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Fact Sheet: President’s Corporate Fraud Task Force Marks Five Years of Ensuring Corporate Integrity
WASHINGTON – President Bush created the President’s Corporate
Fraud Task Force on July 9, 2002 to restore public and investor confidence
America’s corporations following a wave of major corporate scandals. Since
its inception, the Task Force has compiled a strong record of combating
fraud and punishing those who violate the trust of employees and investors.
Today, the member agencies of the Task Force recognized these successes at
event commemorating its fifth anniversary.
Chaired by Deputy Attorney General Paul J. McNulty, the Task Force includes
senior Department of Justice officials, seven U.S. Attorneys, the heads of
Departments of Treasury and Labor, and the heads of the Securities and
Commission, Commodity Futures Trading Commission, Federal Energy Regulatory
Commission, Federal Communications Commission, United States Postal
Service, and the Department of Housing and Urban Development's Office of
Housing Enterprise Oversight. In the last five years, the task force has
remarkable results with 1,236 total corporate fraud convictions to date,
- 214 chief executive officers and presidents;
- 53 chief financial officers;
- 23 corporate counsels or attorneys; and
- 129 vice presidents.
Additionally, the Justice Department’s Asset Forfeiture and Money
Section has obtained more than one billion dollars in fraud-related
and has distributed that money to the victims of corporate fraud.
Prosecuting Corporate Criminals
Prosecutors and agency attorneys who are part of the Task Force have
charges for accounting fraud, securities fraud, insider trading, market
wire fraud, obstruction of justice, false statements, money laundering,
Corrupt Practices Act violations, stock option backdating and conspiracy,
The following cases highlight just a sample of the exhaustive prosecutorial
efforts of the U.S. Attorneys’ Offices and the Criminal and Tax Divisions
of the Department of Justice and investigators of the Federal Bureau of
the U.S. Postal Inspection Service, and the Internal Revenue
- Enron: Criminal charges were brought against 36
including 27 former Enron Corporation executives. Eighteen of those
charged pleaded guilty or were found guilty after trial, including Enron’s
chief executive officer, who was sentenced to 292 months in prison. The
guilty verdicts against the former chairman/CEO in two cases were dismissed
by abatement following his death. The Task Force seized over $100 million in
ill-gotten gains and the Department of Justice worked jointly with the
and Exchange Commission to obtain orders directing the recovery of more than
$450 million for the victims of the Enron frauds.
- Enterasys: Eight former officers of Enterasys Network
Inc., including the chairman and the chief financial officer, have pleaded
guilty or have been found guilty at trial of charges stemming from a
to artificially inflate revenue to increase, or maintain, the price of
stock. The fraud caused Enterasys to overstate its revenue by over $11
in the quarter ending Sept. 1, 2001. The fraud and its public disclosure
resulted in a loss to shareholders of about $1.3 billion. As a result,
Enterasys Chief Financial Officer Robert J. Gagalis was sentenced to 11
a half years in prison. Bruce D. Kay, formerly Enterasys’s Senior
Vice President of Finance, was sentenced to nine and a half years in
Robert G. Barber, a former Enterasys business development executive, was
to eight years in prison and fined $25,000. Hor Chong (David) Boey,
former finance executive in Enterasys’s Asia Pacific division, was
to three years in prison.
- Qwest: The former CEO of Qwest Communications
Inc., was convicted on insider-trading charges stemming from his sale of
than $100 million in Qwest stock while in possession of material,
regarding Qwest’s financial health. A former CFO pleaded guilty to insider
trading. The CEO will be sentenced on July 27, 2007.
- AEP: AEP Energy Services, Inc. (AEPES), a wholly owned
subsidiary of American Electric Power, Inc. (AEP), one of the nation’s
largest electric utilities, entered into a deferred prosecution agreement
in which it admitted that its
traders manipulated the natural gas market by knowingly submitting false
reports to market indices. AEPES agreed to pay a $30 million criminal
penalty. In separate actions, the Commodity Futures Trading Commission
filed a civil injunction against AEP and AEPES. The companies also agreed to
pay $21 million to the Federal Energy Regulatory Commission.
- PNC: PNC ICLC Corporation, a subsidiary of the PNC
Services Group, Inc., the seventh largest bank holding company in the
was charged with conspiracy to violate securities laws by fraudulently
$762 million in mostly troubled loans and venture capital investments from
PNC ICLC to off-balance-sheet entities. PNC entered into a deferred
agreement and PNC ICLC agreed to pay a total of $115 million in
- Cendant: The former chairman and vice-chairman of
Corp. were sentenced to 12 and a half years and 10 years respectively on
and securities fraud convictions arising out of a complex decade-long
fraud scheme. The fraud and its public disclosure caused a market
loss of $14 billion in one day, the largest market capitalization loss
at that time. Both defendants were ordered to pay $3.2 billion in
which is believed to be the largest restitution order ever imposed.
- Mercury Finance: Senior executives of Mercury Finance
a subprime lending company, were convicted on charges stemming from an
fraud scheme designed to inflate the company’s revenues and to understate
its delinquencies and charge-offs. The market capitalization of the
decreased by nearly $2 billion in one day after the fraud was made public.
The former CEO, treasurer and accounting manager each pleaded guilty and
sentenced to 10 years, 20 months, and 12 months, respectively. The former
CFO admitted his role and cooperated, but died before being charged.
- Hollinger: Four former executives of Hollinger
Inc., a newspaper holding company, including its CEO, chief operating
CFO, executive vice president and corporate counsel were recently found
of charges arising from a scheme to defraud the company and others
by misappropriating funds from non-compete agreements as part of the sale
of newspaper publishing groups. The COO pleaded guilty and cooperated.
- Homestore: Eleven executives and employees of
Inc., an Internet company, were convicted for their roles in a complex
inflation scheme. Homestore fraudulently paid itself millions of dollars in
trip deals” to meet quarterly revenue expectations. The defendants were
convicted of conspiracy, insider trading, wire fraud, and other securities
The former CEO was found guilty, sentenced to 15 years in prison, and
to pay $13 million in fines and restitution.
- Adelphia: Following a four-month trial, the former CEO
and CFO of Adelphia Communications Corp. were convicted of fraud charges
from their participation in a complex financial-statement fraud and
scheme that defrauded Adelphia’s shareholders and creditors of billions
of dollars. The former CEO and CFO were sentenced to 15 and 20 years in
Forfeitures netted over $715 million for distribution to victims.
- WorldCom: The former WorldCom CEO was convicted on
of conspiracy, securities fraud, and making false statements in SEC
filings, and was sentenced to 25 years’ incarceration.
- Refco: The former CEO of Refco, a commodities brokerage
firm, its former CFO, and a former 50 percent Refco owner were indicted
their roles in a scheme to hide massive losses sustained by the company in
the late 1990s. Public investor losses exceed $2 billion. The trial
is scheduled for October 2007.
- Impath: The former president and COO of Impath, Inc., a
biotechnology company, was convicted for his role in an accounting fraud
caused a decline in the company’s market capitalization in excess of
$260 million. He was sentenced to 42 months in prison and repayment of $50
million in restitution and $1.2 million in forfeiture.
- Monster: The former general counsel of recruitment
giant MonsterWorldwide, Inc. pleaded guilty in connection with a scheme to
fraudulently backdate millions of dollars’ worth of employee stock option
grants by creating the appearance that the options had been granted on
when Monster’s stock price had been at a periodic low point.
- Imclone: The former CEO of Martha Stewart Living
was convicted of conspiracy, obstruction of justice and false statement
and sentenced to five months in prison and five months of home
The charges arose from the former CEO’s efforts to obstruct federal
investigations into her trading in the securities of ImClone Systems, Inc.
The former Inclone CEO pleaded guilty to insider trading and was sentenced
to seven years in prison.
- Bayou: Three principals of Bayou Hedge Funds pleaded
to fraud and conspiracy charges based on their substantial and prolonged
of the value of the assets of the funds, to which investors had entrusted
over $450 million. Forfeitures netted $106 million for distribution to
- Prudential Securities: Three suspects at the Boston
of Prudential pleaded guilty, and under a deferred prosecution agreement,
Prudential agreed to pay a total of $600 million in penalties and
in connection with a “market timing” scheme. Using in-and-out
deposits and withdrawals of mutual funds, Prudential increased investors’
by following the rise and fall of foreign markets, which are several hours
ahead of U.S. markets.
- Network Associates: The former CFO of Network
Inc. was convicted by a jury on securities fraud and related charges
from a revenue recognition scheme in which Network Associates’ revenue
was overstated by more than $470 million.
- DVI: The CFO of DVI, a medical office finance company,
was sentenced to 30 months in prison for defrauding DVI’s finance
and banks of $50 million through the use of false corporate books and the
double pledging of assets.
- Beacon Rock: In the first U.S. prosecution of a market
timing scheme, hedge fund Beacon Rock Capital and its broker pleaded
to defrauding mutual funds and their shareholders of $2.4 million. The
used multiple account names and numbers, structured trades to avoid
and lied to mutual funds about the activity in order to market time
- Comverse: The former CFO of Comverse Technology, Inc.,
pleaded guilty to fraud charges arising from the backdating of option
and granting of option grants to fictitious employees at Comverse from
to 2006. The former general counsel also was convicted of participating in
the backdating scheme. The former CEO was arrested in Namibia in September
2006. The U.S. seeks his extradition.
- Dynegy: Three former executives of energy firm Dynegy
convicted of charges stemming from an accounting scheme in which they
the proceeds of $300 million in loans as revenue from operations rather
- El Paso: Four traders of energy firm
Paso Corporation and six traders of its Merchant Energy subsidiary were
on charges relating to false reporting of natural gas trading information.
Cooperating and Sharing Information across
The success of the Task Force goes beyond the number of convictions and
the past five years, the Task Force has increased cooperation among federal
agencies and leveraged the resources of the federal government to combat
fraud. These cooperative efforts include:
- Agencies’ increased ability to share information and work collectively
through joint training efforts.
- Shared information across member agencies about matters such as the use
of effective law enforcement tools to combat corporate fraud, development
of the law, and the analysis of trends in the marketplace.
- Improved training efforts that have given prosecutors and agency lawyers
the tools they need to do their jobs, and have encouraged prosecutors and
agency lawyers nationwide to bring streamlined cases that are
- Cooperation between member agencies to achieve justice through both
and civil penalties, and to share resources and expertise.
Using Valuable Legislative Tools
The Task Force has utilized the tools provided by Congress to combat
fraud as embodied in the Sarbanes-Oxley Act. For example, the Task Force
has charged more than 50 defendants with the new securities fraud provision
set forth in Title 18, United States Code, Section 1348. In addition,
the Task Force has charged defendants with falsely certifying the financial
statements under Section 1350. The Task Force believes that this Section
in particular has had an enormous deterrent effect on corporate crime.
Staying on the Offensive
Though its past successes are significant, the President’s Corporate
Fraud Task Force remains committed to preserving the integrity of our
and our financial markets in the future. As new forms of corporate fraud
and corruption emerge, the Task Force will continue to aggressively
perpetrators and seek justice for the victims of these crimes and for