Compliance September 9, 2009

SEC Finds More Churchgoing Fraudsters

A couple in Charlotte, North Carolina, allegedly bilked $32.5 million by persuading investors to cash out of their retirement funds and invest in fake investments promising huge returns.

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The Securities and Exchange Commission (SEC) announced fraud charges and an asset freeze against Sidney and Charlotte Hanson, who solicited approximately 500 investors at church gatherings and other face-to-face meetings.

The SEC said the Hansons told investors they were investing in private loan agreements offered through a dozen companies they controlled, collectively called Queen Shoals Entities. Through marketing and a sales force of about 45 consultants, the couple promised investors annual returns ranging from 8% to 30%. The SEC Web site shows a screen shot of the Queen Shoals Web site, which claims that the investments are safe and “not exposed to the fluctuation or manipulation of the stock market.”

However, very little of the funds were invested, and were instead spent on risky private investment opportunities, personal expenses, and sales commissions to consultants, according to the SEC. The Hansons, both in their 60s, were able to convince other older investors to use their retirement savings unwisely.

“As senior citizens themselves, the Hansons knew exactly how to appeal to other older investors, saying all the right things to convince victims to make all the wrong decisions with their retirement savings,” said Cheryl J. Scarboro, associate director in the SEC’s Division of Enforcement.

The SEC complaint, filed in the U.S. District Court for the Western District of North Carolina, charges the Hansons and Queen Shoals Entities with violating the antifraud and registration provisions of the federal securities laws. The defendants have agreed to settle the SEC’s charges, without admitting or denying the allegations, and agreed to an asset freeze.

The couple also faces charges from the Commodity and Futures Trading Commission. Furthermore, the U.S. Attorney’s Office for the Western District of North Carolina filed an information and plea agreement in which Sidney Hanson pleaded guilty to securities fraud, mail fraud, and promotion of money laundering. He faces a minimum 12-year prison sentence.

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Compliance September 9, 2009

NYAG Back to Hounding BofA

New York Attorney General Andrew Cuomo’s office is again requesting information from Bank of America (BofA) as part of an ongoing investigation into its January 1 acquisition of Merrill Lynch.

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In a letter to BofA yesterday, the State of New York Office of the Attorney General (NYAG) said it has found at least four instances in the fourth quarter of 2008 where BofA failed to disclose material non-public information to shareholders. The information is related to losses suffered by Merrill Lynch and bonuses paid to Merrill Lynch executives before the merger (see “Cuomo Says Merrill Accelerated Bonus Payments”).

Cuomo’s office charged that BofA continues to improperly cite attorney-client privilege as its reason to not disclose information to shareholders and requested that Bank of America reconsider keeping that information hidden from the investigation. The NYAG requested BofA’s decision by September 14. The letter said: “Otherwise, we will proceed with our charging decisions without giving credit to the advice of counsel defenses that Bank of America has not permitted us to test.”

BofA is also awaiting judicial approval of a $33-million settlement with the Securities and Exchange Commission (SEC) over disclosures of the bonuses paid to Merrill executives. A judge seemed skeptical of BofA’s use of attorney-client privilege and has requested more information from BofA and the SEC (see “Judge Still Not Satisfied with BofA, SEC Settlement”).

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