Litigation Release No. 18300 / August 21, 2003
SEC CHARGES IRVING DAVID WITH EMBEZZLEMENT AND FILING A FALSE SARBANES-OXLEY CERTIFICATION; CRIMINAL CHARGES ALSO ANNOUNCED
Securities and Exchange Commission v. Irving Paul David, 03 Civ. 6305 (S.D.N.Y.)(KMW)
The Securities and Exchange Commission announced today that it filed an enforcement action charging Irving Paul David, formerly an officer of two investment companies, with embezzlement, breach of fiduciary duty, and filing a false certification required by the Sarbanes-Oxley Act of 2002. This action is the first Commission enforcement proceeding involving an investment company Sarbanes-Oxley certification. Simultaneously, the Office of the United States Attorney for the Southern District of New York announced David's indictment on criminal charges arising from the alleged embezzlement.
The Commission's Complaint, filed in the United States District Court for the Southern District of New York, alleges that David, formerly an employee of Citigroup Global Markets, Inc., f/k/a Salomon Smith Barney, Inc., ("Citigroup Global Markets"), stole funds from two affiliated registered investment companies: Consulting Group Capital Markets Funds (the "Consulting Group Fund"), and Smith Barney World Funds Inc. (the "Smith Barney World Fund") (collectively, the "Funds"). In addition, at the very time that he was embezzling from the Funds, David signed a certification pursuant to the Sarbanes-Oxley Act in which he falsely stated that he had disclosed to the Consulting Group Fund's auditors and audit committee any fraud, whether material or not, involving management, when in fact he had made no such disclosure.
The Complaint alleges as follows:
At the time of the misconduct, David was the treasurer and chief financial officer of the Consulting Group Fund and controller of the Smith Barney World Fund, two registered investment companies. From January 2001 through January 2003, David engaged in two schemes to embezzle money from the Funds. In one scheme, David embezzled funds paid to the Consulting Group Fund in connection with the settlement of class action lawsuits or other corporate actions in which the Consulting Group Fund was a participant and was entitled to receive a payment. In the second scheme, David redeemed shares out of an "error account" that had been established for the Smith Barney World Fund at its transfer agent and embezzled the proceeds. As a result of these two schemes, David embezzled a total of approximately $47,529 from the Funds, of which $14,529 has not been repaid.
Rule 30a-2 promulgated under the Securities Exchange Act of 1934 ("Exchange Act") and the Investment Company Act of 1940 ("Investment Company Act"), pursuant to the Sarbanes-Oxley Act, required that David, as treasurer and chief financial officer of the Consulting Group Fund, certify that he had disclosed to the Fund's auditors and audit committee "any fraud, whether or not material, that involves management or other employees who have a significant role in the investment company's internal controls[.]"
On October 28, 2002, David signed the Rule 30a-2 certification of Consulting Group Fund's Form N-SAR for the six months ended August 31, 2002, certifying that he had made the required disclosure of any management fraud, when in fact he had embezzled approximately $10,703 from the Consulting Group Fund during the reporting period and had not disclosed this fraud. This false certification was filed with the Commission along with the Consulting Group Fund's Form N-SAR. Form N-SAR is a filing that is required under both the Investment Company Act and the Exchange Act.
David, age 42, is a resident of Staten Island, New York. David was fired by Citigroup Global Markets in January 2003, shortly after his embezzlement was discovered.
The Complaint charges David with violating Section 15(d) of the Exchange Act and Sections 34(b) and 37 of the Investment Company Act, and with breach of fiduciary duty within the meaning of Section 36(a) the Investment Company Act. The Complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. The litigation is pending.
