| #543 - January 25, 2008 |
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| #543 Updated: 1/25/08 11:31 a.m. Societe Generale Loss Shifts Davos Focus to Fraud bloomberg.com | 1/25/08 | John Fraher and Simon Kennedy Societe Generale SA's revelation that a rogue trader saddled it with a $7.2 billion loss left business leaders at the Swiss resort of Davos shocked and baffled. ``Fraud is the CEO's ultimate nightmare,'' Merrill Lynch & Co. Chief Executive Officer John Thain said today in a Bloomberg Television interview at the World Economic Forum. ``You can have all the systems in the world, but you can't prevent fraud.'' Societe Generale's loss was unprecedented in banking history. France's second-largest bank by market value said yesterday Jerome Kerviel, a 31-year-old trader, set up secret positions that went beyond permitted limits on futures linked to European stock indexes. The story sent a chill through the snow-covered town of Davos, where delegates attending the annual meeting are debating everything from how to manage the world's dwindling water resources to the prospects of global recession. ``A couple of days ago, the buzz was that the world was coming to an end as financial markets were plunging; now it's internal audit controls,'' said Steve Forbes, chief executive of Forbes Inc. That's ``a much better subject, though SG may not agree.'' Even before U2 lead singer Bono and former U.S. Vice- President Al Gore had started a session on world poverty and climate change yesterday, Societe Generale's woes had executives in Davos huddled in corners over their Blackberries. Bank of France Governor Christian Noyer canceled his planned trip to the Alpine town to handle the crisis from Paris, leaving Prime Minister Francois Fillon to field questions from reporters. ``It couldn't have happened at a worse time,'' said Bill Browder, chief executive officer of hedge-fund firm Hermitage Capital Management Inc. ``Everyone was expecting a big subprime writedown and instead you have a big fraud. Banks are under pressure from so many sides and this is the last thing they wanted.'' Societe Generale's disclosure was a new blow to an industry already grappling with more than $130 billion of writedowns stemming from the collapse of the U.S. subprime-mortgage market. Bankers questioned how a fraud on such a scale was possible. ``The comment I have heard most is: how can this have happened?'' Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, said in Davos today. ``How can someone of such a low level have so much responsibility? It doesn't reveal a systemic problem, it reveals a serious problem for one institution.'' Kerviel built a virtual company within Societe Generale, bank officials said. He balanced each bet with a fictitious one for almost a year. Last week, a routine check found a trade that exceeded the organization's limits. A call to the other party in the trade found the transaction didn't exist. The investigation will take ``weeks or months,'' Noyer said today. NYSE Euronext's Deputy Chief Executive Officer Jean- Francois Theodore said today the fraud was made possible by a market that has become difficult to control. ``It's probably that financial instruments have become too complex,'' he said in an interview. Kerviel drew on knowledge he acquired during six years in Societe Generale's back office, where he went to work in 2000 after completing a degree in market operations at the University of Lyon II, according to an alumni Web page. He had to breach five levels of controls to get away with his trades, Noyer said at a press conference yesterday. ``The transactions that were built on the fraud were simple, positions linked to rising stock markets, but they were hidden through extremely sophisticated and varied techniques,'' Societe Generale Chairman Daniel Bouton, 67, said in a letter posted on the bank's Web site. ``Too many people seem to have a sense that the goal in life is to get fabulously rich regardless of how you do it and regardless of the consequences,'' said U.S. Representative Brian Baird. ``You'll never stop that entirely but changing that ethos might go a little bit towards it. You shudder to think how much this may happen elsewhere as well.'' Woman accused of embezzlement sentenced to prison postbulletin.com | 1/25/08 | Dawn Schuett A 52-year-old woman accused of embezzling more than $700,000 from a Cannon Falls business was sentenced Wednesday to nearly four years in prison. Susan Ann Von appeared in U.S. District Court where Judge Paul Magnuson ordered her to serve 46 months in prison and three years supervised release. She must also pay $688,327 in restitution to Sustane, a division of Natural Fertilizer of America Inc., and $208,240 in back taxes. Von, who worked as a finance manager at Sustane from 2000 to 2006, pleaded guilty in May to one count each of mail fraud and money laundering and two counts of tax evasion. According to court records, Von fraudulently issued checks from Sustane's bank account to pay her credit card bills and other unauthorized expenses. She also filed fraudulent federal tax returns that underreported her income from 2000 to 2005. Von's husband, David C. Von, a former Cannon Falls bank executive, was acquitted last month on federal charges related to his wife's case. Susan Von's attorney, Peter B. Wold, said his client has apologized profusely to her family and friends, Sustane's shareholders and its past and current employees and the community of Cannon Falls where she once served on the school board. Prison is a sobering consequence for Von, Wold said. "This wasn't how she had hoped to spend these years of her life but she has taken responsibility," he said. Blaize Holden, operations manager at Sustane and the son of the company's president, Craig Holden, said he still doesn't believe Von is remorseful for actions that were so damaging to the business. "The most direct impact is that we'll be repaying these funds for years to come and we're continuing to accrue interest every day until we're able to repay borrowed money to cover these losses," Holden said. Former lawyer to spend 33 months in prison for embezzlement herald-dispatch.com | 1/24/08 | Staff Writer CHARLESTON, W.Va. (AP) — A former bond lawyer who embezzled nearly $200,000 from his firm will spend almost three years in prison. Leonard Coleman of Elkview was sentenced to 33 months in prison Wednesday by U.S. District Judge John T. Copenhaver Jr. in Charleston. Coleman pleaded guilty to one count of mail fraud in August. He must also make full restitution of $192,740. He embezzled client fees from Goodwin & Goodwin of Charleston between September 2004 and May 2005. He was fired when the embezzlement was discovered in 2005 and was stripped of his West Virginia law license in 2006. Coleman’s attorney, Troy Giatras, likened his client’s situation to a Greek tragedy. He said Coleman earned $240,000 a year as a partner at Goodwin & Goodwin and now works at Kmart, stocking shelves at night. Coleman apologized to his former partners and colleagues, and to the state’s legal community. He said he stole the money, partly to support his “high maintenance girlfriend.” Embezzlement probe launched at Watsonville berry farm santacruzsentinel.com | 1/25/08 | Jennifer Squires Authorities are investigating the embezzlement of hundreds of thousands of dollars from Watsonville berry grower Dutra Farms, the District Attorney's Office reported. The theft was apparently discovered during a District Attorney's Office probe into the farm manager's alleged sexual abuse of a young child and subsequent efforts to cover up his crimes. Prosecutor Andrew Isaac, who is handling the child molestation case, said Thursday "there is an ongoing, very serious investigation into embezzlement at Dutra Farms." At least $150,000 has been taken from the Watsonville berry producer, Isaac said. "I don't know how far it's going to go," he said. "We're at the very beginning." No arrests have been made and the District Attorney's Office declined to name suspects, though authorities said they are looking at farm employees and outsiders as "persons of interest." "We don't know," Isaac said. "Money trails and paper trails, particularly when you're dealing with people who are good at hiding them, are full of surprises." In a statement released through Dutra Farms attorney Rafael Vasquez of Salinas, the company stated it "has been and will continue to cooperate with local authorities regarding an ongoing investigation into the suspected misappropriation of corporate funds." Despite the theft and subsequent investigation, the farm is fully operational and there have been no disruptions to production, supply or employee schedules, according to the Dutra Farms statement. Dutra Farms grows and processes conventional and organic raspberries, blackberries and blueberries on more than 800 acres in the Pajaro Valley. The company, started in 1933, employees more than 800 people during the peak berry season. Isaac said the embezzlement case is not connected to the child molestation accusations, which involve farm manager Virgelio "Hilo" Yepez and supervisor Jose Oscar Ramirez, who allegedly helped Ramirez move the abuse victim out of the country. It is unclear if Yepez or Ramirez are still employed at Dutra Farms. Forensic auditors and Dutra Farms accountants are working together to determine the extent of the embezzlement at the company, Isaac said. He did not know how long the investigation would take. SEC Charges Two Former Accounting Firm Employees with Insider Trading sec.gov | 1/24/08 | Press Release The Securities and Exchange Commission today charged two former San Francisco-area employees of PricewaterhouseCoopers LLP (PwC) with insider trading. According to the Commission’s complaint, Gregory B. Raben, 30, a former PwC auditor, and William Patrick Borchard, 28, a former senior associate in PwC’s Transaction Services Group, used their access to sensitive information about PwC’s clients to allow Raben to buy stock ahead of a series of corporate takeovers. Without admitting or denying the allegations, Raben and Borchard agreed to a settlement including monetary penalties. “Today’s charges of insider trading by accounting firm employees are another example of the Commission’s commitment to exposing insider trading by industry professionals who have access to confidential market information unavailable to the investing public,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “Raben and Borchard violated PwC’s rules on keeping client information strictly confidential and ignored their duties to their employer and its clients,” added Marc Fagel, Co-Acting Regional Director of the SEC’s San Francisco Regional Office. The Commission’s complaint, filed in federal district court in San Francisco, alleges that Borchard learned about the potential acquisition plans of PwC clients through his position in the Transaction Services Group, where he handled financial due diligence for clients interested in mergers or acquisitions. On six separate occasions in 2006, Borchard told his friend and co- worker Raben about these confidential plans. Raben then used the information to trade before the news was released to the investing public. The pair’s scheme continued until October 2006, when it was uncovered by PwC’s Office of General Counsel, which referred the matter to the Commission and cooperated with the SEC staff’s investigation. According to the Commission’s complaint, Raben netted unlawful trading profits of more than $20,000 by buying stock ahead of public announcements disclosing the acquisitions and then selling his shares. Raben also tipped two other acquaintances about two of the acquisitions, allowing them to make several thousand dollars in unlawful trading profits. Raben (now of Louisville, Ky.) has agreed to a permanent injunction from further violations of the antifraud provisions of the federal securities laws. He will disgorge his trading profits and those of the two acquaintances he tipped, altogether totaling $23,879.22, and will pay a civil penalty of $23,879.22. Borchard (now of Chicago), a licensed Certified Public Accountant, has consented to a permanent injunction and a civil penalty of $20,835.57 (equal to Raben’s trading profits), as well as an order denying him the privilege of appearing or practicing before the Commission as an accountant, with the right to apply to resume appearing or practicing before the Commission after three years. ________________________ |