U.S. Securities and Exchange Commission
Litigation Release No. 18195 / June 19, 2003
Accounting and Auditing Enforcement Release No. 1804 / June 19, 2003
United States v. Alexander Ajemian, et al., Case No. 01-80514 (E.D. Mich.)
Securities and Exchange Commission v. Alexander Ajemian, et al., Case No. 02-60082 (E.D. Mich.)
Former MCA Controller, Previously Sued By SEC For Involvement In MCA Financial And Offering Fraud, Sentenced To Prison Term And Restitution
The Securities and Exchange Commission (Commission) announced that on June 18, 2003, the Honorable Judge John Feikens of the United States District Court for the Eastern District of Michigan sentenced Alexander Ajemian, former Controller of MCA Financial Corporation (MCA), to 37 months in prison for his involvement in a fraudulent scheme perpetrated by MCA. Judge Feikens also ordered Ajemian to pay $256 million in restitution. Previously, on August 28, 2001, Ajemian pled guilty to one count of mail fraud and one count of making false statements to the Commission.
Ajemian and six other MCA executives and employees (defendants) are the subjects of a pending civil injunctive action filed by the Commission on April 23, 2002 in the United States District Court for the Eastern District of Michigan involving alleged violations of the antifraud, reporting and other provisions of the federal securities laws. The Complaint alleges that MCA was a mortgage banking company headquartered in Southfield and Troy, Michigan that engaged in a financial and offering fraud in connection with two different types of securities. First, the Complaint alleges that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials. The Complaint alleges that, as a result, investors lost at least $49 million. Second, the Complaint alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission. The Complaint further alleges that MCA materially inflated its assets, income and equity by improperly: (1) recognizing gains on sale of real estate to related parties; (2) valuing certain mortgages held for resale; (3) failing to disclose related party mortgages held for resale; (4) failing to write down uncollectible related party receivables; and (5) failing to disclose MCA's potential liability in connection with the fraudulent sale of the securitized interests in pools of mortgage loans. The Complaint alleges that as a result, investors in the debentures lost all $19 million invested.
The Complaint alleges that all seven defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws as a result of their involvement in MCA's fraudulent sale of securities. In addition, the Complaint alleges that Ajemian and four other defendants violated, or aided and abetted violations of, the periodic reporting and corporate record-keeping provisions of the federal securities laws. The Complaint seeks, among other things, injunctive relief and civil penalties against all seven defendants and seeks to bar Ajemian and three other defendants from acting as an officer and director of a public company in the future.
Criminal proceedings also have been instituted with respect to the other six defendants in the Commission's Complaint. Four of the defendants in the Commission's Complaint have pled guilty to federal charges arising out of MCA's fraudulent scheme. Only one of those defendants, Keith Pietila, has been sentenced. Pietila was sentenced to four years in prison and $256 million in restitution on May 8, 2003. The remaining two defendants in the Commission's Complaint were indicted on federal charges of conspiracy, mail fraud, wire fraud, bank fraud and making false statements to the Commission on June 23, 2002 and are scheduled to be tried in January 2004. In addition, the Michigan Attorney General's Office has filed state felony securities fraud charges against Ajemian and three other defendants.
The Commission wishes to thank the Office of the United States Attorney for the Eastern District of Michigan for its assistance and cooperation in this matter.