VimpelCom to Pay $795 Million in Global Settlement for FCPA Violations

The Securities and Exchange Commission today announced a global settlement along with the U.S. Department of Justice and Dutch regulators that requires telecommunications provider VimpelCom Ltd. to pay more than $795 million to resolve its violations of the Foreign Corrupt Practices Act (FCPA) to win business in Uzbekistan.

The SEC alleges that VimpelCom offered and paid bribes to an Uzbek government official related to the President of Uzbekistan as the company entered the Uzbek telecommunications market and sought government-issued licenses, frequencies, channels, and number blocks.  At least $114 million in bribe payments were funneled through an entity affiliated with the Uzbek official, and approximately a half-million dollars in bribes were disguised as charitable donations made to charities directly affiliated with the Uzbek official.

“VimpelCom made massive revenues in Uzbekistan by paying over $100 million to an official with significant influence over top leaders of the Uzbek government,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “These old-fashioned bribes, hidden through sham contracts and charitable contributions, left the company’s books and records riddled with inaccuracies.”

The settlement requires VimpelCom to pay $167.5 million to the SEC, $230.1 million to the U.S. Department of Justice, and $397.5 million to Dutch regulators.  The company must retain an independent corporate monitor for at least three years. 

“International cooperation among regulators is critical to holding companies responsible for all facets of a bribery scheme.  This closely coordinated settlement is a product of the extraordinary efforts of the SEC, Department of Justice, and law enforcement partners around the globe to jointly pursue those who break the law to win business,” said Kara N. Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.

The SEC’s complaint was filed in U.S. District Court for the Southern District of New York.  VimpelCom consented to the entry of a court order ordering the company to pay disgorgement and retain an independent monitor, and permanently enjoining the company from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. 

The SEC’s continuing investigation is being conducted by the FCPA Unit under the supervision of Charles Cain.  The SEC appreciates the significant assistance of the Department of Justice’s Criminal Division, Fraud and Asset Forfeiture Money Laundering Sections as well as the following agencies: Internal Revenue Service, Department of Homeland Security, Public Prosecution Service of the Netherlands (Openbaar Ministrie), National Authority for Investigation and Prosecution of Economic and Environmental Crime in Norway (ØKOKRIM), Swedish Prosecution Authority, Office of the Attorney General in Switzerland, and Corruption Prevention and Combating Bureau in Latvia.  Other valuable assistance was provided by the British Virgin Islands Financial Services Commission, Caymans Islands Monetary Authority, Bermuda Monetary Authority, and Central Bank of Ireland, Estonia Financial Supervisory Authority (Finantsinspektioon), Comisión Nacional del Mercado de Valores (Spain), Latvian Financial and Capital Market Commission, UAE Securities and Commodities Authority, Banking Commission of the Marshall Islands, and Gibraltar Financial Services Commission. 

SEC Press Release

SEC Charges Biopesticide Company and Former Executive With Accounting Fraud

The Securities and Exchange Commission today charged biopesticide company Marrone Bio Innovations and a former executive with inflating financial results to meet projections it would double revenues in its first year as a public company.  Marrone Bio agreed to pay a $1.75 million penalty to settle the SEC’s charges.

The SEC alleges that former chief operating officer Hector M. Absi Jr. concealed from Marrone Bio’s finance personnel and independent auditor various sales concessions offered to customers, leading the Davis, Calif.-based company to improperly recognize revenue on sales.  Absi allegedly profited from the fraud.  He resigned in August 2014 shortly before the alleged fraud came to light and the company’s stock price plunged more than 44 percent. 

In a parallel action, the U.S Attorney’s Office for the Eastern District of California today announced criminal charges against Absi.

“We allege that Marrone Bio misled investors to make itself look like a fast-growing new public company,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Public companies and their officers should know better that taking shortcuts to recognize revenue in the near term is harmful to investors and can be damaging to a company’s long-term success.” 

According to the SEC’s complaint filed in U.S District Court for the Eastern District of California:

• In November 2015, Marrone Bio restated its results for fiscal 2013 and the first half of fiscal 2014, reversing approximately $2 million of previously reported revenue.
• Absi previously inflated Marrone Bio’s revenues by offering distributors “inventory protection,” a concession that allowed distributors to return unsold product.
• Absi also inflated Marrone Bio’s revenue by directing his subordinates to obtain false sales and shipping documents and intentionally ship the wrong product to book sales.
• Absi abused Marrone Bio’s expense reporting system to pay for personal items, including vacations, home furnishings, and professionally installed Christmas lights for his home.  Absi falsified his bank and credit card statements to make it appear as though he had incurred the expenses for legitimate business purposes. 
• Absi personally profited from his scheme, receiving more than $350,000 in bonuses, stock sale proceeds, and illegitimate expense reimbursements.

The SEC also instituted a settled administrative proceeding against Marrone Bio’s former customer relations manager Julieta Favela Barcenas for violations of the books and records provisions of the federal securities laws.  Favela entered into a cooperation agreement to assist in the SEC’s investigation and ongoing litigation against Absi. 

As required by Section 304(a) of the Sarbanes-Oxley Act, Marrone Bio CEO Pamela G. Marrone has reimbursed the company $15,234 and former CFO Donald J. Glidewell will reimburse the company $11,789 for incentive-based compensation they received following the filing of Marrone Bio’s misstated financial statements.  They weren’t charged with any misconduct.

The SEC’s investigation was conducted by Joseph P. Ceglio and John A. Roscigno and supervised by Tracy L. Davis, and the litigation is being led by Robert L. Tashjian and Jason M. Habermeyer of the San Francisco office.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of California and the Federal Bureau of Investigation.

SEC Press Release

SEC: California Man Sold Investors Phony Stock to Pay Gambling Debts

The Securities and Exchange Commission today charged an unregistered broker in Oceanside, Calif., with fraudulently selling purported stock in a medical device company and pocketing investors’ money.

The SEC alleges that Gregory Ruehle raised approximately $1.9 million from more than 100 investors but never delivered or transferred the securities as promised while using the money to pay gambling debts among other personal expenditures.

In a parallel action, the U.S. Attorney’s Office for the Southern District of California today announced criminal charges against Ruehle. 

“We allege that Ruehle lied to investors, sent them phony documents to further his deception, and spent their money on living expenses and gambling,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. 

According to the SEC’s complaint filed in U.S. District Court for the Southern District of California:

• Ruehle began his scheme as early as 2012, misrepresenting to investors in California and Minnesota that he would sell them his personally-owned securities in a La Jolla, Calif.-based medical device company called ICB International, Inc.  He was a former consultant for the company.
• Ruehle, however, sold investors far more securities than he actually owned, and those he did own were not transferable.  Ruehle never disclosed these facts to investors.
• Ruehle compounded his fraud by creating fabricated documents that he told investors were from the company.
• He disseminated fake company stock certificates purportedly informing the investor of the number of shares they owned in ICB. 
• He transmitted the fake stock certificates with a letter falsely stating that the certificates had been transferred from Ruehle to the investor. 
• Ruehle also fabricated and sent investors an additional document that served as a phony confirmation that his shares had been transferred to the investor.  The document falsely appeared to be on ICB letterhead and signed by the company’s CEO.  

The SEC’s complaint seeks a permanent injunction as well as disgorgement plus prejudgment interest and penalties against Ruehle, who is charged with violating the antifraud provisions of the federal securities laws and acting as unregistered broker-dealer.  Investors can quickly check whether people selling investments are registered by using the SEC’s investor.gov website. 

The SEC’s continuing investigation is being conducted by Matthew Montgomery and Robert Conrrad, and the litigation will be led by Gary Leung.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of California and the Federal Bureau of Investigation.

SEC Press Release

SEC: Miami Firm Broke Anti-Money Laundering Protocols

SEC: Miami Firm Broke Anti-Money Laundering Protocols

02/04/2016 02:15 PM EST

The Securities and Exchange Commission today announced that a Miami-based brokerage firm agreed to pay a $1 million penalty to settle charges that it violated anti-money laundering rules by allowing foreign entities to buy and sell securities without verifying the identities of the non-U.S. citizens who beneficially owned them.
During SEC examinations of E.S. Financial Services, which is now named Brickell Global Markets, the firm twice failed to provide required books and records identifying certain foreign customers whom they were soliciting directly and providing investment advice.  Federal law requires all financial institutions to maintain an adequate customer identification program (CIP) to ensure financial institutions know their customers and do not become a conduit for money laundering or terrorist financing.  An ensuing SEC investigation found that E.S. Financial's CIP failed to obtain and maintain documentation to verify the identities of certain non-U.S. customers who traded through a brokerage account opened by a Central American bank affiliated with the firm.
As part of the settlement, E.S. Financial agreed to retain an independent monitor to directly review its anti-money laundering/CIP policies, procedures, and practices for the next two years.
"While no fraud occurred in this instance, our investigation found there were significant holes in the framework of E.S. Financial's CIP that left the firm susceptible to illegal activity by customers who were not fully known," said Eric Bustillo, Director of the SEC's Miami Regional Office.  "Firms must stick to the CIP rules that require a broker-dealer to establish, document, and maintain procedures for identifying all customers and verifying their identities."
According to the SEC's order instituting a settled administrative proceeding:

• During approximately a decade, E.S. Financial maintained a brokerage account for a Central American bank that was purportedly trading for its sole benefit.
• E.S. Financial allowed 13 non-U.S. corporate entities and, in turn, 23 non-U.S. citizens who were their beneficial owners, to execute more than $23 million in securities transactions through the Central American bank's brokerage account.
• E.S. Financial worked directly with these non-U.S. citizens as if they were E.S. Financial customers, but did not collect, verify, or document any information regarding their identities as required under anti-money laundering/CIP regulations. 

The SEC's order finds that E.S. Financial willfully violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8, which require a broker-dealer to comply with the reporting, recordkeeping, and record retention requirements in regulations implemented under the Bank Secrecy Act, including the requirements in the CIP rule applicable to broker-dealers. The order also finds that E.S. Financial willfully violated Exchange Act Rules 17a-3 and 17a-4 which require broker-dealers to create and maintain customer account records and furnish them to SEC representatives upon request. Without admitting or denying the findings, E.S. Financial consented to the order and agreed to cease and desist from committing or causing any future violations.
The SEC's continuing investigation has been conducted by Scott A. Lowry, under the supervision of Thierry Olivier Desmet.  The examination that led to the investigation was conducted by Ileana Rodriguez and Debra Williamson, and supervised by Nicholas A. Monaco and John C. Mattimore of the Miami Regional Office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.