Government Enforcement Actions

May 3, 2016

A resident of Bowie, Maryland, was sentenced to four years in prison after pleading guilty in January for his involvement in a far-reaching identity theft and tax fraud scheme in which he assisted in the filing of fraudulent federal income tax returns seeking more than $4.4 million in refunds. Marc A. Bell, 49, a former employee of the District of Columbia’s Department of Youth Rehabilitation Services (DYRS), admitted taking part in a massive and sophisticated identity theft and false tax return scheme that involved an extensive network of more than 130 people, many of whom were receiving public assistance. According to court documents, the scheme involved the filing of at least 12,000 fraudulent federal income tax returns that sought refunds of at least $42 million from the U.S. Treasury. DOJ

April 29, 2016

Accounting firm Santos, Postal & Co. P.C. and one of its partners, Joseph Scolaro, will pay collectively about $59,000 to settle charges that they conducted deficient surprise custody examinations of SFX Financial Advisory Management Enterprises and did not adequately consider fraud risk factors.  Santos Postal was hired to conduct surprise examinations of client assets at investment advisor SFX Financial.  The SEC charged that Santos Postal performed inadequately as SFX’s president secretly stole money from accounts belonging to professional athletes.  SEC

April 19, 2016

Three former executives at battery manufacturer Ener1 will pay collective penalties of $180,000 to settle allegations of materially overstating revenues and assets.  The financial misstatements stemmed from management’s failure to impair investments and receivables related to an electric car manufacturer that was one of its largest customers.  In addition, the SEC found that Robert Hesselgesser, the engagement partner for PricewaterhouseCoopers’ audit of Ener1’s 2010 financial statements, violated PCAOB and professional auditing standards.  Hesselgesser agreed to be suspended from practicing before the SEC as an accountant.  SEC

April 19, 2016

Technology manufacturer Logitech International will pay a $7.5 million penalty for fraudulently inflating its fiscal year 2011 financial results to meet earnings guidance and committing other accounting-related violations during a five-year period.  Logitech’s then-controller and then-director of accounting will pay collective penalties of $75,000 for violations related to Logitech’s warranty accrual accounting and failure to amortize intangibles from an earlier acquisition.  The SEC also filed a complaint in federal court against Logitech’s then-CFO and then-acting controller alleging that they deliberately minimized the write-down of millions of dollars of excess components parts for a product for which Logitech had excess inventory.  SEC

April 15, 2016

The SEC announced fraud charges against James Catipay and David Aldrich for allegedly raising $11.7 million from approximately 250 investors, many of them retirees, for their Los Angeles-based litigation marketing company, PLCMGMT LLC (a/k/a PLC or Prometheus Law).  Investors were told their money would be used to help gather plaintiffs for class-action and other lawsuits and they would earn hefty investment returns from settlement proceeds.  Instead, the SEC alleges that Catipay and Aldrich diverted millions of dollars for their personal use while failing to deliver the promised 100 to 300 percent returns to investors.  SEC

April 14, 2016

The SEC announced fraud charges and an asset freeze against Vermont-based ski resort Jay Peak, Inc. and related businesses for allegedly misusing millions of dollars raised through investments solicited under the EB-5 immigrant investor program.  The SEC alleges that Ariel Quiros of Miami, William Stenger of Newport, Vermont, and their companies, made false statements and omitted key information while raising more than $350 million from investors to construct ski resort facilities and a biomedical research facility in Vermont.  Investors were told their money would be used to finance a specific project connected to Jay Peak.  Instead, in Ponzi-like fashion, money from investors in later projects was misappropriated to fund deficits in earlier projects.  More than $200 million was allegedly used for other-than-stated purposes, including $50 million spent on Quiros’ personal expenses and in other undisclosed ways.  SEC

April 14, 2016

The SEC announced fraud charges against the town of Ramapo, New York, the town’s local development corporation, and four town officials.  The SEC alleges that Ramapo officials resorted to fraud to hide the strain in the town’s finances caused by the approximately $60 million cost to build a baseball stadium as well as the town’s declining sales and property tax revenues.  They cooked the books of the town’s primary operating fund to falsely depict positive balances of between $1.4 million and $4.2 million during a six-year period when the town had actually accumulated balance deficits as high as nearly $14 million.  In addition, because the stadium bonds issued by the Ramapo Local Development Corp (RLDC) were guaranteed by the town, certain officials masked an operating revenue shortfall at the RLDC such that investors were unaware the town would likely need to subsidize those bond payments and further deplete the general fund.  SEC

April 13, 2016

The SEC announced insider trading charges against John Ayfriyie, a research analyst who learned about the impending acquisition of home security company The ADT Corporation by Apollo Group Management.  The SEC alleges that Ayfriyie accessed several highly confidential, deal-related documents on his firm’s computer network and purchased thousands of high-risk, out-of-the-money ADT call options in his mother’s investment account, in anticipation that ADT’s stock price would rise when the transaction was publicly announced.  In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Ayfriyie.  SEC

April 11, 2016

The SEC announced fraud charges against Texas-based technology company Servergy Inc. and its founder and former CEO William Mapp III for boosting company stock sales with false claims about a supposedly revolutionary computer server and purported purchases by big-name companies.  The SEC alleges that Servergy and Mapp sold $26 million worth of stock in private offerings while misleading investors to believe that the “Cleantech CTS-1000” server (the company’s sole product) was especially energy efficient and would compete directly with top server makers like IBM, Dell, and Hewlett Packard.  In fact, 32-bit processors like the CTS-1000 were being phased out of the industry and could not compete with the high-performance 64-bit processors being produced by competitors.  In addition, the SEC alleges that when Servergy was low on operating funds, Mapp enticed prospective investors to purchase by falsely claiming well-known companies, such as Amazon, had placed orders for the servers.  In fact, an Amazon employee had merely contacted Servergy about testing the product for his personal use.  Servergy will pay $200,000 to settle the SEC’s charges.  The litigation against Mapp continues in the Eastern District of Texas.  Also charged in the SEC’s complaint is Texas Attorney General Ken Paxton and a former member of Servergy’s board of director, Caleb White.  The SEC alleges that Paxton and White recruited investors for Servergy while hiding that they were being compensated to promote the company’s stock.  White will pay $66,000 to settle the charges.  SEC

April 7, 2016

Resort company Las Vegas Sands Corp. (LVS) will pay $9 million to settle charges of violating the Foreign Corrupt Practices Act (FCPA).  An SEC investigation found that LVS kept inaccurate books and records and frequently lacked supporting documentation or proper approvals for more than $62 million in payments to a consultant in Asia.  The consultant acted as an intermediary to obscure the company’s role in certain business transactions, such as the purchase of a basketball team to play in the Chinese Basketball Association (which does not permit gaming companies to own team) or the purchase of a building in Beijing from a state-owned company (where casino gambling is not permitted).  SEC