Business Crimes Hotline

Mozilo founded Countrywide in 1969 along with David Loeb. Since then, Countrywide grew to boast a 2006 pre-tax income of more than $4 billion, almost half of which came from mortgage banking. It was the nation's largest mortgage lender. Most of the mortgage loans created by Countrywide were then sold into the secondary market, repackaged as securities. Countrywide was ultimately acquired by Bank of America after its value plummeted with the bursting of the housing bubble.

A grand jury investigation into Mozilo had been ongoing since 2008, but will result in no indictments of Mozilo or others at Countrywide. Mozilo did, however, settle a civil action by the Securities and Exchange Commission in late 2010, agreeing to pay a $22.5 million fine and $45 million in ill-gotten gains. The SEC had alleged that Mozilo mislead shareholders about the risks of subprime mortgages in public statements.

FLORIDA

Attorney Indicted in Stock Manipulation

Michael Simon Krome, of Long Island, NY, was among six individuals indicted in the Southern District of Florida in relation to a scheme to defraud investors.

According to the government, the conspirators took control of a company called CO2 Tech by obtaining its outstanding shares, which they could not do legally. Krome allegedly helped the group evade federal securities registration requirements in obtaining the shares. They then sold the shares to the public and were able to hide the actual financial condition of the company by avoiding further registration requirements. The government alleges that the group also created false trades and issued false press releases to show the public that the company had real prospects and business.

Krome was indicted on charges of conspiracy to commit securities, mail and wire fraud; wire fraud; violating securities regulations; and obstruction of justice.

NEW YORK

Investment Bank Chairman Pleads Guilty to Insider Trading

Richard Hansen, the former chairman of the Keystone Equities Group, has pleaded guilty to conspiracy and securities fraud in U.S. District Court for the Southern District of New York.

According to the government, Hansen received information from a partner at Ernst & Young (“E&Y”) about potential acquisitions for which E&Y had been retained. In the first instance, Hanson learned that Advanced Microdevices, Inc. (“AMD”) was discussing acquiring ATI Technologies (“ATI”). In the second, Hansen learned of the Blackstone Group's potential purchase of Freescale Semiconductor Corporation. In both instances, Hansen purchased shares of the target company in accounts held in his daughters' names and sold them for a profit following the completion of the transactions. As a result of the plea, Hansen faces a maximum of 25 years in prison.

James Gansman, the E&Y partner who provided the information, was previously convicted by a jury of six counts of securities fraud and sentenced to one year and one day in jail. Donna Murdoch, who had relayed the information from Gansman to Hansen, pleaded guilty to securities fraud and is awaiting sentencing.

Three Plead Guilty in Fraud And Stock Manipulation Scheme

Arn Wilson, Michael Passaro, and Robert Grabowski pleaded guilty to four counts of conspiracy and securities, wire, and mail fraud related to a scheme to defraud investors.

The three were all former brokers at Sky Capital, LLC. The government alleged that they committed the fraud through Sky Capital and The Thornwater Company, L.P., two broker-dealers. The government claimed that the three, along with others, made misrepresentations to obtain investments into purported private placements and other securities, while actually using the funds to pay themselves and brokers, and to pay off other victims. In addition, the government alleged that Sky Capital brokers manipulated stock prices of affiliated entities.

Wilson, Passaro, and Grabowski each face up to 65 years in prison, in addition to fines. Charges against other individuals are pending.

Man Receives 27 Months for Insider Trading Scheme Based on Information Stolen from Walt Disney

Southern District of New York Judge Kimba Wood sentenced Yonni Sebbag to 27 months in prison for his role in an insider trading scheme. Sebbag conspired with an assistant to a Disney executive to obtain confidential information about the company's quarterly earnings. Sebbag then sought to sell that information to investors in advance of the announced earnings. He solicited potential customers by sending anonymous letters to a number of hedge funds. To catch Sebbag, agents from the FBI posed as members of the hedge funds and agreed to purchase his information. As a part of the deal, Sebbag provided talking points for the earnings announcement and the actual earnings figures in exchange for $15,000.

Sebbag's co-conspirator, Bonnie Hoxie, was sentenced to three years of probation after pleading guilty to conspiracy and wire fraud charges. She will also serve 100 hours of community service.

WASHINGTON, DC

111 Charged with Medicare Fraud Worth over $225 Million

On Feb. 17, 2011, Attorney General Eric Holder and Secretary of Health and Human Services Secretary Kathleen Sebelius announced the largest health-care fraud sweep in U.S. history. One hundred and eleven defendants in nine cities were arrested on Medicare fraud charges related to 40 different schemes.

The sweep brought in several different types of schemes. Groups paid kickbacks to Medicare beneficiaries to accept unnecessary services. Some over-billed for services that were provided, while others simply billed for services that were never provided. The government alleges that the attempted fraud totaled more than $240 million.

The Medicare Fraud Strike Force, which includes the HHS Inspector General's Office, the FBI and U.S. Attorneys and targets both Medicare and Medicaid fraud, led the investigations. At the same time, the DOJ announced the expansion of the Strike Force to two additional cities: Dallas and Chicago.

Maxwell Technologies Pays More Than $13 Million to Resolve FCPA Charges

Maxwell Technologies, Inc. has agreed to pay an $8 million criminal fine and disgorge $5.654 million in profits to resolve alleged violations of the Foreign Corrupt Practices Act (“FCPA”).

The government alleged that Maxwell's Swiss subsidiary, Maxwell S.A., paid its Chinese agent more than $2.5 million to secure contracts with Chinese customers, including state-owned manufacturers. The agent then used these funds to bribe officials at these state-owned entities. The government alleged these bribes resulted in contracts worth more than $15 million.

As a part of the resolution, the DOJ filed a two-count information charging the company with violations of the anti-bribery and books-and-records provisions of the FCPA, and a three-year deferred prosecution agreement. Maxwell's management discovered the bribery scheme in 2002 and voluntarily disclosed the violations to the DOJ and the SEC.

The SEC's civil complaint charged Maxwell with violating the anti-bribery, books and records, internal controls, and disclosure provisions of the FCPA.

MUNICH, GERMANY

Ex-Siemens Management Board Member Faces Bribery Trial

Thomas Ganswindt, a former member of the Siemens AG management board, will be tried on charges that he allegedly failed to stop bribes paid by Siemens in Nigeria and Russia. Although originally scheduled to proceed in January, his trial has been postponed until April.

Ganswindt was the head of Siemens' communications unit prior to joining the central management board. Prosecutors allege that he learned of corruption at the company and could have uncovered slush funds worth approximately $41.2 million, had he investigated. In 2006, dawn raids at Siemens led to investigations in multiple countries and payments by Siemens of $1.6 billion to settle U.S. and German prosecutions.

Ganswindt faces three counts of inadequately supervising a company for failing to stop the bribery and tax evasion. He has also been charged with seven counts of aiding bribery of foreign officials but the Munich court will address those charges separately. Although he is the first senior executive to be tried in the Siemens scandal, investigations of others continue.

Business Crimes Hotline and In the Courts were written by Associate Editor Kenneth S. Clark and Matthew J. Alexander, respectively. Both are associates at Kirkland & Ellis LLP, Washington, DC.

CALIFORNIA

Investigation of Former Countrywide Chairman Concludes Without Charges

Former Countrywide Financial Chairman and CEO Angelo Mozilo appears to have avoided federal criminal charges arising from his role in the mortgage crisis.

Mozilo founded Countrywide in 1969 along with David Loeb. Since then, Countrywide grew to boast a 2006 pre-tax income of more than $4 billion, almost half of which came from mortgage banking. It was the nation's largest mortgage lender. Most of the mortgage loans created by Countrywide were then sold into the secondary market, repackaged as securities. Countrywide was ultimately acquired by Bank of America after its value plummeted with the bursting of the housing bubble.

A grand jury investigation into Mozilo had been ongoing since 2008, but will result in no indictments of Mozilo or others at Countrywide. Mozilo did, however, settle a civil action by the Securities and Exchange Commission in late 2010, agreeing to pay a $22.5 million fine and $45 million in ill-gotten gains. The SEC had alleged that Mozilo mislead shareholders about the risks of subprime mortgages in public statements.

FLORIDA

Attorney Indicted in Stock Manipulation

Michael Simon Krome, of Long Island, NY, was among six individuals indicted in the Southern District of Florida in relation to a scheme to defraud investors.

According to the government, the conspirators took control of a company called CO2 Tech by obtaining its outstanding shares, which they could not do legally. Krome allegedly helped the group evade federal securities registration requirements in obtaining the shares. They then sold the shares to the public and were able to hide the actual financial condition of the company by avoiding further registration requirements. The government alleges that the group also created false trades and issued false press releases to show the public that the company had real prospects and business.

Krome was indicted on charges of conspiracy to commit securities, mail and wire fraud; wire fraud; violating securities regulations; and obstruction of justice.

NEW YORK

Investment Bank Chairman Pleads Guilty to Insider Trading

Richard Hansen, the former chairman of the Keystone Equities Group, has pleaded guilty to conspiracy and securities fraud in U.S. District Court for the Southern District of New York.

According to the government, Hansen received information from a partner at Ernst & Young (“E&Y”) about potential acquisitions for which E&Y had been retained. In the first instance, Hanson learned that Advanced Microdevices, Inc. (“AMD”) was discussing acquiring ATI Technologies (“ATI”). In the second, Hansen learned of the Blackstone Group's potential purchase of Freescale Semiconductor Corporation. In both instances, Hansen purchased shares of the target company in accounts held in his daughters' names and sold them for a profit following the completion of the transactions. As a result of the plea, Hansen faces a maximum of 25 years in prison.

James Gansman, the E&Y partner who provided the information, was previously convicted by a jury of six counts of securities fraud and sentenced to one year and one day in jail. Donna Murdoch, who had relayed the information from Gansman to Hansen, pleaded guilty to securities fraud and is awaiting sentencing.

Three Plead Guilty in Fraud And Stock Manipulation Scheme

Arn Wilson, Michael Passaro, and Robert Grabowski pleaded guilty to four counts of conspiracy and securities, wire, and mail fraud related to a scheme to defraud investors.

The three were all former brokers at Sky Capital, LLC. The government alleged that they committed the fraud through Sky Capital and The Thornwater Company, L.P., two broker-dealers. The government claimed that the three, along with others, made misrepresentations to obtain investments into purported private placements and other securities, while actually using the funds to pay themselves and brokers, and to pay off other victims. In addition, the government alleged that Sky Capital brokers manipulated stock prices of affiliated entities.

Wilson, Passaro, and Grabowski each face up to 65 years in prison, in addition to fines. Charges against other individuals are pending.

Man Receives 27 Months for Insider Trading Scheme Based on Information Stolen from Walt Disney

Southern District of New York Judge Kimba Wood sentenced Yonni Sebbag to 27 months in prison for his role in an insider trading scheme. Sebbag conspired with an assistant to a Disney executive to obtain confidential information about the company's quarterly earnings. Sebbag then sought to sell that information to investors in advance of the announced earnings. He solicited potential customers by sending anonymous letters to a number of hedge funds. To catch Sebbag, agents from the FBI posed as members of the hedge funds and agreed to purchase his information. As a part of the deal, Sebbag provided talking points for the earnings announcement and the actual earnings figures in exchange for $15,000.

Sebbag's co-conspirator, Bonnie Hoxie, was sentenced to three years of probation after pleading guilty to conspiracy and wire fraud charges. She will also serve 100 hours of community service.

WASHINGTON, DC

111 Charged with Medicare Fraud Worth over $225 Million

On Feb. 17, 2011, Attorney General Eric Holder and Secretary of Health and Human Services Secretary Kathleen Sebelius announced the largest health-care fraud sweep in U.S. history. One hundred and eleven defendants in nine cities were arrested on Medicare fraud charges related to 40 different schemes.

The sweep brought in several different types of schemes. Groups paid kickbacks to Medicare beneficiaries to accept unnecessary services. Some over-billed for services that were provided, while others simply billed for services that were never provided. The government alleges that the attempted fraud totaled more than $240 million.

The Medicare Fraud Strike Force, which includes the HHS Inspector General's Office, the FBI and U.S. Attorneys and targets both Medicare and Medicaid fraud, led the investigations. At the same time, the DOJ announced the expansion of the Strike Force to two additional cities: Dallas and Chicago.

Maxwell Technologies Pays More Than $13 Million to Resolve FCPA Charges

Maxwell Technologies, Inc. has agreed to pay an $8 million criminal fine and disgorge $5.654 million in profits to resolve alleged violations of the Foreign Corrupt Practices Act (“FCPA”).

The government alleged that Maxwell's Swiss subsidiary, Maxwell S.A., paid its Chinese agent more than $2.5 million to secure contracts with Chinese customers, including state-owned manufacturers. The agent then used these funds to bribe officials at these state-owned entities. The government alleged these bribes resulted in contracts worth more than $15 million.

As a part of the resolution, the DOJ filed a two-count information charging the company with violations of the anti-bribery and books-and-records provisions of the FCPA, and a three-year deferred prosecution agreement. Maxwell's management discovered the bribery scheme in 2002 and voluntarily disclosed the violations to the DOJ and the SEC.

The SEC's civil complaint charged Maxwell with violating the anti-bribery, books and records, internal controls, and disclosure provisions of the FCPA.

MUNICH, GERMANY

Ex-Siemens Management Board Member Faces Bribery Trial

Thomas Ganswindt, a former member of the Siemens AG management board, will be tried on charges that he allegedly failed to stop bribes paid by Siemens in Nigeria and Russia. Although originally scheduled to proceed in January, his trial has been postponed until April.

Ganswindt was the head of Siemens' communications unit prior to joining the central management board. Prosecutors allege that he learned of corruption at the company and could have uncovered slush funds worth approximately $41.2 million, had he investigated. In 2006, dawn raids at Siemens led to investigations in multiple countries and payments by Siemens of $1.6 billion to settle U.S. and German prosecutions.

Ganswindt faces three counts of inadequately supervising a company for failing to stop the bribery and tax evasion. He has also been charged with seven counts of aiding bribery of foreign officials but the Munich court will address those charges separately. Although he is the first senior executive to be tried in the Siemens scandal, investigations of others continue.

Business Crimes Hotline and In the Courts were written by Associate Editor Kenneth S. Clark and Matthew J. Alexander, respectively. Both are associates at Kirkland & Ellis LLP, Washington, DC.