More Criminal Securities Cases
Criminal enforcement of the securities laws continues to be a focal point with new charges in the Refco debacle and a criminal case against the Mayor of Birmingham and two of his friends following an SEC enforcement action.
First, there are new criminal charges in the on-going Refco scandal. A superseding indictment was filed last week against attorney Joseph P. Collins. U.S. v. Collins, Case No. 1:07-cr-01170 (S.D.N.Y. Filed Dec. 18, 2007). The superseding indictment adds bank fraud charges to those pending against the former Mayer Brown partner.
The new charges claim that Mr. Collins assisted Refco’s management in concealing from a group of banks the existence of the infamous “round trip” loan transactions at the center of the debacle and more than $2 billion in guarantees provided by Refco to third parties in connection with those transactions. These actions were taken to secure more than $1 billion in lines of credit.
The superseding indictment contains fourteen counts: Count 1: conspiracy to commit securities fraud, wire fraud, bank fraud and money laundering; Count 2: securities fraud; Count 3: securities fraud; Counts 4-5: false filings with the SEC; Counts 6-9: Wire fraud; and Counts 10-14: Bank fraud.
The initial charges against Mr. Collins stem from his role as longtime outside counsel for Refco. Those charges claim that Mr. Collins was a key participant in a massive financial fraud which concealed the actual financial condition of Refco from investors, lenders and the public. In the “round trip” transactions, a company controlled by Philip Bennett, Refco’s former CEO, would allegedly lend funds to Refco over the end of a period and then borrow them back after the closing to conceal Refco’s huge debts. Mr. Collins and his team facilitated this scheme and the SEC has a related case pending against Mr. Collins, discussed here. SEC v. Collins, Case No. 07 CV 111343 (S.D.N.Y. Dec. 18, 2007).
Those who have pled guilty in the Refco scandal include: Phillip Bennett, its former CEO, sentenced to 10 years; Tone Grant, a former owner, sentenced to 10 years; Robert Trosten, former CFO, awaiting sentencing; and Santo Maggio, former EVP, awaiting sentencing.
Second, Birmingham, Alabama Mayor Larry Langford and two of his friends, William Blount and Albert LaPierre were named as defendants in a 101-count indictment last week, keyed to a kickback scheme for county securities business. That indictment contains counts of conspiracy, bribery and money laundering. U.S. v. Langford, Case No. 2:08-CR-00245 (N.D. Ala. Filed Dec. 1, 2008).
The charges in the indictment center on a scheme which took place between 2002 and 2006. In that scheme Mayor Langford is alleged to have used his position as president of the County Commission to generate $7.1 million in brokerage fees for Mr. Blount and his brokerage in connection with county financial transactions. Mr. Blount, as part of the scheme, is alleged to have paid over $219,000 to lobbyist LaPierre. Messrs. Blount and LaPierre in turn are alleged to have contributed over $235,000 in gifts and cash payoffs to the Mayor to secure the business.
Previously, the SEC brought a civil injunctive action against the Mayor and his two friends as discussed here. SEC v. Langford, Civil Action No. cv-08-0761-S (N.D. Ala. April 30, 2008). That action is the Commission’s first enforcement case involving security-based swaps. The swaps involved an agreement to exchange periodic interest rate payments on an amount of debt. The complaint also involved the sale of municipal bonds. As with the criminal indictment, the case centers on a kickback scheme for county financial business involving the Mayor and his two friends. Both the SEC civil and the criminal case are pending.