SEC Charges Tyson Foods With FCPA Violations
The Securities and Exchange Commission today charged Tyson Foods Inc. with violating the Foreign Corrupt Practices Act (FCPA) by making illicit payments to two Mexican government veterinarians responsible for certifying its Mexican subsidiary's chicken products for export sales.
The SEC alleges that Tyson de Mexico initially concealed the improper payments by putting the veterinarians' wives on its payroll while they performed no services for the company. The wives were later removed from the payroll and payments were then reflected in invoices submitted to Tyson de Mexico by one of the veterinarians for "services." Tyson de Mexico paid the veterinarians a total of $100,311. It was not until two years after Tyson Foods officials first learned about the subsidiary's illicit payments that its counsel instructed Tyson de Mexico to cease making the payments.
Tyson Foods agreed to pay more than $5 million to settle the SEC's charges and resolve related criminal proceedings announced today by the Department of Justice.
"Tyson and its subsidiary committed core FCPA violations by bribing government officials through no-show jobs and phony invoices, and by having a lax system of internal controls that failed to detect or prevent the misconduct," said Robert Khuzami, Director of the SEC's Division of Enforcement.
According to the SEC's complaint filed in federal court in the District of Columbia, the scheme occurred during fiscal years 2004 to 2006. In order to export products, meat-processing facilities in Mexico must obtain certification through an inspection program administered by Mexico's federal government and supervised by an office in the Mexican Department of Agriculture. Tyson de Mexico participated in the program in order to export goods to Japan and other countries. The two veterinarians involved were responsible for certifying Tyson de Mexico's chicken products for export and served as official Mexican government veterinarians at Tyson de Mexico's facilities.
The SEC's complaint alleges that a Tyson de Mexico plant manager discovered the wives on the payroll in June 2004 and informed a Tyson Foods accountant of the situation. After subsequent meetings involving Tyson Foods and Tyson International officials, the payroll payments to the veterinarians' wives were replaced with invoice payments to one of the veterinarians. An executive of Tyson International approved this approach.
The SEC alleges that in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to implement a system of effective internal controls to prevent the salary payments to phantom employees and the payment of illicit invoices. The improper payments were improperly recorded as legitimate expenses in Tyson de Mexico's books and records and included in Tyson de Mexico's reported financial results for fiscal years 2004, 2005 and 2006. Tyson de Mexico's financial results were, in turn, a component of Tyson Foods' consolidated financial statements filed with the SEC for those years.
Without admitting or denying the SEC's allegations, Tyson Foods consented to the entry of a final judgment ordering disgorgement plus pre-judgment interest of more than $1.2 million and permanently enjoining it from violating the anti-bribery, books and records, and internal controls provisions of the FCPA, codified as Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. The proposed settlement is subject to court approval.
In a related criminal information filed today, the Department of Justice charged Tyson Foods with conspiring to violate the FCPA and violating the FCPA. DOJ and Tyson Foods agreed to resolve the charges by entering into a deferred prosecution agreement. Tyson Foods has agreed to pay a $4 million criminal penalty.
The SEC's case was investigated by Allen Flood and Conway Dodge of the SEC's Division of Enforcement. The SEC acknowledges the cooperation of Tyson Foods in the investigation. The SEC acknowledges and appreciates the assistance of the U.S. Department of Justice's Fraud Section and the Federal Bureau of Investigation.
For more information about this enforcement action, contact:
Cheryl J. Scarboro
Conway T. Dodge
Closed Meeting - Thursday, February 17, 2011 - 1:30 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, Feb. 17, 2011, will be: a litigation matter; institution and settlement of injunctive actions; institution and settlement of administrative proceedings; and other matters relating to enforcement proceedings.
At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.
In the Matter of Scott D. Farah
On Feb. 9, 2011, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (Order) against Scott D. Farah. The Order finds that Farah, age 47, was the president and founder of Financial Resources Mortgage, Inc. (FRM), a New Hampshire based mortgage brokerage company. His primary duties at FRM involved soliciting investor lenders and borrowers for construction and other loans. From March 1999 through October 2002, Farah was a registered representative of Franklin Financial Services Corporation (now known as American General Equity Services Corporation), a registered broker-dealer. From October 2002 through December 2002, Scott Farah was a registered representative of American General Securities, Inc., a registered broker-dealer and investment adviser. Farah is a resident of Meredith, NH.
The Order finds that on Oct. 4, 2010, Farah pled guilty to one count of mail fraud in violation of Title 18, United States Code, Section 1341 and one count of wire fraud in violation of Title 18, United States Code, Section 1343 before the United States District Court for the District of New Hampshire, in U.S. v. Scott Farah, Crim. Indictment No. 1:10-CR-44-01. Farah was sentenced on Jan. 19, 2011 to fifteen years in prison.
The Order finds that the counts of the criminal indictment to which Farah pled guilty alleged, inter alia, that Farah defrauded investors and obtained money and property by means of materially false and misleading statements and that he used the United States mails and the wires to solicit investments of money from investors by falsely representing that the money would be used for the exclusive purpose of funding specific private mortgages while instead using that money for numerous other undisclosed purposes. On April 9, 2010, the Commission filed a civil injunctive action in the United States District Court for the District of New Hampshire based on the same underlying facts as alleged in the criminal indictment.
Based on the above, the Order bars Scott D. Farah from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock. Scott D. Farah consented to the issuance of the Order without admitting or denying any of the allegations in the Order, except that he pled guilty to one count of mail fraud and one count of wire fraud before the United States District Court, District of New Hampshire. (Rel. 34-63882; File No. 3-14248)
Arthrocare Settles Revenue Recognition Charges
On Feb. 9, 2011, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order against ArthroCare Corporation. The Order finds that ArthroCare overstated and prematurely recognized revenue, primarily on the sale of SpineWands to certain of the company's agents and distributors. Most of these transactions occurred at or near quarter-end and were intended to help the company reach aggressive internal revenue targets and satisfy analysts' revenue expectations.
Based on the above, the Order finds that ArthroCare violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 13a-1, 13a-13 and 12b-20 thereunder. ArthroCare is ordered to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1 and 13a-13 thereunder. ArthroCare consented to the issuance of the Order without admitting or denying any of the findings except for the Commission's jurisdiction over ArthroCare and the subject matter.
In determining to accept ArthroCare's offer, the Commission considered remedial acts undertaken by ArthroCare and the substantial cooperation provided by the company in connection with the Commission's investigation. (Rel. 34-63883; AAE Rel. 3242; File No. 3-14249)
Delinquent Filers' Stock Registrations Revoked
The registrations of the registered securities of Tabatha V, Inc., and Technical Environment Solutions, Inc., have been revoked. Each had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, each violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocation was ordered in an administrative proceeding before an administrative law judge. (Rel. 34-63884; File No. 3-14126)
Court Enters Final Judgment Against Former Executive of American Italian Pasta Company David E. Watson Pursuant to Settlement
The Securities and Exchange Commission announced today that the United States District Court for the Western District of Missouri entered a Final Judgment on Jan. 28, 2011, in a civil action against David E. Watson, a former executive vice president of American Italian Pasta Co. (AIPC), a Kansas City, Missouri based producer and marketer of dry pasta in North America. Watson, without admitting or denying the Commission's allegations, consented to the entry of a Final Judgment that enjoins him from violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; finds him liable for disgorgement of $397,113, plus prejudgment interest in the amount of $189,464; orders him to pay a civil penalty of $75,000; and prohibits him from acting as an officer or director of a public company for 5 years.
According to the SEC's amended complaint in this matter, from AIPC's fiscal year 2002 through the second quarter of fiscal year 2004, Watson and others at AIPC engaged in a fraudulent scheme to mislead the investing public regarding the growth of AIPC's earnings and increase its stock price. The amended complaint alleged that AIPC fraudulently overstated its pre-tax net income, which caused its earnings per share to be overstated by approximately 23 percent in fiscal year 2002, 41 percent in fiscal year 2003, 59 percent in the first quarter of fiscal year 2004, and 8 percent in the second quarter of fiscal year 2004. [SEC v. David E. Watson, et al, Civ. No. 08-cv-00677-CV-W-GAF (W.D. Missouri)] (LR-21848)
Court Enters Final Judgment Against the Former President and CEO of Plasticon International, Inc., James N. Turek Pursuant to Settlement
The Securities and Exchange Commission announced today that the United States District Court for the Eastern District of Kentucky entered a Final Judgment on Feb. 4, 2011, in a civil action against James N. Turek (Turek), the former president and CEO of Plasticon International, Inc. (Plasticon), a Wyoming based manufacturer utilizing recycled plastics. Turek, without admitting or denying the Commission's allegations, consented to the entry of a Final Judgment that enjoins him from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; finds him liable for disgorgement of $2,600,000, plus prejudgment interest in the amount of $557,836.41; prohibits him from acting as an officer or director of a public company for 5 years; and bars him from participating in any offering of penny stock. Based on Turek's Statement of Financial Condition, the Court did not order Turek to pay a civil penalty, and waived payment of disgorgement and prejudgment interest.
According to the SEC's complaint in this matter, between at least January 2005 and April 2007, Turek fraudulently misappropriated for personal use at least $2.8 million of proceeds from a $8 - $11 million unregistered, multi-state securities offering by Plasticon, the public company controlled by Turek. Turek previously represented to investors that the proceeds from the offering would be used in Plasticon's business. The complaint further alleged that between at least May 2005 and April 2006, Turek and Plasticon made false and misleading press releases relating to Plasticon's financial condition, Plasticon's ownership of patents and the value of those patents, and Plasticon's outstanding shares. During this period Plasticon's stock price increased dramatically, apparently in response to those false and misleading press releases. Finally, the complaint alleged that Turek and Plasticon engaged in an unregistered, non-exempt distribution of Plasticon shares. [SEC v. James N. Turek, et al., Civ. No. 08CV-395 JBC (E.D. Kentucky)] (LR-21849)
Securities and Exchange Commission v. Algird M. Norkus and Financial Update, Inc.
The Securities and Exchange Commission announced that on Feb. 7, 2011, the United States Attorney's Office for the Northern District of Illinois filed a criminal information against Algird M. Norkus, a defendant in the Commission's above-captioned litigation. According to the information, Norkus engaged in mail fraud in violation of 18 U.S.C. §1341 in connection with a fraudulent scheme in which he raised more than $9 million from investors through the offer and sale of promissory agreements and misrepresented to investors the expected return of investments, the risk associated with the investments, the status of the investments and the use of proceeds obtained. United States v. Algird M. Norkus, Case No. 11-CR-50010 (N.D. Ill.) (Kapala, J.).
Previously, on Oct. 14, 2010, the Commission filed a civil injunctive action against Norkus and a corporation he controlled, Financial Update, Inc. (Financial Update), charging them with violating Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. On Oct. 19, 2010, the Honorable Robert M. Dow Jr. entered a Partial Final Judgment and Order of Permanent Injunction, Asset Freeze and Other Relief by consent against Norkus and Financial Update which, among other things, permanently enjoined them from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and ordered them to pay disgorgement and civil penalties in an amount to be determined at a later date.
In its Complaint, the Commission alleged that from as early as 1993 through at least July 2010, Norkus, acting as President of Financial Update, raised at least $6.4 million through the offer and sale of promissory notes issued by Financial Update. The complaint further alleged that Norkus told investors that their money would be used to fund Financial Update's business activities and promised investors interest rates between 11% and 24% per year. The complaint alleges that Norkus, however, used investor money to pay for personal expenses such as his mortgage and a car and used the money provided by newer investors to make interest and principal payments to earlier investors. Finally, the complaint alleges that Norkus never disclosed to investors that he was using their money in this fashion.
The Commission's investigation of this matter is continuing. [SEC v. Algird M. Norkus and Financial Update, Inc., Case No. 1:10-cv-06582 (N.D. Ill.) Dow, J.] (LR-21850)
INVESTMENT COMPANY ACT RELEASES
Riverside Casualty, Inc.
A notice has been issued giving interested persons until March 7, 2011, to request a hearing on an application filed by Riverside Casualty, Inc., a single purpose holding company, for an order to exempt it and its affiliates from certain provisions of the Investment Company Act. Riverside Casualty, Inc. will be an "employees' securities company" within the meaning of Section 2(a)(13) of the Act. (Rel. IC-29576 - February 8)
Immediate Effectiveness of Proposed Rule Changes
NASDAQ Stock Market has filed a proposed rule change (SR-NASDAQ-2011-017) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to modify fees for members using the NASDAQ Market Center. Publication is expected in the Federal Register during the week of February 14. (Rel. 34-63852)
A proposed rule change (SR-Phlx-2011-16) filed by NASDAQ OMX PHLX extending the pilot period to receive inbound routes of orders from Nasdaq Options Services has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 14. (Rel. 34-63873)
A proposed rule change filed by the Chicago Board Options Exchange to expand the Short Term Option Series Program (SR-CBOE-2011-012) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 14. (Rel. 34-63877)
A proposed rule change filed by the International Securities Exchange to expand the Short Term Option Series Program (SR-ISE-2011-08) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 14. (Rel. 34-63878)
Approval of Proposed Rule Changes
The Commission approved a proposed rule change submitted by NYSE Arca (SR-NYSEArca-2010-119), pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, to list and trade shares of the Teucrium WTI Crude Oil Fund. Publication is expected in the Federal Register during the week of February 14. (Rel. 34-63869)
The Commission approved a proposed rule change submitted by NASDAQ OMX PHLX (SR-Phlx-2010-183) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 expanding its Short Term Option Program. Publication is expected in the Federal Register during the week of February 14. (Rel. 34-63875)
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