Forensic News February 2016
Financial/Accounting Fraud
Valeant to Restate Earnings Related to Pharmacy; Shares Gain
Valeant Pharmaceuticals International Inc. will restate some of its past earnings after a board committee reviewed the U.S. drugmaker’s relationship with a mail-order pharmacy. The restatement deals with results from 2014 and 2015, when about $58 million in revenue recognized in 2014 should have been booked in subsequent periods, Valeant said in a statement. Correcting the misstatements is expected to reduce per-share earnings in 2014 by about 10 cents and increase them in 2015 by 9 cents a share, it said. “The company has preliminarily identified certain sales to Philidor during 2014, prior to Valeant’s entry into an option to acquire Philidor, that should have been recognized when product was dispensed to patients rather than on delivery to Philidor,” the company said. Last year, it began incorporating Philidor’s financials into its own. Valeant didn’t rule out further disclosures. It’s delaying filing an annual report, and said it’s making an “ongoing assessment of the impact on financial reporting and internal controls.” Analysts were split on the news. Alex Arfaei, an analyst with BMO Capital Markets, said that while the restatement was small in terms of the actual amount, it showed that Philidor was highly profitable for Valeant and will be difficult to replace. “Moreover, unfortunately, we believe that these types of issues will continue to undermine investor confidence at a time when it is still fragile,” Arfaei said in a note to clients. “The shorts continue to circle Valeant, and buyers simply do not seem to have enough confidence to step in.” He has a market perform rating on the stock. Douglas Miehm, an analyst with RBC Capital Markets, disagreed. “The weakness is overdone,” he said in a note to clients. “We do not believe that further significant operational concern is warranted.” He rates the stock outperform. Valeant faced questions over its relationship with Philidor last year, including accusations of accounting fraud from short-seller Citron Research. The drugmaker eventually revealed that it had paid $100 million for an option to buy Philidor for nothing at any time during the next 10 years, and consolidated Philidor’s financial results into its own.
Click here for full article.
Monsanto Paying $80 Million Penalty for Accounting Violations
The Securities and Exchange Commission announced that St. Louis-based agribusiness Monsanto Company agreed to pay an $80 million penalty and retain an independent compliance consultant to settle charges that it violated accounting rules and misstated company earnings as it pertained to its flagship product Roundup. Three accounting and sales executives also agreed to pay penalties to settle charges against them. An SEC investigation found that Monsanto had insufficient internal accounting controls to properly account for millions of dollars in rebates offered to retailers and distributers of Roundup after generic competition had undercut Monsanto’s prices and resulted in a significant loss of market share for the company. Monsanto booked substantial amounts of revenue resulting from sales incentivized by the rebate programs, but failed to recognize all of the related program costs at the same time. Therefore, Monsanto materially misstated its consolidated earnings in corporate filings during a three-year period. “Financial reporting and disclosure cases continue to be a high priority for the Commission and these charges show that corporations must be truthful in their earnings releases to investors and have sufficient internal accounting controls in place to prevent misleading statements,” said SEC Chair Mary Jo White. “This type of conduct, which fails to recognize expenses associated with rebates for a flagship product in the period in which they occurred, is the latest page from a well-worn playbook of accounting misstatements.” Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, added, “Improper revenue and expense recognition practices that obscure a company’s true financial results have long been a focus of the Commission. We are committed to vigorously pursuing and punishing corporate executives and other individuals whose actions contribute to the filing of inaccurate financial statements and other securities law violations.”
Click here for full article.
Boeing uses an accounting method that others have left behind
The type of accounting Boeing Co uses to reflect the enormous upfront costs of building its jetliners is unusual among large U.S. corporations and leaves a lot of judgment up to the company, accounting experts said. Shares in Boeing plunged as much as 11 percent amid slowing sales and a report that securities regulators were investigating the company’s accounting. Shares closed up 0.2 percent during a broad market rally. The U.S. Securities and Exchange Commission is looking into Boeing’s use of a practice known as program accounting, Bloomberg reported, citing people with knowledge of the matter. It was unclear whether the SEC would file any charges against Boeing. Program accounting was historically used in the U.S. aerospace industry for decades as a way to spread billions of dollars in development costs over multiple years. The technique cuts the cost per plane in the early stages of a project, smoothing profit margins over time. The method is recognized under generally accepted accounting principles (GAAP), and accountants have justified it by arguing that the upfront costs have a future "learning curve" benefit that should be reflected somehow. Boeing, which is the only U.S. commercial plane maker, appears to be alone in using program accounting. Accountants said they were not aware of other U.S. companies that employ it, and defense contracts are not handled that way because they have a different structure than airplane sales. McDonnell Douglas, which was acquired by Boeing in 1997, had been among the companies that used program accounting in the 1990s, according to media reports at the time. Under guidance proposed in 1981 by the American Institute of Certified Public Accountants, program accounting may be used only under a very narrow set of circumstances involving a recurring product that requires substantial investment and has high barriers to market entry. The method can go wrong if a company either initially overestimates the number of airplanes it plans to sell or its costs are significantly higher than planned, accountants said. Either scenario results in miscalculating the company’s margin.
Click here for full article.
Swiss Probe of Malaysia Fund Sees $4 Billion Possible Misuse
Switzerland’s prosecutors are seeking legal assistance from Malaysia after a probe into a government investment fund revealed “serious indications” that about $4 billion may have been misappropriated from state companies in the Southeast Asian nation. The Swiss Attorney-General’s office said in a statement that during an investigation of 1Malaysia Development Bhd., four cases involving allegations of criminal conduct and occurring between 2009 and 2013 have so far come to light. It has been ascertained a small amount of funds were transferred to Swiss accounts of former Malaysian public officials, according to the statement. The Swiss authority is seeking help from the Malaysian attorney general to determine whether funds were misappropriated. “The monies believed to have been misappropriated would have been earmarked for investment in economic and social development projects in Malaysia,” the Swiss authority said in the statement. “To date, however, the Malaysian companies concerned have made no comment on the losses they are believed to have incurred. The object of the request for mutual assistance is therefore to advise the companies and the Malaysian government of the results of the Swiss criminal proceedings, with the aim of finding out whether losses on this scale have been sustained.” 1MDB, whose advisory board is headed by Prime Minister Najib Razak, has been the subject of overlapping investigations in Malaysia, as well as overseas jurisdictions including Singapore and Hong Kong amid allegations of financial irregularities. 1MDB said in a statement that it hasn’t been contacted by any foreign legal authorities on any matters relating to the company. “1MDB remains committed to fully cooperating with any lawful authority and investigation, subject to advice from the relevant domestic lawful authorities, and in accordance with international protocols governing such matters,” the company said in the statement. Malaysia will cooperate with its Swiss counterparts and review the findings before determining a course of action, Attorney General Mohamed Apandi Alisaid in a statement. A spokesman for the Prime Minister’s Office said they won’t be commenting on the matter.
Click here for full article.
S. Africa Rail Agency Alleges Fraud in $250 Million Tenders
The Passenger Rail Agency of South Africa has asked the country’s High Court to declare two contracts awarded to a security company invalid, two months after asking for the cancellation of an agreement to supply locomotives. Prasa, as the agency is known, wants two contracts awarded to Siyangena Technologies (Pty) Ltd. worth about 4 billion rand ($250 million) set aside because the company was given an advantage through “bid-rigging” and the agreements were coupled with alleged “corrupt activities,” according to an affidavit by chairman Popo Molefe, which was filed with a motion on February 2 at the High Court in the capital, Pretoria. The contracts were awarded to Siyangena for the supply and installation of integrated security-access management systems at Prasa stations, according to an e-mailed statement from the rail company and a copy of the court filing. The tenders were designed so that only Siyangena could supply the equipment, Prasa said. South Africa’s Public Protector, Thuli Madonsela, said in a report published in August that an investigation into Prasa covering the period from about 2008 to 2013 found the company had a culture of “systemic failure” to comply with its own supply-chain policy. Madonsela also concluded that former Chief Executive Officer Lucky Montana acted improperly regarding the awarding of service contracts and treatment of some employees. Prasa asked the High Court in Johannesburg in December to cancel a 3.5 billion-rand contract awarded to Swifambo Rail Leasing (Pty) Ltd. in March 2013 to supply the company with locomotives made by Vossloh Espana SA. The bidding process included “irrational” specifications whose sole purpose was to rig the outcome, and the decision was unreasonable and unlawful, Molefe said at the time.
Click here for full article.
EU takes aim at multi-billion ‘carousel’ sales tax frauds
The European Commission wants to implement new measures to counter multi-billion frauds on sales taxes, but it may result in more costs and red tape. Value Added Tax (VAT) frauds cost European Union states almost 170 billion euros ($187 billion) a year in lost revenues, according to Commission data. Nearly a third of this results from scams in sales between EU countries, known as carousel or missing trader frauds. "This is unacceptable. There is an urgent need to act," Commission Vice President Valdis Dombrovskis told reporters following the EU executive’s weekly meeting. The Commission is considering tackling this illegal activity by changing the way VAT is collected in EU countries, he said. It has not made any formal proposal yet and any legislative initiative on taxation requires the unanimous backing of all 28 member states, making reforms very difficult. The reform would not affect EU countries’ power to impose their VAT rates on specific products and will maintain the principle that the revenues from VAT will end up in the coffers of the state where the final sale takes place, he added. Changes would imply that "tax administrations of the member state of origin will collect this tax on behalf of the member state of destination, thus reducing the possibility for VAT frauds," Dombrovskis said. The most common frauds exploit the fact that exports are VAT-free, so that fictitious companies in the country of import can claim VAT reimbursements without having paid any tax, resulting in a loss of public revenues. By collecting the tax at the origin, the room for fraud will narrow, the Commission says. Dombrovskis acknowledged the system would "would imply a high degree of trust and cooperation among tax administrations in the EU" as countries will have to exchange tax profits. Exporting companies could face higher costs as a result, possibly reducing their desire to operate cross-border, and could oppose the initiative. "The Commission has to make sure that the new system will not be more burdensome for businesses," said Chas Roy-Chowdhury, head of tax at ACCA, a global accounting body.
Click here for full article.
Romanian tax chiefs under investigation in EU fund fraud case
Romanian anti-corruption prosecutors said they were investigating the country’s tax authority chief and his deputy in a case over misappropriation of European Union funds meant to support underprivileged Roma communities. Prosecutors also asked parliament to approve a criminal investigation against lawmakers Nicolae Paun and Madalin Voicu in the same case. Under Romanian law, parliament must approve inquiries into sitting lawmakers. Investigators said the two parliamentarians along with tax authority chief Gelu Diaconu, his deputy Mihai Gogancea-Vatasoiu and eight other people allegedly defrauded two projects aimed at giving vocational classes to the underprivileged, mostly from the Roma minority. Through forged documents, influence peddling, taking bribes, abuse of power, money laundering and other alleged crimes, they caused damage worth a total 27.25 million lei ($6.84 million) from EU funding and the state budget. Human rights groups have often accused Romania - home to up to 2.5 million Roma, or roughly a sixth of the population - of not doing enough to improve their living standards or job prospects. Bucharest and Brussels have earmarked funds for better integrating the Roma, Europe’s largest ethnic minority. Paun and Gogancea-Vatasoiu have declined comment. Diaconu denied wrongdoing, according to state news agency Agerpres. Voicu said he had yet to see details of the case. Finance Minister Anca Dragu demanded the resignation of the two tax chiefs. "The tax authority is one of the most important institutions in Romania and its managers must be above suspicion," Dragu said in a statement. The investigation is the latest in a crackdown on high-level corruption in the EU state where graft has deterred foreign investment and tax evasion and bribery are a drain on public finances. Anti-corruption prosecutors have also been paying special attention to cases that involve EU development funds. The European Commission has suspended payments several times due to irregularities.
Click here for full article.
More Dark Pool Investigations Under Way, Says New York’s Top Cop
Additional actions are likely against private trading venues run by some of Wall Street’s biggest banks, the nation’s top securities regulator and New York state’s attorney general said as they announced record settlements with two global banks over their so-called dark pools. Solidifying their oversight of these trading platforms, the U.S. Securities and Exchange Commission and New York Attorney General’s office announced that Barclays Plc and Credit Suisse Group AG would pay more than $154 million in all to settle allegations that they misled investors about how their venues were managed. New York Attorney General Eric Schneiderman and the SEC’s enforcement director, Andrew Ceresney, said their agencies continue to focus on such venues, where about 20 percent of shares in the U.S. change hands. “We do have ongoing investigations” into dark pools, Schneiderman said at a Manhattan news conference announcing the settlements, without providing further details. Ceresney declined to comment on any active investigations. “This is an area where both of our institutions are focused,” Ceresney said. Barclays will pay $70 million, split evenly between the two enforcers, the largest fine levied on a dark pool operator, the SEC said in a statement. Credit Suisse will pay $84.3 million, according to the SEC. That payment includes $24.3 million to the SEC for disgorgement and interest, with the remainder shared evenly between the two authorities. The dispute centered on whether the banks disclosed enough to their clients about trading in their dark pools. Barclays misrepresented to clients how it monitored its dark pools for high-frequency trading, according to the SEC’s statement. Credit Suisse systematically routed orders to its own dark pool, but told clients that it didn’t prioritize one trading venue over another, Schneiderman’s office said.
Click here for full article.
|
|
Foreign Corrupt Practices Act (FCPA)
Sweett Group Told to Pay $3.3 Million in U.K. Bribery Case
Sweett Group Plc, the first company to be convicted under new U.K. bribery laws, was ordered to pay about 2.3 million pounds ($3.3 million) at a sentencing hearing in London. The U.K. construction company was accused of paying bribes to win contracts in the Middle East and pleaded guilty to the charge in December. The penalties issued by Judge Martin Beddoe included a 1.4 million-pound fine and the return of about 850,000 pounds in benefits derived from the illegal payments. The outcome is a rare victory for the U.K. Serious Fraud Office, which had faced criticism in recent years for failing to secure any corporate convictions under new U.K. bribery laws enacted in 2011. The change saw all major businesses invest millions of pounds on revamping their compliance procedures. Judge Beddoe said when issuing the ruling that while Sweett Group had self-reported the issue to the SFO in December 2014, there was no admission that bribes had been paid and the company tried to divert prosecutors’ attention away from certain parts of its business. It also emerged the company had failed to take action on KPMG reports in 2011 and 2014 that highlighted weaknesses in its systems and controls, he said. “The conduct of Sweett Group is a textbook example of how not to cooperate with the SFO,” said David Corker, a London lawyer who wasn’t involved in the case. The sentence shows “what can happen when a company under SFO investigation appears to cooperate but covertly seeks to frustrate it.” Douglas McCormick, Sweett Group’s chief executive officer, said the sentence marks the end of the investigation. “We have strengthened our internal systems, controls and risk procedures, and refined our strategy, to ensure this company should never again fall victim to such conduct,” McCormick said in a statement. The case centered on allegedly corrupt payments made to Khaled Al Badie, an executive of Al Ain Alia Insurance Company, to win a project management contract for building a hotel in Abu Dhabi. Al Badie said in a statement he denies any wrongdoing and has never been interviewed or approached by the SFO.
Click here for full article.
VimpelCom to Pay $795 Million in Global Settlement for FCPA Violations
The Securities and Exchange Commission announced a global settlement along with the U.S. Department of Justice and Dutch regulators that requires telecommunications provider VimpelCom Ltd. to pay more than $795 million to resolve its violations of the Foreign Corrupt Practices Act (FCPA) to win business in Uzbekistan. The SEC alleges that VimpelCom offered and paid bribes to an Uzbek government official related to the President of Uzbekistan as the company entered the Uzbek telecommunications market and sought government-issued licenses, frequencies, channels, and number blocks. At least $114 million in bribe payments were funneled through an entity affiliated with the Uzbek official, and approximately a half-million dollars in bribes were disguised as charitable donations made to charities directly affiliated with the Uzbek official. “VimpelCom made massive revenues in Uzbekistan by paying over $100 million to an official with significant influence over top leaders of the Uzbek government,” said Andrew J. Ceresney, Director of the SEC Enforcement Division. “These old-fashioned bribes, hidden through sham contracts and charitable contributions, left the company’s books and records riddled with inaccuracies.” The settlement requires VimpelCom to pay $167.5 million to the SEC, $230.1 million to the U.S. Department of Justice, and $397.5 million to Dutch regulators. The company must retain an independent corporate monitor for at least three years. “International cooperation among regulators is critical to holding companies responsible for all facets of a bribery scheme. This closely coordinated settlement is a product of the extraordinary efforts of the SEC, Department of Justice, and law enforcement partners around the globe to jointly pursue those who break the law to win business,” said Kara N. Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit. The SEC’s complaint was filed in U.S. District Court for the Southern District of New York. VimpelCom consented to the entry of a court order ordering the company to pay disgorgement and retain an independent monitor, and permanently enjoining the company from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934.
Click here for full article.
PTC Inc. Subsidiaries Agree to Pay More Than $14 Million to Resolve Foreign Bribery Charges
Two subsidiaries of Massachusetts software company PTC Inc. entered into a non-prosecution agreement and agreed to pay a $14.54 million penalty to resolve the government’s investigation into whether the companies improperly provided recreational travel to Chinese government officials in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division. According to admissions made in the resolution documents, Parametric Technology (Shanghai) Software Company Ltd. and Parametric Technology (Hong Kong) Ltd. (collectively, PTC China), through local business partners, arranged and paid for employees of various Chinese state-owned enterprises to travel to the United States, ostensibly for training at PTC Inc.’s headquarters in Massachusetts, but primarily for recreational travel to other parts of the United States, including New York, Los Angeles, Las Vegas and Hawaii. PTC China paid a total of more than $1 million through its business partners to fund these trips, while during the same time period, PTC China entered into more than $13 million in contracts with the Chinese state-owned entities. Company employees typically accompanied the Chinese officials on these trips. PTC China admitted that the cost of these recreational trips was routinely hidden within the price of PTC China’s software sales to the Chinese state-owned entities whose employees went on the trips.
Click here for full article.
SEC Charges Software Company With FCPA Violations
The Securities and Exchange Commission announced that software manufacturer SAP SE has agreed to give up $3.7 million in sales profits to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) when procuring business in Panama. An SEC investigation found that SAP’s deficient internal controls allowed a former SAP executive to pay $145,000 in bribes to a senior Panamanian government official and offer bribes to two others in exchange for lucrative sales contracts. The SEC charged the SAP executive, Vicente E. Garcia, in a separate enforcement action last year that included a parallel criminal action. Garcia has been sentenced to 22 months in prison. “SAP’s internal controls failed to flag Garcia’s misconduct as he easily falsified internal approval forms and disguised his bribes as discounts,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.
Click here for full article.
|
|
Litigation Matters
Takata Engineer Refused to Testify in Air Bag Failure Lawsuit
A Takata Corp. engineer involved in testing the company’s air bags invoked his constitutional right against self-incrimination in declining to testify in a lawsuit brought by a woman left paralyzed in a 2014 accident. Lawyers for accident victims claim Takata withheld or doctored bad test results before and after the company’s air bag inflators began exploding, spewing shrapnel into drivers and passengers in accidents in the U.S. and elsewhere. Al Bernat, an auto safety specialist at Takata sought as a key witness on multiple tests, refused to testify in a deposition in the lawsuit, citing his Fifth Amendment right not to incriminate himself, Ted Leopold, a lawyer for the victim, said at a court hearing in Jacksonville, Florida. Guy Petrillo, Bernat’s attorney, didn’t immediately respond to phone and e-mail messages seeking comment on Leopold’s statements in court. “TK Holdings believes the lawsuit is without merit and intends to defend itself vigorously,” Jared Levy, an outside spokesman for Takata’s U.S. unit, said in an e-mail. Levy declined to comment on Bernat. Leopold, who represents accident victim Patricia Mincey, asked a Florida judge at the hearing to allow her to seek punitive damages in a trial against Takata in August. Mincey alleges the company committed fraud in withholding test data, starting with its largest customer, Honda Motor Co. David Bernick, a lawyer for Takata, said in court that claims the company falsified data on tests didn’t matter in the case. “It is not about whether Takata was candid with Honda,” Bernick said. “It is about what did Takata know about Mrs. Mincey’s car.” Takata doesn’t believe the air bag inflator in Mincey’s car was defective or that it was a cause of her injuries, he said.
Click here for full article.
Wells Fargo to pay $1.2 billion in U.S. mortgage fraud settlement
Wells Fargo & Co said it had agreed to pay $1.2 billion to settle claims that it engaged in mortgage fraud, resolving a major U.S. lawsuit brought in the wake of the 2008 financial crisis. The settlement resolves a lawsuit filed in federal court in Manhattan in 2012 accusing Wells Fargo, the country’s largest mortgage lender, of engaging in misconduct in originating and underwriting government-insured mortgages. The lawsuit, brought by Manhattan U.S. Attorney Preet Bharara’s office, was among a series of cases against banks following the financial crisis stemming from mortgages insured through a program by the Federal Housing Administration (FHA). Several lenders including Bank of America Corp, Citigroup Inc and Deutsche Bank AG have resolved similar lawsuits over FHA-insured loans, paying hundreds of millions of dollars in the process. Wells Fargo said the settlement was reached on February 1 and would also resolve claims by the U.S. Attorney’s Office in San Francisco and the U.S. Department of Housing and Urban Development. The 2012 lawsuit accused Wells Fargo of engaging in a "reckless" mortgage origination and underwriting practices from 2001 to 2005. It also said Wells Fargo had failed to report more than 6,000 loans from 2002 to 2010 that did not meet requirements for insurance under the Federal Housing Administration and failed to properly review early payment defaults. Beyond naming Wells Fargo as a defendant, the civil lawsuit named Kurt Lofrano, a vice president at the bank accused of playing a "critical role" in not reporting the loans to government officials. It was not clear if the settlement applied to Lofrano. But a letter filed later by lawyers who work with Bharara said the deal resolves "all claims in this matter." The letter said the full agreement was still being drafted and needed to be approved by Justice Department officials.
Click here for full article.
Morgan Stanley to Pay $2.6 Billion to Settle Fraud Charges
Morgan Stanley will pay a $2.6 billion penalty to resolve claims related to Morgan Stanley’s marketing, sale and issuance of residential mortgage-backed securities (RMBS). The settlement constitutes the largest component of the set of resolutions with Morgan Stanley entered by members of the RMBS Working Group, which have totaled approximately $5 billion. As part of the agreement, Morgan Stanley acknowledged in writing that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its RMBS and about its due diligence practices. Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued by Morgan Stanley in 2006 and 2007. The settlement expressly preserves the government’s ability to bring criminal charges against Morgan Stanley, and likewise does not release any individuals from potential criminal or civil liability. In addition, as part of the settlement, Morgan Stanley promised to cooperate fully with any ongoing investigations related to the conduct covered by the agreement. In the agreement, “Morgan Stanley acknowledges it sold billions of dollars in subprime RMBS certificates in 2006 and 2007 while making false promises about the mortgage loans backing those certificates,” said Acting U.S. Attorney Brian J. Stretch of the Northern District of California. “Morgan Stanley touted the quality of the lenders with which it did business and the due diligence process it used to screen out bad loans. All the while, Morgan Stanley knew that in reality, many of the loans backing its securities were toxic. Abuses in the mortgage-backed securities industry such as these helped bring about the most devastating financial crisis in our lifetime. Our office is committed to dedicating the resources necessary to hold those who engage in such reckless actions responsible for their conduct.” An RMBS is a type of security comprised of a pool of mortgage loans created by banks and other financial institutions. The expected performance and price of an RMBS is determined by a number of factors, including the characteristics of the borrowers and the value of the properties underlying the RMBS. Morgan Stanley was one of the institutions that issued RMBS during the period leading up to the economic crisis in 2007 and 2008.
Click here for full article.
Barclays to pay $50 million to end U.S. currency rigging lawsuit
The preliminary, all-cash settlement with investors led by Axiom Investment Advisors LLC was disclosed in papers filed in the U.S. District Court in Manhattan, and requires a judge’s approval. It comes three months after Barclays agreed to pay $150 million and fire a senior electronic trading official to resolve similar claims by the New York State Department of Financial Services. Barclays denied wrongdoing and agreed to provide information that may help Axiom pursue similar cases against other banks. The lawsuit arose from "Last Look," a Barclays trading system feature meant to deter traders from exploiting tiny delays, often just a few milliseconds, in the flow of information within the marketplace. Instead, according to the New York regulator, Barclays used Last Look as a "general filter" to weed out unprofitable trades, and gave vague or inaccurate responses to clients who asked why their trades were not being processed. Axiom, which is based in Manhattan, said this caused "significant damages" for Barclays’ foreign exchange counterparties, and amounted to breach of contract or fraud. In September and October 2014, Barclays revised Last Look so that it would reject trades deemed "sufficiently unprofitable" for both customers and the bank, not just the bank, the New York regulator has said. Barclays is among several banks that in 2015 settled private U.S. litigation over alleged currency rigging. Claims over Last Look were not covered in its settlement. George Zelcs, a lawyer for Axiom, called the latest Barclays accord "a meaningful initial settlement that hopefully allows us to move forward in other cases," including a lawsuit against Deutsche Bank over a similar algorithm.
Click here for full article.
MoneyGram To Pay $13 Million To Resolve Fraud Investigation
MoneyGram has agreed to pay a $13 million settlement to resolve a multistate investigation involving consumer fraud. The investigation focused on complaints of consumers who used MoneyGram’s wire transfer service to send money to third parties who were involved in schemes to defraud consumers. This action was filed in the form of an assurance of voluntary compliance and has two main components. First, MoneyGram has agreed to pay a total of $13 million to the participating states to fund a nationwide consumer restitution program. Part of that sum also will cover the states’ costs and fees associated with the investigation. Second, MoneyGram has agreed to maintain and continue to improve a comprehensive and robust anti-fraud program designed to help detect and prevent consumers from suffering financial losses as a result of these types of fraud-induced wire transfers. The program must be documented in writing.
Click here for full article.
|
|
China Market
Police raid Madrid office of China’s biggest bank in money laundering investigation
Spanish police raided the Madrid offices of China’s biggest bank, Industrial and Commercial Bank of China (ICBC), as part of an investigation into alleged money laundering, the Interior Ministry said. The investigation by police, the Spanish tax agency and Europol surrounds funds handled by a criminal group acting in Spain which the Ministry says passed through the bank and were transferred to China. A number of people were expected to be arrested as part of the operation, a source close to the investigation said. Spanish police investigating tax fraud on certain goods imported from China in an operation in May last year, known as "Operation Snake", dismantled a group that was found to have laundered at least 40 million euros ($45 mln) through ICBC, the Ministry said.
Click here for full article.
Chinese company accused of $7.6B financial fraud
Chinese police arrested 21 employees at China’s largest online finance business on suspicion of fleecing 900,000 investors for $7.6 billion, in what could be the biggest financial fraud in Chinese history. State media outlets reported the arrests and state broadcaster CCTV aired purported confessions from two former employees at Ezubao, an Anhui Province outfit that rose from obscurity to become China’s largest online financing platform in the span of about 18 months. Ezubao was the most spectacular player in a booming online investment industry that Chinese authorities have been struggling to regulate. Firms ranging from established Internet companies such as Alibaba to virtually unknown upstarts have flooded into the business, promising higher returns than those at state-run banks. Ezubao promised investors that borrowers on its platform would pay back loans at interest rates between 9 percent and 14.6 percent, but 95 percent of those borrowers were fictional entities created by Ezubao, a former company executive told investigators. The company advertised heavily online and bought expensive ad spots that aired just before the widely viewed nightly newscast on CCTV, the state broadcaster, former investors told The Associated Press. Police shut down the operation in December, prompting scores of protesters to gather in Beijing to demand their money back.
Click here for full article.
China’s new securities chief faces old constraints
The job of running China’s securities watchdog is known by the country’s media as “the volcano seat” for its potential to blow formerly glittering careers to smithereens. Xiao Gang is its latest victim. The chairman of China’s Securities Regulatory Commission has taken the blame for his fumbling efforts to prop up stocks. But as long as China’s leaders remain reluctant to realise their pledge to give market forces a greater role, the job will remain thankless. Xiao was the obvious scapegoat for last year’s spectactular boom in Chinese stocks and their subsequent bust. The benchmark CSI300 index more than doubled between November 2014 and early June 2015, and then plummeted. Though stocks have recovered some ground they remain more than 40 percent below their peak. Xiao and his fellow watchdogs share the blame for failing to rein in the boom, and for their bungled efforts to prop up the market when it fell. In particular, the CSRC chief championed China’s flawed “circuit-breaker mechanism” which exacerbated the selloff in early January and was swiftly scrapped. But in the Chinese system securities regulators are beholden to more senior and less technocratic communist leaders. New chairman Liu Shiyu is unlikely to enjoy any more independence. Liu, a former central bank official who was most recently chairman of Agricultural Bank of China, now sits atop the molten lava of China’s stock markets. His tasks include corralling the tens of millions of flighty retail investors and policing fraud and market manipulation at listed companies. Orders to make bourses defy the laws of financial gravity will make his job harder. China is preparing a new system that will allow companies to launch an initial public offering without waiting for the CSRC’s green light. Meanwhile, managers at state-owned firms which agreed not to sell shares in an effort to prop up markets last summer will also want to be released from their restrictions. Though healthy, both these moves could put further pressure on share prices. Liu has little obvious experience of navigating such market forces. Indeed, analysts regard Agricultural Bank of China as having the worst risk management of the country’s big four banks. His turn in the volcano seat is unlikely to be any more comfortable than his predecessor’s.
Click here for full article.
China launches web site to aid $7.6 bln Ezubao fraud probe
China’s Ministry of Public Security has launched a web site to help probe Ezubao, the country’s biggest online peer-to-peer (P2P) lender, which is accused of defrauding 900,000 investors of more than 50 billion yuan ($7.61 billion). The web site, opened to the public, will help Chinese police gather information and establish facts about Ezubao, which "involves a large number of investors dispersed across the country, with huge amounts of electronic information," according to its homepage (ecidcwc.mps.gov.cn) said. Executives at Ezubao’s parent company admitted in comments carried by official news agency Xinhua early that it was "a complete Ponzi scheme" that used investor funds to support their lavish lifestyles. The alleged scam underscores the risks in China’s fast growing and loosely regulated wealth management product industry, with many products peddled through online financial investment platforms and privately run exchanges. More than 400 billion yuan had been raised by more than 3,600 P2P platforms by the end of November, according to the China Banking Regulatory Commission. More than 1,000 of those firms were problematic, it said.
Click here for full article.
|
|
Healthcare Industry
Shkreli Was Right: Everyone’s Hiking Drug Prices
After Martin Shkreli raised the price of anti-parasitic drug Daraprim more than 50-fold to $750 a pill last year, he said he wasn’t alone in taking big price hikes. As it turns out, the former drug executive was right. A survey of about 3,000 brand-name prescription drugs found that prices more than doubled for 60 and at least quadrupled for 20 since December 2014. Among the biggest increases was Alcortin A, a combination steroid and antibiotic gel to treat eczema and skin infections: The price soared 1,860 percent, or almost 20-fold, during the period. And a vial of Aloprim, a Mylan NV drug for cancer complications, more than doubled, according to the survey by DRX, a provider of price-comparison software to health plans. Skyrocketing prices are getting increased scrutiny ahead of a U.S. congressional hearing this week: Democratic Representative Elijah Cummings, ranking member on a committee that is probing drug pricing, said that pricing “tactics are not limited to a few ‘bad apples,’ but are prominent throughout the industry.”
Click here for full article.
U.S. Is Probing a Possible Half-Billion Dollar Health-Care Fraud
The FBI is reportedly investigating a half-billion dollar health-care fraud scheme involving pain-management creams. The specialty compounding creams are mainly marketed at athletes and the elderly as a way to quickly alleviate pain and cramping. According to the Wall Street Journal, sales have risen lately following a marketing blitz that included ads featuring former NFL quarterback Brett Favre. Investigators are looking into claims that some of the creams have no medical value, pharmacies have overbilled, sent patients more than they ordered, or refilled prescriptions without being asked. Some companies have charged over $10,000 for a single tube of the ointment. The fraud has supposedly affected private insurance companies, Medicare, and Medicaid. The biggest alleged victim is a health insurance program for military personnel and veterans. Investigations are still in their early stages, and no charges have been filed.
Click here for full article.
Fifty-One Hospitals Pay United States More Than $23 Million to Resolve False Claims Act Allegations Related to Implantation of Cardiac Devices
The Department of Justice has reached settlements with 51 hospitals in 15 states for more than $23 million related to cardiac devices that were implanted in Medicare patients in violation of Medicare coverage requirements, the Department of Justice announced. These settlements represent the final stage of a nationwide investigation into the practices of hundreds of hospitals improperly billing Medicare for these devices. With these additional agreements, the Justice Department’s investigation has now yielded settlements with more than 500 hospitals totaling more than $280 million. “These settlements demonstrate the Department’s continued vigilance in pursuing hospitals and health systems that violate Medicare’s national coverage rules,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “We will hold accountable those who do not abide by the government’s rules in order to protect the federal fisc and, more importantly, patient health.” An implantable cardioverter defibrillator, or ICD, is an electronic device that is implanted near and connected to the heart. It detects and treats chaotic, extremely fast, life-threatening heart rhythms, called fibrillations, by delivering a shock to the heart, restoring the heart’s normal rhythm. It is similar in function to an external defibrillator (often found in offices and other buildings) except that it is small enough to be implanted in a patient’s chest. Only patients with certain clinical characteristics and risk factors qualify for an ICD covered by Medicare. Medicare coverage for the device, which costs approximately $25,000, is governed by a National Coverage Determination (NCD). The Centers for Medicare and Medicaid Services implemented the NCD based on clinical trials and the guidance and testimony of cardiologists and other health care providers, professional cardiology societies, cardiac device manufacturers and patient advocates. The NCD provides that ICDs generally should not be implanted in patients who have recently suffered a heart attack or recently had heart bypass surgery or angioplasty. The medical purpose of a waiting period – 40 days for a heart attack and 90 days for bypass/angioplasty - is to give the heart an opportunity to improve function on its own to the point that an ICD may not be necessary. The NCD expressly prohibits implantation of ICDs during these waiting periods, with certain exceptions. The Department of Justice alleged that from 2003 to 2010, each of the settling hospitals implanted ICDs during the periods prohibited by the NCD.
Click here for full article.
|
|
SEC Regulatory Actions
SEC Charges Biopesticide Company and Former Executive With Accounting Fraud
The Securities and Exchange Commission charged biopesticide company Marrone Bio Innovations and a former executive with inflating financial results to meet projections it would double revenues in its first year as a public company. Marrone Bio agreed to pay a $1.75 million penalty to settle the SEC’s charges. The SEC alleges that former chief operating officer Hector M. Absi Jr. concealed from Marrone Bio’s finance personnel and independent auditor various sales concessions offered to customers, leading the Davis, Calif.-based company to improperly recognize revenue on sales. Absi allegedly profited from the fraud. He resigned in August 2014 shortly before the alleged fraud came to light and the company’s stock price plunged more than 44 percent. In a parallel action, the U.S Attorney’s Office for the Eastern District of California announced criminal charges against Absi. “We allege that Marrone Bio misled investors to make itself look like a fast-growing new public company,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. “Public companies and their officers should know better that taking shortcuts to recognize revenue in the near term is harmful to investors and can be damaging to a company’s long-term success.” According to the SEC’s complaint filed in U.S District Court for the Eastern District of California, Marrone Bio restated its results for fiscal 2013 and the first half of fiscal 2014, reversing approximately $2 million of previously reported revenue. Absi previously inflated Marrone Bio’s revenues by offering distributors “inventory protection,” a concession that allowed distributors to return unsold product. Absi also inflated Marrone Bio’s revenue by directing his subordinates to obtain false sales and shipping documents and intentionally ship the wrong product to book sales. Absi abused Marrone Bio’s expense reporting system to pay for personal items, including vacations, home furnishings, and professionally installed Christmas lights for his home. Absi falsified his bank and credit card statements to make it appear as though he had incurred the expenses for legitimate business purposes. Absi personally profited from his scheme, receiving more than $350,000 in bonuses, stock sale proceeds, and illegitimate expense reimbursements.
Click here for full article.
SEC: Tech Company Bribed Chinese Officials
The Securities and Exchange Commission announced that a Massachusetts-based technology company and its Chinese subsidiaries agreed to pay more than $28 million to settle parallel civil and criminal actions involving violations of the Foreign Corrupt Practices Act (FCPA). An SEC investigation found that two Chinese subsidiaries of PTC Inc. provided non-business related travel and other improper payments to various Chinese government officials in an effort to win business. PTC agreed to pay $11.858 million in disgorgement and $1.764 million in prejudgment interest to settle the SEC’s charges and its two China subsidiaries agreed to pay a $14.54 million fine in a non-prosecution agreement announced by the U.S. Department of Justice. “PTC failed to stop illicit payments despite indications of potential corruption by agents working with its Chinese subsidiaries, and the misconduct continued unabated for several years,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit. The SEC also announced its first deferred prosecution agreement (DPA) with an individual in an FCPA case. DPAs facilitate and reward cooperation in SEC investigations by foregoing an enforcement action against an individual who agrees to cooperate fully and truthfully throughout the period of deferred prosecution. FCPA charges will be deferred for three years against Yu Kai Yuan, a former employee at one of PTC’s Chinese subsidiaries, as a result of significant cooperation he has provided during the SEC’s investigation.
Click here for full article.
SEC Charges Lending Company and Brokerage Firm With Fraud
The Securities and Exchange Commission announced fraud charges against a Manhattan-based lending company and its owner accused of repeatedly lying to investors purchasing high-yield securities. The SEC also charged the brokerage firm that acted as the placement agent and two of its executives. The SEC alleges that American Growth Funding II LLC and Ralph Johnson promised investors 12-percent annual returns and falsely claimed its financial statements were being audited each year. AGF II, which raises capital from investors to provide loans to businesses, also made misrepresentations in offering documents about its management and concealed details about deteriorating loan values that could imperil full payment of the promised returns to investors. The company’s placement agent Portfolio Advisors Alliance and its owner Howard Allen and president Kerri Wasserman allegedly knew the offering documents were inaccurate yet continued using them to solicit sales of AGF II securities. “We allege that AGF II misled investors and overstated the true value of these investments, which are worth far less than presented because many of the company’s loans are non-performing,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “We further allege that Allen and Wasserman looked the other way and allowed PAA to facilitate the fraud as the placement agent.” According to the SEC’s complaint filed in federal district court in Manhattan, in a private placement offering, AGF II raised approximately $8.6 million from investors from March 2011 to December 2013. The company represented in offering documents that its financial statements had been audited and would continue to be audited each fiscal year. Johnson knew this statement was false. No audit of AGF II’s financials occurred until 2014. The offering documents represented that AGF II was governed by a Board of Managers comprised of Johnson and two other individuals when, in fact, the two individuals never agreed to serve in any managerial capacity. Johnson caused AGF II to send out monthly account statements to investors that concealed the precariousness of its business. The company failed to disclose that it could not have possibly paid investors their stated account balances because the majority of AGF II’s loans were likely uncollectible at the time.
Click here for full article.