Former San Diego Officials Agree to Pay Financial Penalties in Municipal Bond Fraud Case

The Securities and Exchange Commission today announced that four former San Diego officials have agreed to pay financial penalties for their roles in misleading investors in municipal bonds about the city's fiscal problems related to its pension and retiree health care obligations. It's the first time that the SEC has secured financial penalties against city officials in a municipal bond fraud case.

The SEC settlement with the four former city officials requires the approval of U.S. District Judge Dana M. Sabraw in the Southern District of California. The SEC filed charges in April 2008 against former San Diego City Manager Michael Uberuaga, former Auditor & Comptroller Edward Ryan, former Deputy City Manager for Finance Patricia Frazier, and former City Treasurer Mary Vattimo. The SEC alleged that the officials knew the city had been intentionally under-funding its pension obligations so that it could increase pension benefits but defer the costs. They also were aware that the city would face severe difficulty funding its future pension and retiree health care obligations unless new revenues were obtained, benefits were reduced, or city services were cut. However, despite this extensive knowledge, they failed to inform municipal investors about the severe funding problems in 2002 and 2003 bond disclosure documents.

"Municipal officials have a personal obligation to ensure that investors are provided with complete and accurate information about the issuer's financial condition," said Rosalind Tyson, Director of the SEC's Los Angeles Regional Office. "These former San Diego officials are paying a price for their actions that jeopardized the interests of investors and put the city's current and future retirees at risk."

The four former officials agreed to settle the SEC's charges without admitting or denying the allegations and consented to the entry of final judgments that permanently enjoin them from future violations of Securities Act of 1933 Section 17(a)(2). Under the settlement terms, Uberuaga, Ryan, and Frazier each pay a penalty of $25,000 and Vattimo pays a penalty of $5,000.

The SEC's charges against a fifth former city official — Assistant Auditor & Comptroller Teresa Webster — are still pending.

The SEC litigation was handled by John M. McCoy III, David J. Van Havermaat, and Catherine W. Brilliant.

Healtchare Finance Exec. On The Run For $2.8b Fraud Scheme Arrested In Mexico

Former National Century Financial Enterprises (NCFE) executive Rebecca S. Parrett, 62, has been arrested in Mexico, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Carter M. Stewart for the Southern District of Ohio and U.S. Marshal Cathy Jones for the Southern District of Ohio. Parrett fled in March 2008 after a federal jury convicted her on charges stemming from her role in a $2.8 billion fraud that led to NCFE’s collapse.

Mexican authorities arrested Parrett in Ajijic, Jalisco, Mexico, based on information provided to them by the U.S. Marshals Service in Columbus, Ohio. Parrett was immediately deported according to Mexican immigration laws. Mexican authorities escorted Parrett to Los Angeles where deputy U.S. Marshals arrested her on the warrant issued after her conviction. Parrett will appear before a federal judge in U.S. District Court in Los Angeles today, then will be returned to Columbus.

"Corporate executives found guilty for their fraudulent activity will not be allowed to escape justice by fleeing the United States," said Assistant Attorney General Lanny A. Breuer. "Like any defendant convicted by a jury, Ms. Parrett is today facing the consequences of her actions."
"The U.S. Marshals Service has followed all leads and devoted countless hours to the search for Parrett," said U.S. Attorney Stewart. "Their persistence has led to her arrest. Now she will finally face justice."


"The U.S. Marshal Service never wavered or slowed in our commitment to bring Rebecca Parrett to justice," said U.S. Marshal Cathy Jones. "Even fugitives with great financial resources willing to flee the country for years, as she did, will always have to look over their shoulder. The U.S. Marshals Service is world-renowned for having the resources to conduct complicated fugitive investigations, and this arrest again displays our commitment to ensuring the integrity of the criminal justice system."

A jury convicted Parrett, the former vice chairman, secretary, treasurer, director and owner of NCFE, on March 13, 2008, of charges including conspiracy, securities fraud and wire fraud. Parrett fled after the conviction. She was sentenced on March 27, 2009, to 25 years in prison. She was also ordered to forfeit $1.7 billion in property representing the proceeds of the conspiracy and to pay restitution of $2.3 billion, jointly and severally with other defendants. NCFE, formerly based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November 2002.

Parrett and other NCFE executives engaged in a scheme from 1995 until the collapse of the company to deceive investors and rating agencies about the company’s financial health and how investors’ money would be used. The court noted that 275 healthcare providers filed bankruptcy in whole or in part because of NCFE’s collapse. Parrett and nine other executives were convicted or pleaded guilty in connection with the fraud that led to the company’s collapse.

The investigation into Parrett’s disappearance generated leads in more than a dozen U.S. states and several foreign countries. Many federal, state and local police agencies assisted the U.S. Marshals Service in Columbus with its pursuit of the fugitive.

The cooperative investigation that led to Parrett’s arrest included assistance from the Southern Ohio Fugitive Task Force (SOFAST); the U.S. Department of State, Diplomatic Security Service; the Internal Revenue Service - Criminal Investigation Division; the Columbus Division of Police; the FBI; the Grove City, Ohio, Police Department; the Ohio Bureau of Criminal Identification and Investigation; the Drug Enforcement Administration; the U.S. Immigration and Customs Enforcement; the Ohio Adult Parole Authority; and the U.S. Postal Inspection Service. Officials also expressed their gratitude to Mexican authorities for their significant assistance in this matter.

Banking Criminals in Very High Places

The UK bank Barclays admitted altering its books for more than 10 years to hide hundreds of millions of dollars from countries such as Cuba, Libya and Iran.

In May, ABN Amro, now part of Royal Bank of Scotland Group, agreed to pay $US500m to end allegations that it helped Iran, Libya, Sudan and Cuba evade US sanctions by “stripping” the identities of transactions to conceal the countries from which they originated.

Last December, Credit Suisse Group paid $US536m to settle similar violations involving transactions with Iran. In early 2009, a unit of London-based Lloyds Banking Group paid $US350 million related to similar charges by US and New York prosecutors, who accused the bank of masking the origin of payments from Iran and Sudan.

The $331m settlement-agreement of criminal charges is an embarrassment for Barclays, which became a major player on Wall Street by snapping up the collapsed US operations of Lehman Brothers in 2008 and has been trying to burnish the UK bank's reputation on both sides of the Atlantic as a good corporate citizen.

A federal court filing said Barclays “accepts and acknowledges responsibility for its conduct and that of its employees”. US officials said the bank altered payment messages or deleted information about sanctioned countries. More

Florida CEOs Charged for Orchestrating Pump-and-Dump Schemes

The Securities and Exchange Commission today charged two Florida-based corporations and their CEOs for orchestrating two separate pump-and-dump schemes in which they issued numerous misleading press releases hyping their operations or services while their respective CEOs repeatedly sold their stock for significant profits.

The SEC alleges that Quri Resources, Inc. and its CEO Jaime Santiago Gomez of Miami and Quito, Ecuador, issued misleading press releases for several months in 2009 falsely claiming that it was about to begin drilling on a mining project in Ecuador with a probable gold reserve worth more than $1 billion. The SEC separately charged Atlantis Technology Group and CEO Christopher Dubeau of Weston, Fla., for disseminating press releases over an eight-month period touting phony business relationships with television networks to sell their video and telecommunication services that did not even exist.

"Investors were duped into believing that Quri Resources was a successful mining company and that Atlantis Technology Group was selling cutting-edge technology services. Both companies misled investors with exaggerated claims while their respective senior executives illegally dumped shares into the market," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "We will continue to crack down on companies that promote misleading information."

According to the SEC's complaint filed in federal court in Miami against Quri Resources and Gomez, the misleading press releases were issued from at least February to July 2009. In addition to the false claims about the purported mining project, the SEC alleges that Quri misrepresented that it had signed letters of intent to acquire two valuable mining projects in Arizona, acquired a second mining project in Ecuador and anticipated producing gold within three months, and signed a letter of intent to acquire a third valuable mining project in Ecuador. The SEC further alleges that Gomez, who reviewed and approved the misleading press releases, repeatedly sold Quri stock in unregistered transactions as the press releases were being issued. Gomez made proceeds of approximately $17,500 in dumping the stock.

According to the SEC's complaint filed in federal court in Miami against Atlantis Technology Group and Dubeau, the Fort Lauderdale-based company issued misleading press releases from at least Aug. 7, 2009, to April 5, 2010. The SEC alleges that Atlantis falsely claimed that its subsidiary Global Online Television Corporation offered Internet protocol television (IPTV) services and video phone services to consumers, and had relationships with television networks to offer their content to subscribers. However, the subsidiary was not even in a position to offer IPTV or video phone services at that time, and Atlantis has never had any contract with a television network or any agreements to offer media content to customers.

The SEC further alleges that Dubeau drafted, reviewed, and approved Atlantis's misleading press releases while knowing that Atlantis did not have the capabilities or business relationships the press releases claimed. Meanwhile, Dubeau sold more than 60 million shares of Atlantis stock for proceeds of about $240,000, and he received $77,000 of the proceeds from an associate's sale of more than 16 million shares.

The SEC is seeking injunctions against further violations and the return of ill-gotten gains with prejudgment interest and financial penalties against Gomez and Dubeau. The SEC is additionally seeking an officer and director bar against Dubeau, and penny stock bars against Gomez and Dubeau.

The Quri Resources matter was investigated by Elizabeth Fatovich and Thierry Olivier Desmet in the SEC's Miami Regional Office. The Atlantis Technology matter was investigated by Mr. Desmet and Drew Panahi in the Miami office. Edward McCutcheon will be handling the litigation of both cases. The SEC appreciates the assistance of the Financial Industry Regulatory Authority (FINRA) in these matters.