Among recent enforcement actions by the SEC were charges against Goodyear for FCPA violations and against two Louisiana brothers-in-law for insider trading.
In addition, a New Jersey broker was convicted of defrauding his great-aunt and great-uncle, and the judgment against a pension plan fiduciary added to the $12 million already recovered.
NJ Broker Convicted of Bilking Elderly Relatives in Fake Hedge Fund
Attorney General Eric Schneiderman has announced the felony conviction of Khawaja Saud Masud, of Jersey City, New Jersey, for stealing over $1 million from his great-uncle and great-aunt by fraudulently soliciting them to invest in his purported hedge fund, RKS Capital, LP.
According to the indictment, Masud convinced his relatives, Dr. Kalim Irfani, a 75-year old retired pediatrician, and his wife, Rehana Irfani, of Westchester, to invest with him by claiming that his purported hedge fund RKS Capital, LP was a far safer investment than a mutual fund. He told them that he would preserve their $1 million investment and that not only would their investments be transparent, but they would also be monitored by an independent third-party administrator.
Instead, Masud was a speculator and aggressively traded stocks several times a day; his “strategy” netted massive losses—more than $900,000 in only three months. Of course he did this without his relatives’ knowledge or permission, knowing full well that what he was doing was risky; the trading “strategy” was intended to benefit Masud, not the Irfanis. And, naturally, there was no third-party administrator to oversee what he was doing. Masud canceled the fund administrator’s services.
Just two weeks after he was charged by the attorney general’s office, Masud pleaded guilty to grand larceny in the fourth degree and securities fraud under the Martin Act. Both are Class E felonies.
As part of his plea, Masud has agreed to pay a total of $500,000 in restitution. He has already repaid the Irfanis approximately $200,000, but must pay an additional $300,000 as a condition of his plea. His conviction means deportation to his native Pakistan; he is not a U.S. citizen.
Goodyear to Pay $16M on Bribery Charges
The SEC has charged Goodyear Tire & Rubber Co. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries paid bribes to get tire sales in Kenya and Angola.
According to the agency, Goodyear’s subsidiary in Kenya bribed employees of the Kenya Ports Authority, Armed Forces Canteen Organization, Nzoia Sugar Co., Kenyan Air Force, Ministry of Roads, Ministry of State for Defense, East African Portland Cement Co., and Telkom Kenya Ltd.
Goodyear’s subsidiary in Angola bribed employees of the Catoca diamond mine, which is owned by a consortium of mining interests including Angola’s national mining company Endiama E.P. and Russian mining company Alrosa. Others bribed in Angola worked at Unicargas, Engevia Construction and Public Works, Electric Company of Luanda, National Service of Alfadega, and Sonangol.
The bribes amounted to more than $3.2 million over a four-year period, and Goodyear failed to detect them thanks to inadequate FCPA compliance controls at its subsidiaries in sub-Saharan Africa.
The bribes usually took the form of cash payments to employees of private companies or government-owned entities as well as other local authorities such as police or city council officials. The bribes were disguised as legitimate business expenses in the books and records of the subsidiaries, which were then consolidated into Goodyear’s books and records.
Goodyear neither admitted nor denied the SEC’s charges, but agreed to settle with the agency. The company must pay disgorgement of $14,122,525 — the total of the company’s illicit profits in Kenya and Angola — plus prejudgment interest of $2,105,540. Goodyear also must report its FCPA remediation efforts to the SEC for three years. The settlement reflects the company’s self-reporting, prompt remedial acts and significant cooperation with the SEC’s investigation. Louisiana Brothers-in-Law Charged by SEC With Insider Trading
The SEC has charged former Fortune 500 company executive Scott Zeringue and his brother-in-law, Jesse Roberts III, whom he allegedly tipped with nonpublic information ahead of the company’s merger.
According to the agency, while serving as vice president of construction operations at The Shaw Group, based in Baton Rouge, Zeringue traded company securities based on confidential information he learned on the job about an impending acquisition by Chicago Bridge & Iron Co.
In the weeks leading up to the public announcement of the merger, Zeringue bought 125 shares of Shaw common stock and asked Roberts, a dentist who lives in Ruston, Louisiana, to also buy Shaw stock for him.
Zeringue, Roberts, and others subsequently tipped by Roberts allegedly made nearly $1 million in combined profits after the merger announcement caused the price of Shaw stock to increase by more than 55%. Roberts alone made more than $765,000 through trading call option contracts; others made more than $154,000 from trading based on his tips. Roberts rewarded Zeringue for the original tip by giving him $30,000 in cash in November 2013; the insider trading took place in the summer of 2012.
In a parallel action, the U.S. Attorney’s Office for the Middle District of Louisiana has announced criminal charges against Roberts. Zeringue previously pleaded guilty to criminal charges and has agreed to settle the SEC’s charges by paying disgorgement of his ill-gotten trading profit of $32,006 plus a penalty of $64,012. He will be prohibited from serving as an officer or director of a publicly traded company for 10 years. The settlement is subject to court approval.
The investigation is continuing.
Fiduciary Must Repay $300,000 to Pension Plans
George Hofmeister, trustee of pension plans sponsored by TPOP LLC, formerly known as Metavation LLC, Fairfield Castings LLC (formerly known as Revstone Castings Fairfield LLC), and Fourslides Inc., has been ordered in a consent judgment issued by the U.S. District Court for the Eastern District of Kentucky to repay $300,000 to the plans. In addition, the judgment bars Hofmeister from being a fiduciary or service provider to employee benefit plans under the Employee Retirement Income Security Act.
Previous consent judgments have already been issued against William Tweardy and Nelson Clemmens, members of the investment committee for the Metavation LLC of Southfield, Michigan, and Fairfield LLC of Fairfield, Iowa, pension plans.
More than $12 million has been recovered after investigations by the U.S. Department of Labor resulted in court orders and injunctions against Hofmeister and other fiduciaries.
The lawsuits allege that, among others, Hofmeister, Bernard Tew, investment service provider Bluegrass Investment Management LLC, investment service provider Tew Enterprises LLC, Metavation, Fairfield, Fourslides, Tweardy and Clemmens improperly used pension funds. Ongoing litigation seeks judgments against the remaining defendants. All the cases were investigated by the Employee Benefits Security Administration’s (EBSA) Cincinnati regional office.
Investigators found improper use of plan assets for the purchase and lease of company property, the prohibited purchase of customer notes from affiliated companies, the prohibited transfer of assets in favor of a party-in-interest, the payment of excessive fees to service providers and other violations.
Metavation, Fairfield, Fourslides, Revstone and their affiliated companies design and manufacture components used in the transportation and heavy-truck industries. Revstone and its various affiliates, including Metavation and Fairfield, were directed by Hofmeister and owned by the irrevocable trusts of Hofmeister’s children.
— Check out SEC, FINRA Enforcement: Fake Hedge Fund Manager Seeks His Perfect Match on ThinkAdvisor.