Forensic News November 2015
Financial/Accounting Fraud
The convicted former finance chief of Enron, the failed US energy giant, has sounded a warning about corporate fraud, saying companies now have even more scope to bend the rules than when he was at the firm. Andrew Fastow said the tools that companies used to manipulate their financial reports were even “more potent” today. He pleaded guilty to two counts of securities fraud in 2004 and was sentenced to six years in jail for his role in Enron’s collapse. Its bankruptcy in 2001 was the largest in US history. Enron went from being the seventh-biggest company in the US to folding in the space of just four months, putting 21,000 people out of work and sparking a landmark crackdown on corporate accounting. Mr Fastow admits to creating the structured finance transactions that kept debts off of Enron’s balance sheets, and made the company appear to be in better financial health than it really was. “It is easy to find examples of companies causing misrepresentations while following the rules, and they’re using those tools to do it,” he told the BBC after speaking at a conference organised by the Association of Certified Fraud Examiners (ACFE) in Singapore. “Most companies do not do it to the extent that I did it at Enron, so they don’t suffer the consequences like we suffered, but companies do it to varying degrees.” Mr Fastow’s 10-year prison sentence was reduced after he testified against former Enron chief executives Kenneth Lay and Jeffrey Skilling, who were also convicted for their roles in the firm’s demise. He was released in 2011 and now works at a law firm in Houston advising clients on potentially damaging accounting and financial issues. Mr Fastow said unclear accounting rules allowed companies to abide by the rules but also misrepresent the financial state of their business at the same time. “Accounting isn’t straightforward – 10 percent is black and white and 90 percent is in the grey area,” he said. “When you’re in the business world, being ethical is a lot harder than you think.” By pointing out the loopholes used by other firms, Mr Fastow stressed that he was not trying to excuse his actions at Enron. “What I did was wrong and it was illegal and for that I’m very sorry, very remorseful – I wish I could undo it,” he said. “But I’m trying to explain how someone who didn’t necessarily set out to commit fraud or do harm, could come to do that and on such a grand scale.” Calling himself the “chief loophole officer”, Mr Fastow said that every deal he did at Enron was approved by its board of directors. “You can follow all the rules and still commit fraud and that’s what I did at Enron,” he said. “Follow the rules – but undermine the principle of the rule by finding the loophole.” The transactions Mr Fastow used to conceal costs from Enron’s financial statements, known as “operating leases”, remains the most common form of structured finance in the US. “There are over $1tn (£658bn) off-the-balance-sheet operating leases in the US,” he claimed. Despite laws being passed and greater scrutiny of corporate balance sheets since Enron collapsed and the financial crisis struck, Mr Fastow said he did not believe that companies were becoming more honest. “There’s an industry of accountants, attorneys, consultants, and bankers that do nothing except figure out ways to get around the rules, to find loopholes,” he said. “By the time a new rule or regulation is codified, the bankers, accountants, attorneys and consultants have figured out ways to structure around those rules.” Hedge funds and private equity firms still called him for advice on what loopholes different companies were using, along with short-sellers who wanted to capitalise on firms that might have hidden troubles. Executives now need to consider the ethical implications of deals and the risks they might pose for the company – something Mr Fastow said he never considered at Enron.
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The U.S. Justice Department renewed its push to charge executives in corporate fraud cases, encouraging companies to come to them early even if they can’t yet identify individual wrongdoers. Deputy Attorney General Sally Quillian Yates clarified the department’s new policy requiring federal investigators to produce charges against individuals during corporate prosecutions in a speech to bankers and compliance officials in Washington. That policy, which Yates announced in September, is now official. “A company won’t be disqualified from receiving cooperation credit simply because it didn’t have all the facts lined up on the first day it began talking with us,” Yates said in remarks at a money laundering enforcement conference in Washington. “Rather, under those circumstances, we expect that cooperating companies will simply continue to turn over the information to the prosecutor as they receive it.” In September, Yates said cooperation had to be “all or nothing” for companies to win credit for working with prosecutors. Her remarks emphasized that the Justice Department doesn’t expect companies to come in with a full accounting of what went wrong and who’s responsible. Under the new policy, the Justice Department will give special weight to whether a company discloses possible wrongdoing early in evaluating whether the company should get any leniency. Companies that cooperate with government investigations may pay less in fines and could avoid charges. The new rule “is exactly how I laid it out two months ago: if a company wants credit for cooperating – any credit at all – it must provide all non-privileged information about individual wrongdoing,” Yates said. “Companies seeking cooperation credit are expected to do investigations that are timely, appropriately thorough and independent and report to the government all relevant facts about all individuals involved, no matter where they fall in the corporate hierarchy.” The policy change is a response to criticism from lawmakers and public-interest groups that the department had relied too much on big-dollar settlements with companies without bringing cases against those responsible for the misconduct. The new policy applies to corporate criminal and civil enforcement investigations nationwide. Decisions not to charge individuals involved in misconduct must be approved by the U.S. attorney or the top Justice Department official overseeing the investigation. Since the policy was announced on Sept. 10, defense lawyers have questioned how it will change the way companies deal with the government. Some raised concerns that businesses may be reluctant to come forward if credit for cooperation becomes too difficult to obtain.
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Federal prosecutors are accusing seven individuals of conspiring to fraudulently charge more than $2 billion to a program set up to help people affected by the 2010 Deepwater Horizon oil spill. In an indictment, the Department of Justice alleged that the defendants submitted false claims on behalf of 40,000 individuals in Alabama, Louisiana, Mississippi and other Gulf states without their consent. The agency also said the defendants stole victims’ identities, using their names, addresses, Social Security numbers and other personal information to create phony legal clients for litigation against BP stemming from the spill. “The defendants in this case are accused of exploiting a disaster relief program set up to help those who were injured or suffered an economic loss as a result of the BP Oil spill – the worst environmental disaster in American history,” Gregory Davis, U.S. Attorney for the Southern District of Mississippi, said in a statement. ‘The indictment alleges that the defendants carried out mail and wire fraud schemes using stolen identities of coastal residents in order to enrich themselves.” Watts, an attorney, is accused of submitting false claims to BP on behalf of plaintiffs he claimed to represent. He was scheduled to appear in court on federal criminal charges, his lawyer said. The other defendants were also expected to appear. Watts’ attorney, Robert McDuff, said he could not discuss specific charges, but they’re related to allegations that Watts committed fraud or forgery when he claimed to represent 44,500 commercial fishing boat deckhands who were suing BP. Watts and his law firm were sued in 2013 by the British oil giant. BP alleged that Watts and his law firm engaged in “brazen fraud.” The lawsuit claimed that more than half of Watts’ clients were not commercial fishermen, were never properly signed up or were dead. BP said claims officials could verify the Social Security numbers of only 42 percent of Watts’ claimants, and one person who had never hired Watts was listed twice. McDuff said Watts believed that he had legitimate clients but was given inaccurate information. A judge put the lawsuit on hold while the criminal investigation unfolded. BP said Watts’ inflated client list made the company inflate its $2.3 billion settlement to pay commercial fishing claims. After the first $1 billion was paid, BP asked U.S. District Judge Carl Barbier in New Orleans to suspend payments from the fund. The judge refused, saying the questionable claims comprised a small percentage of the remaining money. Other lawyers said BP should pursue fraud claims rather than stop payments. Florida, Alabama, Mississippi, Louisiana and Texas in July reached an $18.7 billion settlement with BP over the deadly spill. The April 20, 2010, rig blast killed 11 workers and sent millions of barrels of oil gushing into the Gulf of Mexico for nearly three months on to the shorelines of several states.
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Macquarie Group Ltd. will have to face the fraud and defamation claims of an executive who says the bank ousted him from running Advantage Rent A Car after they teamed up to buy the business from Hertz Global Holdings Inc. Macquarie lost a bid to throw out the lawsuit brought by Sanford Miller, an industry veteran who says the company’s conduct cost him millions of dollars when Advantage collapsed into bankruptcy in 2013, according to a November 17 decision by a New York state court judge. The dispute stems from Hertz’s $2.3 billion acquisition of Dollar Thrifty Automotive Group, a deal that raised concerns among antitrust officials who worried that the combination would raise prices for consumers by cutting the number of major rental-car companies to three from four. To preserve competition and create a viable new player in the industry, the Federal Trade Commission required Hertz to sell Advantage. But the FTC’s plan to keep prices in check stumbled when Advantage filed for bankruptcy. A private-equity firm, Toronto-based Catalyst Capital Group, bought Advantage’s assets out of bankruptcy and decided to operate 40 locations. Hertz bought back 10 locations and Avis Budget Group Inc. purchased 12, according to FTC documents. Hertz said in May that it was raising prices $20 a week at airports and $10 a week in its neighborhood locations. Miller was pushed out after the FTC approved the spinoff, but before the bankruptcy. The FTC’s plan called for Advantage to be sold to Franchise Services of North America Inc., which partnered with Sydney-based Macquarie to acquire the assets. The agency expected Miller, the then co-chief executive officer of Franchise Services, to stay on and run Advantage as CEO, according to its consent decree with Hertz. Macquarie, which received a 49.76 percent stake in Franchise Services, was to finance the company while Miller, a former CEO of Budget, would provide the industry knowledge. Less than a month after the FTC gave preliminary approval to the Advantage spinoff, Franchise Services’ board fired Miller. In a lawsuit filed in federal court in Mississippi, a subsidiary of the company said he was fired for cause, accusing him of misconduct related to use of company funds. That case was settled.
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An investigative audit of Pertamina’s oil trading arm has revealed clear signs of fraud, CEO of the state-owned energy company said, amid an ongoing push to reform Indonesia’s oil sector. Pertamina is in the process of dismantling its trading arm, Petral, which was widely suspected of being a vehicle for graft. The administration of President Joko Widodo hopes a cleanup of Indonesia’s oil and gas sector will improve investment in Southeast Asia’s biggest crude producer after a series of scandals. The Petral audit – conducted by Australian forensic specialist KordaMentha – showed intervention by third parties resulted in Pertamina paying higher prices for fuel and crude imports, CEO Dwi Soetjipto told reporters, without naming any specific countries or companies. The audit also showed that traded volumes had been pre-arranged to limit competition, and that preference had been given to national oil companies, Soetjipto said. “This needs a legal analysis for what steps must be taken next,” he said. The audit, which covered Petral’s operations from January 2012 until May this year, did not show how much had been lost during this period, he said. At the time that the disbanding of Petral was announced in May, Petral officials denied any wrongdoing. Simson Panjaitan, head of finance and general affairs at Petral, said he couldn’t comment on the findings of the audit because he hadn’t seen the report. “We are supposed to get a fair treatment. Let’s see whether what has been reported in the media is correct. Many employees here will suffer because of this accusation if there is no evidence or any follow up,” he told Reuters. Panjaitan said if there were clear signs of corruption that the evidence from KordaMentha should be handed over to Indonesia’s Corruption Eradication Commission (KPK). He said there were currently 45 employees with Petral, including 12 or 13 from Pertamina. Pertamina finance director Arief Budiman said the state-owned parent was continuing to liquidate Petral’s $483 million of assets and verifying $46.6 million in payment claims, mostly from its Singapore-based subsidiary Pertamina Energy Services. The claims related to demurrage, shipments and other trade services, Budiman said, adding that the process of winding down Petral may continue beyond an earlier targeted completion date of April 2016. Energy Minister Sudirman Said said third parties had intervened in Petral’s business by rigging tenders, leaking Petral’s price calculations, and using its equipment. The activity of the unnamed third parties had caused discounts on oil purchases to shrink to around 30 cents from up to $1.50 per barrel, the energy minister said.
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Italy’s antitrust authority launched an investigation into seven companies suspected of passing off lower-quality olive oil as the extra virgin variety prized for its rich flavour and health benefits. Tests by police suggested oil sold as extra virgin by some of Italy’s best-known brands may not meet strict labelling requirements, the authority said in a statement. The probe comes after prosecutors in the northern city of Turin investigated the same companies on suspicion of commercial fraud and false labelling to deceive consumers. Being put under investigation does not imply guilt and does not necessarily lead to charges, but the accusations are a blow to an industry that prides itself on quality. Italy, the world’s second largest producer of olive oil after Spain, exports hundreds of thousands of litres a year, contributing to an overall turnover that agriculture group Coldiretti estimates at 2 billion euros ($2.15 billion). The agriculture ministry has demanded clarity to protect consumers and producers. Three of the brands under investigation are owned by Spanish olive oil giant Deoleo, which said its extra virgin variety passed scientific and taste tests in Italy. Deoleo, which owns the Bertolli, Carapelli and Sasso brands, said it would ask Italian authorities to make counterchecks. Renato Calabrese, director-general of the Pietro Coricelli brand, which is also in investigators’ cross-hairs, rejected the allegations and questioned the science behind them. “The objection is based on a taste test, not chemical or physical analysis,” Calabrese told Reuters, adding that his company ensured its oil was subject to the latter kind of assessment. The probe follows a nightmarish year for Italian olive oil producers, in which groves endured bad weather, a fruit-fly blight and a bacterial disease dubbed “olive tree leprosy”. Drought also reduced the harvest in No. 1 producer Spain, pushing the global olive oil price down to a nearly 10-year high. But trade associations say the outlook is better this year. Italian groups Assitol and Federolio, citing the International Olive Oil Council, say the global harvest currently underway should yield 22 percent more than last year, and Italy should see an almost 60 percent increase. The agriculture ministry said its inspectors confiscated 10 million euros worth of fraudulent olive oil in 2014 in a move not related to the latest investigation.
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Former CEO of $3 Billion TierOne Bank Convicted for Orchestrating Scheme to Hide More than $100 Million in Losses from Shareholders and Regulators
The former CEO of TierOne Bank, a $3 billion publicly traded commercial bank formerly headquartered in Lincoln, Nebraska, was convicted by a federal jury for orchestrating a scheme to defraud TierOne’s shareholders and to mislead regulators by concealing more than $100 million in losses on loans and declining real estate. After a two-week trial, a jury in the District of Nebraska found the former CEO, Gilbert G. Lundstrom, 74, of Lincoln, guilty on 12 of 13 counts, including charges of conspiracy to commit wire fraud and securities fraud, conspiracy to falsify bank entries, wire fraud, securities fraud and falsifying bank entries. In 2014, co-conspirators James Laphen, TierOne’s former president and chief operating officer, and Don Langford, TierOne’s former chief credit officer, pleaded guilty to multiple felonies in connection with their participation in the scheme. Evidence at trial showed that Lundstrom was the architect of an aggressive strategy to expand the bank’s portfolio beyond traditional lending in Nebraska to riskier areas like commercial real estate in Las Vegas. Once the financial crisis hit, Lundstrom’s bet on real estate in riskier areas decimated the bank. Lundstrom and his co-conspirators then intentionally concealed massive losses – more than $100 million – in TierOne’s loan and real estate portfolio from investors and regulators and provided inflated figures in its required reports to the U.S. Securities and Exchange Commission (SEC) and the Office of Thrift Supervision (OTS). In April 2009, Lundstrom and his co-conspirators learned that TierOne needed to increase its reserves and Loan Loss Allowance by between $34 million and $114 million, but concealed this information from shareholders and regulators in TierOne’s financial statements. In addition, during TierOne’s annual shareholder meeting held on May 21, 2009, the evidence showed that Lundstrom misrepresented the state of TierOne’s capital ratios and reserves and whether TierOne had applied for TARP funding. In June 2010, following TierOne’s ultimate disclosure of $120 million in loan losses and its subsequent delisting from the NASDAQ exchange, TierOne was shut down by the Federal Deposit Insurance Corporation. At the time of the closure, TierOne had more than 750 employees working at TierOne’s headquarters in Lincoln and at its 69 branch offices located in Nebraska, Iowa and Kansas.
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A London judge released the Japanese company and its U.K. subsidiary Gyrus Group after the SFO decided not to offer evidence. An appeals court judge ruled earlier that a company isn’t covered under legislation that created the crime of misleading auditors. A lawyer for the SFO said there was “insufficient evidence” for a realistic chance of conviction. “The SFO could not have prosecuted individuals in this case because Japan does not extradite its nationals,” the agency said in a statement. Olympus was thrown into the spotlight in 2011 when then-Chief Executive Officer Michael Woodford blew the whistle on an alleged $1.7 billion accounting fraud lasting 13 years that he discovered two weeks after taking the role. Woodford referred the case to the SFO, which charged the company with making false and misleading statements to auditors between 2010 and 2011. Reports of the attempts to hide losses in mid-October 2011 triggered an 82 percent drop in the company’s shares over the next month. Olympus was also fined 700 million yen ($5.7 million) in Japan and three executives pleaded guilty in 2013 to covering up losses at the maker of endoscopes and cameras.
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Foreign Corrupt Practices Act (FCPA)
One of New York’s most powerful politicians abused his office for more than a decade, orchestrating multimillion-dollar bribery schemes he kept hidden from public view through lies and deception, a U.S. prosecutor told jurors at the close of his corruption trial. Sheldon Silver, who as speaker of the state assembly wielded enormous political influence, collected $4 million in illegal bribes and kickbacks in exchange for official acts, Assistant U.S. Attorney Andrew Goldstein said in New York federal court. “The evidence is in; it is clear and it is overwhelming,” Goldstein said. The defense, which has argued that Silver was simply conducting business as usual, is expected to deliver its closing argument later. Silver’s counterpart in the state Senate, former majority leader Dean Skelos, is himself on trial for corruption in the same Manhattan courthouse, charged with coercing several companies into sending payments to his son Adam in order to secure his support for key legislation. The two trials represent the highest-profile cases in a string of recent prosecutions and ethics scandals that have ensnared dozens of New York lawmakers. Silver, 71, and Skelos, 67, stepped down from their leadership posts after their arrests but have continued to work as legislators, representing lower Manhattan and Long Island, respectively. Under the state’s political system, the assembly speaker and the senate majority leader, together with the governor, comprise the so-called “three men in a room” who exercise virtually unfettered control over the legislative process in Albany. With Preet Bharara, the U.S. Attorney in Manhattan, looking on from the audience, Goldstein said Silver awarded $500,000 in secret state grant money to a cancer researcher, Robert Taub, who in turn referred asbestos patients to Silver’s law firm. Silver received millions of dollars in fees from the firm as a result, Goldstein said. “I will keep giving cases to Shelley because I may need him in the future – he is the most powerful man in New York State,” Taub, who testified under a non-prosecution deal with the government, wrote in one 2010 e-mail. Silver is also charged with accepting $700,000 in kickbacks for steering real estate developers to another law firm, with the understanding that he would adjust laws on rent regulation in their favor. He faces charges of fraud, extortion and money laundering.
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Alstom S.A., a French power and transportation company, was sentenced to pay a $772,290,000 fine to resolve criminal charges related to a widespread corruption scheme involving at least $75 million in secret bribes paid to government officials in countries around the world, including Indonesia, Saudi Arabia, Egypt, the Bahamas and Taiwan. Alstom was sentenced by U.S. District Judge Janet Bond Arterton of the District of Connecticut. Alstom pleaded guilty on December 22, 2014, to a two-count criminal information charging the company with violating the Foreign Corrupt Practices Act (FCPA) by falsifying its books and records and failing to implement adequate internal controls. In addition, Alstom Network Schweiz AG, formerly Alstom Prom AG (Alstom Prom), Alstom’s Swiss subsidiary, which pleaded guilty on December 22, 2014, to a criminal information charging the company with conspiracy to violate the anti-bribery provisions of the FCPA, was also sentenced pursuant to its plea agreement. Alstom Power Inc. and Alstom Grid Inc., formerly Alstom T&D Inc., two U.S. subsidiaries, both entered into deferred prosecution agreements on December 22, 2014, admitting that they conspired to violate the anti-bribery provisions of the FCPA. According to the companies’ admissions, Alstom, Alstom Prom, Alstom Power and Alstom T&D, through various executives and employees, paid bribes to government officials and falsified books and records in connection with power, grid and transportation projects for state-owned entities around the world, including in Indonesia, Egypt, Saudi Arabia, the Bahamas and Taiwan. In Indonesia, for example, Alstom, Alstom Prom and Alstom Power paid bribes to government officials—including a high-ranking member of the Indonesian Parliament and high-ranking members of Perusahaan Listrik Negara, the state-owned electricity company in Indonesia—in exchange for assistance in securing several contracts to provide power-related services valued at approximately $375 million. In total, Alstom paid more than $75 million to secure more than $4 billion in projects around the world, with a profit to the company of approximately $300 million.
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Four Kiwi companies are being investigated by New Zealand’s Serious Fraud Office (SFO) in an anti-corruption purge. The move comes in the wake of the introduction of strict new anti-corruption laws, which will slap tougher penalties on New Zealand businesses if they are caught paying bribes overseas. The SFO received a funding boost this year to tackle corruption cases. Its director, Julie Read, said four investigations were already underway, but would not reveal any details about which firms have been put under the spotlight. But she said the investigations were important in protecting New Zealand’s reputation as one of the least corrupt countries in the world. “We have good relationships with many overseas counterparts that we can call upon to assist us overseas, just as we can assist them in investigations in New Zealand,” Read said. An omnibus bill which passed into law brings New Zealand closer in line with the United Nations and OECD standards. Among the raft of changes in the legislation are harsher sanctions for acts of bribery in business conducted overseas. Individuals can now receive fines on top of up to seven years in prison. Corporations can be hit with an unlimited fine. The SFO – often seen as a white-collar crime watchdog – will also benefit from provisions giving it more power to share information with foreign authorities. Read said that the increase in budget made her confident the SFO had the resources and training to enforce the strengthened laws.
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Litigation Matters
Ernst & Young LLP was found liable by a Washington state jury for the losses of an investment firm from the collapse in 2008 of fraudster Bernard Madoff’s multibillion dollar Ponzi scheme. A jury in Seattle sided with FutureSelect Portfolio Management Inc in finding the auditing firm was negligent in its work for funds that funneled money to Madoff. Steven Thomas, FutureSelect’s lawyer, confirmed the verdict. Ernst & Young did auditing work for funds managed by Tremont Group Holdings Inc’s Rye Investment Management unit. The jury found damages of $20.3 million and found Ernst & Young liable for half of that, Thomas said. Prejudgment interest could bring FutureSelect’s award to $25 million, he said. “This jury found that Ernst & Young’s job was to try to find this fraud,” Thomas said in an interview. “They were the gatekeeper and didn’t do their job.” The trial was the first in which an auditor had been held liable for its role auditing one of Madoff’s so-called feeder funds. Madoff, 77, is serving a 150-year prison term after pleading guilty in 2009 to running a scheme that cost investors an estimated $17 billion or more in principal. Ernst & Young spokeswoman Amy Well said in a statement that the jury rejected the “vast majority” of FutureSelect’s claims. The investment firm had been seeking $112 million. But she said the firm continues to believe it was not responsible for any of these investors losses, and noted it was among many other auditors of funds that used Madoff as their investment advisor. “While we regret the investors’ losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme,” she said. “We are reviewing filing an appeal.” FutureSelect, which first invested with the Rye funds in 1998, sued in 2010, after losing more than $195 million in the Madoff fraud investing with the Rye funds. The lawsuit also named Tremont and an affiliate of OppenheimerFunds Inc, which bought Tremont in 2001. Both settled confidentially.
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Australian law firm files $72-mln class action against Volkswagen
Law firm Maurice Blackburn will launch a class action lawsuit on behalf of Australian owners of scam-tainted Volkswagen AG seeking total damages “well north” of A$100 million ($71.59 million). Volkswagen is embroiled in a global recall scandal, and faces several class action lawsuits, after tests showed that thousands of vehicles had been fitted with devices designed to mask the level of emissions. More than 10,000 Australian owners have already registered for the class action that targets the German parent companies involved in the emissions scam, not just the local subsidiaries, Maurice Blackburn said. “I am extremely disappointed that, because of the company’s deceitful conduct, I’ve now got a car that is emitting dirty diesel,” Audi owner Robyn Richardson told a news conference in Sydney. “I am here to bring them to account for what they’ve done. I’m here to deter other companies from behaving similarly,” said Richardson, one of the lead applicants for the class action in Australia. Maurice Blackburn Principal Jason Geisker said the litigation, on behalf of more than 90,000 car owners, will seek to recover the full cost of the vehicle, plus damages for misleading and deceptive conduct, among others. “VGA assures all its customers that the affected cars are technically safe and the necessary measures will be undertaken at no cost to them,” it said in a statement. “We will do everything we can to fix this problem and regain the trust of our customers.” Volkswagen already faces a handful of shareholder lawsuits, including a securities-fraud class action in Virginia against its U.S. divisions and a planned claim by Dutch investor association VEB on behalf of investors who bought VW stock through a Dutch bank or broker. The company is also battling dozens of class actions accusing it of fraud for selling supposedly low-pollution, high-horsepower, fuel-sipping vehicles that have declined substantially in value since the revelations. Litigation funder Bentham Europe, a joint venture between Australia’s IMF Bentham and U.S. hedge fund Elliott Management on November 5 said it was talking with Volkswagen’s 200 largest investors about filing a lawsuit in Germany, as soon as February, claiming negligence and breach of securities law.
Law firm Maurice Blackburn will launch a class action lawsuit on behalf of Australian owners of scam-tainted Volkswagen AG seeking total damages “well north” of A$100 million ($71.59 million). Volkswagen is embroiled in a global recall scandal, and faces several class action lawsuits, after tests showed that thousands of vehicles had been fitted with devices designed to mask the level of emissions. More than 10,000 Australian owners have already registered for the class action that targets the German parent companies involved in the emissions scam, not just the local subsidiaries, Maurice Blackburn said. “I am extremely disappointed that, because of the company’s deceitful conduct, I’ve now got a car that is emitting dirty diesel,” Audi owner Robyn Richardson told a news conference in Sydney. “I am here to bring them to account for what they’ve done. I’m here to deter other companies from behaving similarly,” said Richardson, one of the lead applicants for the class action in Australia. Maurice Blackburn Principal Jason Geisker said the litigation, on behalf of more than 90,000 car owners, will seek to recover the full cost of the vehicle, plus damages for misleading and deceptive conduct, among others. “VGA assures all its customers that the affected cars are technically safe and the necessary measures will be undertaken at no cost to them,” it said in a statement. “We will do everything we can to fix this problem and regain the trust of our customers.” Volkswagen already faces a handful of shareholder lawsuits, including a securities-fraud class action in Virginia against its U.S. divisions and a planned claim by Dutch investor association VEB on behalf of investors who bought VW stock through a Dutch bank or broker. The company is also battling dozens of class actions accusing it of fraud for selling supposedly low-pollution, high-horsepower, fuel-sipping vehicles that have declined substantially in value since the revelations. Litigation funder Bentham Europe, a joint venture between Australia’s IMF Bentham and U.S. hedge fund Elliott Management on November 5 said it was talking with Volkswagen’s 200 largest investors about filing a lawsuit in Germany, as soon as February, claiming negligence and breach of securities law.
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New York City officials charged 44 people and nine companies with systematically cheating thousands of residential and commercial heating oil customers out of tens of millions of dollars for nearly a decade. Manhattan District Attorney Cyrus Vance told a press conference that the companies would charge customers for more fuel than was delivered using rigged trucks in a practice known as “shorting.” The defendants include company owners and executives, truck drivers and dispatchers. They face charges of grand larceny, fraud, falsifying business records and enterprise corruption, which is similar to racketeering. Indicted companies are F&S Distribution, G&D Petroleum Transportation, G&D Heating Oil, Casanova Fuel Oil, Express Petroleum, 4th Avenue Transport, All-Boro Transportation, Enterprise Transportation and Century Star Fuel. The indictments reference approximately $34 million in wrongful proceeds, although Vance said it was likely the companies had collected far more in illicit profits. In a separate report issued by the city’s Department of Investigation and Business Integrity Commission, officials said widespread fraud within the heating oil industry costs $18 million a year, including $4 million stolen from the city. The buildings shorted of fuel included hundreds of city properties such as schools and police stations, Vance said. Even his own offices were victimized, he said. State and federal prosecutors have brought similar cases in the past. “The heating oil industry in this city is rife with wholesale theft,” said Dan Brownell, head of the Business Integrity Commission, which regulates the city’s wholesale public markets. The investigation, which started with a 2013 tip from a whistleblower, involved wiretaps, surveillance and fuel measuring devices to track theft, Vance said. In some cases, as trucks pumped oil into buildings, drivers would use a magnet to deliver air, rather than fuel, according to the indictments. In other cases, drivers installed a bypass valve that would redirect some oil back into the truck while still charging customers for its delivery. Investigators seized four dozen trucks as part of the probe. Several city and state agencies took part in the investigation.
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Education Management Corp, the country’s second-largest operator of for-profit colleges said it has agreed to pay a record $95.5 million to resolve charges that it used high-pressure sales tactics to mislead students in violation of U.S. law. The settlement is the latest blow for the for-profit education industry, which has suffered from declining enrollment and increased government scrutiny under President Barack Obama. At a press conference in Washington, Obama administration officials said the company signed up as many students as possible to tap billions of dollars in federal student aid but had little interest in whether they completed a degree or found work after graduating. “Instead of caring whether students would be successful, the company only cared about revenue,” Education Secretary Arne Duncan said. U.S. Attorney General Loretta Lynch said the company paid its recruiters based only on how many students they enrolled, a violation of federal law. Student aid accounted for nine out of every 10 dollars in tuition revenue, officials said. The settlement also covered consumer-fraud investigations in 39 states and the District of Columbia. Pittsburgh-based Education Management enrolls more than 100,000 students through online courses and 32 brick-and-mortar campuses as the Art Institutes, Argosy University, Brown-Mackie College and South University. The company did not admit fault under the settlement but agreed to allow the government to monitor its admissions and forgive the debts of some former students. It also agreed to give prospective students a one-page form on facts such as employment prospects and average debt for those who have signed up. Students will be able to get a refund if they drop out shortly after enrolling. “Though we continue to believe the allegations in the cases were without merit, putting these matters behind us returns our focus to educating students,” company President Mark McEachen said in a prepared statement. The figure, the largest false-claims settlement ever reached with a for-profit college, is a fraction of the $11 billion Education Management collected in federal student aid since 2003. That settlement reflects the company’s financial condition and ability to pay, Lynch said. Its stock price has fallen from $28.66 in December 2011 to 7 cents before the agreement was unveiled, and it announced a debt restructuring in April. Rivals have stumbled as well. Corinthian Colleges closed its doors and filed for bankruptcy earlier this year after facing state and federal probes about whether it misled investors and students.
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U.K. prosecutors charged 10 former Deutsche Bank AG and Barclays Plc employees with manipulating a benchmark interest rate, including high-profile trader Christian Bittar, with an 11th facing indictment. Six traders from Deutsche Bank and four from Barclays were charged with conspiracy to manipulate the Euribor benchmark, the Serious Fraud Office said in a statement. The SFO won the first conviction by trial tied to benchmark manipulation in August, when former UBS Group AG trader Tom Hayes was found guilty of rigging the London interbank offered rate and sentenced to 14 years in prison. Banks and other financial institutions have paid about $9 billion in fines tied to Libor and other key rates. One other person has pleaded guilty in the Libor probe. The nine men and one woman are scheduled to appear in a London magistrates court on January 11. Documents distributed in the case have listed an unidentified 11th trader that will be charged, according to people familiar with the matter who declined to be named because the prosecution isn’t public. The charges are the first in the SFO’s investigation of Libor manipulation that relate to its euro counterpart – the Euro interbank offered rate. The agency said more individuals will be prosecuted. The SFO has charged a total of 23 individuals to date. Barclays was the first firm to be fined over Libor rigging in June 2012, with a 290 million-pound ($442 million) penalty from U.S. and U.K. authorities. The London-based lender’s then-CEO Robert Diamond resigned over the scandal as did Chairman Marcus Agius. Deutsche Bank received a record $2.5 billion fine this year and was forced to fire seven employees to settle U.S. and U.K. investigations. The German lender had already fired a number of other employees over the issue. Bittar won a suit against the U.K. Financial Conduct Authority this week over his identification in the Deutsche Bank penalty notice. Bittar claimed the FCA hadn’t sufficiently anonymized him in the sanction report, which meant he should have been given the right to review the allegations before they were published. The FCA is obliged to give a person the chance to respond to a report before it’s made public if they’re identifiable. The regulator is facing claims from at least eight other traders over the issue and has been granted permission to appeal for a ruling on the matter from the U.K. Supreme Court, the highest court in the country.
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China Market
Chinese authorities have uncovered the country’s biggest underground banking case involving transactions totalling more than 410 billion yuan ($64 billion), official media reported, part of a drive to combat illegal capital outflows. The investigation, which started in September and focused on the costal province of Zhejiang, found that dozens of Hong Kong-registered shell companies forged more than 1.3 million fake transactions to transfer money offshore, the official People’s Daily reported. China started cracking down on underground banks in April and has so far uncovered more than 170 cases of money laundering and illegal fund transfers, involving more than 800 billion yuan ($125.34 billion). The cases come as capital outflows reach hundreds of billions of dollars, triggering alarm in some circles. A hundred suspects from eight gangs were detained in the latest case, the official Xinhua News Agency said. The principle suspect used non-resident accounts to facilitate more than 14,000 counterparties for the transfer of billions of yuan offshore, the newspaper said. Twenty-one counterparties’ bank accounts illegally transferred more than 1 billion yuan overseas, the People’s Daily said, adding that the suspect used the inability of some onshore commercial banks to identify non-residential accounts to help his operation. Clients were asked to transfer yuan to domestic accounts and the money was then transferred to non-residential accounts the suspect controlled. Those accounts were then used to buy foreign currency with forged trade transactions, and directly funnelled the cash to offshore banks in Hong Kong and elsewhere, the newspaper said. The People’s Daily said one of the offshore banks used to receive foreign currency was HSBC Holdings. HSBC told Reuters it could not comment on individual cases but it has “zero tolerance” for money laundering. The underground banking operation profited as much as 1.53 million yuan a day, with an average profit of 2 million yuan per month, the newspaper reported citing police. Another suspect registered 12 shell companies in the northwestern province of Ningxia and illegally obtained 38.6 million yuan of export incentives from the local government by using an underground bank to report fictitious trade transactions, the People’s Daily said. Another person illegally obtained more than 20 million yuan in export rebates by partnering with another company to forge purchase contracts and invoices, while purchasing foreign currency from the prime suspect, the newspaper added. China’s economic slowdown and market volatility have sparked a wave of capital outflows this year. Underground banking presents an increasingly complex threat to China’s financial security, encompassing issues from financing for drugs and terrorism to tax fraud, the Ministry of Public Security said earlier this year.
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Xu Xiang, who led Zexi Investment’s ascent to the top of China’s money managers, is known in the country as “hedge fund brother No. 1” and inspired both awe and skepticism among peers for his knack of timing swings in volatile stocks. Xu, the latest target of the government’s crackdown following a $5 trillion summer stock market rout, is facing a probe for alleged insider trading and stock manipulation, according to state media. Xinhua News Agency reported that Xu had been detained by the police. Shanghai police took away computers and other material from Zexi’s office, according to a building management official who asked not to be identified. China is intensifying probes into strategies authorities suspect may have exacerbated the selloff that started in June. Two executives at Yishidun International Trading and the technical director at Huaxin Futures were arrested after a police investigation showed they made 2 billion yuan ($316 million) in “illegal profit,” Xinhua reported, citing the Ministry of Public Security. The managers add to a growing list of executives swept up in a crackdown, including those from the nation’s biggest brokerage, a regulatory official who previously ran the Shanghai and Shenzhen stock exchanges, and a journalist from business magazine Caijing. Agricultural Bank of China Ltd. President Zhang Yun was taken away to assist authorities with an investigation. Zexi occupies half of the ninth floor in the BEA Finance Tower in Shanghai’s Lujiazui financial district. Zexi managed four of China’s top-10 performing hedge funds between June and August, according to Shenzhen Rongzhi Investment Consultant Co. The average return of Zexi’s five stock funds has ranked in China’s top three every year since the firm was founded five years ago, according to the Economic Daily’s web site. Those results earned Xu his “hedge fund brother No. 1” nickname, which conveys admiration. The performance also led to comparisons with Steven A. Cohen, the legendary U.S. hedge fund manager who ran SAC Capital Advisors, said Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong. SAC Capital shut down last year after pleading guilty to securities fraud and paying a record $1.8 billion penalty to U.S. authorities.
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Healthcare Industry
Millennium Health, one of the largest urine drug testing laboratories in the United States, filed for Chapter 11 bankruptcy a month after agreeing a $256 million settlement to resolve federal allegations of health care fraud. The company, formerly Millennium Laboratories, allegedly billed Medicare, Medicaid and other federal healthcare programs for medically unnecessary testing. In court documents filed in Wilmington, Delaware, Millennium said it had already agreed a prepackaged deal that will hand ownership over to its creditors and reduce company debt by more than $1.15 billion. Prepackaged bankruptcies are often approved by a judge in a matter of weeks because creditors have already voted to accept the proposed plan before the case is filed. The U.S. government is its largest unsecured creditor with a $206 million claim. The government will be paid in full, according to court documents. Millennium, founded in 2007 by James Slattery, also faced allegations by the U.S. Justice Department of providing free items to physicians who agreed to refer expensive lab testing business to the San Diego-based company. It asked for court approval of the plan by the end of the year.
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Before the group of East Coast investors arrived late last year, Camarillo pharmacist Russell Reitz had been promoting his modest prescription-filling business as “your local pharmacy.” That abruptly changed when he agreed to sell his pharmacy, in a quiet suburban office park, to the group for $350,000. As he continued as manager, Reitz began finding his store’s name and his national pharmacy license number on an avalanche of prescriptions nationwide. Then a torrent of insurers’ money started flowing to his small shop, R&O Pharmacy — on pace to equal $230 million a year, according to invoices. Reitz now finds himself at the center of the national scandal enveloping Valeant Pharmaceuticals International, the once highflying Wall Street darling that in recent weeks had its stock price almost cut in half. The Canadian company said October 14 that federal investigators were probing its operations, including how it prices and distributes drugs. In the last two months, Reitz has filed papers in two Los Angeles courthouses laying out details of what he and his lawyer call “a massive fraud.” Reitz had agreed to sell his pharmacy to a company created by Philidor Rx Services, a mail-order pharmacy with close ties to Valeant. Valeant became one of the hottest healthcare stocks in recent years by buying other firms’ medicines and then swiftly hiking their prices by as much as 500 percent. Specialty pharmacies such as Philidor are part of a little-known strategy by Valeant and other pharmaceutical companies to sell high-priced drugs that insurers otherwise wouldn’t pay for. Many of Valeant’s expensive brand-name medicines — including Jublia for toenail fungus and Solodyn for acne — are similar to generic medicines available for far less. When patients fill those prescriptions at the pharmacy, insurers often require the druggist to switch to the generic — causing Valeant to lose the sale. To get around that blockade, Valeant has been distributing coupons on the Internet and to doctor’s offices across the country that allow patients to lower or even avoid a co-pay — if they ordered the drugs through Philidor. Until Reitz’s court filings, including a lawsuit he filed October 6 in U.S. District Court in Los Angeles, few people knew about Valeant’s close ties to Philidor, even though the mail-order pharmacy was increasingly crucial to its bottom line.
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A small cadre of employees at Valeant Pharmaceuticals International were deeply involved in directing the daily operations of a specialty pharmacy that has drawn scrutiny for its billing practices, according to four former employees at the pharmacy and company documents reviewed by Reuters. The Valeant employees worked with the founders of the pharmacy, Philidor Rx Services, to set up the business in 2013 and expand its operations, three of the former employees said. The Valeant employees then remained closely involved in details of running the pharmacy. At different points in the company’s evolution, their roles included interviewing job applicants and involvement with billing. And the most senior of the Valeant employees, Gary Tanner, traveled frequently between Philidor’s offices in Pennsylvania and Arizona and Valeant’s U.S. headquarters in New Jersey, three of the former employees said. Valeant first disclosed its ties to Philidor late last month, and concerns over the pharmacy’s tactics to get insurers to pay for Valeant medications have helped push the drugmaker’s shares more than 50 percent lower. The new accounts of former Philidor employees and two e-mails provided by one of them raise questions about the degree to which Valeant was aware of the specialty pharmacy’s methods. For example, two Valeant employees were copied on a November 2014 e-mail with an attachment explaining how Philidor employees could bill the highest amount an insurance company was willing to pay by resubmitting rejected claims at different price points. The e-mail was sent to Tanner and a colleague, Bijal Patel, who both used pseudonyms for their communications within Philidor, the former employees said. Two of the former employees said they were sometimes told by their supervisors, also Philidor employees, to change prescriptions from doctors to allow the pharmacy to dispense a Valeant drug instead of a cheaper generic version. Altering a physician’s script to bill a payer for a more expensive drug could fall afoul of some federal and state laws designed to curtail insurance fraud and could also violate regulations established by state boards of pharmacy, according to Nicole Hughes Waid, an attorney at FisherBroyles LLP. Reuters also reported that employees responsible for billing insurers were told to resubmit claims rejected by a major U.S. pharmacy benefits manager by using the billing identification numbers of other pharmacies. That practice might violate state pharmacy laws if it were not clear which pharmacy was actually dispensing the drug. In October, Valeant told investors it had not invested or lent money to Philidor and said it did not “own or control” the pharmacy, though it did pay $100 million for an option to purchase it. The former Philidor employees identified Gary Tanner as a key figure in the pharmacy’s operations. Tanner joined Valeant in 2012, when the drugmaker bought his employer, Medicis Pharmaceutical Corp, a maker of dermatology products, including acne medications Solodyn and Ziana. Valeant has said its interest in working closely with a specialty pharmacy to make its drugs available to patients was based on a pilot program run by Medicis before it was acquired. Tanner and several other Medicis employees retained by Valeant, including Bijal Patel and Alison Pritchet, had been responsible for building relationships with specialty pharmacies for Medicis prior to its purchase. After Valeant took over, all three collaborated with Andy Davenport, who headed a marketing firm that did work for Medicis, to establish Philidor. Davenport is currently Philidor’s CEO.
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Twenty-eight people from the Dallas-Fort Worth area, including doctors and federal employees, have been charged in a scheme that defrauded the worker compensation program and cost the U.S. government $8.7 million, federal prosecutors said. All 28, who faces charges including bribery and conspiracy, have signed agreements indicating their intent to plead guilty, said John Parker, U.S. attorney for the Northern District of Texas. It was not immediately clear what charges the defendants had agreed to plead guilty to. Others could also be charged in a scheme that involved bribery by a public official, unnecessary medical treatment, fraudulent billing and falsifying medical documents, Parker said. The defendants also include medical professionals, a senior claims examiner in the U.S. Department of Labor and 21 people who said they suffered on-the-job injuries that prevented them from returning to work, Parker said. The defendants are accused of billing the Labor Department’s Office of Worker Compensation Programs more than $9.5 million and collecting $8.7 million in claims, he said. They face from one to 15 years in federal prison. The charges resulted from a two-year investigation by special agents with the U.S. Postal Service and the Department of Labor. “Their dogged determination and skilled investigative techniques were crucial in exposing and dissecting this sprawling corruption scheme,” Parker said. According to prosecutors, the scheme began when former and current federal postal and Veterans Affairs employees claimed their injuries prevented them from working. Under worker compensation rules, injured workers could receive 66 to 75 percent of their wages tax-free or possibly a lump-sum payment if a doctor deemed the injury required treatment or prevented the employee from working. The scheme involved cooperation among the employees, medical professionals and federal claims examiners who benefited from government payouts and bribes, federal authorities said. Breaking up the operation will prevent $11 million in future payments for claims, authorities said.
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The University of Florida (UF) has agreed to pay the United States $19.875 million to settle allegations that the university improperly charged the U.S. Department of Health and Human Services (HHS) for salary and administrative costs on hundreds of federal grants, the Department of Justice announced. The grants in question were administered from the UF campuses in Gainesville and Jacksonville, Florida. The University of Florida receives millions of dollars in grant funding from HHS on hundreds of grants each year. The settlement announced resolves the alleged misuse of grant funds awarded by HHS to UF between 2005 and December 2010. The United States contended that the university overcharged hundreds of grants for the salary costs of its employees, where it did not have documentation to support the level of effort claimed on the grants for those employees. The government also contended that UF charged some of these grants for administrative costs for equipment and supplies when those items should not have been directly charged to the grants under federal regulations. Lastly, UF allegedly inflated costs charged to HHS grants awarded at its Jacksonville campus for services performed by an affiliated entity, Jacksonville Healthcare Inc. 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 the Attorney General and the Secretary of Health and Human Services. 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 $26.5 billion through False Claims Act cases, with more than $16.7 billion of that amount recovered in cases involving fraud against federal health care programs.
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SEC Charges Pump-and-Dump in Marley Coffee Stock
The Securities and Exchange Commission announced fraud charges against several alleged perpetrators behind a $78 million pump-and-dump scheme involving the stock of Jammin’ Java, a company that operates as Marley Coffee and uses trademarks of late reggae artist Bob Marley to sell coffee products. The SEC alleges that Jammin Java’s former CEO Shane Whittle orchestrated the scheme with three others who live abroad and operate entities offshore. Whittle utilized a reverse merger to secretly gain control of millions of Jammin Java shares, and he spread the stock to the offshore entities controlled by Wayne Weaver of the UK and Canada, Michael Sun of India, and René Berlinger of Switzerland. The shares were later dumped on the unsuspecting public after the stock price soared following fraudulent promotional campaigns. Charged with fraudulently promoting Jammin’ Java stock to investors are British twin brothers Alexander Hunter and Thomas Hunter, who were previously charged in a separate SEC case for touting multiple penny stocks using a fake stock picking robot. Others charged in the SEC’s complaint with facilitating the illegal offering through their offshore entities are UK citizens Stephen Wheatley and Kevin Miller and Oman resident Mohammed Al-Barwani. “As alleged in our complaint, the defendants made millions of dollars in illicit profits at the expense of the investing public and attempted to conceal their misconduct through complex offshore networks that were revealed in our investigation,” said David Glockner, Director of the SEC’s Chicago Regional Office. According to the SEC’s complaint filed in U.S. District Court for the Central District of California. Whittle, a stock promoter, befriended the son of Bob Marley in Los Angeles. After learning of Marley’s purchase of a small Jamaican coffee farm, Whittle proposed the creation of a large-scale coffee distribution business built on the Marley name. To raise capital for the Marley venture, Whittle identified publicly-traded shell company Global Electronic Recovery Corp. (GERC), which was a purported waste management business in Los Angeles. He executed a reverse merger between GERC and Marley Coffee, which later became Jammin’ Java and trades under the ticker symbol JAMN. In connection with the reverse merger, Whittle secretly gained control of millions of shares that previously had been issued to foreign nominees. Using his access and control of Jammin’ Java and its stock, Whittle and others coordinated an illegal offering and the fraudulent promotion of Jammin’ Java’s stock in a pump-and-dump scheme that culminated in the middle of 2011.
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The Securities and Exchange Commission announced it has voted to propose rules to enhance operational transparency and regulatory oversight of alternative trading systems (ATSs) that trade stocks listed on a national securities exchange (NMS stocks), including “dark pools.” “Investors and other market participants need more and better information about how alternative trading systems work,” said SEC Chair Mary Jo White. “The proposed changes would represent a critical step forward in delivering greater transparency to investors and enhancing equity market structure.” The proposal would require an NMS stock ATS to file detailed disclosures on newly proposed Form ATS-N about its operations and the activities of its broker-dealer operator and its affiliates. These disclosures would include information regarding trading by the broker-dealer operator and its affiliates on the ATS, the types of orders and market data used on the ATS, and the ATS’ execution and priority procedures. In addition, the proposal would make Form ATS-N disclosures publicly available on the Commission’s web site, which could allow market participants to better evaluate whether to do business with an ATS, as well as to be better informed when evaluating order handling decisions made by their broker. The proposals also would provide a process for the Commission to qualify NMS stock ATSs for the exemption under which they operate and to review disclosures made on Form ATS-N. This would provide a process for the Commission to declare Form ATS-N filings effective or ineffective, as well as provide a process to review amendments. The proposed processes would enhance the Commission’s ongoing oversight of NMS stock ATSs.
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The Securities and Exchange Commission adopted final rules to permit companies to offer and sell securities through crowdfunding. The Commission also voted to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings. The new rules and proposed amendments are designed to assist smaller companies with capital formation and provide investors with additional protections. Crowdfunding is an evolving method of raising capital that has been used to raise funds through the Internet for a variety of projects. Title III of the JOBS Act created a federal exemption under the securities laws so that this type of funding method can be used to offer and sell securities. “There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need,” said SEC Chair Mary Jo White. “With these rules, the Commission has completed all of the major rulemaking mandated under the JOBS Act.” The final rules, Regulation Crowdfunding, permit individuals to invest in securities-based crowdfunding transactions subject to certain investment limits. The rules also limit the amount of money an issuer can raise using the crowdfunding exemption, impose disclosure requirements on issuers for certain information about their business and securities offering, and create a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions. The new crowdfunding rules and forms will be effective 180 days after they are published in the Federal Register. The forms enabling funding portals to register with the Commission will be effective January 29, 2016. The Commission also proposed amendments to existing Securities Act Rule 147 to modernize the rule for intrastate offerings to further facilitate capital formation, including through intrastate crowdfunding provisions. The proposal also would amend Securities Act Rule 504 to increase the aggregate amount of money that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection.
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Archived Forensic News
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