Business Crimes Hotline

Madoff's sentencing follows his March 12, 2009 guilty plea to an 11-count information charging securities fraud, investment-adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the Securities and Exchange Commission, and theft from an employee-benefit plan. Prosecutors charged that Madoff orchestrated a decades-long multi-billion-dollar Ponzi scheme, dating at least to the 1980s, through his investment firm, Bernard L. Madoff Investment Securities.

In a letter to Judge Chin, Madoff had asked for a sentence of 12 years' imprisonment. Prosecutors asked for a sentence of 150 years, the maximum sentence allowed.

The DOJ's investigation is ongoing. On July 17, 2009, accountant David Friehling pleaded not guilty to a criminal information charging him with securities fraud and investment-adviser fraud and four counts of making false filings with the SEC.

Marc Dreier Sentenced to 20 Years

On July 13, 2009, Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York sentenced Marc Dreier, an attorney and the founder of law firm Dreier LLP, to 20 years' imprisonment for defrauding hedge funds and individuals of $400 million and stealing more than $46 million from his clients. Judge Rakoff also ordered Dreier to pay more than $387 million in restitution and to forfeit more than $746 million in proceeds of his crimes.

Prosecutors had charged that from 2002 to 2008, Dreier sold more than 85 false promissory notes to hedge funds and individuals, claiming that the notes were issued by a New York real estate developer who was a client of Dreier LLP. Dreier collected more than $700 million through the sale of the false promissory notes. He pleaded guilty on May 11, 2009, to one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, five counts of wire fraud, and one count of money laundering.

Prosecutors asked the court to sentence Dreier to 145 years' imprisonment. Dreier asked for a sentence of between 10 and 12.5 years.

Handbag Manufacturer Convicted of FCPA-Related Charges

On July 10, 2009, after a six-week trial, a jury sitting in the U.S. District Court for the Southern District of New York found businessman Frederic A. Bourke, Jr., guilty of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”) and the Travel Act and of making false statements to the FBI. Bourke is the co-founder of handbag maker Dooney & Bourke.

Prosecutors charged that in 1997 and 1998, Bourke conspired with Viktor Kozeny to bribe senior government officials in Azerbaijan, including former President Heidar Aliyev, with several hundred million dollars in stock, cash, and other gifts in an effort to ensure that those officials would privatize the State Oil Company of the Azerbaijan Republic (SOCAR) through a public auction that only Bourke and Kozeny's investment group could win. The government's case focused on the testimony of former Kozeny aide Thomas Farrell and former Kozeny lawyer Hans Bodmer. Both men, who pleaded guilty and cooperated with the government, testified that they told Bourke about Kozeny's payments to Azeri officials. The Department further argued that Bourke consciously avoided learning about Kozeny's payments.

Prosecutors also contended that in 2002, Bourke falsely told FBI agents that he did not know that Kozeny had made payments to the Azeri officials.

In 2005, a federal grand jury indicted Kozeny, an expatriate of Czechoslovakia, along with Bourke. Kozeny admitted to paying bribes but contended that the FCPA did not apply to him because he is not a citizen of the United States.

The jury acquitted Bourke of one count of money laundering. The court has scheduled sentencing for Oct. 13, 2009. Bourke faces a maximum sentence of five years' imprisonment and a $250,000 fine, or twice the gross gain or loss resulting from the conduct underlying his conviction.

Attorney Convicted of Conspiracy and Fraud

On July 10, 2009, after an eight-week trial and a week of deliberation, a jury sitting in the U.S. District Court for the Southern District of New York convicted Joseph P. Collins, an outside attorney for Refco, Inc., of conspiracy, two counts of securities fraud, and two counts of wire fraud for his role in a scheme to help individuals at the commodities firm conceal its financial troubles and defraud investors of more than $2 billion. Judge Robert P. Patterson declared a mistrial on the remaining nine counts after the jury could not reach a verdict.

Prosecutors argued that Collins helped former Refco Chief Executive Phillip R. Bennett and others hide hundreds of millions of dollars of undisclosed debt, losses, and expenses from Refco's investors. Bennett pleaded guilty last year to a 20-count indictment charging securities fraud and related offenses. He was sentenced to 16 years' imprisonment.

The DOJ has not announced whether it intends to re-try Collins on the remaining counts. Judge Patterson has scheduled sentencing for Nov. 3, 2009.

WASHINGTON, DC

Ameriprise Financial Services, Inc., Agrees to $17.3 Million Settlement with SEC

On July 10, 2009, the SEC announced that Ameriprise Financial Services, Inc, had agreed to pay $17.3 million to settle an enforcement action for receiving more than $30 million in undisclosed compensation as a condition for offering and selling real estate investment trusts (“REITs”) to its customers.

The SEC concluded that from 2000 to 2004, Ameriprise received “revenue sharing” payments related to its sales of REITs and failed to disclose those payments, and the conflict of interest they created, to investors. The Commission also found that Ameriprise violated federal securities laws by selling more than $100 million of unregistered shares in one of the REITs.

Ameriprise settled the case without admitting or denying the SEC's allegations.

Beazer Homes USA, Inc., Settles with DOJ for Up to $53 Million; SEC Files Civil Complaint Against Ex-CAO Michael T. Rand

On July 1, 2009, the DOJ announced that Beazer Homes USA, Inc. (“Beazer”), had agreed to pay up to $53 million to settle False Claims Act allegations related to alleged mortgage fraud by Beazer's mortgage unit, Beazer Mortgage Corp. (“Beazer Mortgage”). Beazer also entered into a deferred-prosecution agreement with the U.S. Attorney's Office for the Western District of North Carolina.

The DOJ had alleged that Beazer Mortgage required home purchasers to pay discount points on federally insured mortgages but failed to reduce interest rates. The Department also alleged that Beazer Mortgage ignored income requirements and funneled cash to home buyers through charities to help those buyers make down payments. The Department claimed that the Federal Housing Administration suffered inflated losses when some of those mortgages defaulted. Under the terms of the settlement and deferred-prosecution agreement, Beazer will pay $5 million to the DOJ and will pay up to $48 million in restitution to home buyers.

Also on July 1, the SEC filed a civil complaint in the U.S. District Court for the Northern District of Georgia against Beazer's former Chief Accounting Officer, Michael T. Rand. The Commission alleged that from 2000 to 2006, Rand engaged in a multi-year earnings-management scheme and misled Beazer's internal and external accountants to hide his wrongdoing. According to the complaint, Rand decreased Beazer's net income by recording more than $60 million in improper accounting reserves, then began reversing those reserves in 2006 to mask Beazer's worsening performance. Along with other improper actions, the Commission alleged that Rand's conduct caused Beazer to understate its income by approximately $63 million from 2000 to 2005 and to overstate its income by $47 million from 2006 to 2007. The SEC is seeking a permanent injunction, disgorgement of bonuses, a financial penalty, and an order barring Rand from serving as an officer or director of a listed public company.

NEW YORK

Bernard Madoff Sentenced To 150 Years' Imprisonment

On June 29, 2009, Judge Denny Chin of the U.S. District Court for the Southern District of New York sentenced Bernard Madoff to 150 years imprisonment for his “extraordinarily evil” scheme that defrauded investors of more than $13 billion.

Madoff's sentencing follows his March 12, 2009 guilty plea to an 11-count information charging securities fraud, investment-adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the Securities and Exchange Commission, and theft from an employee-benefit plan. Prosecutors charged that Madoff orchestrated a decades-long multi-billion-dollar Ponzi scheme, dating at least to the 1980s, through his investment firm, Bernard L. Madoff Investment Securities.

In a letter to Judge Chin, Madoff had asked for a sentence of 12 years' imprisonment. Prosecutors asked for a sentence of 150 years, the maximum sentence allowed.

The DOJ's investigation is ongoing. On July 17, 2009, accountant David Friehling pleaded not guilty to a criminal information charging him with securities fraud and investment-adviser fraud and four counts of making false filings with the SEC.

Marc Dreier Sentenced to 20 Years

On July 13, 2009, Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York sentenced Marc Dreier, an attorney and the founder of law firm Dreier LLP, to 20 years' imprisonment for defrauding hedge funds and individuals of $400 million and stealing more than $46 million from his clients. Judge Rakoff also ordered Dreier to pay more than $387 million in restitution and to forfeit more than $746 million in proceeds of his crimes.

Prosecutors had charged that from 2002 to 2008, Dreier sold more than 85 false promissory notes to hedge funds and individuals, claiming that the notes were issued by a New York real estate developer who was a client of Dreier LLP. Dreier collected more than $700 million through the sale of the false promissory notes. He pleaded guilty on May 11, 2009, to one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, five counts of wire fraud, and one count of money laundering.

Prosecutors asked the court to sentence Dreier to 145 years' imprisonment. Dreier asked for a sentence of between 10 and 12.5 years.

Handbag Manufacturer Convicted of FCPA-Related Charges

On July 10, 2009, after a six-week trial, a jury sitting in the U.S. District Court for the Southern District of New York found businessman Frederic A. Bourke, Jr., guilty of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”) and the Travel Act and of making false statements to the FBI. Bourke is the co-founder of handbag maker Dooney & Bourke.

Prosecutors charged that in 1997 and 1998, Bourke conspired with Viktor Kozeny to bribe senior government officials in Azerbaijan, including former President Heidar Aliyev, with several hundred million dollars in stock, cash, and other gifts in an effort to ensure that those officials would privatize the State Oil Company of the Azerbaijan Republic (SOCAR) through a public auction that only Bourke and Kozeny's investment group could win. The government's case focused on the testimony of former Kozeny aide Thomas Farrell and former Kozeny lawyer Hans Bodmer. Both men, who pleaded guilty and cooperated with the government, testified that they told Bourke about Kozeny's payments to Azeri officials. The Department further argued that Bourke consciously avoided learning about Kozeny's payments.

Prosecutors also contended that in 2002, Bourke falsely told FBI agents that he did not know that Kozeny had made payments to the Azeri officials.

In 2005, a federal grand jury indicted Kozeny, an expatriate of Czechoslovakia, along with Bourke. Kozeny admitted to paying bribes but contended that the FCPA did not apply to him because he is not a citizen of the United States.

The jury acquitted Bourke of one count of money laundering. The court has scheduled sentencing for Oct. 13, 2009. Bourke faces a maximum sentence of five years' imprisonment and a $250,000 fine, or twice the gross gain or loss resulting from the conduct underlying his conviction.

Attorney Convicted of Conspiracy and Fraud

On July 10, 2009, after an eight-week trial and a week of deliberation, a jury sitting in the U.S. District Court for the Southern District of New York convicted Joseph P. Collins, an outside attorney for Refco, Inc., of conspiracy, two counts of securities fraud, and two counts of wire fraud for his role in a scheme to help individuals at the commodities firm conceal its financial troubles and defraud investors of more than $2 billion. Judge Robert P. Patterson declared a mistrial on the remaining nine counts after the jury could not reach a verdict.

Prosecutors argued that Collins helped former Refco Chief Executive Phillip R. Bennett and others hide hundreds of millions of dollars of undisclosed debt, losses, and expenses from Refco's investors. Bennett pleaded guilty last year to a 20-count indictment charging securities fraud and related offenses. He was sentenced to 16 years' imprisonment.

The DOJ has not announced whether it intends to re-try Collins on the remaining counts. Judge Patterson has scheduled sentencing for Nov. 3, 2009.

WASHINGTON, DC

Ameriprise Financial Services, Inc., Agrees to $17.3 Million Settlement with SEC

On July 10, 2009, the SEC announced that Ameriprise Financial Services, Inc, had agreed to pay $17.3 million to settle an enforcement action for receiving more than $30 million in undisclosed compensation as a condition for offering and selling real estate investment trusts (“REITs”) to its customers.

The SEC concluded that from 2000 to 2004, Ameriprise received “revenue sharing” payments related to its sales of REITs and failed to disclose those payments, and the conflict of interest they created, to investors. The Commission also found that Ameriprise violated federal securities laws by selling more than $100 million of unregistered shares in one of the REITs.

Ameriprise settled the case without admitting or denying the SEC's allegations.

Beazer Homes USA, Inc., Settles with DOJ for Up to $53 Million; SEC Files Civil Complaint Against Ex-CAO Michael T. Rand

On July 1, 2009, the DOJ announced that Beazer Homes USA, Inc. (“Beazer”), had agreed to pay up to $53 million to settle False Claims Act allegations related to alleged mortgage fraud by Beazer's mortgage unit, Beazer Mortgage Corp. (“Beazer Mortgage”). Beazer also entered into a deferred-prosecution agreement with the U.S. Attorney's Office for the Western District of North Carolina.

The DOJ had alleged that Beazer Mortgage required home purchasers to pay discount points on federally insured mortgages but failed to reduce interest rates. The Department also alleged that Beazer Mortgage ignored income requirements and funneled cash to home buyers through charities to help those buyers make down payments. The Department claimed that the Federal Housing Administration suffered inflated losses when some of those mortgages defaulted. Under the terms of the settlement and deferred-prosecution agreement, Beazer will pay $5 million to the DOJ and will pay up to $48 million in restitution to home buyers.

Also on July 1, the SEC filed a civil complaint in the U.S. District Court for the Northern District of Georgia against Beazer's former Chief Accounting Officer, Michael T. Rand. The Commission alleged that from 2000 to 2006, Rand engaged in a multi-year earnings-management scheme and misled Beazer's internal and external accountants to hide his wrongdoing. According to the complaint, Rand decreased Beazer's net income by recording more than $60 million in improper accounting reserves, then began reversing those reserves in 2006 to mask Beazer's worsening performance. Along with other improper actions, the Commission alleged that Rand's conduct caused Beazer to understate its income by approximately $63 million from 2000 to 2005 and to overstate its income by $47 million from 2006 to 2007. The SEC is seeking a permanent injunction, disgorgement of bonuses, a financial penalty, and an order barring Rand from serving as an officer or director of a listed public company.