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August 01, 2014 at 04:45 AM
Among recent enforcement actions was a judge’s order for Bank of America to pay $1.27 billion for a Countrywide mortgage program known as “Hustle.”
In addition, the SEC went after LavaFlow for failing to protect confidential client data; Smith & Wesson for violations of the Foreign Corrupt Practices Act; a penny stock company linked to a solar farm scheme the agency has already acted on; and a CEO and a former CFO with hiding deficiencies in internal controls and violations of Sarbanes-Oxley requirements.
SEC Fines Smith & Wesson for Bribing Pakistani, Indonesian Officials
Smith & Wesson Holding Corp. has been fined $2 million by the SEC with violating the Foreign Corrupt Practices Act over improper payments to foreign officials while trying to win contracts to supply firearm products to military and law enforcement groups overseas.
According to the agency, the U.S.-based parent company was trying to break into new overseas markets from 2007 to 2010. During that time, Smith & Wesson’s international sales staff went all out to attract new business by attempting to bribe government officials in Pakistan, Indonesia and other foreign countries, the SEC said. Many of those attempts were unsuccessful.
In one instance, the company retained a third-party agent in Pakistan in 2008 to help get a deal to sell firearms to a Pakistani police department. Company officials authorized the agent to provide more than $11,000 worth of guns to Pakistani police officials as gifts, and then make additional cash payments. In this case, Smith & Wesson did win a contract to sell 548 pistols to the Pakistani police, for a profit of $107,852.
Other such efforts were not so successful. A 2009 effort win a contract to sell firearms to an Indonesian police department involved making improper payments to a third-party agent in Indonesia, who said part of the money would go to Indonesian officials and would be disguised as firearm lab testing costs. The agent also said Indonesian police officials expected to be paid more than the actual cost of testing the guns. Smith & Wesson officials paid, but no deal resulted.
The company also authorized improper payments to third-party agents, some of which were intended for foreign officials in Turkey, Nepal and Bangladesh. These efforts also failed.
Smith & Wesson agreed to settle without admitting or denying the SEC’s findings. It also agreed to pay a $1.906 million penalty, $107,852 in disgorgement and $21,040 in prejudgment interest. The SEC also considered the company’s cooperation, which included stopping the impending international sales transactions before they went through and implementing significant measures to improve internal controls and compliance. The company also terminated its entire international sales staff.
“We are pleased to have concluded this matter with the SEC and believe that the settlement we have agreed upon is in the best interests of Smith & Wesson and its shareholders,” Smith & Wesson President and CEO James Debney said in a statement. “Today’s announcement brings to conclusion a legacy issue for our company that commenced more than four years ago, and we are pleased to now finally put this matter behind us.”
Bank of America Ordered to Pay $1.27 Billion for ‘Hustle’
U.S. District Judge Jed Rakoff has ordered Bank of America to pay $1.27 billion in the wake of a jury decision last October to hold the bank liable for sales of defective loans to Fannie Mae and Freddie Mac by Countrywide Financial Corp., which the bank bought in July 2008.
In addition, Rakoff ordered Rebecca Mairone, a former Countrywide executive who was the only one charged in the case and was also found liable, to pay $1 million.
The Department of Justice had sought a penalty of $2.1 billion, but Rakoff was reported to say of his decision that the amount of liability was based on $2.96 billion, the amount Fannie and Freddie paid for 17,611 Hustle loans—so called because the program under which they were made was known as “High Speed Swim Lane,” or HSSL—which transmogrified to “Hustle.”
Rakoff said he based his decision on a government expert’s finding that only some loans were materially defective, and on the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
According to U.S. Attorney Preet Bharara, it was the first case in which civil penalties for mortgage fraud leading to the financial crisis were levied on a bank and an executive under FIRREA.
Bank of America is considering appealing the fine.
LavaFlow Charged with Failure to Protect Subscriber Data
LavaFlow, Inc., owned by Citigroup Financial Products, was charged by the SEC with failing to protect the confidential trading data of its subscribers.
LavaFlow operates an alternative trading system (ATS), a venue that executes stock trades on behalf of broker-dealers and other traders. LavaFlow’s particular type of ATS is known as an electronic communications network (ECN). Unlike a dark pool, an ECN displays some information about pending orders in its system, such as best bid or best offer.
