U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20092 / April 25, 2007 SEC v. Starcash, Inc., et al., Case No. 02-80456-CIV-MIDDLEBROOKS (S.D. Fla., filed May 16, 2002) The Securities and Exchange Commission (Commission) announced that on April 12, 2007, a federal Grand Jury in the Southern District of Florida indicted Jeanne B. Leclercq and Frederick J. Shapiro on multiple counts of mail fraud, wire fraud, money laundering, and conspiracy to commit mail and wire fraud. Leclercq is the former president and chief executive officer, and Shapiro, the former chief financial officer, of Starcash, Inc. (Starcash), a now defunct company that was purportedly in the business of making payday advance loans. The indictments stem from Leclercq and Shapiro's role in a scheme in which they and Starcash fraudulently raised more than $8.3 million from investors nationwide. Leclercq and Shapiro were both arrested.
According to the indictment, Leclercq and Shapiro, through telephone calls, faxes, e-mails, and in promotional materials, solicited investors to provide money to Starcash. The indictment alleges that the materials explained to investors that their money would be used to allow Starcash to fund current payday advance loans and to purchase additional loans on behalf of investors. The indictment also alleges that investors were led to believe that their investments was secured by "accounts receivable" checks of the payday loans, and that investor dollars would come into a trust account and be accessed only for funding advances and earning fees. In fact, according to the indictment, the Starcash investments were not secured and only a very small percentage of investor funds were used to fund payday loans. Instead, the indictment charges that the majority of investor funds were used to pay substantial commissions to Starcash's sales agents; to make "dividend" payments to other investors; and to fund a luxurious lifestyle for Leclercq and Shapiro and their friends and family members. The indictment also charges that Starcash's promotional materials did not disclose that six states and one Canadian province had issued cease and desist order prohibiting Starcash from continuing to raise money in those jurisdictions.
On March 16, 2002, the Commission filed an emergency civil injunctive action in the United States District Court for the Southern District of Florida against Starcash, Leclercq, and Shapiro, among others, and obtained a temporary restraining order, an asset freeze and an appointment of a receiver against them. On September 23, 2002, the Commission obtained orders of permanent injunction against Leclercq and Shapiro, pursuant to their consents and without admitting or denying the Commission's allegations, based on their violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On October 29, 2003, the Commission obtained final judgments setting disgorgement and imposing civil penalties against Leclercq and Shapiro.
The indictments against Leclercq and Shapiro were derived from the same activity that led to Commission's filing of its emergency civil injunctive action against them.
For additional information, see Litigation Release Nos. 17526 (May 21, 2002), 17751 (September 26, 2002), 17805 (October 24, 2002), and 18457 (November 14, 2003).
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20091 / April 25, 2007 Accounting and Auditing Enforcement Release No. 2601 / April 25, 2007 SEC v. Merle D. Lewis, (United States District Court for the District of South Dakota, Civil Action No. 07 - 4057) SEC v. Richard R. Hylland, (United States District Court for the District of South Dakota, Civil Action No. 07 - 4058) SEC v. Kipp D. Orme, (United States District Court for the District of South Dakota, Civil Action No. 07 - 4060) SEC v. Kurt D. Whitesel, (United States District Court for the District of South Dakota, Civil Action No. 07 - 4059) SEC Charges Four Former Officers of NorthWestern Corporation with Financial and Disclosure Fraud The Securities and Exchange Commission today filed separate complaints against four former officers of NorthWestern Corporation ("NorthWestern"), a Midwestern utility company headquartered in South Dakota. The Commission's complaints, each filed in the United States District Court for the District of South Dakota, allege that Merle D. Lewis, NorthWestern's former chief executive officer; Richard R. Hylland, NorthWestern's former chief operating officer; Kipp D. Orme, NorthWestern's former chief financial officer; and Kurt D. Whitesel, NorthWestern's former controller; overstated the performance of NorthWestern and its key telecommunications subsidiary, Expanets, Inc. ("Expanets"), in 2002 during the same period that NorthWestern completed securities offerings totaling more than $800 million. The Commission's complaints further allege that, after restating its financial results for the first three quarters of 2002, and disclosing Expanets' true financial position and results of operations, NorthWestern declared bankruptcy in 2003.
The Commission alleges that, in NorthWestern's quarterly filings, debt and equity offering filings, and other public information, these four defendants were responsible for overstating performance and concealing problems at Expanets and NorthWestern. The Commission alleges that each defendant knew or was reckless in not knowing about the inaccuracy of NorthWestern's public claims that Expanets' new computer system was "operational" or "fully operational." The Commission further alleges that each defendant knew or was reckless in not knowing that Expanets had failed to take appropriate charges for uncollectible accounts receivable and billing adjustments related to the computer system problems, resulting in the overstatement of NorthWestern's income from continuing operations by 90% in the second quarter of 2002 and 109% in the third quarter of 2002. The Commission also alleges that each defendant was responsible for NorthWestern's failure to disclose that a material portion of Expanets' and NorthWestern's income was derived from the reduction of various accounting reserves and through Expanets' receipt of unusual non-compete payments. Finally, the Commission alleges that each defendant was responsible for NorthWestern's failure to disclose significant intercompany cash advances to its subsidiaries during the first half of 2002, which impacted the company's liquidity position and demonstrated the subsidiaries' continuing financial difficulties.
The Commission's complaints charge Lewis, Hylland, Orme and Whitesel with violations of Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaints also charge each defendant with violating Exchange Act Rule 13b2-1, and with aiding and abetting NorthWestern's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. The complaints further charge Lewis, Hylland and Whitesel with violating Section 13(b)(5) of the Exchange Act, and charge Lewis, Orme and Whitesel with violating Exchange Act Rule 13b2-2. The Commission seeks permanent injunctions, civil penalties and officer and director bars against each defendant.
Lewis, Hylland, Orme and Whitesel, without admitting or denying the allegations in the Commission's complaints, each consented to the entry of a final judgment permanently enjoining him from violating or aiding and abetting violations of the provisions he allegedly violated, and to a five-year officer and director bar. Lewis and Hylland each consented to pay $150,000 in civil penalties, Orme consented to pay a $100,000 civil penalty, and Whitesel consented to pay a $25,000 civil penalty.
For additional information on related Commission actions, see Sec. Exch. Act Rel. No. 34-55416 (March 7, 2007).
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20090 / April 25, 2007 SEC v. Platinum Capital Advocates, Inc., Platinum Capital Advocates Elite, Inc., Stephen P. Amella, Andre Hayden, and Strategic Management Alliance, Inc., Civil Action No. 07CV0985 (N.D. Ill.) (Holderman, J.) The Securities and Exchange Commission ("Commission") announced that on April 13, 2007, the Clerk of the United States District Court for the Northern District of Illinois distributed $1,228,828.68 to investors who were the subject of the Commission's Complaint in the above referenced case. On February 21, 2007, the Commission filed a Complaint alleging that from October 2006 through February 2007, Stephen P. Amella and Andre Hayden, through Platinum Capital Advocates, Inc. ("PCA"), Platinum Capital Advocates Elite, Inc. ("PCA Elite") and Strategic Management Alliance, Inc. ("SMA"), raised approximately $1.3 million from 27 investors in four states in violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Complaint alleged that the Defendants made misrepresentations in the offer and sale and the purchase and sale of preferred stock of PCA and PCA Elite. The Defendants consented to the entry of a Temporary Restraining Order and Asset Freeze and an Order of Preliminary Injunction after the Commission filed its Complaint. The Defendants, without admitting or denying the allegations of the Commission's Complaint, subsequently consented to the entry of Orders of Permanent Injunction enjoining them from further violations of the antifraud provisions of the federal securities laws, which were entered on March 8, 2007. On March 27, 2007, the Court, pursuant to Defendants' consent, entered an Order which required that Defendants, jointly and severally, pay disgorgement in the amount of $1.29 million, the amount that they raised from the investors in the securities that were the subject of the Commission's Complaint, and that the funds frozen in the bank and brokerage accounts of PCA, PCA Elite and SMA be turned over to the Clerk of the Court, with a plan of distribution to be proposed. On April 13, 2007, $1,228,828.68 was returned to investors pursuant to a plan of distribution approved by the Court. Through such distribution, the investors each received approximately 97% of their net investments.
For additional information see Litigation Release No. 20016.
LR-20089 Apr. 25, 2007 Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants Other Release No.: AAER-2600 http://www.sec.gov/litigation/litreleases/2007/lr20089.htm
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20089 / April 25, 2007 Accounting and Auditing Enforcement Release No. 2600 / April 25, 2007 SEC v. Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants, Civil Action No. 00-2873 (D.N.J. filed June 14, 2000) SEC Settles With Former Cendant Corporation Accounting Executive for Role in Cendant Financial Fraud The U.S. Securities and Exchange Commission (Commission) today announced that it had submitted to the U.S. District Court for the District of New Jersey for filing a proposed settled Final Judgment as to Defendant Anne M. Pember and Relief Defendant Carleton H. Pember IV, in the Commission's previously filed civil injunctive action against Anne M. Pember (Pember) and others, Securities and Exchange Commission v. Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants, Civil Action No. 00-2873 (D.N.J). The Commission filed its injunctive action on June 14, 2000. The Commission's complaint in that action alleged that for several years the management of CUC International Inc. (CUC) operated a fraudulent scheme that added hundreds of millions of dollars to the reported operating income of CUC and, subsequently, of its corporate successor, Cendant Corporation (Cendant). On July 25, 2000, the Commission amended its complaint and, among other things, named Pember's spouse, Carleton H. Pember IV, as a relief defendant.
The proposed final judgment would permanently enjoin Pember from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, 13b2-2, and 14a-9. The proposed final judgment also would bar Pember, pursuant to Section 21(d)(2) of the Exchange Act, from serving as an officer or director of a public company and would order her to provide written notification to the successor corporate entities of Cendant that she unconditionally and irrevocably consents to the immediate cancellation and termination of all her existing options to purchase common stock in those successor entities. Finally, the proposed final judgment would order Pember and Carleton Pember to pay disgorgement in the aggregate amount of $100,000. Pember and Carleton Pember each consented to the entry of the proposed final judgment, without admitting or denying the allegations of the Commission's amended complaint.
From 1989 to 1997, Pember was Controller of CUC's largest division, the Comp-U-Card division. Beginning in June 1997, she became CUC's Controller and continued in that position until the December 1997 merger of CUC and HFS Incorporated. That merger formed Cendant. From the time of the merger until March 1998, she was part of the management of the accounting unit at Cendant Membership Services, the post-merger name for the former CUC business units. The Commission's amended complaint alleged that, while in those positions, Pember played an important role in the CUC/Cendant financial fraud.
As part of the settlement, Pember agreed to settle a proposed administrative proceeding against her pursuant to Rule 102(e) of the Commission's Rules of Practice, to be based on the entry of the proposed injunction. Pursuant to her offer, Pember would consent to the issuance of a Commission order permanently suspending her from appearing or practicing before the Commission as an accountant, without admitting or denying the findings set forth therein.
Finally, the Commission noted that the Office of the U.S. Attorney for the District of New Jersey has announced that, on January 29, 2007, in her related criminal prosecution, Pember was sentenced to two years probation and 200 hours of community service. The Office stated that, during her sentencing, the U.S. District Judge noted Pember's cooperation in the government prosecution of the former Chairman and Vice Chairman of Cendant.
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