Outline of Recent SEC Enforcement Actions - the Utah State Bar

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of drug stores in the New York Metropolitan area. The complaint alleges that the former Duane Reade executives entered into a series of fraudulent transactions designed to boost reported income, and enable the company to meet quarterly and annual earnings guidance. According to the SEC’s complaint, the fraudulent transactions were designed by the company’s former CEO, Anthony J. Cuti, and primarily implemented by its former Real Estate Administrator and onetime CFO, William J. Tennant. The SEC’s complaint alleges that the earnings inflation scheme lasted from 2000 through 2004, and involved two kinds of transactions: The “Real Estate Concession” transactions and the “Credit and Rebilling” transactions. The Real Estate Concession transactions involved payments to Duane Reade for its agreement to relinquish purportedly valuable leases or other real-estate rights. The complaint alleges that these agreements were in reality a sham and that most transactions involved round-trip payments in which Cuti persuaded counter-parties to make payments to Duane Reade in exchange for his promise to repay them through other fictitious transactions. According to the complaint, these schemes together caused Duane Reade to overstate its pre-tax income by a total of approximately $17.5 million. To assure the success of the Real Estate Concession scheme in inflating reported income, Cuti and Tennant are alleged to have intentionally deceived the company’s CFO and other members of management. Cuti also allegedly made false statements and omitted material facts in conversations with and written representations to the company’s independent auditors as to the true nature of the Real Estate Concession and Credit and Rebilling transactions. The SEC seeks a final judgment permanently enjoining both defendants from committing future violations of Section 17(a) of the Securities Act of 1933, and from committing future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting future violations of Sections 13(a), 13(b)(2)(A), and 15(d) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, 13a-13, 15d-1, 15d-11, and 15d-13; and Cuti from committing future violations of Rules 13a-14 and 15d-14 of the Exchange Act, and from aiding and abetting future violations of Section 13(b)(2)(B); and ordering defendants to pay civil penalties and disgorgement of any ill-gotten gains with prejudgment interest. SEC v. American Italian Pasta Company SEC v. Timothy S. Webster SEC v. Warren B. Schmidgall and David E. Watson SEC v. Stephanie S. Ruskey Lit. Rel. No. 20715 (Sept. 15, 2008) http://www.sec.gov/litigation/litreleases/2008/lr20715.htm On September 15, 2008, the SEC filed several actions charging Kansas City-based American Italian Pasta Company ("AIPC"), and its senior executives with securities fraud and other violations of the federal securities laws. The SEC’s complaints allege that AIPC, AIPC's former chief executive officer Timothy S. Webster, former chief financial officer Warren B. Schmidgall, and former executive vice president of corporate development and strategy David E. 14
Watson, engaged in a fraudulent scheme to mislead the investing public about the growth of the company's earnings and to increase artificially the company's stock price. According to the SEC’s complaints, the fraudulent accounting and other errors arising from inadequate internal controls, resulted in the overstatement of AIPC's pre-tax income for the relevant period by approximately $59 million, or 66 percent. The SEC additionally charged AIPC's former controller Stephanie S. Ruskey in a civil action in federal court. The SEC alleges that Ruskey knew or was reckless in not knowing that AIPC's quarterly and annual financial statements were misleading, and alleges that she signed representation letters to AIPC's auditor that falsely stated that the financial statements were prepared in accordance with generally accepted accounting principles. Without admitting or denying the allegations, AIPC, Webster, and Ruskey agreed to settle the matters. AIPC consented to a final judgment enjoining it from violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13. Webster consented to a final judgment enjoining him from violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13, imposing disgorgement of $751,978, plus prejudgment interest of $32,610; imposing a $250,000 civil money penalty; and barring him from serving as an officer or director of a public company. Ruskey consented to a final judgment enjoining her from violations of Rule 13b2-1 and 13b2-2 under the Exchange Act, and for her aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13, and imposing a $25,000 civil money penalty. The Commission's case against Schmidgall and Watson is ongoing. SEC v. El Paso Corporation Lit. Rel. 20642 (Jul. 11, 2008) http://www.sec.gov/litigation/litreleases/2008/lr20642.htm On July 11, 2008, the SEC filed a civil action against El Paso Corporation (El Paso), its subsidiaries El Paso CGP Company LLC (CGP) and El Paso Exploration & Production Co. (EPPH), and several former employees alleging that they inflated, or participated in the inflation of, the companies' proved natural gas and oil reserves in violation of the federal securities laws. The complaint names Rodney D. Erskine, the former president of El Paso's Exploration and Production Business Segment, Randy L. Bartley, the former senior vice president of El Paso's Exploration and Production Business Segment, and Steven L. Hochstein, John D. Perry, and Bryan T. Simmons, former vice presidents of El Paso's Exploration and Production Business Segment. According to the complaint, the defendants violated the antifraud provisions of the federal securities laws. The SEC also alleges that El Paso, CGP, and EPPH violated, and Erskine, Bartley, Hochstein, Simmons, and Perry aided and abetted violations of, the reporting, books and 15
Page 1 and 2: Outline of Recent SEC Enforcement A
Page 3 and 4: OTHER CASES .......................
Page 5 and 6: SEC v. Marc S. Dreier .............
Page 7 and 8: severe concerns about the increasin
Page 9 and 10: The complaint alleges: • Strauss
Page 11 and 12: According to the SEC's orders, Zuri
Page 13: The SEC alleges that Cassidy and O'
Page 17 and 18: judgment that permanently enjoins h
Page 19 and 20: officer or director of a public com
Page 21 and 22: CASES INVOLVING STOCK OPTION BACKDA
Page 23 and 24: made materially false and misleadin
Page 25 and 26: the antifraud, reporting, record-ke
Page 27 and 28: Specifically, the SEC's complaint a
Page 29 and 30: its extensive remedial measures. Un
Page 31 and 32: and former Director of Human Resour
Page 33 and 34: thereunder. In addition, the SEC al
Page 35 and 36: The complaint alleges that all of t
Page 37 and 38: OIL FOR FOOD CASES CASES INVOLVING
Page 39 and 40: held for one year and the unusually
Page 41 and 42: Bangladesh; telecommunications proj
Page 43 and 44: In a related action, the Commission
Page 45 and 46: participated in a scheme to bribe N
Page 47 and 48: The settlements will restore approx
Page 49 and 50: and that the defendants acted as un
Page 51 and 52: the firms to cease-and-desist from
Page 53 and 54: 2008, Wachovia offered to purchase
Page 55 and 56: eligible customers incurred consequ
Page 57 and 58: deceptive or fraudulent devices or
Page 59 and 60: Securities Act of 1933 and Section
Page 61 and 62: Admin. Proc. File No. 3-12751 (Sept
Page 63 and 64: CASES INVOLVING SELF-REGULATORY ORG
Page 65 and 66:
The defendants are Michael T. Uberu
Page 67 and 68:
Specifically, the SEC alleges that
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The SEC's charges against Harding r
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have withdrawn approximately $8.4 m
Page 73 and 74:
Press Release (January 21, 2009) ht
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CASES INVOLVING MUTUAL FUNDS AND IN
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securities, became illiquid on that
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http://sec.gov/litigation/admin/200
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The SEC alleges that Pax World purc
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BACAP aided and abetted and caused
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The complaint alleges that the defe
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disgorgement of illegal profits, ci
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InVision Technologies, Inc.; Eon La
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firm. The SEC alleges Murdoch used
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SEC v. Pawel P. Dynkowski, Matthew
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shares of Mobile Ready Entertainmen
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The Securities and Exchange Commiss
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The complaint alleges violations of
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CASES INVOLVING SECURITIES OFFERING
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y causing the release of spam email
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The SEC filed an emergency action t
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Restructuring Officer Hamstreet & A
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investigation. King went so far as
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limited trading that he did, withdr
Page 113 and 114:
separate transactions) and forwarde
Page 115 and 116:
The SEC alleges that Weitzman eithe
Page 117:
misrepresentations including promis
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Outline of Recent SEC Enforcement Actions - the Utah State Bar

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