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Friday, August 26, 2016


Apollo Charged With Disclosure and Supervisory Failures

Washington D.C., Aug. 23, 2016 — The Securities and Exchange Commission today announced that four private equity fund advisers affiliated with Apollo Global Management have agreed to a $52.7 million settlement for misleading fund investors about fees and a loan agreement and failing to supervise a senior partner who charged personal expenses to the funds.

An SEC investigation found that the Apollo advisers failed to adequately disclose the benefits they received to the detriment of fund investors by accelerating the payment of future monitoring fees owed by the funds’ portfolio companies upon the sale or IPO of those companies.  The lump sum payments received by the Apollo advisers essentially reduced the portfolio companies’ value prior to their sale or IPO and reduced amounts available for distribution to fund investors.

The SEC also found that one of the Apollo advisers failed to disclose certain information about interest payments made on a loan between the adviser’s affiliated general partner and five funds.  The purpose of the loan was to defer taxes on carried interest due the general partner.  The loan agreement obligated the general partner to pay interest to the funds during the course of the loan, and the funds’ financial statements disclosed that interest was accruing as an asset of the funds.  But that interest was instead ultimately allocated solely to the general partner, which made the disclosures in the financial statements misleading.

“A common theme in our recent enforcement actions against private equity firms is their failure to properly disclose fees and conflicts of interest to fund investors,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “Investors in Apollo funds were not adequately informed about accelerated monitoring fees and separately allocated loan interest, and therefore were unable to gauge their impact on their investments.”

According to the SEC’s order instituting the settled administrative proceeding, Apollo’s supervisory failures pertain to a then-senior partner at the firm who was twice caught improperly charging personal items and services to Apollo-advised funds and their portfolio companies.  Other than verbally reprimanding the partner and requiring repayment of improperly submitted expenses, Apollo took no further remedial or disciplinary steps on either occasion.  A firm-wide expense review eventually revealed even more personal expenses the partner improperly charged to fund clients, and this led to the partner’s separation from the firm.

“Apollo failed to take appropriate action to protect its clients upon first learning that a partner was improperly expensing personal items and services to the funds, and its failure resulted in repeated misconduct,” said Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

Apollo consented to the entry of the SEC’s order finding that it violated Sections 206(2) and 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-8.  The order also finds that Apollo failed reasonably to supervise the then-partner pursuant to Section 203(e)(6) of the Advisers Act.  Apollo agreed to cease and desist from further violations without admitting or denying the findings, and must pay $37.527 million in disgorgement, $2,727,552 in interest, and a $12.5 million penalty.  Apollo agreed to distribute the disgorgement and interest amounts to affected fund investors.

The SEC’s investigation, which is continuing, is being conducted by Donna Norman of the Asset Management Unit and supervised by Mr. Kelly.  A related examination of Apollo was conducted by Majid Mahmood, Michael Devaney, Mandy Poon, Igor Rozenblit, and William Delmage.

Tuesday, August 23, 2016


For Immediate Release
August 22, 2016
United States Marshals Warn of Jury Duty Phone Scam

Montgomery, AL - The U.S. Marshals Service for the Middle District of Alabama is warning the public of an ongoing jury-duty phone scam where the scammer poses as a U.S. Marshal, deputy marshal, or other law enforcement officer. The scammer calls the victim to advise that he or she has missed federal jury duty, but can avoid arrest by paying a fine immediately.

The scammer will provide information such as titles and badge numbers of a legitimate law enforcement officer or court official, names of federal judges, and courtroom addresses in an attempt to make the scam appear credible. Scammers are even spoofing their phone numbers to appear on caller ID as if they are from the court or a government agency. The U.S. Marshals have received several calls inquiring about this scam over the past few days, and are advising that the public needs to know that this is a scam. If a person receives a jury duty related call, they should not provide any personal identification or money to the caller. Federal Courts do not call prospective jurors or ask for money or personal identification information.

Anyone that receives a “Jury Duty Scam” phone call should report it, with any available caller ID information, to their local United States Marshals Service office, or the local FBI office.

Sunday, August 21, 2016


Wednesday, August 17, 2016
Heir Location Services Company and Co-Owner Charged with Customer Allocation Scheme

A Salt Lake City-based heir location services provider and its co-owner have been indicted for participating in a conspiracy to allocate customers with another heir location firm, the Department of Justice announced today.  

According to the one-count felony indictment filed today in the U.S. District Court for the District of Utah, Kemp & Associates Inc. and its co-owner and vice president, Daniel J. Mannix, conspired with a competitor to suppress and eliminate competition by agreeing to allocate customers of heir location services sold in the United States between 1999 and 2014.

Heir location firms identify people who may be entitled to an inheritance from the estate of someone who died without a will.  The heir location firms then enter into agreements with those people to help secure their inheritances in exchange for a fee.

“For over a decade, the defendants schemed to line their pockets at the expense of beneficiaries,” said Acting Assistant Attorney General Renata Hesse of the Justice Department’s Antitrust Division.  “These charges underscore the division’s commitment to hold heir location services executives and their companies accountable for cheating heirs whose relatives died without a will.”

With today’s charges, three executives and two companies have been charged as a result of the ongoing federal antitrust investigation into customer allocation, price fixing, bid rigging and other anticompetitive conduct in the heir location services industry, which is being conducted by the Antitrust Division’s Chicago Office and the FBI’s Salt Lake City Division, with assistance from the U.S. Attorney’s Office of the District of Utah and the U.S. Attorney’s Office of the Northern District of Illinois.

Friday, August 19, 2016


Wednesday, August 17, 2016
Former Vice President of Wholesale Tool Company Sentenced to 63 Months in Prison for Role in $9 Million Bank Fraud Scheme

The former vice president of a California wholesale tool company was sentenced to 63 months in prison today for his role in a scheme to defraud East West Bank that resulted in losses of over $9 million.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Eileen M. Decker of the Central District of California, Assistant Director in Charge Deidre Fike of the FBI’s Los Angeles Division, Acting Special Agent in Charge Anthony J. Orlando of Internal Revenue Service-Criminal Investigation’s (IRS-CI) Los Angeles Field Office and Special Inspector General Christy Goldsmith Romero of the Troubled Asset Relief Program (SIGTARP) made the announcement.

Chung Yu Yeung, aka Louis Yeung, 39, of San Dimas, California, was sentenced by U.S. District Judge Christina A. Snyder of the Central District of California.  Judge Snyder also ordered Yeung to pay $9,618,908.34 in restitution and to forfeit a San Dimas property that was purchased with proceeds of the scheme.  On March 30, 2016, Yeung pleaded guilty to one count of conspiracy to commit bank fraud and four counts of bank fraud.

As part of his guilty plea, Yeung, a former vice president of Eastern Tools & Equipment Inc. (Eastern Tools) of Ontario, California, admitted that he and his co-conspirators defrauded East West Bank by making material misrepresentations about Eastern Tools’ accounts receivable and its financial statements to obtain and maintain a loan with the bank.  The conspirators created numerous shell corporations to act as purported suppliers and retailers doing business with Eastern Tools, when, in reality, these shell corporations were entirely under the control of Yeung and existed for the sole purpose of creating the illusion of such business, he admitted.  Yeung also admitted that the fictitious companies allowed Yeung and other conspirators to falsely inflate Eastern Tools’ accounts receivable and financial statements in representations to East West Bank.

Yeung admitted that in order to further the scheme, he and others opened post office boxes, phone accounts and email accounts purportedly associated with the shell retail companies, and provided information about them to East West Bank auditors, to promote the illusion that these shell customers were independent entities.

Eastern Tools defaulted on the loan after East West Bank discovered the fraud, causing more than $9 million in losses to the bank, Yeung admitted.

Friday, August 12, 2016


Two Real Estate Investors Plead Guilty to Rigging Bids at Public Home Foreclosure Auctions
22 Defendants Charged in Ongoing Investigation

Two Georgia real estate investors pleaded guilty today for their roles in bid-rigging and fraud conspiracies committed at public real estate foreclosure auctions in Georgia, the Department of Justice announced.

Ellis Galyon and Christopher Anderson each admitted that they agreed with other real estate investors to rig auctions of foreclosed homes in the Atlanta metro area.  According to court documents filed today in the U.S. District Court of the Northern District of Georgia in Atlanta, the conspirators agreed not to compete for the purchase of selected foreclosed homes so that they could win the auctions for those homes with artificially low bids.  The winning bidders then paid off the other conspirators who had refrained from bidding against them.  As a result of Galyon and Anderson’s actions, conspirators profited from money that otherwise would have gone to mortgage holders and other secured debt holders and, in some cases, to the people who owned the foreclosed homes.

 Galyon admitted to participating in the conspiracy in Fulton County between June 2007 and at least July 2011.  Anderson admitted to participating in the conspiracy in Fulton County between December 2007 and October 2011 and in DeKalb County between September 2009 and November 2011.

Including Galyon and Anderson, twenty-two defendants have been charged in connection with the department’s ongoing investigation into bid rigging and fraudulent schemes involving real estate foreclosure auctions in the Atlanta area.  Twenty of those have either pleaded guilty or agreed to plead guilty.

These charges have been filed as a result of the ongoing investigation being conducted by the Antitrust Division’s Washington Criminal II Section, the FBI’s Atlanta Division and the U.S. Attorney’s Office of the Northern District of Georgia, in connection with the President’s Financial Fraud Enforcement Task Force.  The president established the task force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.

Tuesday, August 9, 2016


Monday, August 8, 2016
Justice Department Reaches Settlement to Resolve Allegations Against HSBC for Illegally Repossessing Servicemembers’ Cars

The Justice Department announced today that HSBC Finance Corporation, as successor to HSBC Auto Finance Inc., has agreed to pay $434,500 to resolve allegations that it violated the Servicemembers Civil Relief Act (SCRA) by repossessing 75 cars owned by protected servicemembers without obtaining the necessary court orders.  The settlement is subject to approval by the U.S. District Court of the Northern District of Illinois.

During the investigation, the department learned that HSBC conducted repossessions without court orders even when it had evidence in its own records suggesting that a borrower could be a protected servicemember.  In one such case, HSBC continued with a repossession after learning that an initial attempt was unsuccessful because guards would not allow the “repo truck” to enter a “secured military post” in Indiana, where the car was located.

“HSBC repossessed cars without taking into account their owners’ ongoing service to our country,” said Principal Deputy Associate Attorney General Bill Baer.  “This settlement rights this wrong, compensates the affected servicemembers and honors our commitment to making sure military members are treated fairly at all times.”

“Servicemembers should never have to worry that they will lose their cars while they answer our nation’s call to duty,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division.  “HSBC should have heeded these concerns before repossessing vehicles.  I commend the company for working cooperatively to reach an appropriate resolution once the department raised the issue.”

The settlement covers repossessions that occurred between 2008 and 2010.  HSBC Auto Finance Inc. originated and serviced car loans until 2010, when HSBC sold its car lending operations and assets to Santander Consumer USA Inc.  In February 2015, the department entered a settlement with Santander that provides servicemembers with more than $10.5 million in compensation for repossessions that violated the SCRA.  As part of the investigation of Santander’s repossession practices, the department learned that HSBC sold to Santander the right to collect debts owed by servicemembers after their cars had been repossessed by HSBC without court orders.

The SCRA protects servicemembers against certain civil proceedings that could affect their legal rights while they are in military service.  It requires a court to review and approve any repossession if the servicemember took out the loan and made a payment before entering military service.  The court may delay the repossession or require the lender to refund prior payments before repossessing.  The court may also appoint an attorney to represent the servicemember, require the lender to post a bond with the court and issue any other orders it deems necessary to protect the servicemember.  By failing to obtain court orders before repossessing motor vehicles owned by protected servicemembers, HSBC prevented servicemembers from obtaining a court’s review of whether their repossessions should be delayed or adjusted to account for their military service.

Most of the servicemembers compensated through this settlement received partial compensation through the settlement with Santander, and this agreement requires HSBC to pay $5,500 to each of these servicemembers.  HSBC must pay $11,000 to affected servicemembers who did not receive payments from the Santander settlement.  HSBC also must repair the credit of all affected servicemembers.  An independent settlement administrator will contact servicemembers to be compensated through this settlement in the upcoming months.  The independent administrator will locate victims and distribute payments at no cost to the servicemembers.

The department’s enforcement of the SCRA and other fair lending laws is conducted by the Civil Rights Division’s Housing and Civil Enforcement Section.  Since 2010, the division has provided over $1.4 billion in monetary relief for individual borrowers and affected communities through its enforcement of the Fair Housing Act, the Equal Credit Opportunity Act and the SCRA.

The SCRA provides protections for active duty servicemembers in areas such as evictions, rental agreements, security deposits, prepaid rent, civil judicial proceedings, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosures, automobile leases, life insurance, health insurance and income tax payments.
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