L. Dennis Kozlowski and Mark H. Swartz have been in jail since 2005, but were not officially prevented from engaging in their business after committing accounting fraud. The SEC final judgments against Kozlowski (former CEO of Tyco) and Swartz (former CFO). The judgements bar the men from serving as directors of public companies.

Sarah N. Lynch reports:

“The judgments bar the men for life from serving as a director of a public company and enjoin them from violating securities laws. The SEC had accused them in its civil case of failing to disclose hundreds of millions in executive indebtedness and executive compensation.

They were convicted for their roles in the criminal case and sentenced to serve terms [of various lengths]. They also paid $134 million in restitution to Tyco and criminal fines of $70 million and $35 million, respectively.

The final settlements are still subject to approval by a federal New York judge.”

SEC is just jumping right into these things, huh?  Part of the problem is that soo many of these scams/failures can be detected long before they blow up.  The SEC needs to get more aggressive in their approach.

For more on the story click here.

On July 1st, the SEC voted on several new measures that were aimed primarily to increase investor confidence by providing investors with tools to increase corporate accountability. First, the commission approved a measure that requires a shareholder vote on executive pay in proxy solicitations involving companies that receive money from the Troubled Asset Relief Program (TARP).  The Commission also voted to propose a measure requiring public companies  better disclosure of executive pay in their proxy statements. A New York Stock Exchange rule was changed as well, as the SEC now prohibits brokers from voting proxies in corporate elections without customer input.

These types of programs are all well and good but a fundamental issue remains and that is the SEC actually taking action against the fraudsters in the industry.  Until the SEC starts using the tools it has to catch the fraudsters, even the very obvious ones (for example: Madoff), investor confidence will remain lower than it could and should be.

For more information on this story ,click here.

A New York broker-dealer and four other individuals were charged with securities fraud by the SEC. It was alleged that they collectively raised billions of dollars illegally from investors to feed Bernie Madoff’s Ponzi scheme.

The legal complaint filed in a Southern District of New York U.S District Court lists the Cohmad Securities Corporation of being at fault. Chairman Maurice J. Cohn, COO Marcia B. Cohn, and representative Robert M. Jaffe were charged of marketing investment with Madoff without regarding the illegality of his Ponzi scheme. The same court filed a complaint against Stanley Chais, an investment adviser who handled three funds valued nearly at 1 billion dollars that were totally invested with Madoff.

Robert Khuzami, Director of the SEC’s Division of Enforcement, noted that:

“Madoff cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors..In fact, he needed a constant in-flow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them.”

The Cohmad defendants were indicted for fraud due to their peculiar apathy towards Madoff’s suspicious activities. For example the Cohns filed Forms BD and FOCUS reports that were falsified to hide Cohmad’s business of attracting investors to Bernard L. Madoff Investment Securities LLC  (BMIS). The referral business was 90 percent of Cohmad’s revenue bringing in over 800 accounts and billions of dollars for BMIS. BMIS paid 100 million for Cohmad’s referral services. The compensation arraignment between the two entities created fraudulent conduct as well, with clients unable to withdraw money from accounts with false account statements.

Jaffe, the registered representative at Cohmad, brought in more than 1 billion into BMIS. Jaffe though he was getting overcompensated by Madoff when really BMIS employees were taking money out of Jaffe’s BMIS account.

Chais’s charges centered around his false role in managing the funds and for distributing false account statements. Chais built himself up as a qualified investor managing hundreds of millions of dollars worth of money with three partnerships. But Chais only sent them money out of one of his partnerships to BMIS and then proceeded to charge that partnership for his “service.”  Chais apparently also ignored blatant inconsistencies with Madoff’s reported returns, and even encouraged them.

The article is linked here.

More key, specific advantages of Mediation from FINRA:

• Control—Mediation belongs to the parties. The disputing parties control the process, scheduling, costs, and outcome of the dispute.
• Less Adversarial—The mediation process is informal. It is less confrontational than arbitration or litigation.
• Preserves Options—Parties can enter into mediation without jeopardizing their option to arbitrate or litigate.
• Swift Settlement—Most mediations are successfully concluded in a single day. Since mediation can be scheduled soon after a dispute arises, parties reach settlement much earlier than in arbitration or litigation. Many mediations conclude before a formal arbitration claim is filed.
• Lower Cost —Mediation usually entails lower legal and preparatory costs, there is minimal interruption of business or personal life, lost productivity is kept to a minimum, and the fees and expenses of mediation are modest.”
• Preservation of Business Relationships—By reaching an early resolution with minimal financial or other strain on either party, the chances for preserving business relationships are greatly enhanced.
• Protects Privacy—Mediation offers greater confidentiality than arbitration.
• Creative Solutions—Mediators help the parties craft creative solutions.
• Low Risk—Settlement potential is high. The case proceeds quickly. The cost is modest and there are benefits even if a settlement is not reached.

Meditation is the choice of many parties when choosing to settle a business dispute. One particular reason why mediation has been so popular is that the parties have full control of the variables (process, costs, outcome). Even if there is not a full settlement made, the progress made in mediation proves to be invaluable because it leaves less difficulties to be resolved through any other forms of dispute resolution (arbitration/litigation). Mediation seems to resolve the key, collateral issues  the best, which saves a considerable amount of resources for both parties that are involved. Mediation thus streamlines the situation for the next step of alternative dispute resolution (depending on the complexity of the issue) or it resolves the issue altogether. On the local level, with situations arising between investors and individual clients, mediation is often the best option.

For more information on Mediation, click here.

Data from RealtyTrac indicated that May foreclosures were way down  compared to April.  Hold the party hats and noise-makers because even this bit of good news, May was the third straight month with foreclosures exceeding 300,000 with Nevada and Arizona leading the pack.

A “normal” market typically sees less than 100,000 foreclosures per month.  RealtyTrac estimates the number of filings to increase over the next few months as we see the impact of the end of the various foreclosure moratoriums implemented by various lenders and states.

As foreclosure filings remain high, there remains the ever-growing chance of foul play by law firms that handle foreclosures.  For these law firms, business can be very profitable in dire economic times.  It would be very tempting for some law firms to take up a large load of foreclosure filings and unlawfully handle them, for example, consider the investigation the Connecticut AG is conducting right now – which we blogged on earlier this month.

For more on the statistics, click here.

Welcome to the Savage Law Firm Blog.  This blog will be primarily focused on issues relevant to the national discussion of stock fraud.  Additionally, we will weigh in on various topics related to business in general – from business disputes and scandals to ways that business in our great country helps us all.

We appreciate any feedback you might want to give and we hope everyone can find something useful in this blog.