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Note: The U.S. Securities and Exchange Commission (SEC) charged Anthony Huff (Fraudster) with five counts for violations of federal U.S. securities law, for, among other things, listing fraudulent letters of credit as assets, thereby overstating the amount of shareholder equity in one of his companies.

Fraudster was the co-founder and acted as the sole director of at least three companies, including Certified Services, Inc., a professional employment organization (the Company). As part of its services, the Company provided its clients with workers' compensation insurance. The Company did this by purchasing policies from CNA Insurance and other insurance carriers (the Insurers). Under the policies, the Insurers would pay all legitimate claims, but the Company was required to reimburse the Insurers for any claim less than US$1 million. As collateral, the Insurers required letters of credit in the amounts for which the Company was expected to be liable.

Fraudster met with Bill Leyton (Forger), who agreed to "lease" LCs to the Company in exchange for a fee. After Forger had provided several LCs to the Company, a Company employee alerted Fraudster that the issuing bank's letterhead on one of the LCs had been pasted onto the letter. When asked about the suspicious LC, Forger explained that the LC was a "sample for recording or filing purposes only." Although Fraudster should not have been satisfied with this nonsensical explanation, he did not verify the legitimacy of the LC with the issuing bank, and continued to use Forger's LCs as collateral until the Insurers discovered that the LCs were not legitimate.

In quarterly filings to SEC between 2002 and 2003, the Company listed the fraudulent LCs as assets and failed to list the reimbursements it owed the Insurers as liabilities, grossly distorting the Company's finances. The most misleading filing listed approximately $47.5 million of "insurance deposits" (the fraudulent LCs) as assets, and failed to list as liabilities the roughly equivalent amount in workers' compensation claims for which the Company was liable. As a result, this filing "overstated the shareholders' equity by approximately $95 million." Furthermore, even if the LCs had been valid, LCs are not considered assets. An LC can only be drawn upon by a beneficiary, or, in this case, the Insurers, but even after the Company stopped using the fraudulent LCs, it continued to overstate its equity by listing other LCs as assets. R. David Wallace, an expert witness for SEC and a certified public accountant with 44 years of experience, testified that he had never seen LCs listed as assets.

By misrepresenting the financial condition of the Company, Fraudster artificially inflated the value of the Company's stock, making its shares a more attractive investment. When the Company declared bankruptcy, that stock became worthless.

After a bench trial, the U.S. District Court for the Southern District of Florida, Rosenbaum, J., ordered that the SEC was entitled to judgment against Fraudster, permanently enjoined Fraudster from serving as an officer or director of a publicly traded company, required Fraudster to disgorge $10,017,000 of ill-gotten gains plus $3 million in prejudgment interest, and imposed a civil penalty of $600,000. Fraudster filed a post-judgment motion to amend the findings of fact and amend the judgment or grant a new trial with the same court, Rosenbaum, J. The motion was granted with respect to the amendment of findings of fact, but denied with respect to the amendment of the judgment because the factual errors in the original order did not undermine the case against Fraudster.

[JEB/pbl]

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