SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17839 / November 14, 2002
Securities and Exchange Commission v. Miriam Santos, Michael F. Hollendoner and Peter J. Burns, Civil Action No. 02C 8236 (N.D. Ill.) (JBZ)
The Securities and Exchange Commission (Commission) today announced that it had filed a civil action in the United States District Court for the Northern District of Illinois against Miriam Santos (Santos), the former Treasurer (City Treasurer) of the City of Chicago (City) and Peter J. Burns (Burns) and Michael F. Hollendoner (Hollendoner), for perpetrating a secret, fraudulent cash-for-business scheme when Santos was City Treasurer.
The Commission's Complaint alleges that from 1995 to 1999, while employed as registered representatives associated with registered broker-dealers approved to do business with the City, Burns and Hollendoner secretly made thousands of dollars in cash payments to Santos. The Complaint also alleges that, in connection with, and as a result of their cash payments to Santos, Burns and Hollendoner received thousands of dollars in compensation from City business they otherwise would not have earned. Burns and Hollendoner were and had been, for years, among the City's top brokers, and had been earning substantial compensation from City business. Santos knew these facts. The Complaint also alleges that, beginning in about 1995, Santos told Burns and Hollendoner that, if they wished to remain among the City's top brokers, they were required to raise specified campaign contributions for her and personally make up any shortfall in the amounts they raised. The Complaint also alleges that, as a result, from in or about 1995 through in or about 1998, directly or indirectly, Burns and Hollendoner secretly gave Santos thousands of dollars in cash. Burns and Hollendoner forwarded the cash to Santos through her first deputy. The Complaint also alleges that Santos used the funds provided by Burns and Hollendoner for her own personal, political and financial benefit, including to purchase $7,500 worth of office furniture for her "Santos for Attorney General" campaign headquarters in or about March 1998. Subsequently, to in or about May 1999, in connection with and as a result of their secret payments to Santos of thousands of dollars in cash, Burns and Hollendoner were allocated securities transactions by the City Treasurer's Office that they otherwise would not have received. The Complaint also alleges that Burns and Hollendoner earned thousands of dollars in compensation from that investment business.
The Complaint also alleges that, in connection with the scheme, Santos, directly or indirectly, allocated investments of City funds based on her personal, political and financial interests and thereby corrupted the normal competitive process by which the City allocated its investment business.
The Complaint also alleges that, by virtue of her acts and practices, Santos breached the fiduciary duty she owed the City in the performance of her public duties. The Complaint also alleges that Burns and Hollendoner breached their duties to the City and their employers. The Complaint also alleges that, at no time, did Santos, Burns or Hollendoner disclose to the City that: Santos was secretly using her control over the City's investments to extract cash from Burns and Hollendoner; Burns and Hollendoner made payments to Santos; or Burns and Hollendoner made payments to Santos in order to retain a share of the City's investment business. The Complaint also alleges that the information that Santos, Burns and Hollendoner failed to disclose regarding their fraudulent scheme was material. The Complaint also alleges that, by their acts and practices, Santos, Burns, Hollendoner violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Commission seeks orders of permanent injunction, disgorgement plus prejudgment interest and civil penalties against each of the defendants. The Commission wishes to acknowledge and thank the U.S. Attorney's Office for the Northern District of Illinois and the City of Chicago for their assistance in this matter.