U.S. Securities and Exchange Commission
Litigation Release No. 18131 / May 12, 2003
Accounting and Auditing Enforcement Release No. 1779 / May 12, 2003
Former MCA CFO, Previously Sued by SEC for Involvement in MCA Financial and Offering Fraud, Sentenced to Prison Term and Restitution
United States v. Keith Pietila et al., Case No. 01-80514 (E.D. Mich.)
Securities and Exchange Commission v. Keith Pietila et al., Case No. 02-60082 (E.D. Mich.)
The Securities and Exchange Commission (Commission) announced that on May 8, 2003, the Honorable Judge John Feikens of the United States District Court for the Eastern District of Michigan sentenced Keith Pietila, former Chief Financial Officer of MCA Financial Corporation (MCA), to four years in prison for his involvement in a fraudulent scheme perpetrated by MCA. Judge Feikens also ordered Pietila to pay $256 million in restitution. Previously, on January 23, 2002, Pietila pled guilty to one count of mail fraud and one count of making false statements to the Commission.
Pietila 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 Pietila 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 Pietila 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 those defendants have pled guilty to federal charges arising out of MCA's fraudulent scheme but have not been sentenced yet. The remaining two defendants were indicted on federal charges of conspiracy, mail fraud, wire fraud, bank fraud and making false statements to the Commission on June 23, 2002. In addition, the Michigan Attorney General's Office has filed state felony securities fraud charges against Pietila 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.
For additional information, see Litigation Release No. 17484 (April 23, 2002).