U.S. Securities and Exchange Commission
Litigation Release 22513 / October 18, 2012
Accounting and Auditing Enforcement Release No. 3417 / October 18, 2012
Securities and Exchange Commission v. Joseph J. Monterosso, et. al., Civil Action No. 07-61693 (S.D. Fla., initial complaint filed on November 21, 2007)
District Court Orders More Than $3 Million In Remedies, Grants Motions For Disgorgement, Civil Penalties and Officer-And-Director Bars Against Timothy Huff, Lawrence Lynch, Joseph J. Monterosso, Luis Vargas
On October 17, 2012, the United States District Court for the Southern District of Florida granted the Commission's motions for disgorgement, civil penalties, and officer-and-director bars against the four remaining defendants in a civil action arising from a Florida-based accounting fraud.
The district court adopted a recommendation previously entered by a magistrate judge and ordered the following remedies:
Starting in November 2007, the Commission brought civil actions against the defendants in connection with GlobeTel Communications Corp., now World Surveillance Group Inc. (GlobeTel). GlobeTel reported millions of dollars in telecommunications revenue from 2002 to 2006 that the Commission alleged was fake. Huff and former GlobeTel chief financial officer Thomas Jimenez were sentenced to prison as a result of parallel criminal prosecutions. See U.S. v. Huff, 09-cr-60295-DMM (S.D. Fla.); U.S. v. Jimenez, 08-cr-60367-DTKH (S.D. Fla.). GlobeTel and Jimenez previously consented to the entry of judgments against them in the Commission’s action.
The Commission’s complaint against Huff alleged that he created a scheme from 2002 to 2004 that made it appear that GlobeTel bought and sold telecom “minutes” with other companies in Mexico, Brazil and the Philippines. The complaint alleged that, in reality, there were no transactions and that Huff and Jimenez created false invoices and technical documents and that they lied to auditors.
The Commission’s complaint against Monterosso and Vargas alleged that they created hundreds of false invoices from 2004 to 2006 that made it appear that GlobeTel's three wholly-owned subsidiaries, Centerline Communications, LLC (Centerline), Volta Communications, LLC (Volta), and Lonestar Communications, LLC (Lonestar) bought and sold telecom "minutes" with other wholesale telecom companies. The complaint alleged that, in reality, there were no transactions under the program that GlobeTel executives described as the "off-net" revenue program. It alleged that two of GlobeTel's subsidiaries - Volta and Lonestar - actually did no business. It alleged that the third subsidiary, Centerline, reported millions of dollars in business with Monterosso's and Vargas' own private company, Carrier Services Inc. (CSI), which did not occur.
The Commission’s complaint against Lynch alleged that he was aware that the invoices submitted by Monterosso and Vargas did not represent actual telecom business conducted by Centerline. The complaint alleged that Lynch made and approved journal entries in GlobeTel’s financial records to record revenue and to conceal that GlobeTel and its supposed counter-parties were not paying their bills.
In May 2008 and August 2010 respectively, Lynch and Huff consented to the entry of judgments against them in the Commission’s action. On May 20, 2008, the court barred Lynch from serving as an officer or director for five years. On September 7, 2010, the court permanently barred Huff from serving as an officer or director.
On March 31, 2011, the court granted the Commission's motions for summary judgment against Monterosso and Vargas.
The GlobeTel case was investigated and litigated by Brent Mitchell, Peter Rosario, Jeffrey Infelise, Gina Twyman and Reid Muoio.
For further information, please see Litigation Release Numbers 20371 (November 26, 2007) [initial complaint filed]; 20550 (May 1, 2008) [civil injunctive action filed against GlobeTel and three former executives]; 21202 (September 9, 2009) [civil action filed against Timothy J. Huff]; and 21913 (April 1, 2011) [summary judgment granted against Joseph J. Monterosso and Luis Vargas].
The Commission acknowledges the assistance of the Internal Revenue Service, the Federal Bureau of Investigation, the Tax Division of the United States Department of Justice, and the United States Attorney’s Office for the Southern District of Florida.