SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Litigation Release No. 15629 / January 29, 1998
Accounting and Auditing Enforcement
Release No. 1008 / January 29, 1998
SECURITIES AND EXCHANGE COMMISSION v. DONALD FERRARINI, BRUNO RUMIGNANI,
HOWARD MILLER, MARK BAILINE, and FRANK PALUMBO, 98 Civ. 0629 (SWK)
(S.D.N.Y. January 29, 1998)
The Securities and Exchange Commission announced today that it filed a
civil injunctive action in federal court in Manhattan charging five former
officers of a now bankrupt insurance brokerage firm with engaging in a
financial fraud for more than two years. As a result of the defendants'
conduct, the insurance brokerage falsely reported to the public that it had
been profitable in 1993 and 1994, when it had actually sustained losses in
those years. The Commission's complaint also alleges that one of the
defendants engaged in illegal insider trading.
Named in the Commission's complaint were:
Donald Ferrarini ("Ferrarini"), age 69, who was chief executive
officer, president and chairman of the board of directors of Underwriters
Financial Group, Inc. ("UFG") during the time of the events relating to the
financial fraud alleged in the complaint.
Bruno Rumignani ("Rumignani"), age 55, who was UFG's executive vice
president and a director during the time of the events relating to the
financial fraud alleged in the complaint.
Howard Miller ("Miller"), age 66, who was UFG's senior vice president
and a director during the time of the events relating to the financial
fraud alleged in the complaint. Miller was previously an officer of BRI
Holding Corp. ("BRI"), a private company that merged with Chippewa
Resources Corp. ("Chippewa") in 1992 to form UFG.
Mark Bailine ("Bailine"), age 47, who was UFG's vice president of
finance and administration during the time of the events relating to the
financial fraud alleged in the complaint.
Frank Palumbo ("Palumbo"), age 51, who was UFG's controller during the
time of the events relating to the financial fraud alleged in the
complaint.
The Commission's complaint alleges that between 1993 and 1995, Ferrarini,
Rumignani, Miller, Bailine and Palumbo engaged in a
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fraudulent scheme whereby UFG fraudulently obtained money from companies
with which UFG did business and, by making fictitious and other improper
entries on UFG's books and records, improperly included those fraudulently
obtained funds as legitimate income. The complaint alleges that defendants
employed two fraudulent practices to obtain cash and misrepresent UFG's
financial performance to the public: (i) a "premium finance" fraud, whereby
UFG recorded as income money that UFG had fraudulently obtained from
companies that finance insurance premiums and recorded proceeds of the
fraud as income; and (ii) an "accounts payable" fraud, whereby UFG
improperly deleted certain outstanding accounts payable and improperly
recorded corresponding amounts as income. According to the complaint, as
part of the premium finance fraud, UFG sought and obtained financing for
insurance premiums on behalf of customers who did not need or request such
financing, and the proceeds of the financing were instead used to pay UFG's
operating expenses and for other purposes. The defendants also made
material misstatements to UFG's auditors.
As a result of this conduct, the annual and quarterly reports that UFG
filed with the Commission and disseminated to the public for 1993 and 1994,
and the quarters ended March 31, 1994, June 30, 1994 and September 30,
1994, falsely portray UFG as profitable when, in fact, it had incurred
substantial losses. Although UFG reported a loss for the quarter ended
March 31, 1995, UFG materially understated that loss due to the defendants'
conduct.
The complaint also alleges that Miller unlawfully purchased securities of
Chippewa while he possessed material nonpublic information about the merger
between Chippewa and BRI. Specifically, the complaint alleges that in
August 1992, Miller, an officer of BRI, purchased 11,000 shares of Chippewa
common stock when Miller knew of that pending merger.
As a result of the foregoing, the complaint alleges that Ferrarini,
Rumignani and Miller violated antifraud and corporate reporting,
recordkeeping and other provisions of the Securities Exchange Act of 1934
("Exchange Act"), and that Bailine and Palumbo violated antifraud and other
provisions of the Exchange Act.
In the complaint, the Commission seeks: permanent injunctions and civil
penalties against all defendants; disgorgement from Miller of his illegal
trading profits and prejudgment interest thereon; and officer and director
bars against Ferrarini, Rumignani and Miller.
In February 1996, Bailine pled guilty to two felony counts, including
conspiracy to commit securities fraud, in connection with the conduct
alleged in the complaint. United States v. Bailine, 96 Cr. 17 (LLS)
(S.D.N.Y. Feb. 5, 1996). In October
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1996, Palumbo pled guilty to one count of conspiracy to commit, inter alia,
securities fraud, in connection with the conduct alleged in the complaint.
United States v. Palumbo, 96 Cr. 816 (MGC) (S.D.N.Y.) (Oct. 3, 1996).
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Simultaneous with the filing of this complaint, Palumbo consented, without
admitting or denying the allegations in the complaint, to the issuance of a
final judgment permanently enjoining him from committing future violations
of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1
and 13b2-2. Palumbo also agreed to pay a civil money penalty of $10,000.
The litigation is pending against Ferrarini, Rumignani, Miller and Bailine.
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