SEC Charges Medlink International and Two Executives with Fraudulent Filing

The Securities and Exchange Commission today announced that it filed a civil injunctive action against MedLink International, Inc., its CEO, Aurelio Vuono, and its CFO, James Rose, accusing them of filing an annual report falsely stating that its audit had been completed and defrauding a MedLink investor. MedLink’s principal office is in Hauppauge, New York, and it purports to be a healthcare information technology company. Vuono, age 46 and a recidivist securities law violator, resides in Huntington Station, New York. Rose, age 33, resides in Hauppauge, New York.

The Commission’s complaint, filed October 24, 2012 in U.S. District Court in Brooklyn, New York, alleges that on April 25, 2011, MedLink filed with the Commission an annual report on Form 10-K for the year ended December 31, 2010. Included in the filing was an audit report with the electronic signature of MedLink’s auditor, which stated that the auditor had conducted an audit of MedLink’s financial statements for the years ended December 31, 2009 and 2010. The complaint alleges that the Form 10-K was false and misleading because the audit had not been completed, and the auditor had not authorized MedLink to include the audit report or to use its electronic signature. The complaint also alleges that the Form 10-K was false and misleading because it contained the electronic signature of MedLink’s founder and director, even though the director had not reviewed it nor authorized use of his electronic signature.

The complaint further alleges that in approximately April 2011, a MedLink investor agreed to purchase 210,526 shares of MedLink stock for $149,473.50. Vuono promised the investor that MedLink would delay this purchase and not cash the investor’s check until the investor had sufficient funds in his checking account. Shortly thereafter, the investor informed Vuono and Rose that MedLink was not authorized to cash the check and instructed MedLink to return it. Instead of returning the check, Rose deposited it in MedLink’s bank account. Despite repeated requests, MedLink did not return the investor’s money or issue any MedLink stock to the investor.

Source: http://www.sec.gov/litigation/litreleases/2012/lr22521.htm

Date:26th October, 2012

Carter’s Accounting Fraud

Securities and Exchange Commission charged Michael Johnson, a divisional merchandise manager at Kohl’s, which is a national department store. The complaint alleged that Johnson assisted the financial fraud at Carter’s, Inc, an Atlanta-based manufacturer of children’s clothing. Specifically, the SEC alleges that Johnson assisted Joseph Elles, a former Executive Vice President of Sales at Carter’s, in concealing his financial fraud from senior Carter’s management. That scheme caused Carter’s to materially misstate its net income and expenses in several financial reporting periods between 2004 and 2009.

The SEC’s complaint, filed in the United States District Court for the Northern District of Georgia, alleges that between 2004 and 2009, Elles fraudulently manipulated the amount of discounts that Carter’s granted to Kohl’s, Carter’s largest wholesale customer in order to induce Kohl’s to purchase greater quantities of Carter’s clothing for resale. In an effort to conceal the scheme, Elles persuaded Kohl’s to defer subtracting the discounts from payments until later periods. Elles also persuaded Johnson, who handled the Carter’s account at Kohl’s to sign a false confirmation that misrepresented to Carter’s accounting personnel the timing and amount of those discounts. By concealing the amount of discounts that had been promised to Kohl’s, Elles and Johnson caused Carter’s to materially understate it expenses in certain quarters and materially overstate its earnings in those quarters.

After conducting its own internal investigation, Carter’s was required to issue restated financial results for the affected periods.

The SEC’s complaint alleges that Johnson violated Rule 13b-2 of the Securities Exchange Act of 1934 (“Exchange Act”), which prohibits any person from directly or indirectly falsifying or causing to be falsified an issuer’s accounting records. The complaint also alleges that Johnson aided and abetted Elles’ violations of Section 13b(5) of the Exchange Act, which among other things, prohibits any person from knowingly falsifying the books, records and/or accounts of an issuer, and Rule 13b2-1 thereunder. The SEC is seeking permanent injunctive relief and financial penalties against Johnson.

Source: SEC

 

District Court Orders More Than $3 Million In Remedies, Grants Motions For Disgorgement, Civil Penalties

United States District Court for the Southern District of Florida granted the Commission’s motions for disgorgement, civil penalties, and officer-and-director bars against the four remaining defendants in a civil action arising from a Florida-based accounting fraud.

The district court adopted a recommendation previously entered by a magistrate judge and ordered the following remedies:

  • Former GlobeTel Communications (GlobeTel) chief executive officer Timothy Huff to pay a $1.21 million penalty and $1.5 million in disgorgement plus prejudgment interest. Judge Joan A. Lenard calculated Huff’s penalty by imposing a third-tier penalty for each of Huff’s 10 most-serious false disclosures. She also ordered him to disgorge the full $1.5 million that he received when he exercised stock options in the midst of the fraud.
  • Former GlobeTel chief financial officer Lawrence Lynch to pay a $780,000 civil penalty.
  • Former GlobeTel former executive Joseph J. Monterosso to pay a $300,000 penalty and $675,000 in disgorgement plus prejudgment interest (joint-and-severable with Luis Vargas) and Monterosso barred from serving as an officer or director of a public company for 10 years.
  • Former GlobeTel employee Luis Vargas to pay a $150,000 penalty and $675,000 in disgorgement plus prejudgment interest (joint-and-severable with Joseph J. Monterosso) and Vargas barred from serving as an officer or director of a public company for 10 years.

Starting in November 2007, the Commission brought civil actions against the defendants in connection with GlobeTel Communications Corp., now World Surveillance Group Inc. (GlobeTel). GlobeTel reported millions of dollars in telecommunications revenue from 2002 to 2006 that the Commission alleged was fake. Huff and former GlobeTel chief financial officer Thomas Jimenez were sentenced to prison as a result of parallel criminal prosecutions. See U.S. v. Huff, 09-cr-60295-DMM (S.D. Fla.); U.S. v. Jimenez, 08-cr-60367-DTKH (S.D. Fla.). GlobeTel and Jimenez previously consented to the entry of judgments against them in the Commission’s action.

The Commission’s complaint against Huff alleged that he created a scheme from 2002 to 2004 that made it appear that GlobeTel bought and sold telecom “minutes” with other companies in Mexico, Brazil and the Philippines. The complaint alleged that, in reality, there were no transactions and that Huff and Jimenez created false invoices and technical documents and that they lied to auditors.

The Commission’s complaint against Monterosso and Vargas alleged that they created hundreds of false invoices from 2004 to 2006 that made it appear that GlobeTel’s three wholly-owned subsidiaries, Centerline Communications, LLC (Centerline), Volta Communications, LLC (Volta), and Lonestar Communications, LLC (Lonestar) bought and sold telecom “minutes” with other wholesale telecom companies. The complaint alleged that, in reality, there were no transactions under the program that GlobeTel executives described as the “off-net” revenue program. It alleged that two of GlobeTel’s subsidiaries – Volta and Lonestar – actually did no business. It alleged that the third subsidiary, Centerline, reported millions of dollars in business with Monterosso’s and Vargas’ own private company, Carrier Services Inc. (CSI), which did not occur.

The Commission’s complaint against Lynch alleged that he was aware that the invoices submitted by Monterosso and Vargas did not represent actual telecom business conducted by Centerline. The complaint alleged that Lynch made and approved journal entries in GlobeTel’s financial records to record revenue and to conceal that GlobeTel and its supposed counter-parties were not paying their bills.

In May 2008 and August 2010 respectively, Lynch and Huff consented to the entry of judgments against them in the Commission’s action. On May 20, 2008, the court barred Lynch from serving as an officer or director for five years. On September 7, 2010, the court permanently barred Huff from serving as an officer or director.

On March 31, 2011, the court granted the Commission’s motions for summary judgment against Monterosso and Vargas.

The GlobeTel case was investigated and litigated by Brent Mitchell, Peter Rosario, Jeffrey Infelise, Gina Twyman and Reid Muoio.

Source: SEC

 

SEC Charges Tyco with illicit payments

Securities and Exchange Commission today announced that it filed a settled civil action in the United States District Court for the District of Columbia against Tyco International Ltd. The complaint alleges that Tyco violated the books and records, internal controls, and anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). Tyco has agreed to pay over $13 million in disgorgement and prejudgment interest to settle the charges.

In April 2006, the Commission filed a settled accounting fraud, disclosure, and FCPA injunctive action against Tyco. At the time of the 2006 settlement, Tyco had committed to and commenced a review of its FCPA compliance and a global internal investigation of possible additional FCPA violations. As a result of that review and investigation, certain FCPA violations have come to light for which the misconduct occurred, or the benefit to Tyco continued, after the 2006 injunction. Those are the violations that are alleged in today’s complaint.

Accordingly, the Commission’s complaint alleges that, from 2006 to 2009, Tyco subsidiaries operated twelve illicit payment schemes. Many of the schemes involved fake commissions and related payments, and several also included the use of third-party agents to funnel money improperly. The complaint further alleges that Tyco’s books and records were misstated as a result of the misconduct and that Tyco failed to devise and maintain internal controls sufficient to detect the violations. The complaint also alleges that payments by a sales agent to Turkish government officials violated the anti-bribery provisions of the FCPA.

Source:http://www.sec.gov/litigation/litreleases/2012/lr22491.htm

Date:24th September, 2012.

SEC CHARGES TYCO WITH MAKING ILLICIT PAYMENTS TO FOREIGN OFFICIALS

Securities and Exchange Commission today announced that it filed a settled civil action in the United States District Court for the District of Columbia against Tyco International Ltd. The complaint alleges that Tyco violated the books and records, internal controls, and anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). Tyco has agreed to pay over $13 million in disgorgement and prejudgment interest to settle the charges.

In April 2006, the Commission filed a settled accounting fraud, disclosure, and FCPA injunctive action against Tyco. At the time of the 2006 settlement, Tyco had committed to and commenced a review of its FCPA compliance and a global internal investigation of possible additional FCPA violations. As a result of that review and investigation, certain FCPA violations have come to light for which the misconduct occurred, or the benefit to Tyco continued, after the 2006 injunction. Those are the violations that are alleged in today’s complaint.

Accordingly, the Commission’s complaint alleges that, from 2006 to 2009, Tyco subsidiaries operated twelve illicit payment schemes. Many of the schemes involved fake commissions and related payments, and several also included the use of third-party agents to funnel money improperly. The complaint further alleges that Tyco’s books and records were misstated as a result of the misconduct and that Tyco failed to devise and maintain internal controls sufficient to detect the violations. The complaint also alleges that payments by a sales agent to Turkish government officials violated the anti-bribery provisions of the FCPA.

Source:http://sec.gov/litigation/litreleases/2012/lr22491.htm

Date:24th September, 2012