U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17776 / October 8, 2002
Accounting and Auditing Enforcement Release No. 1643 / October 8, 2002
Securities and Exchange Commission v. A.C.L.N., Ltd.; Abderrazak "Aldo" Labiad; Joseph J.H. Bisschops; Alex de Ridder; Pearlrose Holdings International S.A.; Emerald Sea Marine, Inc.; Scott Investments S.A.; BDO International (Cyprus); Minas Ioannou; and Christakis Ioannou (Defendants); and Scandinavian Car Carriers A/S; Pandora Shipping, S.A.; Sergui, Ltd.; Westbound Development Corp.; Maverick Commercial, Inc.; and DCC Limited (Relief Defendants), Civ. No. 02 CIV 7988 (S.D.N.Y.)
SEC Files Fraud Action Against ACLN, Ltd., Three Officers and the Company's Auditing Firm, BDO Cyprus
Action Seeks Repatriation of $45 Million in Frozen Funds
Today the Commission filed a civil injunctive action in the United States District Court for the Southern District of New York against ACLN, Ltd., a Cyprus corporation operating from Antwerp, Belgium that purportedly ships used vehicles to North and East Africa and sells new cars in that region. The complaint alleges that, from 1998 through the third quarter of 2001, ACLN was the vehicle for an exceptionally bold and elaborate financial fraud that resulted in losses of hundreds of millions of dollars to investors in the U.S. and abroad. Defendants Abderrazak "Aldo" Labiad, Joseph J.H. Bisschops and Alex de Ridder, who controlled the Company, are alleged by the Commission to have constructed a fraudulent scheme to represent ACLN as a substantial business entity with escalating profits when it was, in fact, little more than a shell company. From 1998 through 2001, specifically, they caused ACLN to grossly misrepresent its revenues and income, fabricate an entire line of business, and claim ownership of assets that did not exist or it did not own. The Commission alleges that Labiad, Bisschops and de Ridder exploited their financial fraud by selling over $80 million in ACLN stock at inflated prices.
The common stock of ACLN was traded on the Nasdaq National Market System and, additionally, on the New York Stock Exchange until March 18, 2002, when it was de-listed immediately following a Commission trading suspension. ACLN's market capitalization reached approximately $700 million in September 2001, but has subsequently declined to a nominal amount.
The Commission's complaint names ACLN's former president, Labiad, former CEO, Bisschops, and former COO Ridder; three offshore corporations through which those individuals are alleged to have engaged in fraudulent stock transactions: Emerald Sea Marine, Scott Investments and Pearlrose Holdings; and six relief defendants alleged to be holding proceeds of the illegal conduct. Also named are ACLN's former auditors, the Cyprus affiliate of BDO International ("BDO Cyprus"), and two BDO Cyprus partners, Minas Ioannou and Christakis Ioannou, all of whom have agreed to settle this matter. The Commission and agencies of other governments working in cooperation with it have frozen approximately $45 million in bank accounts in Denmark, the Netherlands, Luxembourg and Monaco, which the Commission will seek to repatriate for distribution to defrauded shareholders.
According to the Commission's complaint:
- In its Commission filings and press releases in 2000 and 2001, ACLN significantly overstated the volume of its used car transactions, and claimed substantial revenue from a purported new car sales operation that, in fact, never existed;
- In a particularly brazen aspect of the fraud, ACLN grossly misrepresented the amount of its cash assets from 1998 through the third quarter of 2001. For example, in its financial statements for the nine months ending September 30, 2001, ACLN claimed to have bank deposits of over $117 million. The actual balance at that time was less than $2 million. This deception was furthered through the creation of forged bank documents that ACLN provided to its auditors;
- ACLN does not own the largest physical asset on its balance sheet, the car-carrier vessel the Sea Atef, and, in any event, significantly inflated the vessel's value;
- ACLN's auditors, BDO International (Cyprus), furthered the scheme by failing to conduct even the most basic audit procedures that would have detected ACLN's financial fraud and forgery of bank account statements. BDO Cyprus issued audit reports for fiscal years 1995 through 2000 that falsely stated that its audits were conducted in accordance with Generally Accepted Auditing Standards and that ACLN's financial statements were fairly presented in conformity with Generally Accepted Accounting Principles. The audit reports also falsely represented BDO Cyprus to be independent of its audit client when, in fact, its independence was compromised because an affiliate of BDO Cyprus prepared ACLN's books and records;
- Defendants Labiad, Bisschops and de Ridder exploited the success of their financial fraud by selling over $80 million of their holdings of ACLN stock at inflated prices. To conceal their role in these transactions, and make the proceeds of the fraud difficult to trace, they acted through a complicated web of offshore corporations and bank accounts, created to facilitate the scheme; and
- These stock sales were conducted without compliance with the registration requirements of the securities laws and were not publicly disclosed, as required by law.
The Complaint alleges that through these actions:
- ACLN, Labiad, Bisschops and de Ridder violated Sections 5 and 17(a) of the Securities Act of 1933 ("Securities Act"), and violated and/or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1 and 13a-16 promulgated thereunder. Further, defendants Labiad, Bisschops and de Ridder violated Sections 13(b)(5) and 13(d) of the Exchange Act and Rules 13b2-1, 13d-1 and 13d-2 thereunder, and Bisschops violated Exchange Act Rule 13b2-2;
- Pearlrose Holdings International S.A., Emerald Sea Marine, Inc., and Scott Investments S.A., acting as nominees of Labiad, Bisschops and de Ridder, violated Section 5 of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
- BDO International (Cyprus) and Minas Ioannou violated Section 17(a) of the Securities Act, and, along with Christakis Ioannou, violated and/or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-16 promulgated thereunder; and
- Relief defendants Scandinavian Car Carriers A/S, Pandora Shipping, S.A., Sergui, Ltd., Westbound Development Corp., Maverick Commercial, Inc., and DCC Limited are in possession of funds derived from the illegal conduct of Labiad, Bisschops and de Ridder that are subject to disgorgement for the benefit of defrauded investors.
In its action, the Commission seeks: disgorgement of ill-gotten gains and prejudgment interest thereon from all defendants; civil money penalties from all defendants except the relief defendants, ACLN, BDO Cyprus, Minas and Christakis Ioannou; injunctions from all defendants (except the relief defendants) against future violations of those sections of the securities laws they are alleged to have violated; and officer and director bars and monetary penalties under the Insider Trading Sanctions Act as to Labiad, Bisschops and de Ridder.
BDO Cyprus, Minas Ioannou and Christakis Ioannou have agreed to settle the Commission's claims against them by consenting to the entry of an order of the U.S. District Court enjoining them from violating or aiding and abetting violations of the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws: Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-16 thereunder. They have also consented to the entry of an order, to be based on the injunction, permanently suspending them from appearing or practicing before the Commission as accountants. In addition, BDO Cyprus will disgorge $62,196, which includes all fees received as a result of its engagements to audit the financial statements of ACLN, with prejudgment interest.
The Commission gratefully acknowledges the assistance of the following law enforcement authorities in its investigation of this matter: the United States Attorney for the Southern District of New York; INTERPOL-Washington; the Belgian Judicial Authorities, including the Office of the Investigating Judge, Antwerp Court, the Prosecuting Officer for Financial Crimes, Antwerp, and the Belgian Federal Police, Money Laundering Unit, Antwerp; the Danish Financial Supervisory Authority; the Danish Ministry of Justice; the Danish Public Prosecutor for Serious Economic Crime; the Luxembourg Commission de Surveillance du Secteur Financier; the Tribunal de Première Instance de Monaco; the Banking, Insurance, and Securities Commission of Norway; the Netherlands Authority for the Financial Markets; the Netherlands Public Prosecution Service, Criminal Assets Deprivation Bureau; and the United Kingdom Financial Services Authority.
SEC Complaint in this matter