and enforcing rules governing the securities derivative markets and hedge funds may mean the enforcement division will have to drop investigations, or at least slow some of them down, while it deals with other issues.”

SEC brings charges against promoters of fake global warming company

The Daily Caller says the Securities and Exchange Commission has filed civil fraud charges against seven people associated with a London-based company called CO2 Tech that said it was fighting global warming. Really, according to the SEC, the company was a sham that was used as a vehicle for a pump-and-dump scheme orchestrated by a Costa Rican company called Red Sea Management. In all, the SEC says the defendants raked in nearly $7 million in illegal profits by manipulating CO2 Tech’s share price through false press releases, manipulative trading and other techniques. Among other things, the releases claimed nonexistent relationships with legitimate companies, including Boeing Co. Named in the suit are Jonathan Curshen; David Ricci and Ronny Salazar, from Costa Rica; Ariav Weinbaum and Yitzchak Zigdon of Israel; Robert Weidenbaum and Michael Krome. Federal prosecutors have also brought criminal charges against everyone in the group except Ricci.