Letter of Apology » Securities Fraud

Two Defendants In Securities Fraud Case Get 60 Month Sentences, Well Below Guidelines

Dave Westheimer — Tue, 19 Aug 2008 06:08:25 +0000

Lennox and Lester Parris, brothers and principals of now-defunct Jericho, New York-based bottled water distributor Queénch, Inc., were each sentenced last Wednesday in Brooklyn to 60 months in prison for securities fraud in connection with the manipulation of stock prices which allegedly cost investors over $2.5 million. They were convicted in 2007 on six counts including securities fraud, conspiracy to commit securities fraud, witness tampering and conspiracy to commit witness tampering. What’s unusual here, although the DOJ press release fails to mention it, is that US District Judge Frederic Block departed sharply downward from federal sentencing guidelines, which called for a recommended sentences of 30 years to life based on offense levels of 42 for both men. Block criticized the guidelines’ “fetish with absolute arithmetic”, writing that while the sentences were well-deserved, the crimes did not rise to the level of Enron, WorldCom and Computer Associates. Mark Fass’ NY Law Journal story has more, including a link to the decision.

Two Wextrust Principals Indicted In $9.2 Million Securities Fraud

Dave Westheimer — Tue, 19 Aug 2008 05:23:26 +0000

Steven Byers and Joseph Shereshevsky, principals of WexTrust Capital LLC, were arrested last week and charged in the Southern District of New York with conspiracy to commit secuties fraud. The DOJ Press Release alleges a particular scheme in which $9.2 million was raised from investors to buy certain GSA properties, but the properties were never purchased and the funds were used for other purposes including paying off investors in other schemes. However, this indictment may well be a prelude to more criminal counts, because the SEC unveiled massive civil fraud charges against Byers, Shereshevsky and Wextrust entities, alleging a Ponzi scheme involving $255 million raised from approximately 1,200 investors, largely from Shereshevsky’s contacts in the Orthodox Jewish community. Over $100 million was allegedly diverted. The scheme outlined in the criminal case is included. The assets of the Wextrust companies have been frozen.

Shereshevsky, of Norfolk, Virginia was ordered held without bond last Wednesday by US Magistrate Judge Tommy Miller in Norfolk, pending his arraignment on the criminal charges; Miller called Shereshevsky a thief and a thug (Virginian-Pilot). Shereshevsky was convicted on a federal bank fraud charge in 2003. Bloomberg has more.

Poulsen Sentenced To 10 Years For Witness Tampering

Dave Westheimer — Fri, 08 Aug 2008 20:11:40 +0000

Ending this week’s sentencings of former executives of National Century Financial Enterprises, US District Judge Algenon Marbley today sentenced former CEO and co-founder Lance Poulsen to 10 years in prison for witness tampering. Poulsen and his associate Karl Demmler were convicted on March 26 on one count each of conspiracy to obstruct justice, witness tampering, witness tampering by influencing testimony and corruptly persuading a federal witness. They allegedly attempted to pay former executive VP for compliance Sherry Gibson $500,000 to $1 million to plead unfamiliarity with the fraud charges against Poulsen and other executives. Gibson, who had pleaded guilty in 2003 to one count of conspiracy to commit securities fraud and agreed to cooperate, went to authorities instead. She was a key witness in the fraud trial of the five executives who were convicted in March, testified against Poulsen and Demmler in this case and is expected to testify against Poulsen in his fraud trial which begins October 1. Demmler’s sentencing was postponed pending completion of a psychological evaluation (Columbus Dispatch).

Former Refco President Grant Sentenced To 10 Years In Prison

Dave Westheimer — Fri, 08 Aug 2008 05:52:46 +0000

In Manhattan on Thursday, US District Judge Naomi Reice Buchwald sentenced former Refco Inc. President Tone N. Grant to 10 years in prison for his role in the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion. A jury convicted Grant in April on one count each of conspiracy, securities fraud, wire fraud, bank fraud and money laundering. Grant’s attorneys plan to appeal his conviction (Bloomberg, Reuters). Our previous Refco entries are here.

Judge Refuses To Allow Sam Israel To Enter Bail Jumping Plea

Dave Westheimer — Fri, 08 Aug 2008 05:40:20 +0000

US District Judge Kenneth Karas on Thursday refused to let imprisoned Bayou Group co-founder Sam (Suicide Is Painless) Israel III enter a plea in his bail jumping case. Israel planned to plead guilty to one count of failure to appear in connection with his disappearance the day he was to start serving his 20-year prison sentence for securities fraud, but in response to Karas’ questioning, he described his ability to understand the proceedings as only 60 to 70 percent because of his methadone addicition. Karas then refused to accept a plea, saying “I have to be satisfied that you’re competent.” He set a new hearing for September 16 (Bloomberg).

Two More National Century Execs Sentenced To Prison

Dave Westheimer — Fri, 08 Aug 2008 05:22:12 +0000

Following Wednesday’s sentencings, the third and fourth former National Century Financial Enterprises defendants were sentenced on Thursday by US District Judge Algenon Marbley in Columbus. In the morning, former executive vice president of securitizations Roger Faulkenberry was sentenced to 10 years in prison. He was convicted in March on one count of conspiracy, four counts of securities fraud, one count of wire fraud and two counts of money laundering. On Thursday afternoon, former associate director of marketing and vice president of client development James Dierker received a five year prison sentence. He was convicted on one count of conspiracy and three counts of money laundering. Marbley had previously indicated that he held Dierker less culpable than the other defendants. After fifth defendant Rebecca Parrett flew the coop, Dierker was the only other defendant allowed bond with electronic monitoring (Columbus Bizjournal, Columbus Dispatch, DOJ via Yahoo News).

Co-founder and former CEO Lance Poulsen and his co-defendant Karl Demmler will be sentenced today in connection with their witness tampering convictions. Poulsen’s trial on the fraud charges begins October 1.

Ex-National Century Execs Ayers And Speer Sentenced To Prison

Dave Westheimer — Thu, 07 Aug 2008 06:15:50 +0000

In the first of three days of sentencing hearings relating to the collapse of National Century Financial Enterprises, US District Judge Algenon Marbley sentenced co-founder and former COO Donald Ayers to 15 years in prison and former CFO Randolph Speer to 12 years in prison for their roles in the 2002 collapse of the health care provider financing company in what prosecutors called a massive and complex fraud scheme. In their March trial, Ayers was convicted on one count of conspiracy, six counts of securities fraud and one count of money laundering, while Speer was convicted on one count of conspiracy, three counts of securities fraud, one count of wire fraud and six counts of money laundering. Marbley also ordered restitution of nearly $2.4 billion (Columbus Dispatch, Columbus Bizjournal).

Co-defendants Roger Faulkenberry and James Dierker will be sentenced today. Co-founder and former CEO Lance Poulsen has yet to stand trial on fraud charges but he will be sentenced tomorrow in connection with his witness tampering conviction. Convicted co-founder Rebecca Parrett remains at large.

Ex-Credit Suisse Broker In Securities Fraud Investigation Goes AWOL

Dave Westheimer — Fri, 01 Aug 2008 05:18:34 +0000

Julian Tzolov, one of two former Credit Suisse brokers known to be under criminal investigation for securites fraud in the Eastern District of New York, has disappeared. Prosecutors suspect that Tzolov has returned to his native Bulgaria. The investigation of Tzolov and Eric Butler is said to center on whether they lied to investors about what was backing the auction rate securities they sold. ($WSJ$ , Reuters).

Second Circuit Reverses Two More Specialist Convictions

Dave Westheimer — Thu, 31 Jul 2008 04:56:51 +0000

Following its July 18 decision in the case of David Finnerty (earlier), a three-judge panel of the US Court of Appeals for the Second Circuit reversed (.pdf) the convictions of specialists Michael Hayward and Michael Stern, both formerly of Van der Moolen Specialists USA. Both were convicted of securities fraud in January 2007 in connection with an interpositiong scheme; both were sentenced to six months in prison. As in Finnerty, the Court ruled that the evidence was insuffcient to prove deception (Reuters).

Refco’s Bennett Will Appeal Sentence

Dave Westheimer — Wed, 30 Jul 2008 05:59:31 +0000

Former Refco Chairman and CEO Phillip Bennett, who was sentenced to 16 years in prison on July 3, will appeal his sentence — not his conviction — to the the US Court of Appeals for the Second Circuit. Bennett pleaded guilty in February to conspiracy, wire fraud, bank fraud, money laundering and making false SEC filings in connection with the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion (Reuters).