Among recent enforcement actions by the SEC were charges against a Florida-based stock promoter for lying to SEC investigators, suspension of trade of 61 shell companies to preclude fraud, charges against a Fortune 200 company for accounting deficiencies, charges against a penny stock company and its CEO for an illegal stock offering and insider trading, and an emergency freeze on the assets of a Thailand-based trader who engaged in insider trading ahead of the announcement that Smithfield Foods had agreed to be acquired by a Chinese company.
Florida-Based Stock Promoter Charged with Lying to SEC Investigators
The SEC announced that former broker Robert Vitale, the subject of an enforcement inquiry in Florida, has been criminally charged for obstructing justice and lying to SEC investigators looking into his real estate securities offerings to investors.
Vitale and his investment company, Realty Acquisitions & Trust, received subpoenas from SEC investigators, working to identify investor funds and assets related to the securities offerings in question, for all related bank records. In addition, Vitale testified under oath.
However, he lied about the existence of two separate bank accounts, failing to disclose them to the SEC. In one case, he deposited $100,000 into a bank account in Fort Lauderdale under the name of “B.L. Inc.” in the days before he testified in June of 2012. When he was asked under oath by SEC investigators, he did not reveal the existence of the account.
Vitale is a repeat offender. Several years ago he was charged by the SEC for participating in a pump-and-dump market manipulation scheme. He later settled the charges, and was barred from the brokerage industry.
SEC Suspends Trading on 61 Shell Companies
In the second-largest trading suspension in its history, the SEC suspended trade in the stocks of 61 microcap shell companies with delinquent public filings that apparently are no longer in business.
The SEC’s microcap fraud working group identified the over-the-counter companies in at least 17 states and one foreign country, and suspended trade in their stocks to either compel the companies to prove they’re still operational by submitting updated financial information, or to ward off hijacking by fraudsters who look for such companies to use in pump-and-dump schemes.
The perpetrators will hype these thinly traded companies to the public with faked or misleading statements about them, then buy up the shares at a low price to make it appear as if there’s market interest in them. Then they reel in the public, which buys shares and drives the price higher. When the price is high enough to make it worth their while, the perpetrators will then dump their shares, reap the profits, and disappear.
In 2012, the SEC conducted its highest ever shutdown of 379 companies in one day, in its Operation Shell Expel initiative.
Fortune 200 Company Charged for Accounting Deficiencies
Bellevue, Wash.-based commercial truck manufacturer PACCAR and a subsidiary, PACCAR Financial Corp., were charged by the SEC for various accounting deficiencies that clouded their financial reporting to investors in the midst of the financial crisis.
According to the SEC, PACCAR, a Fortune 200 company that designs, manufactures and distributes trucks and related aftermarket parts that are sold worldwide under the Kenworth, Peterbilt and DAF nameplates, failed to report the results for its parts business as a separate segment from its truck sales as required under generally accepted accounting principles (GAAP). This occurred from 2008 through the third quarter of 2012.
As an example, the company’s 2009 annual report showed $68 million in income before taxes for its truck segment. However, PACCAR documents and board materials reviewed by senior executives showed a very different picture: the trucks business suffered a $474 million loss and the parts business had $542 million profit; those together arrived at the net income before taxes of $68 million. By at least 2008, PACCAR should have been reporting aftermarket parts as a separate segment in its SEC filings, but it did not do so until the end of 2012.
PACCAR and its subsidiary also failed to maintain accurate books and records regarding their impaired loans and leases, causing them to improperly identify and disclose loans and leases for impairment. As a result, they understated the amounts of their impaired receivables and the specific reserve associated with the receivables in footnotes to their respective 2009 Form 10-K filings. In addition, there were other reporting failures.