by T. GormanPosted on Posted in SECActions

Allianz SE, the giant German insurer and asset manager, settled FCPA books and records and internal control charges with the SEC. In the Matter of Allianz SE, Adm. Proc. File No. 3-15132 (Dec. 17, 2012). At the time of the underlying events Alianz’s American Depositary Shares and bonds were registered with the Commission under the Exchange Act and listed on the New York Stock Exchange. After the company discovered the conduct involved here, but before the Commission started its investigation, the Allianz voluntarily delisted from all exchanges except those in Germany.

The conduct in the action involved payments by majority owned subsidiary PT Asuransi Allianz Ultama beginning in 2001 and continuing until 2008 to Indonesian officials to obtain and retain insurance business. Initially, the Marketing Manager at Ultama made payments from a special purpose bank account opened years earlier for a legitimate purpose with a local Indonesian broker years. The manager received approval from Ultama management to use the account to make the payments to obtain or retain business.

The improper payments were made by disguising them as part of the policy premium. To implement this system the premium was divided into two segments. One was the actual premium while the other part was for the foreign official. When the entire premium was paid, the Ultama manager had the second portion transferred to the special purpose bank account and paid to the official. Allianz was not aware of these payments because, according to the Order, its internal controls were not effective.

In 2005 Allianz received a complaint through its whistleblower hotline regarding the special purpose account. Internal audit examined the issue, focused largely on whether money had been misappropriated. Eventually the examination was concluded and the account ordered closed without determining the purpose for the payments.

Despite the directive to close the account the Marketing Manager continued to use it from 2005 through 2008 with the agreement of the Ultama’s management. While the Marketing Manager utilized various ways to make the payments none were detected by the parent company, further illustrating its flawed internal controls, according to the Order.

In 2009 there was a second whistleblower complaint at the parent company. Counsel was retained to investigate. The matter was not reported to the SEC. The next year, however, another whistleblower complaint was made. This time it was lodged with the Commission. The staff investigation uncovered 295 government insurance contracts obtained or retained through the payment of about $650,626 to Indonesian government officials from 2001 through 2008.

Over the course of the investigation the cooperation of the company, which changed counsel, improved according to the Order. A footnote indicates that Allianz did report that another German entity in which it had invested was under inquiry for tax issues in Germany. None of the issues involved government projects or payments to foreign officials. The Order alleges violations of Exchange Ac Sections 13(b)(2)(A) and 13(b)(2)B).

The company settled with the Commission, consenting to the entry of a cease and desist order based on the Sections cited in the complaint. It also agreed to pay disgorgement of $5,315,649, prejudgment interest and a civil penalty equal to the amount of the disgorgement.

Hurricane Sandy: As we enjoy the holiday season please remember the victims of Sandy’s destruction with a donation to the Red Cross (here).

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by T. GormanPosted on Posted in SECActions

Three repeat securities law violators teamed up to defraud 70 investors of over $9 million over three years. The complaint claims the defendants sold interests in a privately held biochemical company based on a series of misrepresentations. SEC v. Biochemics, Inc., Civil Action No. 1:12-cv-12324 (D. Mass. Filed Dec. 14, 2012).

BioChemics is a privately held company formed in 1991 by defendant John Masiz who serves as its Chairman, CEO and President. Defendant Craig Medoff provided services to the company through another entity and solicited potential investors. Defendant Gregory Kroning is a consultant to the company who also solicited potential investors.

Over a three year period the defendants are alleged to have made a series of misrepresentations to potential investors in connection with the sale of BioChemics securities which included:

  • Claims that in 2011 the company had ongoing research and development collaborations with certain other pharmaceutical companies which either did not exist or had terminated two years earlier;
  • Representing that in 2010 the company had two drugs then under FDA review when in fact it did not;
  • Giving investors reports on the progress and results of clinical trials for BioChemics’ products which were false;
  • Providing investors with incorrect valuations for the company which supposedly were prepared by reputable independent investment banks, one of which included a claim that it was worth up to $2 billion in 2009; and
  • Telling investors that Mr. Masiz was going to fund BioChemics’ operating expenses and clinical trials and that he was not taking a salary when in fact he was paying for his living expenses from investor funds.

Previously, each of the individual defendants had violated the federal securities laws.

Mr. Masiz: In 2004 he was enjoined from violating the antifraud provisions of the federal securities laws and barred from serving as an officer or director of a public company for five years in connection in an action involving a pharmaceutical company.

Mr. Medoff: In 1993 he was a defendant in a case involving the sale of unregistered securities and consented to the entry of a permanent injunction prohibiting future violations of the antifraud provisions of the federal securities laws. Two years later the Commission entered an order barring him from the securities business and he pleaded guilty to two counts of conspiracy to commit securities fraud in a criminal case.

Mr. Kroning: He was a registered representative and has been barred for one year from the industry by the New York Stock Exchange but has not sought re-entry.

The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending.

Sandy Brook Elementary School: Please take a moment to reflect on the tragedy and its impact on those who lost their lives and everyone.

Hurricane Sandy: As we enjoy the holiday season please remember the victims of Sandy’s destruction with a donation to the Red Cross (here).

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