by T. GormanPosted on Posted in SECActions

A business man, a real estate company he acquired from his grandfather, a registered representative who has now been barred by FINRA from the securities business and Maryland Division of Securities from the advisory business and an unnamed broker teamed-up to sell millions of dollars of bonds to the public. The real estate firm which issued the bonds eventually defaulted after the investor funds had been spent, leaving holders with little. SEC v. Azar, Civil Action No. 14-cv-3598 (D. Md. Filed November 14, 2014).

Wilfred Azar has been the majority owner of Empire Corporation, both defendants, since 1999. Joseph Giordano, also a defendant, was the branch manager and a registered representative associated with a registered broker-dealer. In addition, he is the sole owner, General Manager and President of Giordano Asset Management, a one-time registered investment adviser which served as the adviser to the Giordano fund.

Mr. Azar became President and CEO of Empire when he acquired the company from his grandfather, its founder. The company owned and operated a 250,000 square foot, ten-story office building in Glen Burnie, Maryland. Rental income from the building was the primary source of revenue for the company.

For several years prior to acquiring the company Mr. Azar sold bonds as secondary financing for its operations. He continued this practice after acquiring Empire. The bonds were sold through oral solicitation without a prospectus or other offering documents. Investors typically received a one page certificate with the terms of the investment. Usually the certificate provided for a term of five years at 10% interest, compounded daily.

Shortly after acquiring Empire Mr. Azar arranged for the broker where his long time friend and business associate, Joseph Giordano was employed, to custody the bonds so that holders could place them in an IRA account. While Mr. Giordano’s firm cautioned him to only sell the bonds on an unsolicited basis and prohibited him from recommending them, he ignored the restrictions. Over a three year period beginning in 2006 he raised at least $1.5 million from about 23 investors. Mr. Giordano also caused the Fund to purchase bonds. Although he had little financial data regarding Empire, over the period he became aware of its financial condition but continued to sell the bonds.

At the same time Mr. Azar arranged for Broker A, associated with another registered broker-dealer, to sell the bonds. Broker A, relying largely on Mr. Azar’s representations regarding Empire, raised about $3.6 million from bond sales. Collectively, Messrs. Azar, Giordano and Broker A raised over $7 million from about 50 investors. Investors were assured that Empire as a successful, profitable business. They were also told that their funds would be used to further develop the business.

As the bonds were being sold the financial condition of Empire deteriorated. Between 2006 and 2009 the financial condition of the company declined while its debt climbed. The debts came from not just from the operations of Empire but also the other unprofitable businesses of Mr. Azar. While portions of the money raised was used to repay investors, other investor funds were diverted to Mr. Azar’s life style.

By 2010 the Defendants were unable to recruit new investors. Empire was no longer able to repay existing investors. Most of the investors lost substantially all of their investment. The SEC’s complaint alleges violations of Securities Act Sections 5(a) , 5(c) and 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4) and Investment Company Act Section 34(b). The action is pending. A parallel criminal action was filed against Mr. Azar by the U.S. Attorney’s Office for the District of Maryland. See Lit. Rel. No. 23232 (November 14, 2014).

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by T. GormanPosted on Posted in SECActions

The SEC filed another settled FCPA action. The proceeding named two individuals as Respondents. It centers on using expensive gifts and travel as bribes. In the Matter of Stephen Timms, Adm. Proc. File No. 3-16281 (November 17, 2014).

Respondents Stephen Timms and Yasser Ramahi, both U.S. citizens who reside abroad, were employed by FLIR Systems, Inc. The firm, founded in 1978, makes thermal imaging and other sensing products and systems, night vision and infrared camera systems. Mr. Timms was, at the time of the events at issue here, the head of FLIR’s Middle East office in Dubai. Mr. Ramahi worked in business development in the same office. He was one of the executives responsible for obtaining business in the firm’s Government Systems division for the Arabia Ministry of Interior.

In November 2008 FLIR entered into a contract with the Arabia Ministry to sell thermal binoculars. The agreement was worth about $12.9 million. The factory acceptance test was a key condition to the fulfillment of the contract. The firm expected that a successful contract would lead to others.

In May 2009 FLIR signed another agreement. This contract called for the integration of its cameras into the product of another firm, again for the Arabia Ministry. The contract was valued at $17.4 million. Messrs. Ramahi and Timmins were involved with the negotiations for both contracts.

In February 2009 Messrs. Ramahi and Timms began preparing for the factory acceptance test, scheduled for July 2009 in Billerica, Massachusetts. The next month Mr. Timms, in the presence of Mr. Ramahi, provided five Ministry officials with watches as gifts. Each watch cost about $1,424, according Mr. Timms. The invoices were submitted to the company for payment.

Subsequently, arrangements were made for the Ministry officials to go on what Mr. Timms later called a “world tour” in connection with the test. The tour began with travel from Rihadh to Casablanca, moved to Paris and then Boston. At each location the group stayed in luxury hotels for several days. While in Boston the group took a side trip to New York City. On the way back one official traveled to Beirut before returning to Riyadh. The travel extended over twenty nights. The factory tour took place in Boston in one afternoon. The company paid all expenses.

In July 2009 FLIR’s finance department flagged the reimbursement request for the watches. Mr. Timms claimed he had made a mistake, falsely stating that the total cost should have been $1,900 rather than the total submitted. Mr. Ramahi then secured a fabricated invoice which Mr. Timms submitted to the finance department. He also told the finance department that each watch cost about $377. Mr. Timms subsequently arranged for a firm agent to cover-up the true costs when questioned by the finance department.

Messrs. Ramahi and Timms also claimed that cost for the “world tour” was a mistake. The finance department was told that the Ministry had used the firm travel agent to book their own travel which was mistakenly billed to FLIR. Mr. Timms submitted a false invoice to the finance department.

Following the inspection, the Ministry told FLIR to ship the thermal binoculars. Later the Ministry ordered additional binoculars.

Throughout this process, FLIR had a code of conduct which prohibited firm employees from violating the FCPA. The policy required that all information be accurately recorded. Messrs. Ramahi and Timms had received FCPA training prior to the events involved here.

The Order alleges violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(5). Each Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order. Mr. Timms agreed to pay a civil money penalty of $50,000. Mr. Ramahi will pay a penalty of $20,000.

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