The FBI and Ernst & Young have developed software that has revealed the ten words those engaged in corporate fraud most commonly use in employee emails.

The software, which can also identify “unusual changes in tone that suggest an underlying problem and can be targeted to specific sectors, particularly traders”, was used by the Ernst & Young fraud investigation team to point out the exact language being used in email chains where fraud is likely being discussed.

The software is also capable of searching for phrases that indicate an employee is worried others are eavesdropping.  Some of these phrases include “call my mobile” and “come by my office”.

In May 2012, the Securities and Exchange Commission (“SEC”) suspended the trading of 379 dormant, shell companies, the largest suspension ever in a single day.  (The second largest, in 2005, covered only 39 companies.)  It did so to prevent fraudsters from hijacking the companies and using them in pump-and-dump or other fraudulent schemes.

The SEC is authorized to suspend trading in a company’s securities to protect the public interest.  Circumstances that can lead to a trading suspension include:

• Questionable public information regarding a company’s operations, financial status, or business transactions;
• Speculation of possible insider trading, potential market manipulation, or the inability to settle and clear stock transactions;
• See the SEC’s Investor Bulletin for more information.

In a news release by the U.S. Securities and Exchange Comission, the agency stated that they charged a Seattle-based investment adviser, Mark Spangler, and his firm with defrauding clients by secretly diverting client funds into his own start-up companies.

The SEC alleges that Spangler, former chairman of NAPFA, invested close to $48 million of client money into two risky start-up companies he co-founded despite representing that he would invest primarily in publicly-traded securities. Spangler was both chairman and CEO of one of the companies, which has since gone bankrupt. The risky investments Spangler made were inconsistent with his promises to his clients and went against their investment objectives.

According to the U.S. Attorney’s Office for the Western District of Washington, “Spangler assured his clients he was investing them in publicly-traded equities and bonds, not risky start-ups in which he had a personal interest,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “For an investment adviser to put his self-interest above the best interests of his clients is a disturbing abuse of trust.”

According to the SEC complaint, Spangler raised more than $56 million from his clients since 1998. Starting around 2003, Spangler and his advisory firm, The Spangler Group, began diverting large amounts of client money into two private technology companies he created. One of the companies received over $40 million of the investment money before shutting down operations. Before the company shut down, it had been a cash-poor company with a history of net losses. Despite the losses, Spangler treated the funds as the company’s bank.

The SEC’s complaint charges Spangler and TSG with violating, among other things, the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The complaint seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.

To view the full SEC Complaint, visit the U.S. Securities and Exchange Commission website.

In addition to other recent JP Morgan financial worries, the Securities and Exchange Commission thinks that some of the details leading to the Ambac mortgage securities fraud suit against Bear Stearns/EMC are worthy of enforcement action. The SEC believes the scam run by Bear’s Mortgage team and the subsequent cover up by JP Morgan are cause for a civil suit, along with some penalties.

According to JP Morgan’s 10Q, “In January 2012, the Firm was advised by SEC staff that they are considering recommending to the Commission that civil or administrative actions be pursued arising out of two separate investigations they have been conducting… In both investigations, the Firm has submitted responses to the proposed actions.”