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Category: Stuart Pfeifer

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CDR Financial Products founder pleads guilty in municipal bond case

A Beverly Hills financial firm and its founder pleaded guilty to federal criminal charges that they defrauded government agencies by steering investment contracts to firms that paid them kickbacks.

David Rubin, 50, and his company, CDR Financial Products Inc., were accused of running sham auctions for government agencies looking to invest money raised through municipal bond offerings. The contracts were awarded to favored firms that secretly paid kickbacks to CDR, not always the firm offering the highest returns, the government alleged.

Rubin, who sobbed at Friday’s plea hearing in New York, is scheduled to be sentenced April 27. He had unsuccessfully requested a delay in his trial to be with his wife, who is dying of cancer, Bloomberg News reported.

Two former CDR executives are scheduled to stand trial on similar charges next week in federal court in Manhattan.

Rubin developed a niche helping local, county and state agencies invest money raised from bond issues for such things as school or road construction.

Because government agencies typically don't need to use the money immediately, they often hire companies such as CDR to arrange short-term and longer-term deals to invest the funds.

The indictment alleged that CDR engaged in a pay-to-play scheme in which investment companies secretly paid CDR kickbacks to win government contracts. The alleged scheme cost the government agencies money because the contracts did not always go to investment providers offering the best return, the indictment said.

Rubin is the 10th person to plead guilty in an ongoing federal investigation of the municipal bond industry, the Justice Department said in a news release.

Federal prosecutors had amassed almost 800,000 tape recordings and 125 million pages of documents during a three-year investigation of CDR, defense lawyers said earlier this year, according to Bloomberg News.

RELATED:

CDR, execs indicted in bid-rigging case

CDR looks to move muni bid-rigging case

CDR, at root of Richardson probe, no stranger to lawsuits

-- Stuart Pfeifer 

Scam watch: Bank theft, e-books, mortgage modification

Bank employee is sentenced to 15 months in federal prison after pleading guilty to stealing nearly $100,000 from the accounts of two customers.


Here is a roundup of alleged cons, frauds and schemes to watch out for.

Bank theft -- A Central California bank employee has been sentenced to 15 months in federal prison after pleading guilty to stealing nearly $100,000 from the accounts of two customers. Brenda Hurtado, 26, pleaded guilty in August to committing theft by a bank employee. A former employee of U.S. Bank in Arroyo Grande, she admitted changing the contact information for two customers in their 80s, closing their accounts and issuing herself cashier's checks for the closing balances. It is a good idea to check bank statements regularly to avoid mistakes, improper charges or theft, consumer advocates say.

E-books -– Consumers should take care when purchasing electronic books for devices such as Amazon’s Kindle or the Barnes & Noble Nook, the Better Business Bureau said in a recent bulletin. Some websites have been offering e-books for sale that were pirated or contain harmful malware, the BBB said. The bulletin cautions consumers to check the URL to make sure it begins with https://, a sign that it is secure, and to use reputable websites to avoid being victimized.

Mortgage modification -– Five people have agreed to repay millions of dollars to victims who they duped by promising to help them reduce their mortgage payments but providing no services after receiving their fees of $4,250. According to a lawsuit filed last year by the Federal Trade Commission, the defendants offered a “Government Mortgage Relief Program,” even though they had no affiliation with the government. The company promised full refunds if they were unsuccessful at reducing mortgages, but failed to return the money and disconnected their telephones.

RELATED:

Scam watch: Computer virus warning, Ponzi scheme, fake BBB email

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

Scam watch: Discount electronics, holiday cons, telemarketers

-- Stuart Pfeifer

Photo: U.S. currency. Credit: Vahid Salemi / Associated Press

CVS Caremark to pay $20 million to three states over fraud allegations

Cvs
Pharmacy and prescription drug management company CVS Caremark Corp. has agreed to pay nearly $20 million to settle three lawsuits involving allegations that the company defrauded pension systems in three states, including California’s giant pension fund, attorneys said.

The whistleblower lawsuits, filed by two former CVS Caremark pharmacists, accused the company of reselling returned drugs, changing prescription orders to make them more expensive and submitting false reports about how long it took to fill prescriptions.

Under terms of the settlements, CVS Caremark will pay nearly $7 million to the California Public Employees’ Retirement System, $4 million to the state of Illinois and $3 million to the state of Florida. Other money from the settlement went to plaintiff attorneys’ fees and costs, the attorneys said in a news release.

The former employees filed the lawsuits under state laws that encourage employees to expose fraud that victimized government agencies. Typically, whistleblowers receive a portion of any settlements as a reward for exposing the fraud.

“It is a great feeling to finally see this matter brought to a successful resolution,” said Chicago attorney Michael Leonard, one of the plaintiffs’ attorneys. “Even though CVS Caremark of course continues to deny any liability, in my opinion justice has truly been served.”

CVS Caremark did not immediately respond to a request for comment. The company is the product of a 2007 merger between CVS Corp. and Caremark Rx Inc. In addition to operating 7,000 retail stores, the company manages pharmacy benefit services for employers, including prescriptions by mail.

Despite the allegations, CalPERS agreed in June to pay CVS Caremark $575 million per year to provide prescription drug benefits to 346,000 members.

RELATED:

CalPERS negotiating deal with prescription firm it's suing

CalPERS signs pharmacy benefits deal with CVS Caremark

CalPERS, other investors, settle suit against Countrywide, BofA

-- Stuart Pfeifer

Photo: A CVS store in Florida. Credit: Wilfredo Lee / Associated Press

Dr. Drew won't talk about 1-800-GET-THIN endorsement

Dr. Drew Pinsky recently became the voice of 1-800-GET-THIN.Radio and television celebrity Dr. Drew Pinsky spoke up for the first time Thursday about his endorsement of Lap-Band surgery marketing firm 1-800-GET-THIN.

Well, sort of.

On Thursday, Pinsky issued this statement through his publicist:

“As you may expect, I have a confidentiality clause in my agreement and am unable to comment at this time.”

The longtime host of the syndicated radio talk show “Loveline” and reality TV series “Celebrity Rehab with Dr. Drew” was first asked by The Times to discuss his role with 1-800-GET-THIN on Tuesday.

That was the day the Food and Drug Administration said it had accused 1-800-GET-THIN and several of its affiliated surgery centers with misleading advertising, saying the company failed to adequately disclose the risks of the surgery in its billboard, television and radio ads.

Five patients have died after Lap-Band surgery at clinics affiliated with 1-800-GET-THIN since 2009, according to lawsuits, autopsy reports and other public records. The company's billboards are plastered along freeways throughout Southern California.

Pinsky recently became the voice of 1-800-GET-THIN, advocating Lap-Band surgery on radio ads and in a recording played for those who called 1-800-GET-THIN. On Thursday, a call to the number was answered directly by an operator, not a recording of Pinsky pitching the Lap-Band.

Kathryn Trepinski, a lawyer who represents relatives of one of the deceased patients, said she was disappointed that Pinsky has elected to remain silent.

“This has been an enormously powerful billboard and radio advertising campaign, the likes of which we’ve really never seen before," Trepinski said. "People have gone forward with these surgeries not fully recognizing the risks. Dr. Drew’s endorsement certainly didn’t clarify the risk of the surgery.

“Because he is a media personality, it may have given patients a false sense of security. The public is entitled to have a discussion with him about why he did it.”

RELATED:

Another patient dies after Lap-Band surgery

Lap-Band death blamed on anesthesiologist

FDA accuses 1-800-GET-THIN of misleading Lap-Band ads

-- Stuart Pfeifer and Michael Hiltzik

Photo: Dr. Drew Pinsky. Credit: VH1

FDA's 1-800-GET-THIN warning follows L.A. County official's complaint

The Food and Drug Administration's warning to 1-800-GET-THIN, the company behind the advertising campaign for Lap-Band weight-loss surgery comes after Los Angeles County's public health chief, Dr. Jonathan Fielding, asked the FDA to to take action
The Food and Drug Administration has ordered 1-800-GET-THIN, the company behind the ubiquitous advertising campaign for Lap-Band weight-loss surgery, to take better steps to warn consumers about risks associated with such procedures.

The move, in an FDA letter to eight California surgical centers and the marketing firm 1-800-GET-THIN, comes one year after Los Angeles County's public health chief, Dr. Jonathan Fielding, asked the FDA to take action.

In a December 2010 letter, Fielding said "advertising of this medical device by 1-800-GET-THIN ... inadequately informs consumers of potential risks."

Since 2009, five patients have died following surgeries at centers affiliated with the ad campaign. A series of lawsuits blamed the deaths on mistakes by the surgery centers and doctors who performed the surgeries.

An attorney for 1-800-GET-THIN filed a complaint against Fielding with the county, contending that the county official had a conflict of interest because he's a former executive and a shareholder of Johnson & Johnson, which competes with Lap-Band manufacturer Allergan Inc. in the gastric-band market.

Fielding said he wasn't aware when he wrote to the FDA that Johnson & Johnson, where he worked in the 1980s, makes gastric bands. Regardless, he said, he would delegate any issues related to weight-loss devices to members of his staff.

RELATED:

Lap-Band clinic sued over death

Another patient dies after Lap-Band surgery

FDA accuses 1-800-GET-THIN centers of deceptive advertising

-- Stuart Pfeifer and W.J. Hennigan
Twitter.com/spfeifer22 and Twitter.com/wjhenn

Photo: Paula Rojeski died Sept. 8 after having Lap-Band weight-loss surgery at an outpatient clinic in West Hills, officials said. She was the fifth person to die in the last two years after having surgeries at clinics that, according to wrongful-death lawsuits, are affiliated with the 1-800-GET-THIN ad campaign. Credit: Marni Rader

FDA accuses 1-800-GET-THIN centers of deceptive advertising

Billb

Weight loss surgical centers affiliated with the 1-800-GET-THIN marketing campaign have been accused by the U.S. Food and Drug Administration of misleading consumers about the risks of the Lap-Band device used to treat obesity.

On Tuesday, the FDA announced that it has taken action against eight California centers by issuing warning letters because Lap-Band is a restricted medical device that is being misbranded because of allegedly deceptive advertising by the centers.

In a news release, the FDA announced that it warned that the organization’s billboards and advertising inserts used by recipients of the warning letters “to promote the Lap-Band procedure fail to provide required risk information, including warnings, precautions," and possible side effects.

Steve Silverman, director of the Office of Compliance in the FDA’s Center for Devices and Radiological Health, said in a statement: “The FDA takes seriously its responsibility to protect consumers from products promoted without adequate warnings. It's particularly troublesome when advertisements don’t communicate the serious risks associated with medical devices."

Five people have died since 2009 after Lap-Band surgeries at clinics affiliated with the 1-800-GET-THIN campaign, according to lawsuits, autopsy reports and interviews.

In all, the FDA sent letters to Bakersfield Surgery Institute Inc., Beverly Hills Surgery Center, Palmdale Ambulatory Center, Valley Surgical Center, Top Surgeons LLC, Valencia Ambulatory Center LLC, Cosmopolitan Plastic & Reconstructive Surgery, San Diego Ambulatory Center LLC and 1-800-GET-THIN LLC.

[Updated at 11:53 a.m.: 1-800-GET-THIN, the ubiquitous marketing campaign on billboards, television and the Internet, has led to a surge of Lap-Band weight-loss surgeries in Southern California. More than 100,000 people called 1-800-GET-THIN in its first 15 months of business, leading to more than 10,000 scheduled surgeries, the marketing company said in a trademark lawsuit.

The Lap-Band, manufactured by Irvine-based Allergan Inc., is a silicone ring that is surgically implanted around the stomach to discourage overeating. The surgeries vary in cost — ranging from $12,000 to about $20,000 by some accounts — and often are covered by insurance.

The patients' deaths and injuries have led to a series of wrongful-death and personal injury lawsuits against 1-800-GET-THIN, its affiliated surgery centers and doctors who performed the procedures. Allergan is not affiliated with 1-800-GET-THIN.

Another lawsuit, seeking class-action status, accuses 1-800-GET-THIN of false advertising, saying the ads failed to provide adequate warnings about the risks of the surgery. Wrongful death lawsuits allege that two brothers, Julian and Michael Omidi, were part of a "joint venture" that included the surgery centers and the 1-800-GET-THIN marketing firm.

Both Omidis have been disciplined by the state medical board over issues unrelated to 1-800-GET-THIN, according to state records.

Michael Omidi did not return a telephone call seeking comment. His attorney, Robert Silverman, also did not immediately comment.

1-800-GET-THIN and the Omidi brothers have filed a series of lawsuits against The Times, its journalists and website commenters over past coverage of the surgery deaths. Judges have dismissed three of the lawsuits and ordered the plaintiffs to pay The Times' legal expenses and fees in two of the cases.]

RELATED:

Lap-Band clinic sued over death

Another patient dies after Lap-Band surgery

Tighter scrutiny for outpatient surgery centers

-- W.J. Hennigan and Stuart Pfeifer

twitter.com/wjhenn and twitter.com/spfeifer22

Photo: The 1-800-GET-THIN marketing firm promotes Lap-Band surgeries on Southern California billboards as well as on TV, radio and the Internet. Above, a pair of billboards in 2010. Credit: Glenn Koenig / Los Angeles Times

SEC accuses Stiefel Laboratories of defrauding employee shareholders

Glaxosmithkline
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.

RELATED:

SEC touts its crackdown on insider trading

SEC enforcement chief defends agency

Judge rejects SEC settlement with Citigroup in mortgage case

-- Stuart Pfeifer

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

Scam watch: Computer virus warning, Ponzi scheme, fake BBB email

Laptopfoto
Here is a roundup of alleged cons, frauds and schemes to watch out for.

Computer virus warning -- The Federal Trade Commission has started mailing refunds to 300,000 consumers who were victims of a scam in which they were tricked into buying unnecessary software to remove nonexistent viruses and spyware from their computers. The perpetrators of the scheme caused ads to appear on victims’ computers, informing them that a “system scan” had detected viruses and other threats that needed to be removed immediately. In December 2008 the FTC obtained a court order putting a halt to the scheme. The FTC alleged that the defendants conned more than 1 million consumers into buying software products such as Winfixer, Drive Cleaner and Antivirus XP to remove the malware the bogus scans had supposedly detected. Consumers who believe they are entitled to a refund or have questions may call the settlement administrator toll free at 1-877-853-3541 or visit www.FTC.gov/refunds for more information.

Ponzi scheme -- A San Diego investment manager was arrested on charges that he ran a $25-million investment fraud, in which he falsely claimed that he made huge profits trading stocks. Federal prosecutors alleged that Robert L. Holloway lost millions trading stocks, diverted more than $1 million of investors’ money to himself and used new investor money to pay returns to early investors. The scheme operated from 2005 to 2007, prosecutors said. Holloway, 54, is charged with four counts of wire fraud and one count of filing a false tax return.

BBB emails -- The Better Business Bureau is cautioning businesses and consumers about an email that falsely claims to be from the BBB and could infect computers with damaging viruses. The email subject line reads, “Complaint from your customers,” and contains a link to a site not affiliated with the consumer protection group. Consumers should not click on the link because it could cause their computers to be infected with a damaging virus. Anyone who has already clicked on the link should have their computers scanned for spyware, viruses or other potential problems, the BBB said. The group is working with law enforcement to determine the source of the emails.

RELATED:

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

Scam watch: Discount electronics, telemarketers

Scam watch: Cyber Monday, pre-IPO fund, tech support

-- Stuart Pfeifer

Photo: A laptop computer. Credit: John Adkisson / Reuters 

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

SECphoto

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.

RELATED:

Radio host accused of cheating investors

SEC touts its crackdown on insider trading

SEC enforcement chief defends his agency

-- Stuart Pfeifer

Photo: A briefing room at SEC headquarters in Washington. Credit: Bloomberg News

Scam watch: Discount electronics, holiday cons, telemarketers

Tablet photo
Here is a roundup of alleged cons, frauds and schemes to watch out for.

Discount electronics -– Consumers should be careful when shopping for electronics on the Internet during the holidays, the Better Business Bureau said. Some shady people have marketed deeply discounted electronics on the Internet, but have no intention of shipping the merchandise once they receive payment, the group said.  Other scammers use ads for discount tablets, laptops and other items to get victims to click on links that infect their computers with viruses, the group said. Consumers should avoid sites that promote free or dramatically reduced prices or those that will only accept only electronic transfers or e-checks as payments, the group said.

Holiday season scams –- The holiday season is a time for celebrating with friends and family. But it’s also an opportunity for con artists to take advantage of people’s generosity, according to consumer protection advocates. The Better Business Bureau has issued a warning to consumers to take care when making contributions to charities during the holidays. The group recommends researching charities on websites such as guidestar.org to make sure the charity is properly licensed. On top of that, consumers should avoid charities that use high-pressure telephone pitches. Any donations should be made directly to the charity, not to a third party or an individual soliciting contributions, the Better Business Bureau said.

Do not call list –- The Justice Department has filed a lawsuit against a Southern California company it said has been violating telemarketing laws by using automated or “robo” callers to make sales pitches over the telephone and contacting people who have listed their numbers on the National Do Not Call Registry. The lawsuit alleges that Sonkei Communications Inc. and its principals, Peter Turpel and Joseph Turpel, violated the Federal Trade Commission’s Telemarketing Sales Rule. The company is based in Newbury Park. Individuals who believe they were improperly contacted by the company can call the FTC at 1-877-FTC-HELP (1-877-382-4357).

RELATED:

Cyber Monday: Feds seize 150 websites in counterfeiting crackdown

Scam watch: Cyber Monday, pre-IPO fund, tech support

Scam watch: Social Security, malware, investments

-- Stuart Pfeifer

Photo: Tablet computers are expected to be a hot item this holiday season. Credit: Adam Hunger / Reuters 

Judge throws out convictions of Azusa company executives

Lindsey photo

A federal judge in Los Angeles overturned the corruption convictions of the top two executives of Lindsey Manufacturing Co., an Azusa power equipment firm, saying prosecutors’ misconduct prevented a fair trial.

In a lengthy and scathing ruling, U.S. District Judge A. Howard Matz said Justice Department attorneys allowed an FBI agent to present false testimony to a grand jury, inserted false statements into search warrant applications and unlawfully intercepted emails between a defendant and a defense attorney.

Matz said the misconduct was so flagrant that prosecutors should not be permitted to retry Lindsey Manufacturing executives Keith Lindsey and Steve K. Lee.

“Dr. Lindsey and Mr. Lee were put through a severe ordeal. Charges were filed against them as a result of a sloppy, incomplete and notably overzealous investigation,” Matz said in his ruling. He had issued a tentative ruling Monday and made that ruling final Wednesday.

“The government team committed many wrongful acts. It should not be permitted to escape the consequences of that conduct.”

In May, a federal jury in Los Angeles convicted Lindsey and Lee of charges alleging that they violated the Foreign Corrupt Practices Act by paying a middleman to bribe officials with a state-owned power company in Mexico in order to obtain the company’s business.

Jan L. Handzlik, the defense attorney, said the judge’s ruling helped correct an injustice. He had argued that Lindsey officials were unaware of the bribes.

“This is a great day for the Keith Lindsey and Steve Lee. They never once wavered in their belief of their innocence,” Handzlik said. “It is also a great day for the fair administration of justice. Without an independent judiciary and courageous, fair-minded judges, days like this would not be possible.”

Matz also said he was not impressed with the evidence presented at trial. Prosecutors had argued that Lindsey and Lee authorized payments to a Mexican company, knowing it would be used to bribe officials with the country’s power company. Matz said he heard no direct evidence of that intent.

“The case against the Lindsey defendants was far from compelling,” the judge said.

RELATED:

Corruption convictions of Azusa firm's executives may be dismissed

Azusa firm, two execs convicted of Mexican bribery scheme

U.S. cracks down on firms that pay bribes to foreign officials

Photo: Lindsey Manufacturing makes power transmission equipment. Credit: Lindsey Manufacturing

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