September 2011 Archives

Georgia Man Charged with Securities Fraud and Insider Trading

September 15, 2011, by The McKellar Law Firm, PLLC

Two "old friends" were arrested last week for alleged securities fraud and insider trading. The Wall Street Journal reports that Scott Allen of Atlanta, Georgia, was a financial consultant who received inside information about acquisitions by pharmaceutical companies. Allen then released that information to his friend, John Bennett of Norwalk, Connecticut, an independent film producer and former investment professional. Bennett profited over $2.6 million in pharmaceutical stocks while giving Allen $100,000 in kickbacks.

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An "insider" is typically someone who is either a company's officers, directors, or someone who has control of at least 10% of a company's equity securities. A company is required to report trading by corporate officers, directors, or other company members with significant access to privileged information to the Exchange Commission or to have it be publicly disclosed.

Insider trading is when an individual has inside access to confidential or non-public information and takes advantage of such information. Insider trading violates a fiduciary duty that a company has given an insider. Insider trading can also increase the cost of capital for securities traders and therefore have a negative effect on economic growth.

As was the case with Allen and Bennett, when an insider "tips" off a friend about non-public information, the friend then has the same fiduciary duty as the insider, i.e., they now cannot make a trade based upon the inside information. But in order for a friend to be convicted, it must be proven that they knew or should have known that the information was company property.

Both Allen and Bennett were released on $500,000 bond and could face up to 45 years in prison and more than $10 million in fines.

Georgia Man Sentenced to 20 Months for Filing False Tax Returns

September 6, 2011, by The McKellar Law Firm, PLLC

Georgia native Michael Thornton was sentenced to 20 months in prison and ordered to pay $319,242 in restitution after pleading guilty to tax fraud. Filing a false tax return violates the provisions of 26 U.S.C. ยง 7207.

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According to United States Attorney Sally Yates, the charges and other information presented in court: the Defendant worked for a collection agency from 2005 through 2007. While in that position, he prepared and filed fraudulent tax returns for numerous co-workers and associates. Disregarding the information given to him by the taxpayers, the Defendant inflated their incomes and fabricated deductions on the returns to obtain tax refunds that were not truly owed. Further, he did not list himself as the tax return preparer, review the returns with the taxpayers, or give the taxpayers a copy of the returns, which the Government claims was purposefully to impede the detection of his fraud. To make matters worse, when the IRS requested verification from the Defendant's company for the wages claimed on the fraudulent returns, the Defendant attempted to submit a fraudulent verification consistent with the bogus wages, but was caught by the company's owner and fired before he could do so.

In total, the Thornton filed over 340 returns for the 2005 and 2006 tax years. IRS agents examined a number of those returns and identified over $1.8 million in false items claimed by by the Defendant, resulting in an alleged tax loss to the government of nearly $320,000. Not surprisingly, Thornton also filed a fraudulent personal return for himself in the 2005 tax year.