Business Crimes Hotline

CALIFORNIA

Former CEO Convicted of Fraudulently Inflating Accounts Receivable and Inventory

Richard I. Berger, the former CEO of Craig Consumer Electronics (Craig), was convicted on 12 felony counts relating to an alleged scheme in which he caused false reporting of Craig's accounts receivable and inventory to make the company appear to be more financially solvent as it went public and as it filed reports with the Securities and Exchange Commission. Berger was found guilty of one count of conspiracy, six counts of loan fraud, one count of falsifying corporate books and records, one count of making false statements to company accountants, and three counts of making false statements in SEC filings.

During the 8-week trial, evidence was presented allegedly showing that Berger, in conjunction with Craig's chief financial officer, defrauded a consortium of four banks that had made a $40 million inventory and receivables line of credit available to the company. Berger allegedly organized a scheme to artificially inflate the amount of money Craig was permitted to borrow from the lending banks. As part of the scheme, Berger and the CFO allegedly distorted Craig's accounts receivable by representing to the lender banks that certain accounts receivable remained valid when, in fact, the underlying sales had been reversed. Berger also allegedly distorted Craig's inventory figures by improperly classifying defective goods as new or refurbished goods.

Berger was found guilty of making false statements to the SEC in Craig's registration documents for its initial public offering in 1996, in a 1996 Amended 10K Form, and in a 1997 10Q Form. Although the jury found Berger guilty on 12 charges, it was unable to reach verdicts on 24 other counts.

As a result of the convictions, Berger faces a maximum penalty of 30 years in prison for each of the loan fraud counts, and up to 5 years in prison for each of the other charges.

ILLINOIS

Six Former Anicom Employees Indicted in Corporate Fraud Scheme

A federal grand jury indicted six former employees, five of whom were high-ranking executives, of the now-defunct Anicom, Inc., a national distributor of wire and cable products, alleging that they engaged in a corporate fraud scheme by inflating sales and revenues by tens of millions of dollars beginning approximately 3 years before the company went bankrupt. A 30-count indictment alleges that the defendants created fictitious sales of more than $24 million, understated expenses and overstated net income and earnings by millions of dollars, knowing that the materially false financial information was being provided to investors, auditors, lenders and securities regulators.

The defendants charged in the indictment are Carl Putnam (Anicom's president and CEO), Donald Welchko (CFO), John Figurelli (vice president of Credit Services), Daryl Spinell (vice president of sales), Ronald Bandyk (vice president), and Renee Levault (a manager of Anicom's Drop Ship Billing Department). All six defendants are charged with three counts each of securities fraud. Putnam and Welchko also were charged together with five counts of bank fraud, five counts of making false statements to financial institutions, and eight counts of making false statements to the SEC. Putnam and Welchko were charged separately with four counts each of falsifying Anicom's financial books and records. In addition, Welchko was charged with a single count of obstruction of justice in connection with the SEC's investigation.

According to the indictment, beginning in early 1998 through September 2000, the defendants engaged in a securities fraud scheme that allegedly deceived purchasers and sellers of Anicom's common stock. From the first quarter of 1998 through May 2000, the defendants allegedly overstated sales, revenue and net income by creating numerous fictitious sales and fraudulent billings, including approximately $10.45 million in sales to a fictitious company. The defendants also allegedly engaged in additional fraudulent accounting practices that overstated revenue and understated expenses for particular quarters and years, including making and causing various fraudulent entries in Anicom's general ledger. The indictment alleges that the defendants knew that the fraudulent journal entries were contrary to Generally Accepted Accounting Principles (GAAP) and did not fairly and accurately reflect Anicom's business transactions.

If convicted of securities fraud, all six defendants each face a maximum penalty of 10 years in prison and a $1 million fine on each count. The remaining charges against Putnam and Welchko carry the following maximum penalties on each count: bank fraud and making false statements to financial institutions – 30 years and a $1 million fine; making false statements to the SEC – 5 years in prison and a $250,000 fine; and falsifying financial books and records – 10 years and a $1 million fine. The obstruction count against Welchko carries a maximum penalty of 5 years and a $250,000 fine.

NEW YORK

New York State Periodical Distributor Pleads Guilty to Market Allocation Charges

Empire State News Corporation Inc. (Empire) of Buffalo, NY, pleaded guilty and was sentenced to pay a criminal fine of $200,000 for allocating markets for the wholesale distribution of magazines, other periodicals, and books in Western New York and at the Pittsburgh International Airport.

Empire was charged in a two-count felony case filed in U.S. District Court in Syracuse, NY. According to the charges, Empire allegedly participated in a conspiracy to suppress and eliminate competition in the wholesale distribution of magazines, other periodicals, and books in Western New York from January 1999 to mid-2000. Empire also allegedly participated in a conspiracy to eliminate competition for the contract to supply magazines, other periodicals, and books at the Pittsburgh International Airport between March 1999 and mid-2000.

Empire was charged with violating section one of the Sherman Act, which carries a maximum fine of $10 million, per count, for a corporation.

PENNSYLVANIA

Norwegian Shipping Company Pleads Guilty in Parcel Tanker Shipping Investigation

Norwegian-based Odfjell Seachem AS, one of the largest parcel tanker shippers in the world, and two of its executives, Bjorn Sjaastad and Erik Nilsen, were charged with participating in an international cartel to allocate customers, rig bids and fix prices on parcel tanker affreightment contracts for the shipment of special

ty liquids to and from the United States. Sjaastad is the CEO of Odfjell Seachem's parent, Odfjell ASA, and Nilsen is a vice president. Odfjell Seachem and both executives, who are citizens of Norway, have agreed to plead guilty and cooperate with the ongoing investigation. Additionally, Odfjell Seachem has agreed to pay a $42.5 million fine for its role in the alleged cartel. Sjaastad has agreed to pay a $250,000 fine and to serve 4 months in prison, and Nilsen has agreed to pay a $25,000 fine and to serve three months in prison for their roles in the cartel.

Odfjell Seachem AS, Sjaastad and Nilsen are charged with violating section one of the Sherman Act, which, as mentioned previously, carries a statutory maximum penalty of a $10 million fine for a corporation and a maximum penalty of 3 years' imprisonment and a $350,000 fine for an individual.

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Bradley J. Bondi, Esq

CALIFORNIA

Former CEO Convicted of Fraudulently Inflating Accounts Receivable and Inventory

Richard I. Berger, the former CEO of Craig Consumer Electronics (Craig), was convicted on 12 felony counts relating to an alleged scheme in which he caused false reporting of Craig's accounts receivable and inventory to make the company appear to be more financially solvent as it went public and as it filed reports with the Securities and Exchange Commission. Berger was found guilty of one count of conspiracy, six counts of loan fraud, one count of falsifying corporate books and records, one count of making false statements to company accountants, and three counts of making false statements in SEC filings.

During the 8-week trial, evidence was presented allegedly showing that Berger, in conjunction with Craig's chief financial officer, defrauded a consortium of four banks that had made a $40 million inventory and receivables line of credit available to the company. Berger allegedly organized a scheme to artificially inflate the amount of money Craig was permitted to borrow from the lending banks. As part of the scheme, Berger and the CFO allegedly distorted Craig's accounts receivable by representing to the lender banks that certain accounts receivable remained valid when, in fact, the underlying sales had been reversed. Berger also allegedly distorted Craig's inventory figures by improperly classifying defective goods as new or refurbished goods.

Berger was found guilty of making false statements to the SEC in Craig's registration documents for its initial public offering in 1996, in a 1996 Amended 10K Form, and in a 1997 10Q Form. Although the jury found Berger guilty on 12 charges, it was unable to reach verdicts on 24 other counts.

As a result of the convictions, Berger faces a maximum penalty of 30 years in prison for each of the loan fraud counts, and up to 5 years in prison for each of the other charges.

ILLINOIS

Six Former Anicom Employees Indicted in Corporate Fraud Scheme

A federal grand jury indicted six former employees, five of whom were high-ranking executives, of the now-defunct Anicom, Inc., a national distributor of wire and cable products, alleging that they engaged in a corporate fraud scheme by inflating sales and revenues by tens of millions of dollars beginning approximately 3 years before the company went bankrupt. A 30-count indictment alleges that the defendants created fictitious sales of more than $24 million, understated expenses and overstated net income and earnings by millions of dollars, knowing that the materially false financial information was being provided to investors, auditors, lenders and securities regulators.

The defendants charged in the indictment are Carl Putnam (Anicom's president and CEO), Donald Welchko (CFO), John Figurelli (vice president of Credit Services), Daryl Spinell (vice president of sales), Ronald Bandyk (vice president), and Renee Levault (a manager of Anicom's Drop Ship Billing Department). All six defendants are charged with three counts each of securities fraud. Putnam and Welchko also were charged together with five counts of bank fraud, five counts of making false statements to financial institutions, and eight counts of making false statements to the SEC. Putnam and Welchko were charged separately with four counts each of falsifying Anicom's financial books and records. In addition, Welchko was charged with a single count of obstruction of justice in connection with the SEC's investigation.

According to the indictment, beginning in early 1998 through September 2000, the defendants engaged in a securities fraud scheme that allegedly deceived purchasers and sellers of Anicom's common stock. From the first quarter of 1998 through May 2000, the defendants allegedly overstated sales, revenue and net income by creating numerous fictitious sales and fraudulent billings, including approximately $10.45 million in sales to a fictitious company. The defendants also allegedly engaged in additional fraudulent accounting practices that overstated revenue and understated expenses for particular quarters and years, including making and causing various fraudulent entries in Anicom's general ledger. The indictment alleges that the defendants knew that the fraudulent journal entries were contrary to Generally Accepted Accounting Principles (GAAP) and did not fairly and accurately reflect Anicom's business transactions.

If convicted of securities fraud, all six defendants each face a maximum penalty of 10 years in prison and a $1 million fine on each count. The remaining charges against Putnam and Welchko carry the following maximum penalties on each count: bank fraud and making false statements to financial institutions – 30 years and a $1 million fine; making false statements to the SEC – 5 years in prison and a $250,000 fine; and falsifying financial books and records – 10 years and a $1 million fine. The obstruction count against Welchko carries a maximum penalty of 5 years and a $250,000 fine.

NEW YORK

New York State Periodical Distributor Pleads Guilty to Market Allocation Charges

Empire State News Corporation Inc. (Empire) of Buffalo, NY, pleaded guilty and was sentenced to pay a criminal fine of $200,000 for allocating markets for the wholesale distribution of magazines, other periodicals, and books in Western New York and at the Pittsburgh International Airport.

Empire was charged in a two-count felony case filed in U.S. District Court in Syracuse, NY. According to the charges, Empire allegedly participated in a conspiracy to suppress and eliminate competition in the wholesale distribution of magazines, other periodicals, and books in Western New York from January 1999 to mid-2000. Empire also allegedly participated in a conspiracy to eliminate competition for the contract to supply magazines, other periodicals, and books at the Pittsburgh International Airport between March 1999 and mid-2000.

Empire was charged with violating section one of the Sherman Act, which carries a maximum fine of $10 million, per count, for a corporation.

PENNSYLVANIA

Norwegian Shipping Company Pleads Guilty in Parcel Tanker Shipping Investigation

Norwegian-based Odfjell Seachem AS, one of the largest parcel tanker shippers in the world, and two of its executives, Bjorn Sjaastad and Erik Nilsen, were charged with participating in an international cartel to allocate customers, rig bids and fix prices on parcel tanker affreightment contracts for the shipment of special

ty liquids to and from the United States. Sjaastad is the CEO of Odfjell Seachem's parent, Odfjell ASA, and Nilsen is a vice president. Odfjell Seachem and both executives, who are citizens of Norway, have agreed to plead guilty and cooperate with the ongoing investigation. Additionally, Odfjell Seachem has agreed to pay a $42.5 million fine for its role in the alleged cartel. Sjaastad has agreed to pay a $250,000 fine and to serve 4 months in prison, and Nilsen has agreed to pay a $25,000 fine and to serve three months in prison for their roles in the cartel.

Odfjell Seachem AS, Sjaastad and Nilsen are charged with violating section one of the Sherman Act, which, as mentioned previously, carries a statutory maximum penalty of a $10 million fine for a corporation and a maximum penalty of 3 years' imprisonment and a $350,000 fine for an individual.

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Bradley J. Bondi, Esq Williams & Connolly LLP