SEC Has Five Prominent Fraud Cases in One Month: July Was a Busy Month for the SEC. Five of the Enforcement Cases Charged or Settled That Month Involved Large, Well-Known Companies, Including KBR, Goldman Sachs, Dell, General Electric, and Citigroup

By Verschoor, Curtis C. | Strategic Finance, December 2010 | Go to article overview

SEC Has Five Prominent Fraud Cases in One Month: July Was a Busy Month for the SEC. Five of the Enforcement Cases Charged or Settled That Month Involved Large, Well-Known Companies, Including KBR, Goldman Sachs, Dell, General Electric, and Citigroup


Verschoor, Curtis C., Strategic Finance


July could have been a slow summer vacation month this year. Instead, it turned out to be surprisingly productive for the Securities & Exchange Commission (SEC)--not because of the number of fraud cases it charged or settled, but because of the size of penalties and the prominence of the guilty companies. There were only seven enforcement cases considered significant enough to merit a press release that month, but five of those cases involved large and very-well-known companies.

On July 7, the SEC concluded a case about a joint venture that bribed foreign officials in Nigeria, a violation of the Foreign Corrupt Practices Act (FCPA). The venture companies consisted of Italian oil company ENI and its subsidiary Snamprogetti; Technip, a global engineering, construction, and services company based in Paris; and the U.S. defense contractor KBR, the former subsidiary of Halliburton Company. Through agents in the U.K. and Japan, the joint venture funneled more than $180 million in bribes to Nigerian government officials. In addition to the use of Swiss bank accounts, carloads of cash were hand-delivered to a hotel in Abuja, Nigeria. The total sanctions to the companies amounted to $1.28 billion, including disgorgement of profits from the illicit contracts of $400 million. According to the SEC, this is "the largest combined disgorgement amount ever in an FCPA violation." A criminal settlement with one of the companies involves a fine of $240 million and a deferred prosecution agreement, but no prison time for anyone.

A few days later, the SEC announced a record-setting settlement fine of $550 million with Goldman Sachs & Co. because of the firm's misleading actions in marketing to investors a subprime mortgage product just as the U.S. housing market was beginning to collapse. In disclosures about Goldman's synthetic collateralized debt obligation (CDO), facts were hidden that hedge fund Paulson & Co. Inc. played a role in selecting the contents of the CDO while simultaneously taking a short position against the product in the marketplace. Goldman neither admitted nor denied guilt in the transaction. Two-and-a-half months after the settlement, Fabrice Tourre, the principal Goldman officer involved, asked a judge to dismiss the SEC's fraud claim against him because the transaction didn't occur in the Unites States.

[ILLUSTRATION OMITTED]

As part of the settlement, Goldman also agreed to "reform its business practices" as a part of its "present comprehensive, firm-wide review of its business standards." New procedures include submitting residential mortgage products to a firm-wide capital committee for approval and requiring marketing materials to be approved by the legal or compliance department. At least once a year, the Goldman internal audit function must provide assurance that these actions are being taken. Further, where Goldman is lead underwriter, its outside counsel must also review pertinent compliance documents. At least once a year, all individuals involved with structuring or marketing of mortgage securities offerings must complete training in federal disclosure requirements. None of the individuals involved faces prison time.

On July 22, the SEC reported settling with Dell, Inc., the computer maker, for a penalty of $100 million. Dell also agreed to enhance its disclosure processes, including the retention of an independent consultant to recommend improvements and enhance training regarding the disclosure requirements of the federal securities laws. Dell was charged with using fraudulent accounting to make it falsely appear that the company was consistently meeting Wall Street earnings targets and reducing its operating expenses.

The SEC's complaint further alleged that Dell's most senior former accounting personnel engaged in improper accounting by maintaining a series of "cookie jar" reserves that they used to cover shortfalls in operating results.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

SEC Has Five Prominent Fraud Cases in One Month: July Was a Busy Month for the SEC. Five of the Enforcement Cases Charged or Settled That Month Involved Large, Well-Known Companies, Including KBR, Goldman Sachs, Dell, General Electric, and Citigroup
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.