| #541 - January 23, 2008 |
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| #541 Updated: 1/23/08 9:53 a.m. Shipwreck, treasure, insider trading -- an SEC tale news.yahoo.com | 1/17/08 | Karey Wutkowski When an exploration team member discovered an anomaly on the ocean floor that turned out to be a $500 million shipwreck, he found a way to get his own share of the booty -- insider trading, according to the U.S. regulators who nabbed him. The U.S. Securities and Exchange Commission said on Thursday that Ernesto Tapanes, 39, agreed to pay more than $216,000 to settle insider trading charges in the case involving the 18th century shipwreck, code-named Black Swan. The SEC said Tapanes was working for Odyssey Marine Exploration Inc as an oceanographic surveying consultant in March 2007 when he identified and photographed an anomaly off the coast of Gibraltar. Excavation efforts soon uncovered more than $500 million worth of silver and gold coins, the largest collection of coins ever excavated from a historical shipwreck site, the SEC said. The shipwreck is the subject of a federal lawsuit, with Spain contending it is entitled to the treasure if it comes from one of its sunken ships, or if the treasure was removed from its territorial waters. A federal judge ruled earlier this month that Odyssey Marine must reveal to Spain the exact location of the shipwreck and the items recovered from it. At the time of Tapanes' discovery, the company kept the Black Swan a closely guarded secret for weeks and required its workers to sign a confidentiality agreement and to not trade in company stock. The SEC said Tapanes signed the agreement on April 4, 2007, and that same day started buying Odyssey Marine stock through his E*Trade account. In total, Tapanes bought 42,000 shares of stock from April 4 through May 15, 2007, the agency said. Three days after that, Odyssey Marine issued a press release about its discovery and excavation of 17 tons of coins and other artifacts from the Black Swan. The stock soared that day, closing up almost 81 percent, and continued to rise for several more days. The SEC said Tapanes started selling his entire Odyssey Marine holdings after the announcement, reaping more than $107,000 in profits. "His trading essentially was pretty flagrant," said Teresa Verges, assistant enforcement director in the SEC's Miami office. Contact information for Tapanes, a Canadian citizen with residences in Canada and Florida, could not immediately be obtained. Verges said Tapanes was not represented by an attorney in the SEC case and might currently be out at sea. Tapanes settled without admitting or denying the charges. Bayou Co-Founder Gets 4 1/4 Year Sentence for Fraud bloomberg.com | 1/17/08 | David Glovin Jan. 22 (Bloomberg) -- James Marquez, co-founder of bankrupt hedge fund company Bayou Group LLC, was sentenced to 4 1/4 years in prison for his role in a fraud that cost investors more than $350 million and spurred calls for increased industry oversight. U.S. District Judge Colleen McMahon said Marquez's creation of a sham accounting firm as part of the scheme was ``as reprehensible as anything in the storied history of securities fraud'' and that his actions with co-founder Samuel Israel and finance chief Daniel Marino led to a ``massive Ponzi scheme.'' ``I made a terrible choice to take the easy way out when things started to go wrong,'' Marquez, 59, told McMahon today in Manhattan federal court. He must pay $6.2 million in restitution in addition to his sentence, which was nine months less than the maximum under federal guidelines. Bayou, based in Stamford, Connecticut, is among the biggest hedge fund firms to come under scrutiny for missing money. The firm filed for bankruptcy in May 2006, prompting investor lawsuits that alleged it operated a Ponzi scheme in which old investors were paid off with money from new investors. Prosecutors said Israel and Marquez hatched a plan to falsify financial disclosures after Bayou sustained substantial losses in 1998. The fraud unraveled in August 2005 after Marino wrote a six-page suicide note that was recovered by the police at Bayou's headquarters, authorities said. Marquez helped plan the scheme, according to Marino, who didn't take his life. Former Soros Aide A former aide to investor George Soros, Marquez claimed to have played a small role in the crime before he left the company in 2001. Israel and Marino, who pleaded guilty and helped prosecutors build a case against their former colleague, will be sentenced in the next few weeks, the government said. Defense lawyer Bradley Simon urged McMahon to spare Marquez from prison because his role was minor and he suffers from mental illness. Marquez agreed to hide modest investor setbacks in the late 1990s, while Israel and Marino concealed massive losses and stole millions of dollars, the lawyer said. Marquez, who wanted to aid prosecutors, was beaten to the punch by his more culpable superiors, Simon said. ``It came as a complete shock, four years later, when he read about the massive, massive Bayou fraud,'' said Simon. U.S. prosecutors said Marquez, who lives in Connecticut, was as culpable as the two men for an initial $6 million fraud, while not guilty of the larger crime that followed. ``The investors are disappointed that Marquez received only 51 months as it is the low end of the 51- to-60 months provided in his plea agreement,'' said attorney Ross Intelisano, a partner at Rich & Intelisano in New York, which represents 20 investors who collectively lost more than $25 million. ``Our clients hope that the court doesn't show the same leniency to Israel and Marino.'' As part of the crime, Israel and Marquez agreed that Marino, a certified public accountant, would form a sham accounting firm named Richmond-Fairfield Associates to sign off on fake financial documents sent to clients. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. Globally, managers oversee more than $1.8 trillion, according to Hedge Fund Research. Marquez pleaded guilty in December 2006 to a single conspiracy count, a year after Israel and Marino pleaded guilty to fraud and other charges. Marquez faced up to five years in prison under federal sentencing guidelines. Israel and Marino may not benefit much from their cooperation, the judge said. When Simon noted that they may get substantial credit when they're sentenced, McMahon said ``don't count on it,'' adding the two men ``will be held to account.'' Marquez must report to prison by April 21. Before Bayou, Marquez ran a hedge fund firm called JGM Management Co. in New York. Israel and Marino worked with him at JGM, which closed in 1995 after losses mounted for several years. Israel opened his own hedge fund in March 1996 in Stamford. He called it Bayou in reference to his New Orleans roots and recruited Marquez and Marino to join him. VP Testifies At Fraud Trial courant.com | 1/22/08 | Staff Writer American International Group Inc. bypassed its normal risk review in what prosecutors say was a sham transaction to inflate loss reserves by $500 million, a witness testified Tuesday at the trial of five insurance executives. AIG Vice President Jay Morrow said he normally gets 50 to 100 pages of data on deals to analyze risk and set premiums. He got no such information when his company agreed to reinsure $600 million in policies from General Reinsurance Corp., he said. General Re agreed to pay $500 million in premiums, which AIG booked as reserves. Prosecutors said a secret side deal removed risk from the transaction and aided phony accounting at AIG. "There was no data at all," Morrow told jurors in U.S. District Court in Hartford, where the trial of the five executives is in its third week. "There was no way for me to analyze" the risk, he said. Four ex-General Re executives, including former Chief Executive Officer Ronald Ferguson, are on trial with AIG's former head of reinsurance, Christian Milton. State gets $2.5M piece of funds seizure in fraud case newsok.com | 1/20/08 | Don Mecoy Oklahoma will receive $2.5 million from the $72 million in assets federal authorities seized from a convicted swindler who defrauded insurance companies in five states including Oklahoma, state Insurance Commissioner Kim Holland said Friday. Martin Frankel defrauded seven insurance companies of more than $200 million then fled the United States in 1999. Frankel spent four months on the run before his arrest in Germany. Upon his return, he pleaded guilty to stealing from insurance companies in Arkansas, Mississippi, Missouri, Oklahoma and Tennessee. Insurance commissioners from those five states sued Frankel in 2000 for more than $600 million. Those states also filed suit in 2002 against the Vatican for more than $200 million for its alleged role in Frankel's scheme. In Oklahoma, Frankel took about $4 million from the Farmers and Ranchers Life Insurance Co. The state's portion of the seized assets corresponded with the percentage of the total amount stolen by Frankel. Frankel pleaded guilty to insurance fraud, racketeering, and money laundering and has been sentenced to nearly 17 years in federal prison. The Internal Revenue Service and FBI seized and sold Frankel's assets, and the resulting funds were placed in forfeiture accounts. The funds were recently ordered to be turned over to the receivers of the insolvent insurance companies. With the $2.5 million received from the forfeiture, the state has recovered more than $3.8 million of the funds taken in the Frankel case. "This case demonstrates our commitment to work collaboratively with other states and federal authorities in the pursuit of criminal enterprises,” Holland said. Holland directs a 12-person Anti-Fraud Unit that investigates insurance fraud statewide. The Oklahoma Insurance Department also leads the Federal and International Enforcement Coordination Working Group of the National Association of Insurance Commissioners. Cushing Man Ordered To Trial On Embezzlement Charge 1600cush.com | 1/21/08 | Patti Weaver A Cushing man has been ordered to stand trial on a felony charge alleging that he embezzled $84,800 from the Oklahoma Elks Major Projects Fund while he was serving as the fund\'s treasurer last April prior to his resignation. Frank David McCalla, 57, who waived his right to a preliminary hearing last week, remains free on $25,000 bond pending his arraignment in trial court Friday before Associate District Judge Robert Murphy Jr. Payne County Sheriff\'s Investigator Billy Bartram wrote in an affidavit that on July 2, the day that Bartram assumed his post, he began an investigation into the embezzlement of $84,800 from the Oklahoma Elks Major Projects Fund, Inc. "I spoke with Brian Bredesen, past president of the Elks whom McCalla turned the financial records into. At the time he turned the records over, Bredesen asked what happened. "McCalla said he was gambling and that life was a mess. McCalla also gave Bredesen $14,750 toward restitution," Bartram's affidavit alleged. "On 7-10-07, I spoke with McCalla and he admitted gambling at casinos and that his life was in a mess. McCalla said he would make the checks payable to him or cash," Bartram alleged in his affidavit. "McCalla wasn't sure the exact amount he had embezzled, but stated he was ashamed and didnt know what he spent the money on," Bartram's affidavit alleged. If convicted of embezzlement, McCalla could be given as much as a 10-year prison tem, a $10,000 fine and an order to pay restitution, according to the charge filed by Payne County First Assistant District Attorney Tom Lee in July. ________________________ |