Two Former Swisher Hygiene Inc. Executives Indicted on Securities Fraud and Obstruction of Justice Charges

Former Senior Level Corporate Employee to Plead Guilty to Securities Fraud Conspiracy

A federal grand jury in Charlotte, North Carolina, has indicted two former executives of Swisher Hygiene Inc. (Swisher) on securities fraud and obstruction of justice charges, announced U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina.  Joining in today’s announcement is Special Agent in Charge John A. Strong of the FBI’s Charlotte Division.

Swisher’s former chief financial officer, Michael Kipp, 61, of Charlotte, and certified public accountant and Swisher’s former director of external reporting, Joanne Viard, 36, of Santa Rosa Beach, Florida, have been charged in connection with a securities fraud conspiracy allegedly carried out at Swisher throughout fiscal year 2011 and a subsequent obstruction of justice scheme in 2012.  The federal indictment was returned late afternoon and Kipp and Viard are scheduled to make their initial appearances in federal court on Tuesday, Oct. 20, 2015.

“My office has a long record of holding corporate executives accountable for their criminal conduct,” said U.S. Attorney Rose.  “Today’s charges continue to make clear that regardless of title or position, my office will prosecute corporate executives who engage in financial fraud schemes that defraud the investing public and undermine the integrity of our financial markets.  We will work diligently to uncover such fraud, no matter how pernicious the cover-up.”

“As alleged in the indictment, these corporate executives were entrusted to fairly and accurately report the earnings of their employer; instead, they manipulated and falsified the numbers putting the hard earned money of shareholders at risk and undermining the laws in place to protect our financial markets,” said Special Agent in Charge Strong.  “The FBI will root out corporate fraud wherever it exists and ensure those who engage in such practices are held accountable.”

Today’s charges follow the Oct.7, 2015, announcement that Swisher had entered into a deferred prosecution agreement with the United States, in which Swisher accepted and acknowledged responsibility for the conduct of its former employees and agreed to pay a $2 million penalty.  Formal charges were also filed on Oct. 7, 2015, against Swisher’s former senior-level accounting employee, John Pierrard, who is scheduled to enter his guilty plea on Tuesday, Oct. 20, 2015, for his role in the alleged accounting fraud conspiracy.

According to allegations contained in the indictment and documents filed in related cases:

Throughout fiscal year 2011, Kipp, Viard and their conspirators engaged in an accounting fraud scheme to ensure that Swisher’s reported earnings had met or exceeded executive management’s forecasts, and to conceal the existence of the fraud from Swisher’s auditors, Wells Fargo, the investing public and others.  Some of the fraudulent methods  Kipp, Viard and their conspirators used to manipulate Swisher’s books and records to fraudulently increase the company’s income included reducing expenses by moving them from the company’s profit and loss statement to its balance sheet as well as engaging in what is commonly referred to as “cookie jar” accounting.

The accounting fraud scheme began to unravel when Swisher’s then-controller pushed back on making a fraudulent entry during the year end close.  The controller wrote in an email, “I’ll run it by BDO [Swisher’s auditors] so we’re on the same page,” to which Kipp responded, “You’ll run it by me since I’m the chief accounting officer. I’m out of patience with this.”  The controller persisted in his refusal to book the fraudulent entry and Kipp fired him.  Swisher’s audit committee learned of the controller’s allegations and promptly commissioned an independent internal investigation.  After the allegations of fraud were reported, Kipp and Viard almost immediately began to engage in misleading conduct to conceal the accounting fraud conspiracy and to obstruct justice by lying to the investigators hired by the audit committee.

Approximately 11 months following the announcement of the investigation, Swisher filed restated financial reports for the first three quarters of 2011 and filed its Form 10-K for the 2011 year.  The restatement reflected, among other things, that Swisher had substantially overstated its earnings and significantly understated its losses during the relevant time period.

The indictment charges Kipp and Viard each with one count of conspiracy to commit securities fraud, to falsify books, records and accounts of Swisher, and to make misleading statements to Swisher’s auditors and accountants; one count of securities fraud; one count of wire fraud; and one count of obstruction of justice.  Kipp is also charged with one count of bank fraud.  The conspiracy charge carries a maximum prison term of five years.  The securities fraud, wire fraud and obstruction offenses each carry a maximum prison term of 20 years.  The bank fraud charge carries a maximum prison term of 30 years.

The details contained in the indictment are allegations.  The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

U.S. Attorney Rose praised the FBI for its outstanding work in leading the ongoing investigation that resulted in the filing of these charges.  Rose also thanked the U.S. Securities and Exchange Commission for their assistance in the investigation.

Assistant U.S. Attorneys Mark T. Odulio and Maria K. Vento of the U.S. Attorney’s Office in Charlotte are assigned to this case.

Former Bank of America Executive Pleads Guilty for Role in Conspiracy and Fraud Involving Investment Contracts for Municipal Bonds Proceeds

A former Bank of America executive pleaded guilty today for his participation in a conspiracy and scheme to defraud related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.

Phillip D. Murphy, the former managing director of Bank of America’s municipal derivatives products desk from 1998 to 2002, pleaded guilty today before U.S. District Judge Max O. Cogburn Jr. in the U.S. District Court for the Western District of North Carolina to participating in a fraud conspiracy and wire fraud scheme with employees of  Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, a broker of municipal finance contracts, and others.  Murphy also pleaded guilty to conspiring with others to make false entries in the reports and statements originating from his desk, which were sent to bank management.

Murphy was indicted by a grand jury on July 19, 2012.  According to the indictment, Murphy  participated in a wire fraud scheme and separate fraud conspiracies that began as early as 1998 and continued until 2006.

“By manipulating what was intended to be a competitive bidding process, the conspirators defrauded municipalities, public entities and taxpayers across the country,” said Brent Snyder, Deputy Assistant Attorney General of the Antitrust Division’s Criminal Enforcement Program.  “Today’s guilty plea reaffirms the Antitrust Division’s continued efforts to hold accountable those who corrupt and subvert the competitive process in our financial markets.”

Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issue, to raise money for, among other things, public projects.  Public entities typically hire a broker to conduct a competitive bidding process for the award of the investment agreements and often for other municipal finance contracts.

According to the charges, Murphy conspired with CDR and others to increase the number and profitability of investment agreements and other municipal finance contracts awarded to Bank of America.  Murphy won investment agreements through CDR’s manipulation of the bidding process in obtaining losing bids from other providers, which is explicitly prohibited by U.S. Treasury regulations.  As a result of the information, various providers won investment agreements and other municipal finance contracts at artificially determined prices.  In exchange for this information, Murphy submitted intentionally losing bids for certain investment agreements and other contracts when requested, and, on occasion, agreed to pay or arranged for kickbacks to be paid to CDR and other co-conspirator brokers.

Murphy and his co-conspirators misrepresented to municipal issuers that the bidding process was competitive and in compliance with U.S. Treasury regulations.  This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process.  Such conduct placed the tax-exempt status of the underlying bonds in jeopardy.

“Mr. Murphy’s actions undermined the public’s trust when he conspired to manipulate a competitive bidding process,” said Richard Weber, Chief, IRS Criminal Investigation (IRS-CI).  “IRS-CI has experienced great success in unraveling significant and complex financial frauds as we work in close collaboration with our law enforcement partners.”

“Mr. Murphy ripped off hard working American taxpayers and cash-strapped municipalities all in pursuit of his own lucre,” said George Venizelos, Assistant Director in Charge of the FBI’s New York Field Office.  “Let this serve as a reminder to others who are entrusted to act in the public’s best interest; your lack of candor won’t go without notice.”

Murphy pleaded guilty to two counts of conspiracy and one count of wire fraud.  The fraud conspiracy carries a maximum penalty of five years in prison and a $250,000 fine.  The wire fraud charge carries a maximum penalty of 30 years in prison and a $1 million fine.  The false bank records conspiracy carries a maximum penalty of five years in prison and a $250,000 fine.  The maximum fines for each of these offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Including Murphy, a total of 17 individuals have been convicted or pleaded guilty.  Additionally, one company has pleaded guilty.

The prosecution is being handled by Steven Tugander, Richard Powers, Eric Hoffmann, Patricia Jannaco and Stephanie Raney of the Antitrust Division.  Assistant U.S. Attorneys Kurt Meyers, Michael Savage and Mark Odulio of the U.S. Attorney’s Office for the Western District of North Carolina have also provided valuable assistance in this matter.  The guilty plea announced today resulted from a wide-ranging investigation conducted by the Antitrust Division’s New York office, the FBI and the IRS-CI.  The division coordinated its investigation with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.

Today’s guilty plea is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorney’s offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants.   For more information on the task force, visit www.stopfraud.gov .

North Carolina Commodities Firm Owner Sentenced to 36 Months in Prison for Multimillion-dollar Fraud

The principal and co-owner of North Carolina-based Integra Capital Management LLC, was sentenced today to serve 36 months in prison for his role in a scheme to defraud commodities trading investors of more than $3.2 million, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney of the Western District of North Carolina Anne M. Tompkins.
Nicholas Cox, 35, of Lexington, N.C., was sentenced by U.S. District Judge Max O. Cogburn Jr., in the Western District of North Carolina. In addition to his prison term, Cox was sentenced to serve three years of supervised release and ordered to pay $1,981,477 in restitution.
On Dec. 22, 2012, Cox pleaded guilty in the Western District of North Carolina to one count of conspiracy to commit mail fraud, five counts of mail fraud and one count of conspiracy to commit money laundering.
According to court documents, between September 2006 and January 2009, Cox and his co-conspirator, Rodney Whitney, 50, of Archdale, N.C., the co-owner of Integra, engaged in a scheme to defraud investors in commodity trading pools operated by the firm. Integra was established purportedly for the purpose of pooling investors’ funds in commodity pools, and investing in commodity futures and foreign currency exchange trading. According to court documents, Cox and Whitney obtained and misappropriated more than $3.2 million in investor funds and fabricated account statements and tax forms to conceal their fraud.
According to court documents, Cox and Whitney falsely represented, among other things, that Integra’s managers had more than 30 years of combined market experience; that Integra paid dividends of two to five percent of the investor’s initial investment, which was derived from Integra’s trading profits; and investors could remove their principal investments within five days upon giving notice to Integra. According to court documents, Cox and Whitney used the money invested by later investors to pay the monthly investment returns they had promised to earlier investors, to purchase real estate, to fund other business ventures and to purchase automobiles and other personal goods and services.
On March 21, 2011, Whitney pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering. He was sentenced on Jan. 7, 2013, to 60 months in prison for his role in the scheme.
The case was prosecuted by Trial Attorney Luke Marsh of the Criminal Division’ s Fraud Section and Benjamin Bain-Creed and Kenny Smith of the U.S. Attorney’s Office for the Western District of North Carolina. The case was investigated by the U.S. Postal Inspection Service.
This prosecution was done in coordination with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov .

North Carolina Commodities Firm Owner Sentenced to 36 Months in Prison for Multimillion-dollar Fraud

The principal and co-owner of North Carolina-based Integra Capital Management LLC, was sentenced today to serve 36 months in prison for his role in a scheme to defraud commodities trading investors of more than $3.2 million, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney of the Western District of North Carolina Anne M. Tompkins.

 Nicholas Cox, 35, of Lexington, N.C., was sentenced by U.S. District Judge Max O. Cogburn Jr., in the Western District of North Carolina. In addition to his prison term, Cox was sentenced to serve three years of supervised release and ordered to pay $1,981,477 in restitution.

On Dec. 22, 2012, Cox pleaded guilty in the Western District of North Carolina to one count of conspiracy to commit mail fraud, five counts of mail fraud and one count of conspiracy to commit money laundering.

According to court documents, between September 2006 and January 2009, Cox and his co-conspirator, Rodney Whitney, 50, of Archdale, N.C., the co-owner of Integra, engaged in a scheme to defraud investors in commodity trading pools operated by the firm.  Integra was established purportedly for the purpose of pooling investors’ funds in commodity pools, and investing in commodity futures and foreign currency exchange trading.  According to court documents, Cox and Whitney obtained and misappropriated more than $3.2 million in investor funds and fabricated account statements and tax forms to conceal their fraud.

According to court documents, Cox and Whitney falsely represented, among other things, that Integra’s managers had more than 30 years of combined market experience; that Integra paid dividends of two to five percent of the investor’s initial investment, which was derived from Integra’s trading profits; and investors could remove their principal investments within five days upon giving notice to Integra.  According to court documents, Cox and Whitney used the money invested by later investors to pay the monthly investment returns they had promised to earlier investors, to purchase real estate, to fund other business ventures and to purchase automobiles and other personal goods and services.

On March 21, 2011, Whitney pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering.  He was sentenced on Jan. 7, 2013, to 60 months in prison for his role in the scheme.

The case was prosecuted by Trial Attorney Luke Marsh of the Criminal Division’ s Fraud Section and Benjamin Bain-Creed and Kenny Smith of the U.S. Attorney’s Office for the Western District of North Carolina. The case was investigated by the U.S. Postal Inspection Service.

 

This prosecution was done in coordination with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov .