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Wielding broad new powers added to their arsenal over the last 14 months, federal and state regulators and prosecutors say the war on securities fraud in South Florida is gathering steam and gaining clout. Changes in procedures have allowed state and federal agencies working together to move more quickly against fraudsters, recover more money for investors and bring harsher penalties against violators. One year ago, a panel of top law enforcement officials told a conference sponsored by the Miami Daily Business Review that fraudsters who call South Florida home could count on stiffer penalties for stealing from the region’s investors. Publicly traded companies, they said, could also expect closer scrutiny. “I think we’ve been true to our word about trying to step up the consequences,” said David Nelson, director of the Southeast regional office of the Securities and Exchange Commission. Regulators are taking a tougher stance in settlements, demanding cooperation with their investigations and penalizing those who impede or obstruct their examinations. In a settlement with Davie, Fla.-based Andrx Corp. in May, the SEC tacked on a $100,000 civil penalty specifically as punishment “for their failure to cooperate with us early in the investigation,” said Glen Gordon, the SEC’s deputy regional director in South Florida. The SEC also is making a concerted effort to ensure compliance in the payment of penalties and restitution after an order has been entered. In July, for example, SEC attorneys asked the court to consider bringing contempt charges against defendants in a Tampa-based “pump and dump” scheme involving the stock of Tel-One Inc., for their failure to pay civil penalties. State and federal agencies also credit their joint securities fraud initiative with increasing the effectiveness of their investigations. The multiagency effort involves close cooperation between the SEC, FBI, postal inspection service, Commodities Futures Trading Commission, and Florida’s Office of Financial Regulation. Agency representatives meet three times a year as well as work together directly in investigations. One such combined operation targeting a $51.9 million Ponzi scheme resulted in a guilty plea this month to a criminal charge of conspiracy to commit securities fraud from its principal, Anthony Blissett. A state investigator initiated the case against Miami-based A.B. Financing & Investments and, armed with an emergency injunction obtained by the SEC, federal and state authorities shut the operation down in December and seized $7 million in assets. “Having the civil regulatory agencies such as the SEC and the CFTC lend their specialized resources to us as federal criminal prosecutors has been invaluable in more efficiently prosecuting securities fraud cases where the activities have been criminal in nature,” said Eric Bustillo, deputy chief of economic crimes at the U.S. Attorney’s Office in Miami. “And our numbers clearly reflect that. Our numbers have significantly increased.” Over the past two years, Bustillo said, the emphasis has resulted in approximately 60 criminal securities fraud cases brought by the U.S. Attorney’s Office. During the same period, the SEC handled 121 cases, with 61 of those in fiscal 2001-2002 and the other 60 between last September and now. Since reorganizing its existing banking, finance and other operations into the Office of Financial Regulation in January, the state has filed 43 criminal actions to date. The local SEC office added five people to its enforcement staff this year, bringing the total to 40. Recently, it tripled the size of its examination program in an effort to increase scrutiny of investment companies and investment advisory areas. “Although South Florida has been notorious for many years for having problems in its regulated industry,” Nelson said, “we’re trying to get a better handle on whether it’s as bad as, or worse than, its reputation. We want to get a more objective rate rather than just go on the basis of anecdotal evidence.” The increased emphasis, he said, could bring “a lot more enforcement activity” in coming months. In addition, new, tougher sentencing guidelines took effect in January. “You’re looking at guidelines that, at the end of the day, result in much higher sentences,” Bustillo said. The law now includes a 25-year felony sentence, up from a 20-year maximum, for securities fraud crimes committed after the new rules took effect. Most of the changes have come in response to the scandal-ridden collapses of Enron, WorldCom and Global Crossing. The ensuing backlash among investors and in Congress inspired sweeping legislation aimed at cleaning up corporate oversight and cracking down on fraud at publicly traded companies. Signed into law July 30, 2002, the Sarbanes-Oxley Act, gives officials a host of new weapons for fighting corporate fraud. “This is a tool I wish I had had as a prosecutor,” said Howard Dargan, of Boca Raton-based Hamilton Lehrer & Dargan, which specializes in white collar criminal defense and securities matters. “Just the leverage and the hammer the prosecutors hold over these executives is, in some ways, frightening.” Among the provisions of the new law are rules requiring chief executives and chief financial officers to certify the accuracy of a company’s financial filings with the SEC. Executives who sign off on false documents face stiff maximum penalties of up to 20 years in prison. The first certification case in the nation was brought in South Florida this year. The SEC accused the CEO and chief financial officer of Rica Foods, a Costa Rican company with executive offices in Miami, of filing a Form 10-K annual report containing inaccurate statements about the firm’s financial condition. In August, the SEC filed settled civil injunction actions enjoining the company from future violations and ordering the CEO to pay a $25,000 civil penalty. The company did not admit or deny the allegations. In a move aimed at increasing restitution for victims, the new law also gives officials the authority in certain cases to distribute civil money penalties collected from violators to the investors harmed by the scheme. The regional SEC office applied the provision to restore $155,000 to investors in the Tel-One Inc. case. Moreover, the SEC’s new ability to freeze so-called “extraordinary” payments by corporations to top officers is another important shareholder protection, says Christian Bartholomew, a former SEC enforcement attorney now with the Miami office of Morgan Lewis & Bockius. This month, the SEC in Miami sought and was granted a petition by a federal judge to prevent Vivendi, the French entertainment conglomerate, from paying former chief executive Jean-Marie Messier a $23 million award he had won in arbitration over severance pay. “What’s particularly important about the SEC exercising its power to seek an emergency escrow or freeze of extraordinary payments is that it means that the SEC must charge someone, whether it’s the company or an officer, within the next 90 days or the money will be paid over,” Bartholomew said. “So in filing their petition with the federal court, the SEC has sent a clear signal that they intend to charge someone in the matter soon,” he said. But concerns over the new rules have led regulators to proceed cautiously in applying them. “I think there’s a history of proceeding with some circumspection when we have new statutes, which doesn’t mean we’re hesitant to use them,” Nelson said. “But, because we are regulators more than prosecutors, I think we also want to be fair to the people who we regulate and give clear understandings of what the extent of these provisions are.” Some of the greatest outcry has come from defense attorneys who contend the rules run roughshod over long-established attorney-client rights to privileged communications by authorizing them to share confidential information to prevent a violation. “The public already views lawyers as sharks,” said criminal defense attorney Howard Srebnick of Black Srebnick & Kornspan of Miami. “Now Congress wants to turn us into rats.” Others respond that the attorneys’ ultimate responsibility lies with a corporation’s shareholders. “I think counsel has to keep in mind that they work for the corporation and not for the president of the corporation,” said Charles Harper, a principal in the Miami-based forensic accounting firm Lewis B. Freeman & Partners and former SEC regional chief in Miami. Although aimed primarily at reforming corporate governance and accounting practices, Sarbanes-Oxley also has given prosecutors new weapons to fight other forms of security fraud, including Ponzi schemes. The new provisions, for example, include sterner sentencing guidelines for frauds involving more than 250 victims. In another fraud-fighting strategy, SEC investigators in Florida have increased the speed with which they file civil and criminal cases. They filed against Tel-One Inc, for example, just 72 hours after learning about the operation. “If we can get in there quickly, there is a greater chance that we are going to find money that has not yet been spent,” Gordon said. “The thing we can’t measure but we know is important is that we’re stopping new people from getting ripped off.” State and federal agencies also are working closely in a multiagency joint initiative to combine the strengths and resources of the various participants against financial crimes. Getting money back to the victims is a priority. From January through Sept. 1, said Donald Saxon, director of the state’s office of financial regulation, “we’ve been able to obtain court-ordered restitution of $103 million. That’s a very good number.” The number of cases filed at both the state and federal levels has held relatively steady over the past couple of years, the officials said. And the kinds of fraud schemes they encounter tend to remain similar. But regulators and prosecutors said the real impact of the increased scrutiny and changes brought about by Sarbanes-Oxley are only beginning to be felt. “We’re telling those out there that may be thinking about engaging in this sort of conduct,” Bustillo said, “there are going to be some heavy and dear consequences to pay.”

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