U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21107 / June 25, 2009
Accounting and Auditing Enforcement Release No. 3001 / June 25, 2009
Securities and Exchange Commission v. Mark Cocchiola and Steven Venechanos, Civil Action No. 05-CV-3450-SRC (D.N.J.)
Securities and Exchange Commission v. Jack Gaglio, Civil Action No. 05-CV-1195-SRC (D.N.J.)
Securities and Exchange Commission v. Robert Quattrone, et al., Civil Action No. 04-CV-33-SRC (D.N.J.)
SEC RESOLVES FRAUD ACTION AGAINST MARK COCCHIOLA AND STEVEN VENECHANOS, FORMER CEO AND CFO OF SUPREMA SPECIALTIES, AND 11 OTHER DEFENDANTS, IN CONNECTION WITH $700 MILLION ROUND-TRIPPING SCHEME
The Securities and Exchange Commission announced today that on June 3, 2009, the Honorable Stanley R. Chesler, of the United States District Court for the District of New Jersey, entered Final Judgments against Mark Cocchiola, former CEO, president, and chairman of the board of directors of New Jersey-based Suprema Specialties, Inc. (“Suprema”), and Steven Venechanos, former CFO, secretary, and director of the company. The Commission’s complaint against Cocchiola and Venechanos alleged that they violated the antifraud and other provisions of the federal securities laws through their participation in a multi-year financial fraud orchestrated by Suprema’s management. Without admitting or denying the allegations in the complaint, Cocchiola and Venechanos each consented to the entry of final judgments imposing full injunctive relief and permanent officer and director bars. The final judgments ordered Venechanos to pay $1,484,202 in disgorgement and $732,126.45 in prejudgment interest and Cocchiola to pay $4,834,565 and prejudgment interest in the amount of $2,446,852.74, which obligations were deemed satisfied by the prior entry of restitution orders against each defendant in the parallel criminal action captioned U.S. v. Cocchiola and Venechanos, No. CR05-533-SRC.
The Commission also announced today that on June 4, 2009, the Commission brought to a close related civil injunctive proceedings against eleven other defendants, listed below, whom the Commission alleged had participated in the Suprema financial fraud:
Each of the eleven above-listed individuals and entities had previously consented to the entry of judgments imposing full permanent injunctive relief and, in the case of the individuals, officer and director bars. These judgments had reserved the Commission’s right to apply to the court at a later time to determine disgorgement and civil penalties. In view of the restitution orders and other criminal sanctions subsequently imposed on these defendants in the parallel criminal case, the Commission has withdrawn its claims for additional disgorgement and civil penalties from these defendants. The Commission has also withdrawn its claims for additional relief against Van Sickell, who died in June 2008.
As detailed in prior releases, the Commission’s complaints in this matter alleged that Suprema engaged in fraudulent “round-tripping” transactions that resulted in total misstatements of Suprema’s reported revenue of between approximately 35% and over 60% in each of the 1999, 2000 and 2001 fiscal years, and in the first quarter of fiscal year 2002. The complaints further alleged that the scheme resulted in total misstatements of Suprema’s reported accounts receivable of 60% or more in each of the 1999, 2000 and 2001 fiscal years.
According to the complaints, the “round-tripping” transactions were effectuated through “circles” of entities, each of which included Suprema, a third-party “customer,” and a related “vendor.” As the complaints alleged, the customer and vendor in each circle tended to have a common owner. The complaints alleged that false paperwork was created documenting the fictitious transactions, and checks were circulated in purported payment for the transactions. Participants allegedly received a kick-back or “commission” on each transaction, the funds for which were generally drawn from Suprema’s line of credit, which increased as Suprema’s accounts receivable grew. With rare exceptions, the complaint alleged, no goods were actually sold, purchased, or exchanged in these transactions.
The Commission alleged that Cocchiola and Venechanos were aware of, approved of, and participated in the fraud from at least in or around February 2000. The Commission further alleged that Christensen was aware of improprieties in Suprema’s cheese transactions from at least 1998 and that, from August 2001 through his resignation in December 2001, he assumed responsibility for coordinating the flow of false invoices and checks in the round-tripping scheme. The Commission further alleged that, from December 2001 through February 2002, Vieira assumed responsibility for coordinating the flow of false invoices and checks in the round-tripping scheme. Finally, the Commission further alleged that Battaglia, CMM, LNN, Packing Products, and WCC participated as customers and vendors in the round-tripping transactions and that Fransen, Gaglio, Quattrone, and Vieira controlled these entities and received commissions in return for their participation.
In related proceedings, Christensen, Fransen, Gaglio, Quattrone, Van Sickell, and Vieira pled guilty to criminal informations filed by the United States Attorney for the District of New Jersey, including counts of securities fraud and conspiracy to commit securities fraud. All of these defendants (except Van Sickell, who died prior to sentencing) were sentenced to terms of probation or imprisonment and were ordered jointly and severally to pay varying amounts of restitution that totaled in excess of $100 million. (U.S. v. Arthur Christensen, CR07-32 (D.N.J.); U.S. v. Lawrence Fransen, CR04-10 (D.N.J.); U.S. v. Jack Gaglio, CR05-141 (D.N.J.); U.S. v. Robert Quattrone, CR04-13 (D.N.J.); U.S. v. John Van Sickell, CR04-12 (D.N.J.); and U.S. v. George Vieira, CR04-11 (D.N.J.)). Also in related proceedings, Cocchiola and Venechanos were convicted by a jury on 38 felony counts of conspiracy, bank fraud, false statements to the Commission, mail fraud and wire fraud prosecuted by the United States Attorney for the District of New Jersey. Cocchiola and Venechanos were sentenced to 15 and 8 years of imprisonment, respectively, and were ordered joint and severally to pay over $115 million in restitution. (U.S. v. Mark Cocchiola and Steven Venechanos, CR05-533 (D.N.J.)).
The Commission acknowledges the assistance of the United States Attorney’s Office for the District of New Jersey, the Federal Bureau of Investigation, and the U.S. Food and Drug Administration in its investigation. The Commission’s investigation of this matter is now concluded.