Securities Fraud

US District Court Judge Robert Blackburn on April 29 sentenced 72-year-old Norman Schmidt of Denver to a mind-boggling 330 years in prison and ordered him to forfeit more than $38 million for his central role in a $56 million high-yield investment scam that allegedly defrauded about 1,000 investors. A jury convicted Schmidt in May 2007 on 37 counts including conspiracy, mail fraud, wire fraud, securities fraud and money laundering. Schmidt and his co-defendants — his wife Jannice and 5 others — allegedly used most of the investor funds for their own personal gain. In written response to an earlier government recommendation for such a sentence, Schmidt’s attorney Thomas Hammond called it outrageous and unreasonable and said it “threatens to make a mockery of the federal sentencing process” (Denver Post, Denver Bizjournal, DOJ).

One day later, 72-year-old defendant Charles Lewis was sentenced by Judge Blackburn to 30 years in prison for his role (Denver Post). Blackburn previously sentenced Jannice Schmidt to nine years in prison.

Hat tip to AUSA Mark Barrett for forwarding this story to us.

A jury in US District Court in Miami on Monday convicted Nicholas Bachynsky on one count of conspiracy, three counts of wire fraud and one count of securities fraud after a six and a half week trial. The charges arose from a cancer cure marketing scheme that raised $6 million from investors, most of whom lost all their money. Bachynsky was cofounder and medical director of Helvetia Pharmaceuticals, which was launched in 2001 to administer and develop a cancer treatment in Europe known as intracellular hyperthermia therapy. Helvetia solicited investors with significant misrepresentations, including falsifying results of unsuccessful laboratory and clinical trials to claim that the therapy was successful, and making false claims that Helvetia owned exclusive rights to the therapy when Bachynsky had actually sold the rights years before to a former business partner. Most of the $6 million in investor funds was converted for personal use by Bachynsky and his three co-defendants, all of whom have previously pleaded guilty. Bachynsky is scheduled to be sentenced on September 5 before US District Judge Adalberto Jordan (South Florida Business Journal, DOJ).

Attorneys for James Dierker, one of the five National Century Financial Enterprises executives convicted on March 13, on Tuesday filed a motion for acquittal based on claims of newly discovered evidence; alternatively they asked that he be granted a new trial. Dierker testified during the trial that he was unaware of any fraud. Tuesday’s motion asserts that prosecutors withheld SEC documents that would have supported his defense. The documents allegedly show that Dierker relied on opinions of outside auditors who failed to properly evaluate company records, leading him to believe the company was sound (Columbus Business First).

Dierker is the only one of the four rearrested executives who was allowed out on bond pending sentencing. He was National Century’s associate director of marketing and vice president of client development, a lesser position than the other convicted executives, and he faced fewer charges. He was found guilty on one count of conspiracy to commit securities/wire fraud and three counts of money laundering.

Federal prosecutors in Columbus, Ohio on Monday moved to recoup some of the funds lost in the 2002 collapse of National Century Financial Enterprises: the government is seeking to “attach a $1.7 billion IOU” to each of the five National Century executives who were convicted in March (here and earlier) on multiple counts including conspiracy, wire fraud, securities fraud and money laundering. US District Judge Algenon Marbley is expected to rule on the motion in June (Columbus Dispatch).

In Sacramento on Friday, US District Judge Garland Burrell sentenced Joel Nathan Ward of Turlock, California to nine years in prison in connection with a fraudulent foreign currency exchange trading scheme in which about 100 investors lost $11.3 million. He pleaded guilty in August 2007 to wire fraud, mail fraud and money laundering. Although he had no financial training, Ward lured investors through trade shows, online columns and infomercials in which he represented himself as a skilled trader. His Joel Nathan Forex Fund took in $15 million from early 2003 to late 2006. He paid back $3.7 million to early investors in what essentially was a Ponzi scheme but he diverted 85% of the rest for personal use. He actually invested only $2 million and lost almost all of that. After Ward revealed to investors in late 2006 that all their money was gone, his personal journal became public, thanks to his now ex-wife. In it, he described himself as a “financial serial killer” and “just another scumbag con artist bilking old people out of their retirement money” (Modesto Bee, DOJ).

John B. Kim, also known as Jung Bae Kim, pleaded guilty on Thursday to a single count of wire fraud in connection with the collapse of hedge funds operated by KL Group LLC, originally in California and later in Palm Beach County, Florida.   His plea was entered before US District Court Judge Kenneth Ryskamp in West Palm Beach. John Kim, his brother Yung Kim and Won Sok Lee were indicted in January 2007 on 35 counts alleging a massive investment fraud scheme which caused investor losses of $195 million. In his plea, John Kim admitted misrepresenting unprofitable funds as successful, sending out false account statements and counterfeiting clearing firm statements. In the specific count covered by the guilty plea,

Kim admitted that in February, 2005, fictitious stock trading sheets were created that purported to show a one-day profit of $22 million in a stock known as RIMM, the company that manufacturers the “Blackberry” device. The RIMM trade, however, never took place, and the fictitious stock trading sheets were used to fool investors concerning the profitability of trades being conducted by the KL Hedge Funds.

After a hearing in Columbus that lasted all day Wednesday, US District Judge Algenon Marbley ruled that convicted National Century Financial Enterprises executives Donald Ayers, Randolph Speer and Roger Faulkenberry were flight risks and will remain in custody. The fourth, James Dierker was released on bond pending sentencing. The four executives and a fifth, company co-founder Rebecca Parrett, were convicted on March 13 of securities fraud and related charges in connection with the company’s 2002 collapse (here and earlier). All were allowed to remain free on bond with electronic monitoring, but Parrett disappeared (here) and remains at large. The other four were taken into custody on April 2 following disclosure of an alleged plot to escape to Aruba (here and here). Dierker currently works in marketing for Victoria’s Secret, and testimony from the company’s president and CEO Sharen Turney apparently helped convince Judge Marbley that Dierker would not flee (Columbus Business First, AP).

Meanwhile, the US Marshal Service is offering a reward for information leading to the arrest of Parrett — but won’t say how much the reward is (Columbus Dispatch).

A jury in US District Court in Manhattan on Thursday convicted former Refco Inc. President Tone N. Grant of conspiracy, securities fraud, wire fraud, bank fraud and money laundering in connection with the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion. Refco, at one time the largest futures broker on the Chicago Mercantile Exchange, collapsed just two months after its IPO. Prosecutors alleged that Grant, former CFO Robert Trosten and former Chairman and CEO Phillip Bennett engaged in a years-long scheme to hide extensive trading losses from auditors, banks, investors and Thomas H. Lee Partners, which had purchased a majority interest in Refco in August 2004; the losses were transferred from the company’s books to a company controlled by Bennett, Grant and another partner. Trosten and Bennett pleaded guilty in February; Santo Maggio, former CEO of Refco’s offshore unit, pleaded guilty in December (earlier here and here). All three men agreed to cooperate with prosecutors; both Trosten and Maggio testified against Grant. Sentencing for Grant is scheduled for August 7; he faces a maximum of 85 years in prison. He was allowed to remain free on bond (Bloomberg, Dow Jones Newswires).

Samuel Israel III, co-founder of now-defunct hedge fund Bayou Group LLC, was sentenced to 20 years in prison on Monday by US District Judge Colleen McMahon in Manhattan. Israel and former Bayou CFO Daniel Marino had pleaded guilty to conspiracy, wire fraud and investment advisor fraud in September 2005, about a month after Bayou Group collapsed into bankruptcy. McMahon sentenced Marino to 20 years in prison in January (earlier). Israel and Marino admitted presenting fraudulent results and using a phony auditing firm to lure investors. Prosecutors said investors were defrauded of more than $400 million when the firm failed.  Bloomberg News has the story here.

Jailed former National Century Financial Enterprises CEO Lance Poulsen said Monday that a confidential informant was lying when he told authorities that Poulsen told him that four convicted National Century executives had a plan to flee to Aruba if they were convicted. The four executives — Donald Ayers, Randolph Speer, Roger Faulkenberry and James Dierker — were arrested on April 2 (earlier) following disclosure of the alleged plan and the disappearance of the fifth executive, Rebecca Parrett (earlier), who remains at large.

Poulsen’s statement came in a letter from one of his attorneys which was attached to a motion filed on Friday by attorneys for Randolph Speer, who denies any knowledge of a plot and says the whole story was made up by the informant to reduce his prison sentence. Poulsen believes that the confidential informant is Robert Cihy, an inmate where Poulson is currently jailed. Cihy is being held on federal bank robbery charges; in a remarkable coincidence, he reached a plea agreement with the government on April 3, one day after the four executives were arrested. However, US District Judge Algenon Marbley on Monday denied a motion to compel the government to disclose its source. A bond revocation hearing for the four executives is scheduled for April 16 (Columbus Business First, Columbus Dispatch).

In Newark, New Jersey on Monday, US District Judge Stanley Chesler sentenced former Suprema Specialties Inc. CFO Steven Venechanos to eight years in prison and ordered him to pay $115 million restitution. Venechanos and former Suprema Specialties CEO Mark Cocchiola were convicted in April 2007 on 38 counts including conspiracy, bank fraud, making false statements to the SEC, wire fraud and mail fraud for their roles in a fraud that caused the Paterson, New Jersey cheesemaker to collapse in 2002.  Cocchiola was sentenced to 15 years in prison on March 27 (earlier). The seven year long scheme involved fraudulently inflating inventories and  billing $400 million in non-existent sales, causing a loss to investors and banks estimated at more than $177 million.  New Jersey Star-Ledger, Forbes/AP.

Honest, they were just going to help look for Natalee Holloway: The FBI on Wednesday arrested four of the five executives of National Century Financial Enterprises who were convicted on March 13 of securities fraud and related charges in connection with the company’s 2002 collapse (here and earlier); US District Judge Algenon Marbley ordered the arrests of Donald Ayers, Randolph Speer, Roger Faulkenberry and James Dierker after the FBI learned of an alleged plan to flee the country. According to a filing in US District Court in Columbus:

• The (FBI) developed information from a confidential source, who reported to FBI that (former National Century CEO Lance Poulsen) told the confidential source that the NCFE defendants had a plan to flee to Aruba if they were convicted.

This follows the disappearance of  the fifth executive, Rebecca Parrett, who remains at large. The new filing alleges that Parrett attempted to obtain false identification papers before the trial. All five defendants had been allowed to remain under house arrest with electronic monitoring pending sentencing. Poulsen faces trial August 4 on similar fraud charges; he and his associate Karl Demmler were convicted of witness tampering last week in connection with the fraud charges. Columbus Business First, Columbus Dispatch.

A March 19 ruling in the case of former Bristol-Myers Squibb CFO and senior VP Frederick Schiff has limited the scope of the prosecution’s case and delayed the trial which was to have begun last week in US District Court in Newark, New Jersey while the government appeals the ruling. Schiff and former Bristol-Myers executive VP Richard Lane were indicted in 2005 on charges of conspiracy and securities fraud in connection with a “channel stuffing” scheme to inflate sales. US District Judge Faith Hochberg’s ruling prevents prosecutors from tying Schiff’s alleged activities to investor losses when Bristol-Myers Squibb’s stock price dropped when the practice was disclosed. Judge Hochberg also criticized prosecutors for repeatedly changing the theory of the crime, saying “the court will permit no further ‘legal theory morphs’ in this case.” Lane’s trial will also be delayed. NY Times, Newark Star-Ledger.

In Columbus, Ohio on Thursday evening, US District Judge Gregory Frost issued a bench warrant for the arrest of Rebecca Parrett, one of the five executives of National Century Financial Enterprises convicted on March 13 on fraud charges in connection with the company’s 2002 collapse (here and earlier). Parrett, a co-founder of the company and vice chairwoman, secretary, treasurer and director, was found guilty of one count of conspiracy, six counts of securities fraud, one count of wire fraud and one count of money laundering. After the verdicts were announced, US District Judge Algenon Marbley allowed all five convicted executives to remain under house arrest with electronic monitoring pending sentencing. Parrett was supposed to report to the Pretrial Services Office near her home in Carefree, Arizona, for installation of an electronic ankle bracelet but she failed to show up and her whereabouts are unknown. The US Marshal’s Office has begun a search. Columbus Business First, Bloomberg.

In Newark, New Jersey on Thursday, US District Judge Stanley Chesler sentenced former Suprema Specialties Inc. President and CEO Mark Cocchiola to 15 years in prison for his role in a fraud that caused the Paterson, New Jersey cheesemaker to collapse in 2002. He was also ordered to pay $115 million restitution to investors and banks; the total loss has been estimated at more than $177 million. Cocchiola and Suprema Specialties CFO Steve Venechanos were convicted in April 2007 on 38 counts including conspiracy, bank fraud, making false statements to the SEC,wire fraud and mail fraud. The charges arose from a complex and long-running scheme to increase the company’s stock price by fraudulently inflating inventories and by billing $400 million in non-existent sales. Venechanos is scheduled for sentencing on April 7. New Jersey Star-Ledger, AP.

After about 6 hours of deliberation yesterday and today, a federal jury in Columbus, Ohio has convicted former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler on one count each of conspiracy to obstruct justice, witness tampering, witness tampering by influencing testimony and corruptly persuading a federal witness. They face a possible maximum of 55 years in prison. The charges arose from their attempt to pay former National Century Executive VP for compliance Sherry Gibson $500,000 to $1 million to have a “memory lapse” when called to testify against Poulsen in his fraud trial in connection with National Century’s 2002 collapse. Poulsen’s trial on 47 counts including conspiracy, wire fraud, securities fraud and money laundering is now scheduled to begin August 4.

US District Judge Algenon Marbley has not set a date for sentencing but ordered Demmler held without bond because of threats he made against two local judges and an attorney in the taped conversations which were entered into evidence at the trial. Poulsen is already in custody because his bond on the original fraud charges was revoked after he was indicted on the witness tampering charges. Columbus Business First, Bloomberg, our earlier trial coverage here, here and here.

The defense rested on Monday in the in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler (earlier here and here). The government rested on Friday after playing tapes of conversations between Poulsen and Demmler which appear to confirm that Poulsen suggested to Demmler that former Executive VP for compliance Sherry Gibson should plead unfamiliarity with the fraud charges against Poulson and other executives (AP here). The defense had contended that it was all a misunderstanding and that Poulson was merely seeking to help Gibson; however, when Poulson took the stand in his own defense Monday, he alleged that Gibson was an abusive employee “both sexually and physically” and that she had stabbed him in the back by agreeing to become a government witness. The case is expected to go to the jury today Columbus Business First here.

Two Miami-Dade county men, Rodrigo Molina and Marcos Macchione, were indicted on Thursday by a federal grand jury in Miami on 16 counts including conspiracy and money laundering. The charges stem from their alleged involvement as money launderers in an international stock fraud scheme headquartered in Brazil. They were arrested February 25 along with 18 others in Brazil. The alleged scheme was an “advance fee” fraud which caused investor losses estimated at more than $50 million, mostly from investors in the UK. It involved a series of fictitious companies including Heritage Financial of Trenton, New Jersey, which offered to buy low value stock at above market value; fictitious brokers — actually “boiler room” telemarketers located in Brazil — would require advance fees from the investors and then would abandon the transactions after the fees were paid. Funds were allegedly wired to Florida accounts controlled by the defendants. The Brazilian suspects allegedly stole identities of real US brokers and created well-designed websites to convince investors they were legitimate US securities dealers. AP, DOJ (via PR Newswire).

Television producer Drew S. Levin (IMDb credits and congratulatory blurb-style biography), chairman and CEO of TMC Entertainment and formerly founder and CEO of the now-defunct Team Communications Group, on Wednesday was indicted by a federal grand jury in Los Angeles on 13 counts including conspiracy, falsifying company books and records, making false statements in SEC filings, making false statements to outside auditors and lying in an SEC deposition. The charges arise from his alleged activities at Team Communications, which was a publicly traded producer, distributor and licensor of television programming. From the DOJ press release (via Lawfuel):

• …Levin perpetrated a scheme to falsely overstate Team’s annual and quarterly revenue to make Team appear to be profitable, when Team actually was operating at a substantial loss. The indictment charges Levin with causing Team to book revenue in violation of the accounting rules applicable to television producers and distributors. For example, Team licensed television programming to customers for inflated distribution fees. When the customers were unable to pay the inflated fees, Levin caused Team to send them millions of dollars of Team’s own money, which the customers then used to make payments to Team. Levin disguised these “circular payments” by routing them through third parties, purportedly to buy television programming.

Team fired Levin in 2001 and declared bankruptcy in 2002. Levin could face a statutory maximum of 200 years in prison if convicted on all counts. LA Times here.

In opening statements on Tuesday in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler (earlier), the defense sought to portray Poulson’s $500,000 offer to former Executive VP for compliance Sherry Gibson as a misunderstanding. According to defense attorney Peter Anderson, Poulsen only sought to “make her whole” because she had gone to prison and given up her assets in her plea deal. And according to Demmler’s attorney Darryl Parker, Demmler was the intermediary because he was a longtime friend of Gibson and was only urging her to use the money to get a new attorney. However, Gibson took the stand on Tuesday afternoon and testified that she construed the initial offer as a bribe, contacted the government and agreed to wear a wire at future meetings with Demmler. The jury heard tapes in which Demmler offered to set Gibson up with an offshore account for a 10% fee if she took Poulsen’s offer and told her ” “Money laundering is my business on private contracts.” And regarding the testimony she was to give in Poulsen’s now-delayed fraud trial, Demmler said “Don’t remember. You don’t have to lie. You’re not lying. He’s not asking you to lie” and referred to a scene in Godfather II where a witness forgets testimony. The government also has taped conversations between Poulsen and Demmler in which they allegedly used code words in case their phones were bugged. Poulson is expected to take the stand in his own defense. Gibson’s testimony in the recently completed fraud trial of five other National Century executives (earlier) also included testimony implicating Poulsen in the fraud. Columbus Business First here and here.

A jury was selected Monday in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen, and opening arguments are to begin today in Columbus, Ohio before US District Judge Algenon Marbley. Poulsen had been indicted in 2006 on 47 counts including conspiracy, wire fraud, securities fraud and money laundering in connection with the same acts for which five former executives were convicted last week (earlier) and is scheduled for trial on August 4 in that case. But in this case, he and an associate, Karl Demmler were indicted on one count each of conspiracy to obstruct justice, witness tampering and witness tampering by influencing testimony. The indictment alleges that they attempted to bribe Sherry Gibson, National Century’s former Executive VP for compliance, with $500,000 to “develop amnesia” on the witness stand in the fraud case. Gibson pleaded guilty in 2003 to one count of conspiracy to commit securities fraud and agreed to cooperate with prosecutors; she was sentenced to 48 months in prison in June 2004. She was the government’s star witness in the case that concluded last week and is scheduled to testify in this case. Columbus Business First has the story here.

Jodi Andes in the Columbus Dispatch analyzes last week’s verdicts here.

Paul and Zibia Gunther, the father and daughter arrested last week in connection with a $70 million international stock fraud scheme involving fake shares in hijacked dormant companies (earlier), made their initial appearances Monday before US Magistrate Judge Thomas McCoun in Tampa. McCoun agreed to release Zibia Gunther on a $150,000 bond secured by property, but he denied release to Paul Gunter, who had offered a $500,000 property-secured bond. Calling Paul Gunter a flight risk, McCoun said he will require at least $1 million posted from his family and friends before he said he would consider his release, stating “I want people to come forward and say they have so much faith in him that they’ll put up their house.” Paul Gunter holds English citizenship. Further details of the government’s case emerged: a prosecutor alleged that financial transactions have been tracked to numerous accounts controlled by Paul Gunter in at least nine different countries. However, he is currently represented by a public defender. Attorneys for both defendants claim they are only escrow agents acting for others. Tampa Tribune, Tampa Bay Times.

After two days of deliberations following the five week trial of five former executives of National Century Financial Enterprises, a federal jury in Columbus, Ohio on Thursday convicted all five defendants on all charges, which included conspiracy, wire fraud, securities fraud and money laundering. The defendants were National Century co-founders Rebecca Parrett and Donald Ayers and former executives Randolph Speer, Roger Faulkenberry and James Dierker. The Columbus Business First story here details the specific counts against each defendant. Investors, including many institutions and government bodies, lost $1.9 billion in the 2002 collapse of the health care provider financing company. US District Judge Algenon Marbley allowed the defendants to remain free but subject to electronic monitoring pending sentencing, which is expected in 60 to 90 days.

Former CEO and co-founder Lance Poulsen is scheduled for trial on
August 4, 2008 on the same charges but he first faces a March 17 trial for witness tampering in the case. The witness is said to be Sherry Gibson, National Century’s former Executive VP for compliance, who was the star prosecution witness in this case (earlier).

The US Attorney’s Office in Tampa on Thursday announced the filing of a criminal complaint against Paul Robert Gunter of Odessa, Florida and his daughter, Zibiah Joy Gunter of Oldsmar, Florida. The complaint alleges that they “conspired to commit, and committed substantive acts of, mail fraud, wire fraud, securities fraud, and money laundering” by engaging (with unnamed others) in a securities fraud scheme. They were arrested on Thursday morning and were scheduled to make an initial appearance later in the day. The alleged scheme involved hijacking the identities of about 54 dormant publicly held companies, issuing fake stock in the companies to conspirators and selling the shares to “victim-investors” in the UK. An estimated 15,000 people, mostly elderly, invested in excess of $70 million; the Gunters allegedly converted the funds for their personal use. Reuters here, DOJ press release here.

Defense attorneys for defendants Donald Ayers and James Dierker wrapped up the defense’s closing statements on Tuesday morning in the National Century fraud trial; Ayers’ attorney Brian Dickerson stressed the prosecution’s failure to call two cooperating witnesses — former company CFO John Snoble and compliance director Brian Stucke, who have pleaded guilty and were expected to provide key testimony. Following the prosecution rebuttal, Judge Marbley was scheduled to give jury instructions on Tuesday afternoon. Columbus Dispatch story here.

The defense rested Monday and closing arguments began in the healthcare finance fraud trial of five former executives of National Century Financial Enterprises. Co-founders Rebecca Parrett and Donald Ayers and former executives Randolph Speer, Roger Faulkenberry and James Dierker face multiple charges of conspiracy, wire fraud, securities fraud and money laundering in the 2002 collapse of the company, once the country’s largest source of health care provider financing. AUSA Wes Porter placed the blame on the defendants, saying “Every company takes its course because of the actions of people.” Porter accused the company of loaning providers in poor financial shape more than the value of their accounts receivable and lying to investors and auditors about the value of of the future receivables. Attorneys for Faulkenberry, Speer and Parrett each argued that the government had not met its burden of proof that their clients intended to commit fraud or engaged in any conspiracy. Closing arguments continue today with attorneys for Ayers and Dierker and prosecution rebuttal. Columbus Business First story here.

Department of Uh-oh: Jon Bryant, a computer programmer testifying for the defense as an expert witness in the healthcare finance fraud trial of five former executives of National Century Financial Enterprises, was revealed by prosecutors to have been an FBI informant in the same case back in 2002. Bryant testified that crashes in nine of National Century’s computer hard drives would have made it impossible for anyone to draw conclusions about the data. But on cross examination, AUSA Doug Squires asked Bryant if he ever told the FBI there was fraud at the company, if he had ever told the FBI about improper funding, and if he had ever taken documents from the company showing wrongdoing. Bryant said he could not recall but said it was “possible”. And after leaving court, when asked if he had told defense attorneys he had given company documents to the FBI, he said “No. It kinda slipped my mind.” Columbus Dispatch here.

Lou Pearlman, the promoter responsible for foisting N’Sync and the Backstreet Boys on an unsuspecting public, on Thursday pleaded guilty to two counts of conspiracy, one count of money laundering and one count of making a false claim in a bankruptcy in connection with long-running fraud schemes which caused losses to 250 investors estimated at $200 million and losses to 10 financial institutions estimated at $100 million. The plea was entered before US District Judge G. Kendall Sharp in Orlando. Pearlman could face up to 25 years in prison but has agreed to cooperate with authorities investigating other unnamed parties in exchange for the possibility of a reduction in sentence. Pearlman is currently in custody and appeared in court wearing shackles. Full details of the schemes have not been revealed but in court Pearlman acknowledged a Ponzi scheme involving the sale of “employee investment savings accounts,” a bank fraud involving faked financial statements, and a plot to siphon frozen assets from a bankruptcy case. Sentencing has been scheduled for May 21, 2008. Orlando Sentinel here, AP here.

The prosecution rested on Monday as the healthcare finance fraud trial of five former executives of National Century Financial Enterprises entered its fifth week (earlier here and here). Former National Century CFO John Snoble and compliance director Brian Stucke, both cooperating witnesses who have pleaded guilty, were expected to testify but were not called. The twelfth and final prosecution witness was Terrence Glomski, former asset manager for Lincoln Capital, which was acquired by Lehman Brothers in late 2002 after the collapse of National Century. Glomski testified that his pension fund clients were only able to recover $2.9 million of the $49.8 million they had invested in National Century’s AAA rated bonds. US District Judge Algenon Marbley on Tuesday denied a defense motion for acquittal, and the defense called its first witness. Robert DeLuca, a healthcare accounting consultant, testified that the company’s broad definition of receivables meant that National Century’s governing documents allowed the advance of the unsecured loans to health care providers which ultimately brought down the company. Under cross examination he admitted that he had no expertise in securities law. Bizjournal here and here.

The US Supreme Court on Monday rejected without comment the appeals of Adelphia Communications founder and former CEO John Rigas and his son, former Adelphia CFO John Rigas. Both were convicted of securities fraud, bank fraud and conspiracy in 2004. The charges arose out of Adelphia’s 2002 collapse into bankruptcy after the company revealed $2.2 billion in previously unreported liabilities. John Rigas, now 83, was sentenced to 15 years in prison, while Timothy Rigas received a 20 year sentence. They appealed, claiming that accounting terms had not been properly explained to the jury and that they had followed generally accepted accounting principles; but the US Circuit Court of Appeals for the Second Circuit upheld their convictions last year and they began serving their sentences last August. AP/Washington Post story here.

US District Judge Stephen Wilson in Los Angeles on Monday sentenced two men to prison in connection with a hedge fund fraud scheme that caused investor losses of $6 million. Keith Gilabert of Valencia, California, who operated a company called Capital Management Group, was sentenced to 60 months in prison; he had pleaded guilty in June 2006 to conspiracy to commit mail fraud, wire fraud and securities fraud. He collected about $6 million from 2000 to 2005 from 40 clients who invested in a hedge fund called the GLT Venture Fund, with the promise of high rates of return; but Gilabert admitted losing most of the money and misappropriating the rest. Justin Paperny of Studio City, a former account VP at UBS Financial Services, was sentenced to 18 months in prison; he also had pleaded guilty to the same charges and admitted conspiring with Gilabert to mislead hedge fund investors by telling them the fund was fully backed by UBS. Lawfuel has the DOJ Press Release here.

It was not Gilabert’s first brush with Judge Wilson. He and his mother-in-law had been indicted for obstruction of justice for allegedly telling a mortgage broker to lie to FBI agents investigating the sale of two plots of land in Valencia. That case went to trial this past December, but Wilson acquitted them after calling the broker’s testimony “an abomination … maybe the worst I’ve ever seen.” (story here).

In the third week of the healthcare finance fraud trial of five former executives of National Century Financial Enterprises (earlier), the prosecution’s star witness testified on Thursday that the deception by management began years before the company collapsed in 2002, resulting in a $1.9 billion loss to investors. Sherry Gibson, National Century’s former Executive VP for compliance, testified that the complex scheme to falsify records and lie to investors and auditors dated back to 1995 and involved all the firm’s principals and senior executives. Gibson pleaded guilty in 2003 to one count of conspiracy to commit securities fraud and agreed to cooperate with prosecutors; she was sentenced to 48 months in prison in June 2004. The trial continues before US District Judge Algenon Marbley in Columbus, Ohio. Bizjournals story here.

In a hearing on Wednesday before US District Judge Naomi Reice Buchwald in
Manhattan, former Refco inc. CFO Robert Trosten pleaded guilty to charges of conspiracy, securities fraud, bank fraud, wire fraud and money laundering in connection with the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion. Trosten’s guilty plea follows the February 15, 2008 guilty plea of former Refco CEO Phillip Bennett (earlier); both had been scheduled for trial on March 17, 2008 along with the company’s former president Tone Grant. Trosten’s plea agreement calls for cooperation with prosecutors as well as asset forfeiture; he will apparently testify against Grant and against former outside counsel Joseph Collins, who has been charged with fraud and conspiracy in a separate but related case. Judge Buchwald scheduled Trosten’s sentencing for February 20, 2009. Bloomberg here, Reuters here.

Former Refco Inc. Chairman and CEO Phillip Bennett pled guilty on Friday, before US District Judge Naomi Reice Buchwald in Manhattan, to all 20 counts on which he had been indicted, including conspiracy, wire fraud, bank fraud, money laundering and making false SEC filings. The charges carry a possible maximum of 315 years in prison. Refco, at one time the largest futures broker on the Chicago Mercantile Exchange, collapsed into bankruptcy in October 2005, just two months after its IPO. Auditors discovered $430 million in losses from the mid 1990s onward; Bennett allegedly concealed the losses from his auditors, investors and Thomas H. Lee Partners, which had purchased a majority interest in Refco in August 2004; the losses were assumed by a company Bennett controlled, in an elaborate transfer scheme. Investors purportedly lost $2.4 billion in the collapse.

Bennett’s guilty plea follows the guilty plea by Santo Maggio, the former CEO of Refco’s offshore unit; Maggio pled guilty to fraud and conspiracy on December 19, 2007 and agreed to cooperate with prosecutors. Judge Buchwald set Bennett’s sentencing for May 20,2008. Bennett had been scheduled to go to trial on March 17, 2008 along with company’s former president Tone Grant and former CFO Robert Trosten; both have pleaded not guilty and maintain their innocence. Bloomberg here, AP here.

The trial of five former executives of National Century Financial Enterprises is scheduled to begin today in Columbus, Ohio before US District Judge Algenon Marbley. Co-founders Rebecca Parrett and Donald Ayers and former executives Randolph Speer, Roger Faulkenberry and James Dierker face multiple charges of conspiracy, wire fraud, securities fraud and money laundering. The privately held National Century was once the largest source of health care provider financing in the US. It collapsed six years ago and investors, including institutions and government bodies, lost $1.9 billion in what prosecutors allege was a massive and complex fraud scheme. Four former employees who have pleaded guilty are expected to testify. Former CEO and co-founder Lance Poulsen is scheduled for trial on August 4, 2008 but he first faces a March 7 trial for witness tampering. The Columbus Dispatch story is here; AP here.

Daniel Marino, former CFO of now-defunct hedge fund Bayou Group LLC, was sentenced on Tuesday to 20 years in prison by US District Judge Colleen McMahon in Manhattan. Marino and Bayou Group founder Samuel Israel III had pleaded guilty to conspiracy, wire fraud and investment advisor fraud in September 2005, about a month after the firm collapsed; prosecutors said investors were defrauded of more than $400 million. Marino was ordered to prison immediately; Israel is still awaiting sentencing. Financial Times has the story here.

Charles Nolon Bush, a former Port Orchard, Washington resident who fled to France and then Poland after his investment business collapsed in 2002, was ordered detained on Monday in US District Court in Tacoma; he was indicted by a federal grand jury in Seattle in August 2006 on 32 counts including securities fraud, wire fraud, mail fraud and money laundering. He is alleged to have fraudulently taken $30 million in investor funds in a Ponzi scheme. Bush was arrested in Warsaw in August 2007; he fought extradition but was returned to the US earlier this month. The DOJ press release is here.

Former Brocade Communications Systems CEO Gregory Reyes was sentenced on Wednesday to 21 months in prison and fined $15 million by US District Judge Charles Breyer in San Francisco. Reyes was convicted in August 2007 after an 8-week jury trial on ten counts including conspiracy, securities fraud, lying to accountants and falsifying books and records in connection with the backdating of options grants to Brocade employees. Reyes will be allowed to remain free on appeal; the San Francisco Chronicle has the story here.

Former Goldman Sachs trader David Pajcin, one of the principals in a wide-ranging $6.7 million insider trading and securities fraud scheme, was sentenced on Friday to time served by US District Judge Victor Marrero in Manhattan. Pacjin had been in prison since early 2006. He had cooperated with prosecutors and his testimony led to subsequent guilty pleas from the other participants.  Yahoo News has the NY Times story here. Eugene Plotkin, a former Goldman Sachs research associate, was sentenced to 57 months in prison earlier this month (Yahoo/Reuters story here).  Defendants Stanislaw Shpigelman and Jason Smith are serving prison sentences of 37 and 33 months respectively and two more defendants are awaiting sentencing.

Former Homestore Inc. CEO Stuart Wolff’s fraud conviction was overturned on Monday by the Ninth US Circuit Court of Appeals in San Francisco. A three-judge panel of the court agreed with Wolff’s contention that US District Judge Percy Anderson should have recused himself because his ownership of AOL stock gave him a “financial interest in the subject matter in controversy;” AOL was a party to the alleged offenses.

Wolff was convicted on 18 felony counts involving an alleged scheme to inflate the company’s revenue by $67 million in a series of sham three-way transactions. He was sentenced in October 2006 to 15 years in prison, fines and restitution. The appellate court returned the case to US District Court for ressignment to a different judge and possible retrial. The San Francisco Chronicle has the story here. Homestore has since changed its name to Move Inc.