U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20096 / April 30, 2007 Accounting and Auditing Enforcement Release No. 2603 / April 30, 2007 SEC v. Richard D. Power, Edward Federman, and Richard J. "Skip" Heger, Civil Action No. 06-15343 (RWS) (S.D.N.Y. filed December 21, 2006) SEC Settles With Former Tyco Executive for Role in Accounting Fraud The U.S. Securities and Exchange Commission today announced that it had submitted to the United States District Court for the Southern District of New York a proposed settled Final Judgment as to Defendant Edward Federman, in the Commission's previously filed civil injunctive action against Federman and two other former executives of Tyco International Ltd., U.S. Securities and Exchange Commission v. Richard D. Power, Edward Federman, and Richard J. "Skip" Heger, Civil Action No. 06-15343 (RWS) (S.D.N.Y. filed December 21, 2006). The proposed settlement is based on the allegations in the Commission's complaint concerning Federman's involvement in fraudulent accounting practices at Tyco in violation of the federal securities laws.
Without admitting or denying the allegations in the Commission's complaint, Federman consented to the entry of a final judgment that would permanently enjoin him from violating Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 and from aiding and abetting violations of Sections 10(b), 13(a), and 13(b)(2)(a) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-13. The proposed final judgment would also order Federman to pay disgorgement in the amount of $1,651,064, plus prejudgment interest thereon in the amount of $799,693.10, and a civil penalty in the amount of $200,000. Finally, pursuant to the proposed final judgment, Federman would be barred from serving as an officer or director of a public company for a period of five years.
Edward Federman joined Tyco in 1983 as Assistant Corporate Controller. From February 1998 through April 1999, Federman was the Controller and Vice President of Finance at Tyco. From 1999 until his resignation in January 2001, Federman was the Executive Vice President and Chief Financial Officer of Tyco's Electronics division.
The Commission's complaint alleges that Federman and his co-defendants inflated Tyco's publicly reported operating income and cash flow through the use of a sham "dealer connection fee" transaction utilized in Tyco's ADT Security Services, Inc. subsidiary from 1997 through 2002. During the period when Federman served as Corporate Controller, Tyco's independent accountant raised concerns about the transaction. In response to those concerns, Federman successfully defended and repackaged the sham transaction to better conceal its fraudulent nature. As a result, from Tyco's fiscal year ended September 30, 1998, through its fiscal quarter ended December 30, 2002, the dealer connection fee transaction improperly inflated Tyco's operating income and cash flow by hundreds of millions of dollars. The complaint further alleges that Federman assisted the inflation of Tyco's operating income by means of improper acquisition accounting and the misuse of accounting reserves. In one such instance, after Tyco's fiscal 1998 year-end books had been closed, Federman directed the reversal of reserves to offset a previously unanticipated $40 million compensation expense.
Pursuant to the proposed final judgment, the disgorgement, prejudgment interest, and penalty would be paid into a court account, pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002, for possible ultimate distribution to victims of the fraud.
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20097 / April 30, 2007 SEC v. Stephen Luskco, Gregory Neu, Justin Medlin, Emerging Holdings, Inc., Massclick, Inc., and China Score, Inc., Case No. SACV 07-2783 DDP (AGRx) (C.D. Cal.) SEC Charges Three in Pump and Dump Price Manipulation Scheme Involving Spam E-Mails Touting Penny Stocks The Securities and Exchange Commission ("Commission") on Friday, April 27, 2007, filed civil securities fraud charges against three individuals and three penny stock issuers for engaging in a "pump and dump" market manipulation scheme involving spam emails that netted the defendants $6.5 million.
Named as defendants were Stephen Luscko, age 39, of Sarasota, Florida; Gregory Neu, age 30 of Miami, Florida; and Justin Medlin, age 24, last known to be of San Diego, California. The three penny stock issuers named in the complaint were Emerging Holdings, Inc., Massclick, Inc., and China Score, Inc. The complaint also named Lyons Checkshop, Inc., Tyson Su, and Marc Primo Pulisci as relief defendants based on their receipt of proceeds from the fraudulent scheme.
The Commission's complaint, filed in U.S. District Court in Los Angeles, alleges that, between March and August 2004, the defendants artificially inflated the stock price and trading volume of certain companies whose stock traded on the over-the-counter market. The complaint alleges that defendants Luscko and Neu formed four companies, including defendants Emerging Holdings, Massclick and China Score, as well as another entity that is now defunct, and then recruited friends and business associates to act as company officers. According to the complaint, Luscko and Neu arranged for these companies to transfer millions of shares of stock to their own or their friends' brokerage accounts in a series of sham transactions designed to bypass Commission regulations that required the shares to be restricted from being resold into the open market. The complaint also alleges that Luscko and Neu drafted false and misleading spam e-mails that were edited by defendant Medlin. Further, the complaint alleges that Medlin embarked on a weekend spam e-mail campaign, bombarding the investing public with millions of spam e-mails that generated significant investor interest and resulted in rapid increases in the companies' stock price and volume. The Commission further alleges that, having "pumped" up the companies' stock prices, Luscko and Neu then, directly or through their friends, "dumped" their shares into the open market, and the companies' stock prices declined rapidly thereafter. As a result of trades made in these four stocks, Luscko, Neu, and Medlin netted $6.5 million.
In a related criminal action, the U.S. Department of Justice and the U.S. Attorney for the Eastern District of Virginia filed charges against Luscko and Neu, who both pled guilty to conspiring to commit securities fraud and e-mail fraud. Neu was sentenced to five years imprisonment and three years supervised release. Luscko was sentenced to five years imprisonment and two years supervised release. The criminal authorities have seized more than $3,000,000 from bank accounts associated with Luscko and Neu.
The Commission's complaint alleges that Luscko, Neu, Emerging Holdings, Massclick, and China Score violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint also alleges that Luscko, Neu, and Medlin violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further alleges that Medlin violated the anti-touting provisions of Section 17(b) of the Securities Act. The Commission seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against each of the individual defendants, as well as a penny stock bar against Luscko, Neu, and Medlin, and injunctions prohibiting Luscko and Neu from conducting unregistered securities offerings. The Commission also seeks disgorgement of the proceeds from the improper stock sales currently held by relief defendants Lyons Checkshop, Su, and Pulisci.
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20098 / April 30, 2007 SEC v. Alexis Ampudia, a/k/a Alexis Geancarlos Ampudia Navalo, a/k/a Alexis Emias, a/k/a Alexis Rojas, Civil Action No. 07-CV-2762 (HB) (S.D.N.Y.) SEC Files Emergency Action Against Alexis Ampudia to Stop an Identity Theft "Pump and Dump" Scheme The Securities and Exchange Commission announced that on April 13, 2007, the United States District Court for the Southern District of New York entered a preliminary injunction order on consent against defendant Alexis Ampudia. Pending a final disposition of the Commission's enforcement action, the order enjoins Ampudia from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The order also freezes his assets and orders the repatriation of funds taken out of the United States.
The Commission's complaint, filed on April 5, 2007, charged Ampudia, a 22-year old Panamanian citizen and resident of Brooklyn, New York, with conducting a fraudulent scheme involving the manipulation of the prices of numerous securities by using brokerage accounts he had opened in the names of identity theft victims, without their knowledge or consent. The Commission alleged that, since November 2006, Ampudia made at least $140,000 in unlawful profits by manipulating the securities of at least five publicly traded companies. In its enforcement action, the Commission is seeking additional relief, including orders permanently enjoining Ampudia from committing future violations of the foregoing federal securities laws, and a final judgment ordering him to disgorge ill-gotten gains and assessing civil penalties.
The Commission acknowledges the assistance of the New York County District Attorney's Office, New York City Police Department, and United States Secret Service in this matter.
LR-20099A May 2, 2007 Michael R. Bretzel, Lawrence Ford, II, Real Estate Funding, LLC and Heritage Funding Group, Inc., Defendants, and Seabreeze Realty Group, Inc. d/b/a Coastal Properties, Ormond Beach Auto Sales, Inc. d/b/a Liberty Automotive Group, and Dealer Lot Management, Inc., Relief Defendants See also: Complaint in this matter http://www.sec.gov/litigation/litreleases/2007/lr20099a.htm
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20099A / May 2, 2007 Securities and Exchange Commission v. Michael R. Bretzel, Lawrence Ford, II, Real Estate Funding, LLC and Heritage Funding Group, Inc., Defendants, and Seabreeze Realty Group, Inc. d/b/a Coastal Properties, Ormond Beach Auto Sales, Inc. d/b/a Liberty Automotive Group, and Dealer Lot Management, Inc., Relief Defendants, Civil Action No. 6:07-cv-609-orl-22DAB (MDFL April 30, 2007) The Securities and Exchange Commission ("Commission") announced today that it has filed a Complaint in the U.S. District Court for the Middle District of Florida in Orlando, against defendants Michael R. Bretzel ("Bretzel") of Ormond Beach, Florida; Lawrence Ford, II, ("Ford") of Daytona Beach, Florida; and Real Estate Fund, LLC ("Real Estate Fund") and Heritage Funding Group, Inc.("Heritage"), both with principal offices in Daytona Beach, Florida. The Commission also sued relief defendants Seabreeze Realty Group, Inc. d/b/a Coastal Properties ("Coastal"); Ormond Beach Auto Sales, Inc. d/b/a Liberty Automotive Group ("Liberty"); and Dealer Lot Management, Inc. ("Dealer Lot"), each with principal offices in Daytona Beach, all of which are entities controlled by Bretzel.
The Complaint alleges that the defendants offered and sold securities in two schemes orchestrated by Real Estate Fund and Heritage (collectively, the "Funds"), and their respective principals, Bretzel and Ford. From at least February 2003 through January 2007, the Funds raised approximately $21 million from over 200 investors nationwide. The Complaint further alleges that the Funds made numerous misrepresentations to investors related to, among other things use of proceeds and the commissions actually paid. The Real Estate Fund's Private Placement Memorandum (PPM) stated, among other things, that the Real Estate Fund would use approximately 92% of investor proceeds to acquire interests in real estate, which would be titled to Real Estate Fund. In truth, the Real Estate Fund "loaned" approximately $1.38 million of investor proceeds (or 18% of the total funds raised) to Bretzel, to other companies that Bretzel owns, or to Ford. Heritage's PPM stated, among other misrepresentations, that "the net proceeds from the sale of the Notes will be used to purchase installment contracts originated by automobile dealers for financing the sale of pre-owned motor vehicles." In reality, Heritage "loaned" approximately $3.6 million of investor proceeds to entities owned by Bretzel. Heritage also "loaned" money to other Bretzel controlled entities. The Complaint further alleges that both Funds operated as Ponzi scheme, schemes since the revenue from later investors was used to pay "preferred returns" to earlier investors. The Complaint further alleges that Coastal, Liberty and Dealer Lot, which were entities owned by Bretzel, were unjustly enriched by loans from Real Estate Fund and/or Heritage made to them through Bretzel, or directly to them.
The Complaint alleged that the four defendants violated the antifraud provisions of the federal securities laws, 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 Commission also sought a temporary restraining order, preliminary and permanent injunctions, an accounting, disgorgement, pre-judgment interest and civil penalties against Bretzel, Ford, Real Estate Fund and Heritage. The Commission also sought an asset freeze as to Bretzel, Ford, and Real Estate Fund and seeks the appointment of a Receiver for Real Estate Fund. In an Order issued April 30, 2007, following a hearing on the preliminary injunction, Judge Anne C. Conway preliminarily enjoined defendants Bretzel, Real Estate Fund and Heritage. The Court declined to preliminarily enjoin Ford, and declined to appoint a Receiver for Real Estate Fund. The Court did not impose an asset freeze or direct an accounting.
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20100 / May 2, 2007 Accounting and Auditing Enforcement Release No. 2604 / May 2, 2007 Securities and Exchange Commission v. Capitol Distributing, LLC and Terry M. Phillips, Civil Action No. 1:07-CV-00798 (RMC) (D.D.C. May 2, 2007) In the Matter of Terry M. Phillips, Securities Exchange Act of 1934 Release No. 34-55696 / May 2, 2007 Video Game Distributor Capitol Distributing, L.L.C. Settles Charges for Aiding and Abetting Accounting Fraud by Take-Two Interactive Software, Inc.; Terry Phillips, an Owner of Capitol, Agrees to Pay a $50,000 Civil Penalty as Capitol's Controlling Person and Consents to an Antifraud Cease-and-Desist Order The Securities and Exchange Commission ("Commission") today announced that it filed a settled civil action in federal district court against video game distributor Capitol Distributing, L.L.C. ("Capitol") and one of its owners, Terry M. Phillips ("Phillips"). The Commission charged Capitol, a privately-owned, Virginia-based video game distributor, with aiding and abetting video game publisher Take-Two Interactive Software, Inc. ("Take-Two") in Take-Two's violations of the antifraud, reporting and recordkeeping provisions of the federal securities laws during fiscal years 2000 and 2001 through a fraudulent video game parking scheme. The Commission also charged Phillips with liability as a controlling person for Capitol's violations and instituted a settled administrative cease-and-desist order against Phillips, which found that Phillips was a cause of Capitol's violations.
In its complaint filed today, the Commission alleged that Capitol aided and abetted Take-Two's violations of the antifraud, financial reporting and recordkeeping provisions of the federal securities laws by knowingly providing substantial assistance to Take-Two's fraudulent scheme to inflate reported revenue during its fiscal years 2000 and 2001. Specifically, the complaint alleges that Take-Two shipped to Capitol hundreds of thousands of video games, typically at the end of reporting periods, and fraudulently recorded those shipments as sales when, in actuality, Capitol only temporarily parked the games for Take-Two and did not intend to sell them. The complaint alleges that in furtherance of the scheme Take-Two twice provided funds to Capitol or another Phillips-owned entity known as Phillips Land Company ("PLC"), for transmission to Take Two to create the false appearance that Capitol or PLC were paying for the games. According to the complaint, Capitol in two instances returned the games to Take-Two under invoices falsely describing them as "purchases" of "assorted product." The scheme enabled Take-Two to report approximately $15 million in phantom revenue from four separate parking transactions with Capitol.
Capitol, without admitting or denying the allegations in the complaint, consented to the entry of a final judgment permanently enjoining it from violating Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13 and 13b2-1.
The complaint alleges that Phillips, as Capitol's founder, 20 percent owner, and principal operator is a control person of Capitol within the meaning of Section 20(a) of the Exchange Act. Phillips, without admitting or denying the allegations in the complaint, consented to entry of a final judgment ordering him to pay a civil money penalty of $50,000 as a control person of Capitol for its aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 10b-5, 12b 20, 13a-1, 13a-13 and 13b2-1.
The settlements with Capitol and Phillips are subject to the approval of the United States District Court for the District of Columbia.
In a related administrative proceeding, Phillips consented, without admitting or denying the Commission's findings, to the entry of a Commission order to cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act, and Exchange Act Rules 10b-5 and 13b2-1, and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-13. The Commission in its order found that Phillips and Take-Two began discussing Capitol's participation in the parking arrangement in July 2000. In October 2000, Take-Two discussed the first parking transaction with Phillips, asking Phillips if he had another company that Take Two could issue a purchase order to for the games in lieu of Capitol sending the games back as a return. Phillips mentioned PLC, then instructed a Capitol employee to work out the details with Take-Two.
On June 9, 2005, the Commission filed and simultaneously settled civil charges against Take-Two and former and current members of senior management in connection with the parking scheme. See SEC v. Take-Two Interactive Software, Inc., et al., Civil Action No. 05-CV-5443 (DLC) (S.D.N.Y. 2005) (filed June 9, 2005), Litigation Release No. 19260.
The Commission's investigation in this matter is continuing.
SEC Complaint in this matter, Administrative Proceeding
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20101 / May 3, 2007 SEC v. Vencent A. Donlan, Defendant, and Robin D. Colls Donlan, Relief Defendant, Civil Action No. 07 CV 793 JAH (LSP) (S.D. Cal.) SEC Obtains Emergency Asset Freeze Against Former Stock Options Administrator in Connection With Theft of Stock Options The Securities and Exchange Commission today announced that it obtained an emergency asset freeze against the former stock options administrator of San Diego-based Wireless Facilities, Inc. (WFI), who was charged with defrauding the company and its shareholders by causing the unauthorized issuance and transfer of over 700,000 shares of WFI stock and stock options to himself and his wife.
On May 2, 2007, the Honorable John A. Houston, United States District Judge for the Southern District of California, entered a temporary restraining order freezing the assets of Vencent A. Donlan (Donlan), age 44, and his wife, Robin D. Colls Donlan (Colls), age 44, both of San Diego, California. The Commission's complaint alleges that Donlan defrauded WFI and its shareholders by abusing his position as WFI's stock options administrator to fraudulently issue and transfer WFI's stock and stock options to an account in his name, in violation of the antifraud provisions of the federal securities laws. The complaint charges Donlan with securities fraud and names Colls as a relief defendant because she received proceeds from the fraud.
The Commission's complaint alleges that between November 2002 and November 2003, Donlan abused his position as WFI's stock options administrator to issue and transfer over 700,000 shares of WFI stock and stock options to a brokerage account that he held jointly with his wife, Colls. According to the complaint, Donlan caused these transfers by making false entries in WFI's stock options software to create and then hide the unauthorized stock options grants to Colls and by providing false information to WFI's brokerage firm and transfer agent. Over the thirteen month period of the fraud, Donlan initiated twenty-seven unauthorized transfers of WFI stock and stock options to his and Colls' brokerage account.
The complaint further alleges that Donlan and/or Colls exercised the options and sold the stock on the open market, realizing net proceeds of at least $7.7 million. All of these proceeds, according to the complaint, were then transferred or paid to other accounts. Some of the proceeds may also have been used to purchase real estate, including a home in San Diego for $942,000 in cash and property in Julian, Calif., for $655,000 in cash.
In addition to freezing several million dollars in personal and real property, the court's order requires an accounting of Donlan's and Colls' assets, provides for expedited discovery, and prohibits them from destroying evidence. The Commission alleges that Donlan's fraudulent scheme violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking against Donlan permanent injunctive relief, disgorgement of the ill-gotten gains with prejudgment interest thereon, and civil monetary penalties. The complaint names Colls as a relief defendant and seeks against her disgorgement with prejudgment interest.
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20102 / May 3, 2007 SEC v. Lydia Capital, LLC et al., Civil Action No. 07-10712-RGS (D.Mass. April 12, 2007). SEC Obtains Emergency Relief, Including an Asset Freeze, Against Massachusetts Hedge Fund Manager Court Freezes at least $13 Million The Securities and Exchange Commission (Commission) announced that today the U.S. District Court in Boston will issue a preliminary injunction order that, among other things, continues a freeze on the assets of a Boston-based hedge fund adviser and its principals. On April 12, 2007, the Commission filed an emergency action in the federal district court in Massachusetts against Lydia Capital, LLC, a registered investment adviser based in Boston, Massachusetts, and its two principals, Glenn Manterfield, of Sheffield, England and Evan Andersen, of Boston, Massachusetts. The Commission filed an Amended Complaint against all three defendants on May 1, 2007. The Commission's Amended Complaint alleges that, between June 2006 and April 2007, Manterfield and Andersen, acting through Lydia, engaged in a scheme to defraud more than 60 investors, who invested approximately $34 million in Lydia Capital Alternative Investment Fund LP (Fund), an unregistered hedge fund managed by Lydia.
The Amended Complaint alleges that defendants told investors that they intended to use the Fund's assets to acquire a portfolio of life insurance polices in the life settlement market. According to the Amended Complaint, while the Fund did acquire interests in some insurance polices, defendants materially misled investors about their operations and misappropriated at least $2 million of investor funds. According to the Amended Complaint, Manterfield, Andersen, and Lydia sold limited partnership interests and retained investors in the Fund through a series of material misrepresentations and omissions, including but not limited to: (1) materially overstating, and in some instances completing fabricating the Fund's performance; (2) inventing business partners, offices, and investors in an attempt to legitimatize the firm and concealing the truth as to why key vendors and banks ceased relationships with the Defendants; (3) lying about Manterfield's significant criminal history, and failing to disclose a February 2007 criminal asset freeze in England; (4) lying about how the Fund planned to address certain material risks and failing to disclose others; and (5) misstating the nature of the Fund's assets and its investment process. In addition to making serious material misrepresentations and omissions, the Amended Complaint alleges that Manterfield and Andersen misappropriated millions of dollars of investors' funds by withdrawing investor monies to which they were not entitled.
On April 12, 2007, in response to the Commission's request for emergency relief, the Court issued a temporary restraining order that, among other things, froze defendants' assets. On May 3, 2007, following a hearing before the Court on May 2, 2007, the Court issued a consented-to preliminary injunction and ordered a continuation of an asset freeze of the defendants' assets.
The Commission's Amended Complaint alleges that defendants violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
The Commission acknowledges the assistance of the Securities Division of the Secretary of State of the Commonwealth of Massachusetts, which also filed an action against the parties on April 13, 2007.
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20103 / May 3, 2007 United States of America v. Frank J. Russo (United States District Court for the District of Massachusetts, Cr.A. No. 07-10127-RCL) Securities and Exchange Commission v. Frank J. Russo, FJR Corporation, Russo Associates Limited Partnership and Eliot Partners (United States District Court for the District of Massachusetts, C.A. No. 06-10984-MEL) Massachusetts-Based Investment Adviser Indicted in Federal Court on Charges of Investment Adviser Fraud and Mail Fraud The Securities and Exchange Commission announced today that, on April 27, 2007, the United States Attorney's Office for the District of Massachusetts announced the indictment of Frank J. Russo, a Wakefield, Massachusetts-based investment adviser on one count of investment adviser fraud and nineteen counts of mail fraud.
The indictment alleges that during the period 1982 through 2006, Russo managed two limited partnership investment vehicles. According to the indictment, Russo represented to investors that they could expect "above average" positive returns and that their investments would be safe, but Russo did not invest his victims' money as promised and lost more than $20 million in investor funds. The indictment further alleges that, to conceal the losses and his misrepresentations, and to lull victims into further investments, Russo generated false account statements that reflected inflated balances and gains that did not exist. According to the indictment, more than 250 individuals were victims of Russo's scheme. The indictment also seeks the criminal forfeiture of at least $20 million and Russo's residence.
The Commission had previously filed an emergency enforcement action against Russo and three related entities on June 6, 2006 in federal district court in Massachusetts alleging violations of the registration and anti-fraud provisions of the securities laws. The Commission obtained, by consent, preliminary injunctions, asset freezes and other relief against Russo and the three entities on that date. On June 28, 2006, the Commission amended its complaint to add Veritasiti Corporation, a California corporation, as a relief defendant based on its receipt of proceeds from the alleged fraud and obtained, by consent, an asset freeze against Veritasiti. The Commission's action is still pending against all parties. In addition, Massachusetts Secretary of State William Francis Galvin=s Securities Division had previously filed an administrative action against Russo on May 25, 2006 alleging violations of state securities laws and imposing a temporary restraining order requiring him to cease all investment advisory activities. That action is still pending.
For further information, see Litigation Release Nos. 19718 (June 6, 2006) and 19744 (June 28, 2006).
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20104 / May 3, 2007 Auditing and Accounting Enforcement Release No. 2606 / May 3, 2007 Securities and Exhange Commission v. Gary V. Morris, Civil Action No. 4:04-CV-3096 (S.D. Tex.) Claims Dismissed Against Former Halliburton Officer for Failure to Disclose a 1998 Change in Accounting Practice The Securities and Exchange Commission announced that the U.S. District Court in Houston has dismissed the Commission's claims against Gary V. Morris, Halliburton's former chief financial officer. The district court's order came at the request of the Commission to dismiss the claims "in the interests of justice." The Commission's case, filed in 2004, concerned Halliburton's failure to disclose a 1998 change to its accounting practice. As a result of that undisclosed change, the Commission alleged that Halliburton's public statements regarding its income in 1998 and 1999 were materially misleading.
In 2004, Halliburton and its former controller, Robert C. Muchmore, Jr., settled the Commission's enforcement actions by consenting to a Commission order to cease and desist from committing or causing future securities law violations. Additionally, Halliburton and Muchmore paid penalties of $7.5 million and $50,000 respectively, in a related civil action. Halliburton's penalty for the disclosure failure reflected lapses in the company's conduct during the course of the Commission investigation, which commenced in mid-2002.
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