Execs At NYC-Based Spongetech Charged With Financial Statement Fraud & Obstruction

Two top executives of New York City-based Spongetech Delivery Systems Inc. were arrested Wednesday and charged with fraud in an alleged scheme to defraud investors by reporting false financials and grossly overstated sales figures. Steven Y. Moskowitz, 45, of Flushing, New York, Spongetech's chief operating officer and chief financial officer, together with Michael Metter, 58, of Greenwich, Connecticut, its chief executive officer, were charged with conspiracy to commit securities fraud and with obstruction of justice by federal authorities. They are alleged to have engaged in a "pump and dump" scheme and falsified company financials by claiming revenues from nonexistent companies. Prosecutors claim that SpongeTech created five phony companies that accounted for 99 percent of its sales, including: SA Trading Co., USA Asia Trading, Dubai Export Import Co., New Century Media and Fresco Sales Corp.

Read the story here and here.

Hat tip: Reader Doug

Update On Massive Ohio Corporate Fraud Case: National Century's Paulsen Sentenced To 30 Years

Lance K. Poulsen, 65, the former founder and CEO of Dublin, Ohio-based National Century Financial Enterprises, was sentenced Friday to 30 years in prison for defrauding investors to the tune of $1.9 billion. He was also ordered to pay $2.38 billion in restitution. According to prosecutors, Poulsen fabricated data, transferred funds between accounts to hide shortfalls and misled the investors concerning the financial health of the company. One of Poulsen's accomplices, Rebecca S. Parrett, 60, was sentenced to 25 years in prison for her part in the scheme. She remains a fugitive. A third defendant, Karl A. Demmler, 57, one of the founders of National Century, was sentenced to 7 years in prison for his involvement in the fraud. Poulsen was originally found guilty last October on multiple counts of securities fraud, wire fraud and money laundering. National Century collapsed in 2002.

Read FraudTalk's earlier posts on this story here and here.

Read the story here and here.

Former AIG Exec Gets 4 Years For Financial Statement Fraud

Christian M. Milton, 61, of Wynnewood, Pennsylvania, the former Vice President for Reinsurance at American International Group, was sentenced yesterday to four years in prison and ordered to pay a $200,000 fine for his role in manipulating the financials of the company. Milton, a 23 year veteran of the company, along with four other executives of the company's subsidiary, General Re Corporation, was convicted on charges of conspiracy, securities fraud and making false statements to the SEC. Other executives convicted in the case include: Ronald E. Ferguson, General Re's former CEO, who was sentenced to two years in prison last month; Elizabeth A. Monrad, General Re's former CFO, who is scheduled to be sentenced on February 12th; Christopher P. Garand, General Re's former SVP in charge of reinsurance, who is scheduled to be sentenced March 4th; and Robert D. Graham, Gen Re's former general counsel, who's sentencing has not yet been scheduled.

Read FraudTalk's original posts on this story here, here and here.

Read the story here, here and here.

Read the DOJ's announcement here.

Missouri Former Pasta CEO Pleads Guilty To Cooking The Books

Timothy S. Webster, 46, of Mission Hills, Kansas and the former CEO of American Italian Pasta Company of Kansas City, Missouri, pleaded guilty to one count of wire fraud in connection with the misrepresentation of the financial health of the company. Warren B. Schmidgall, 58, of Topeka, Kansas and the former CFO of the company also plead guilty to wire fraud. The SEC had charged that Webster (pictured left) and Schmidgall misrepresenting the company’s financial performance between May 2002 and December 2004, violating the anti-fraud provisions of the Sarbannes-Oxley Act. Prosecutors alleged that the company's revenues were overstated by some $36 million during this period. Webster served as CEO from 1992 until 2005 when he resigned. Webster and Schmidgall each face up to five years in prison and $250,000 in fines, plus restitution. Three other American Italian Pasta execs faced criminal charges related to the overstatement of financials, including: David E. Watson, 53, of Kansas City, Missouri and the former executive vice president of corporate development and strategy; Stephanie S. Ruskey, 43, of Odessa, Missouri and the former controller; and Mark Peterson, former vice president of accounting and finance.

Read the story here and here.

Read the SEC's complaint against Webster here and the complaint against Schmidgall and Watson here.

Former Peregrine CEO Sentenced To 97 Months For Financial Statement Fraud

Stephen Parker Gardner, 54, the former CEO of Peregrine Systems, Inc., was sentenced Friday to serve 97 months in federal prison for his role in perpetuated a financial statement fraud at the company between 1999 and 2002. Gardner pleaded guilty in March 2007 and cooperated with authorities in their case against his co-defendants. According to prosecutors, Gardner and his co-conspirators concealed from investors the fact that millions in accounts receivables had not been collected. Gardner also provided false testimony to the SEC about certain barter transactions, according to authorities. Gardner plead guilty to one count each of conspiracy, securities fraud and obstruction of justice. Prior to the company's stock collapse in 2002, Gardner earned in excess of $9 million in options transactions and bonuses. Shareholders claims losses at $3 billion. The company filed for bankruptcy and Gardner was forced to resign at that time. Other Peregrine officers prosecuted in this case include: Gary L. Lenz, former COO; Douglas S. Powanda, former EVP of Sales; Berdj J. Rassam, former controller; Joseph G. Reichner, former SVP for Alliances and Business Development; and Peter J. O'Brien, former director of Strategic Alliances.

Read the story here, here, here and here.

See the SEC litigation release here.

Former Washington State Software CEO Pleads Guilty To Financial Statement Fraud

Paul "PJ" Johnston, 40, the former CEO of Seattle, Washington-based software maker Entellium Corp., plead guilty yesterday to one count of wire fraud in connection with allegations that he and the company CFO had inflated the revenues of the company, defrauding investors. Johnston was arrested in October along with CFO, Parrish Jones, 39, and both have resigned from the company. Jones is expected to plead guilty next week to the same charge. Authorities claimed that Johnston and Jones maintained two sets of books and records for the company. For example, stated revenue for 2006 was given as $4 million when in fact it was only $582,789. Stated revenue for 2007 was given as $6.2 million when in fact it was only $1.4 million and stated revenue for 2008 was given as $5.2 million when in fact it was only $1.7 million. Authorities also claim that the inflated revenues helped induce investors put up more than $50 million, including Ignition Partners, a Washington State venture capital firm which made a $19 million investment in Entellium. The company has filed for bankruptcy and laid off a significant portion of its staff. Intuit Corporation is reported to have negotiated the purchase of the assets of Entellium for just $7.7 million. Johnston and Jones will face up to 4 1/2 years in prison, plus a fine of $250,000 each and restitution. Johnston is still in custody. Ironically, the Johnston was listed as one of the top 20 enterprise software leaders for 2007 from an industry association.

Read the story here, here and here.

Former Aspen Tech CEO Receives Probation For Financial Statement Fraud

David McQuillin, 50, of Sudbury, Massachusetts, and former CEO of Burlington, Massachusetts-based Aspen Technology, was sentenced last week to 3 years probation and fined $12,000 for his role in falsifying the company's reported revenue in 2001 and 2002. McQuillin pleaded guilty to conspiracy and securities fraud charges. He also settled a civil case brought by the SEC in which he was ordered to pay a $85,000 fine, plus disgorgement of $28,381.61 and is barred from serving as an officer or director of any public company. Aspen Technology founder Lawrence Evans settled similar charges.

Read the story here, here and here.

Dot Com Era Magnate Found Sentenced To 9 Years For Fraud

Charles E. "Junior" Johnson, 48, of Las Vegas was sentenced to 9 years in prison Thursday for defrauding investors in his now-defunct company, PurchasePro. Prosecutors alleged that Johnson orchestrated the false inflation of PurchasePro's revenues during the first three quarters of 2001 while the company was unravelling. Seven other individuals have been convicted in this case which also led to charges of improper accounting practices at America Online. In May 2008, Johnson, former chairman and CEO of PurchasePro, was found guilty of securities fraud, witness tampering and other crimes. He was indicted in January 2005, along with co-conspirators and company executives, Robert Geoffrey Layne and James Sholeff following an investigation conducted by the SEC. Johnson's obstruction of justice charge arose from his unsuccessful attempt to introduce fabricated e-mails into evidence at his trial. According to reports, his attorneys found out about it and resigned from the case which caused a mistrial.

Read the story, here, here and here.

Judge Rules AIG Financial Statement Investors Fraud Loss Exceeds $500 Million

Connecticut federal judge Christopher Droney accepted a prosecution expert's lower estimate of losses to investors due to financial statement fraud was between $544 million to $597 million. The expert estimated using a different model, that losses could have been between $1.2 to $1.4 billion. Last February, five executives, one from AIG and four from Warren Buffet's, General Re Corp., were convicted on charges of conspiracy, securities fraud, mail fraud and making false statements to the SEC. The magnitude of the ruled upon loss means that sentencing guidelines put the defendants, Ronald E. Ferguson, left, Elizabeth A. Monrad, right, Robert Graham, Christopher P. Garand and Christian Milton, at risk for prison sentences as long as life, instead of 13 to 17 years are previously requested by the prosecution. Each defendant also faces fines as much as $46 million. The fraud involved reinsurance policies made by AIG with General Re in 2000 and 2001 to inflate reserves and its stock price.

Read the story here, here and here.

Ohio Health Care Executive Convicted In $1.9 Billion Fraud

Lance K. Poulsen, 65, the former founder and CEO of Ohio-baseed National Century Financial Enterprises, was found guilty on multiple fraud counts involving his company. According to prosecutors, Poulsen fabricated data, transferred funds between accounts to hide shortfalls and misled the investors. The case against him was bolstered by testimony from company compliance officer, Sherry Gibson, who said she had falsified records at Poulsen's request, along with providing other damning evidence. Prosecutors said at the direction of Poulsen, the company advanced $2.2 billion to six companies in which Poulsen owned a stake. He faces 30 years to life in prison if convicted. Poulson is currently serving 10 years in prison for his conviction on a criminal charge of tampering with a witness.

See background on the story here, here, here and here.

See the SEC complaint here.

Read the DOJ announcement here.

This is financial statement fraud on a massive scale. I hope they throw the book at him...