Daniel 'Rudy' Ruettiger of Notre Dame fame accused of fraud by SEC

Rudy, the pint-sized underdog of Notre Dame football fame, is back in the spotlight –- but this time because the SEC accused him of stock fraud.

Daniel E. Ruettiger -- who in the 1970s walked onto the Fighting Irish sports team without the grades, money and size required – agreed to pay federal regulators $382,866 to settle claims that he and 12 others crafted a “pump-and-dump scheme” around his sports drink company.

The Securities and Exchange Commission said Friday that Las Vegas-based Rudy Nutrition sold “modest amounts” of a drink called Rudy in part to compete with Gatorade. But the main reason, the agency claimed, was so that Ruettiger and his colleagues could drive up the company’s stock price before selling off their own shares.

The drink was marketed under the tagline “Dream Big! Never Quit!” and was promoted -– falsely -– as selling better than Gatorade, according to the SEC. The agency claims that Ruettiger and others grossed more than $11 million off the alleged scheme in 2008.

Ruettiger, who inspired the cult classic 1993 film “Rudy,” didn’t admit or deny the allegations, the agency said. The company is no longer in business.

“Investors were lured into the scheme by Mr. Ruettiger's well-known, feel-good story but found themselves in a situation that did not have a happy ending,” said Scott W. Friestad, associate director of the SEC’s Division of Enforcement, in a statement.

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Photo: "Rudy Movie Rudy Ruettiger" Facebook profile

SEC details lawsuits against ex-Fannie Mae, Freddie Mac executives

This post has been corrected. See note at the bottom for details.

Federal officials said Friday that six former top executives of Fannie Mae and Freddie Mac -- including two former chief executives -- intentionally and repeatedly misled investors about the exposure of the companies to risky subprime loans.

In court papers and at a Washington news conference, Securities and Exchange Commission officials detailed numerous comments -- allegedly misleading -- made by the executives in regulatory filings, at investor conferences, in media interviews and even in testimony before Congress.

The statements were made as Fannie and Freddie were trying to increase their share of the housing finance market as the subprime real-estate bubble was inflating, and then collapsing, between 2006 and 2008, the SEC said.

"Throughout this period, as they were driving up their market share, Fannie, Freddie and their executives sought to maintain the illusion that their business involved minimal and manageable credit risk," said Robert Khuzami, director of the SEC’s Enforcement Division.

The SEC filed the civil suits in New York. The executives named included former Fannie Mae Chief Executive Daniel H. Mudd and former Freddie Mac Chief Executive and Chairman Richard F. Syron.

Also named were Fannie Mae's former chief risk officer, Enrico Dallavecchia, and Thomas A. Lund, former executive vice president of the company's single-family mortgage business. The other Freddie Mac officials were Patricia L. Cook, former executive vice president and chief business officer, and Donald J. Bisenius, former executive vice president for the single-family guarantee business.

The Freddie Mac complaint said that between March 23, 2007, and Aug. 6, 2008, the company told investors that the exposure of its single-family guarantee unit to subprime loans was $2 billion to $6 billion, or 0.1% to 0.2% of its portfolio.

But the SEC said the real exposure started at $141 billion at the end of 2006 and rose to about $244 billion by June 30, 2008 -- 14% of its portfolio.

The court filing quoted Syron as telling an investor conference in New York on May 14, 2007, that “at the end of 2006, Freddie had basically no subprime exposure in our guarantee business.” Three days later, Cook made the same exact statement to an investor conference in London.

SEC accuses former Fannie Mae, Freddie Mac bosses of fraud

This post has been updated. See note at the bottom for details.

Six former top executives of housing finance giants Fannie Mae and Freddie Mac were accused of securities fraud Friday by federal regulators for allegedly misleading investors about the size of the companies' risky subprime mortgage holdings.

Among those named in the SEC's civil action were former Fannie Mae Chief Executive Daniel H. Mudd and former Freddie Mac Chief Executive and Chairman Richard F. Syron. They are two of the highest-ranking figures to face accusations in the wake of the financial crisis.

"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, director of the SEC’s Enforcement Division.  "These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books."

The SEC's action, filed in the U.S. District Court for the Southern District of New York, allege that the Fannie Mae executives made misleading statements, or aided and abetted others making those statements, between December 2006 and August 2008.

In addition to Mudd, who headed Fannie Mae from 2005-2008, the other Fannie Mae executives named in the SEC action were former Chief Risk Officer Enrico Dallavecchia and Thomas A. Lund, former executive vice president of the company's single-family mortgage business.

Document: Read the complete SEC allegation

The Freddie Mac officials are accused of making misleading statements about the company  between March 2007 and August 2008. The executives include Syron, who headed Freddie Mac from 2003 to 2008, Patricia L. Cook, former executive vice president and chief business officer, and Donald J. Bisenius, former executive vice president for the single family guarantee business, the SEC said.

Khuzami said that "all individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors."

[Updated 8:29 a.m., Dec. 16: An earlier version of this post used the word "charged" in referring to the SEC's action. The SEC filings are a civil enforcement action; they are not criminal charges.]

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Photo: Former Fannie Mae Chief Executive Daniel H. Mudd at a 2007 congressional hearing. Credit: Getty Images

Avon shares jump 5% amid search for CEO Andrea Jung's replacement

Investors seemed to cheer the imminent departure of Avon Products Inc. Chief Executive Andrea Jung, causing shares to spike amid news that the cosmetics giant was looking for a new leader.

Alhough Jung will continue in her role as chairman, Avon said Tuesday that she will relinquish the chief executive post -– a position she has held since 1999 -– once a replacement is found.

Avon shares rose 82 cents, or 5.1%, to $16.96 on Wednesday. But that’s down 40% from a year earlier, when the stock closed at $28.10. The New York cosmetics company is famed for its roughly 6.5 million “Avon lady” sales representatives, who sell makeup door to door in more than 100 countries.

But the company has struggled recently. Its third quarter net income slipped 1.4% to $165.2 million amid difficulties in key markets such as Brazil. Avon is also being investigated by the Securities and Exchange Commission for what may have been improper relationships with financial analysts. 

Jung will continue as both chief executive and chairman while working with the Avon board to find her successor. The Princeton graduate currently sits on several corporate boards, including Apple Inc., General Electric Co. and the New York Stock Exchange.

“Consumer uncertainty amidst a volatile macroeconomic environment across several of our markets further pressured revenue growth,” Jung said in a statement when Avon released its quarterly earnings in October. “In light of the changing landscape, we are assessing our long-range business plan.”

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Photo: Andrea Jung. Credit: Avon

Prosecutors charge former Siemens employees in bribery case

U.S. prosecutors charged six former employees at the German conglomerate Siemens AG with paying $60 million to bribe Argentine officials.

The Siemens employees -- including one Siemens board member, Uriel Sharef -- are alleged to have concocted an elaborate scheme involving shell companies and cash payments in order to win a $1 billion contract to make Argentina national identity cards, prosecutors say.

Prosecutors said it was the first time that a board member at a company of Siemens' size had been charged under the Foreign Corrupt Practices Act. 

"Today’s indictment alleges a shocking level of deception and corruption," assistant U.S. attorney general Lanny Breuer said in a statement Tuesday morning.

Though Siemens is based in Munich, Germany, and the employees were said to be located outside the U.S., the crimes were charged in the U.S. because Siemens is traded on the New York Stock Exchange.

The individual charges come a few years after Siemens agreed to pay $1.6 billion to settle charges against the company itself.

According to the complaint filed in federal court, Siemens employees began the bribery scheme in the late 1990s, when Argentina was moving to a more advanced national identity card, prosecutors said. After an initial deal fell apart, the Siemens employees allegedly paid more bribes to cover up the initial bribes, according to prosecutors. Many of the payments were made through shell companies in places like the Bahamas and the Channel Islands to obscure their true purpose, prosecutors said. 

All of the defendants were outside the U.S. and will have to be extradited to be tried. They could face up to 20 years on charges of money laundering and five years on charges of violating bribery laws. 

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Photo: The Siemens company's logo is seen outside an administration building of the German electronic trust Siemens in Munich in a file picture. Credit: Uwe Lein / AP

 

SEC accuses Stiefel Laboratories of defrauding employee shareholders

The Securities and Exchange Commission has accused a subsidiary of GlaxoSmithKline and the subsidiary’s former chief executive of defrauding employees and other shareholders by buying back the company’s private stock at severely undervalued prices.

In a lawsuit filed in federal court in Florida, the SEC accused Stiefel Laboratories Inc. and former chairman and Chief Executive Charles Stiefel of withholding information from shareholders in order to acquire their shares at bargain prices.

Among several accusations, the SEC said Stiefel falsely told shareholders that the company would remain family-owned when he was actually negotiating the sale of the company to GlaxoSmithKline.

Amid the acquisition talks from December 2008 to April 2009, Stiefel’s company bought more than $13 million worth of stock from shareholders. When Stiefel announced it was being acquired by GlaxoSmithKline on April 20, 2009, those shares gained more than 300% in value, the SEC said.

“Stiefel Labs and Charles Stiefel profited at the expense of their employee shareholders who lost more than $110 million by selling their stock based on the misleading valuations they were provided,” said Eric I. Bustillo, director of the SEC’s Miami office. “Private companies and their officers must understand that they are not immune from the federal securities laws, which protect all shareholders regardless of whether they bought stock in the open market or earned shares through a company’s stock plan.”

Based in Coral Gables, Fla., Stiefel was the world’s largest private manufacturer of dermatology products before its acquisition by GlaxoSmithKline, the SEC said.

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Photo: GlaxoSmithKline factory in Puerto Rico Credit: Brennan Linsley / Associated Press

L.A. radio talk host indicted in alleged Ponzi scheme

The former host of a popular Persian-language financial radio talk show has been indicted on charges that he defrauded investors -- including some of his show’s listeners -- out of $20 million in a long-running Ponzi scheme.

John Farahi, 54, was accused of falsely promising clients of his company, New Point Financial Services, that he would invest their money in corporate bonds insured by the Troubled Asset Relief Program. He actually spent the money on personal expenses, paying returns to early investors and on highly speculative options trades in which he lost millions of dollars, prosecutors said.

The scheme ran from 2005 until 2010, according to an indictment returned late Wednesday by a federal grand jury in Los Angeles.

Farahi hosted a daily financial talk show, “Economy Today,” for about eight years on Los Angeles' KIRN-AM (670) until 2010, when the Securities and Exchange Commission filed a lawsuit that accused him of defrauding New Point investors.

Farahi’s former attorney, David Tamman, was also charged in the indictment. He’s accused of conspiring with Farahi to obstruct an SEC investigation of the fraud scheme.

Tamman did not immediately respond to a telephone message seeking comment. Farahi could not be reached.

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SEC touts its crackdown on insider trading

Even as it fends off criticism in other areas, the Securities and Exchange Commission is pointing to its crackdown on insider trading as proof of its effectiveness.

Always a high priority, the agency has significantly boosted the number of cases brought against Wall Street traders and hedge-fund managers, according to data it released to Congress late last week.

That effort was punctuated by the huge insider-trading case against Raj Rajaratnam, which resulted in a $92.8-million civil penalty. That was in addition to the criminal conviction of the prominent hedge-fund manager, which was spearheaded by the Justice Department.

The SEC said it lodged 53 cases against 138 people and corporate entities in fiscal 2010, a 43% increase from the prior year. It said it filed 57 cases against 124 people and entities this year.

The agency also has developed new investigative techniques, including the creation of a market abuse unit that focuses on a variety of practices, including complex insider-trading cases, the agency enforcement chief, Robert Khuzami, told the Senate Committee on Homeland Security and Governmental Affairs last week.

“The increased number of insider trading cases has been matched by an increase in the quality and significance of our recent cases,” Khuzami said.

The SEC has come under scrutiny lately after a federal judge criticized its practice of settling cases of alleged fraud without requiring the companies and executives involved to admit guilt.

Its insider-trading credibility won't diffuse that issue, but it may give the agency some breathing room against those who say it hasn't done enough to stanch Wall Street wrongdoing.

-- Walter Hamilton

Photo: Raj Rajaratnam; Credit: Peter Foley / Bloomberg

SEC enforcement chief defends agency

The head of the Securities and Exchange Commission's enforcement unit doesn't take kindly to criticism, even if it's from a federal judge.

In sharply worded remarks Thursday, SEC enforcement chief Robert Khuzami praised the agency's track record in cracking down on Wall Street fraud -- and defended a controversial SEC policy of settling cases against alleged Wall Street malefactors without forcing them to admit guilt.

SEC settlements normally include boilerplate language saying companies neither admit nor deny whatever the agency has accused them of. Companies want to avoid admissions of guilt for several reasons, including fear that they would be vulnerable to lawsuits from aggrieved investors.

U.S. District Judge Jed Rakoff created a firestorm this week when he rejected a proposed $285-million SEC settlement with Citigroup Inc. over a mortgage-bond deal. The judge upbraided the SEC for routinely settling cases without requiring acknowledgements of wrongdoing.

The proposed settlement was "neither fair, nor reasonable, nor adequate, nor in the public interest," Rakoff said.

Khuzami shot back at Rakoff and others in a speech at a conference in Washington.

SEC naysayers suffer from fundamental "misunderstandings" about how the SEC works and what powers it does -- and does not -- have, he said.

Companies would never admit blame, he said, and pushing them to do so would only prolong legal battles, delay recompense to fraud victims and overwhelm the agency's limited resources.

Federal judges have approved admission-free settlements "time and time again," he said.

"While it is easy to criticize from the sidelines, the practical reality is that many companies would refuse to settle cases if they are required to admit unlawful conduct because that might expose them to additional lawsuits by litigants seeking damages," Khuzami said.

"The result would be longer delays before victims get compensated, the expenditure of SEC resources that could be spent stopping the next fraud, and -– quite possibly -– less money in the pockets of wronged investors," Khuzami said. "And we’d lose the certainty that the victims would actually get compensation."

The SEC, Khuzami said, has had "impressive results" in cracking down on Wall Street malfeasance in the aftermath of the global financial crisis.

The agency brought 735 enforcement actions in fiscal 2011, nearly 9% more than the previous year and the most in SEC history, he said.

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Photo: Robert Khuzami, enforcement chief at the Securities and Enforcement Commission. Credit: Jacquelyn Martin / Associated Press

Jacquelyn Martin / Associated Press. 

Judge rejects SEC settlement with Citigroup in mortgage case

A federal judge rejected the Securities and Exchange Commission's effort to strike a settlement with Citigroup over financial crisis-era wrongdoing, telling the regulatory agency that it must be willing to take stronger action against banks. 

In an order issued Monday morning, Jed Rakoff, a federal judge in Manhattan, said the settlement the SEC had proposed was a "very good deal for Citigroup"  but did not serve the public interest.

The SEC accused Citi in October of selling investors mortgage-backed securities that it designed and then bet against. At the same time that it filed its complaint, though, the SEC said it had agreed to settle with Citi in exchange for a $285-million fine. In making the settlement, the bank said it was neither admitting nor denying the accusations. 

The accusations against Citi are similar to those made against Goldman Sachs and JPMorgan Chase & Co. in previous cases filed since the financial crisis. In those cases, other federal judges have approved SEC settlements, in the Goldman case for $550 million and in the JPMorgan case for $153 million. 

The SEC has frequently dealt with wrongdoing in the financial industry through negotiated settlements in which the firms do not have to admit to the accusations. In his order today, Rakoff said that those settlements have not proven successful at preventing the banks from further wrongdoing.

A spokeswoman for Citi said the bank had no comment. The SEC's director of enforcement, Robert Khuzami, said in a statement that Rakoff's order "ignores decades of established practice throughout federal agencies and decisions of the federal courts."

"Refusing an otherwise advantageous settlement solely because of the absence of an admission also would divert resources away from the investigation of other frauds and the recovery of losses suffered by other investors not before the court," Khuzami said.

Rakoff has questioned previous settlements between the SEC and big banks on similar grounds. Most famously, Rakoff criticized the SEC's willingness to settle with Bank of America, after the bank was accused of misleading investors about its purchase of Merrill Lynch. In that case, though, Rakoff eventually signed off on the settlement. 

Rakoff is showing an unwillingness to make a similar concession in the Citi case and has told both sides to be ready to go to court in July of next year. In a stinging conclusion to his order Monday, Rakoff wrote:

In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.

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Photo: Judge Jed Rakoff in 2010. Credit: Los Angeles Times

Raj Rajaratnam to pay record $93 million in insider-trading case

After receiving an 11-year prison sentence, Raj Rajaratnam is now getting the bill for his insider-trading misdeeds.

A judge today ordered the once-celebrated Wall Street financier, who was convicted in May of spearheading a massive insider-trading scheme, to pay a civil penalty of nearly $93 million. That comes on top of an earlier $10-million criminal fine and forfeiture of $53.8 million in ill-gotten gains.

Rajaratnam's total tab: $156.6 million.

Both the prison sentence and the $92,805,705 civil penalty are the largest ever in an insider-trading case.

“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” Robert Khuzami, enforcement chief at the Securities and Exchange Commission, said in a statement.

The SEC alleged that Rajaratnam and more than two dozen others who have been caught up in a massive illicit-trading dragnet garnered illicit profits (or avoided losses) of more than $90 million through improper trading in at least 15 publicly traded companies.

The one-time hedge-fund kingpin was found guilty May 11 of 14 counts, including nine for securities fraud and five for conspiracy to commit securities fraud.

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-- Walter Hamilton

Photo: Raj Rajaratnam leaving federal court after his sentencing last month. Credit: Peter Foley/Bloomberg