One who intends to leave others better off for his having existed.

11/25/14

A Wells Fargo Motion to Compel under a Fiduciary Exception before taking the case to Federal District Court

In the Matter of; George Hartzman, Complainant, v. Wells Fargo Advisors, LLC., Respondent, Case No. 2013-SOX-00045 with the United States Department of Labor, Office of Administrative Law Judges, presided over by Judge Kenneth A. Krantz;

Motion to compel discovery of Wells Fargo privileged documentation of communications between Wells Fargo in-house council and regulatory authorities and the Department of Justice concerning George Hartzman's whistleblower activities.

Complainant, as a shareholder, employee with fiduciary responsibilities to his clients with accounts governed by the Advisors Act, and as a client of Wells Fargo, in which Wells Fargo contractually acted as a fiduciary, please compel Respondent to provide all privileged documentation concerning regulatory correspondence concerning George Hartzman's whistleblower activities.
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As attested to by SEC Commissioner Luis A. Aguilar on August 28, 2014;

"Dissenting Statement In the Matter of Lynn R. Blodgett and Kevin R. Kyser, CPA, Respondents" by SEC Commissioner Luis A. Aguilar on August 28, 2014

...I am obligated to speak out when it appears that the agency falters.

Accordingly, I respectfully dissent from the Commission’s Order accepting the settlement offer of Kevin R. Kyser, a Certified Public Accountant and former Chief Financial Officer (“CFO”) of Affiliated Computer Services, Inc. (“ACS” or “Company”).

Given the egregious conduct that Mr. Kyser engaged in at ACS, the Commission’s settlement, which lacks fraud charges ... is a wrist slap at best.  

...let’s discuss how Mr. Kyser, in his critical role as CFO, facilitated ACS’s misconduct.  As described in the Commission’s own Order, Mr. Kyser:

...Was responsible for the content of ACS’s false and misleading public filings with the Commission, earnings releases, and analyst conference calls... “During all relevant periods, Respondents Blodgett and Kyser were, respectively, ACS’s chief executive officer and chief financial officer.  As such, they were responsible for the content of ACS’s filings with the Commission, as well as ACS’s earnings releases and analyst conference calls.”

“ACS falsely reported its internal revenue growth, which Blodgett and Kyser highlighted in earnings releases and analyst conference calls during the period.”

Failed to ensure that ACS adequately disclosed and described the significance of these transactions in ACS’s public filings and analyst conference calls...

Signed false certifications in connection with the Company’s periodic filings; “Blodgett and Kyser certified each of ACS’s fiscal year 2009 Forms 10-Q and 10-K.”

... I am concerned that the Commission is entering into a practice of accepting settlements without appropriately charging fraud...  I am also concerned that this reflects a lack of conviction to charge what the facts warrant and to bring appropriate remedies.

The statistics on financial reporting and disclosure cases ... reflect a troubling trend.  In fiscal year 2010, the Commission brought 117 financial reporting and disclosure cases against issuers and individuals...  In 2011, the number of financial reporting and disclosure cases against issuers and individuals brought by the Commission fell to 86... In 2012, again the number of similar cases brought by the Commission fell, this time to 76...   In 2013, the Commission brought only 68 similar cases...  These declining numbers reveal a departure from the Commission’s efforts to keep bad apples out of the securities industry, and this puts investors and the integrity of the Commission’s processes at grave risk.

...defendants strenuously object to scienter-based and non-scienter-based fraud charges...   That is to be expected.

What is not to be expected is when defendants engage in fraud and the Commission affirmatively accepts a weak settlement with lesser charges [GH; Or no investigation or prosecution at all].  This leaves the investing public significantly at risk, as bad actors are not appropriately charged or sanctioned and are permitted to continue to operate in the securities industry.

This is completely unacceptable.  I am concerned that this case is emblematic of a broader trend at the Commission where fraud charges...are warranted, but instead are downgraded to books and records and internal control charges.

I fear that cases in the future will continue to be weak.  ...I am concerned that Commission Orders may, at times, be purposely vague and/or incomplete, and written in a way so as to lead the public to conclude that no fraud had occurred.  When this happens, the public is denied a full accounting and appreciation of the egregious nature of a defendant’s misconduct.  In addition, this practice muzzles my voice by not allowing any statement by me (including this dissent) to include a fulsome description of facts that support the view that the Commission should have brought fraud charges. ...Facts and information discovered by the investigative staff in the course of an investigation that are not described in a Commission Order or other public document are deemed confidential and, therefore, SEC representatives are prohibited from revealing to the public such non-public information that are not made a matter of the public record...

This adversely impacts my ability as a Commissioner to provide the American public honest and transparent information—including a description of facts discovered by the staff during its investigation.  In the end, these behind-the-curtain decisions can make fraudulent behavior appear to be an honest mistake.

For these reasons, I dissent."

Luis A. Aguilar
SEC Commissioner
August 28, 2014
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Affiliated Computer Services misreported revenue in SEC filings from the quarter ended Sept. 30, 2008, through June 30, 2009, misinformation illegally certified under Sarbanes Oxley that Messrs. Blodgett and Kyser "highlighted in earnings releases and analysts conference calls during the period", as did executives at Wachovia and Wells Fargo via the illegal omission of material Federal Reserve loans and credit lines.

On 2009-05-06, President & CEO Lynn Blodgett, sold 33,000 of Affiliated Computer Services shares for $1,554,564 while illegally misleading shareholders, the SEC and the public and appears to have gotten away with Sarbanes Oxley violations and insider trading without prosecution.
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On January 17, 2008, unknown to shareholders but known to Wells Fargo CEO John Stumpf and Chairman Richard Kovacevich, Wells Fargo borrowed $1.666 billion from the Federal Reserve Bank's Term Auction Faciltiy at 3.95% interest, with $47.930 billion in Unencumbered Collateral representing a massive, material undisclosed credit line with the Fed, none of which was disclosed by Wells Fargo's 2008 annual report, other than $32.5 billion of unidentified TAF borrowings buried/hidden under “Commercial paper and other short-term borrowings” as $40 billion of unidentified TAF borrowings was buried/hidden under “Federal funds purchased and securities sold under agreements to repurchase” in Wachovia's annual report, in violation of SEC rules and Sarbanes-Oxley, specifically cited as "Signed false certifications in connection with the Company’s periodic filings" by SEC Commissioner Luis A. Aguilar in his dissent concerning lack of SEC enforcement and transparency.

On May 22 2008, unknown to shareholders but known to Wells Fargo CEO John Stumpf and Chairman Richard Kovacevich, Wells Fargo borrowed $7.5 billion from the Federal Reserve Bank's Term Auction Facility at 2.1% interest, with $47.197 billion in Unencumbered Collateral representing an undisclosed credit line with the Fed, unidentified by Wells Fargo's 2008 annual report, in violation of SEC rules and Sarbanes Oxley.

WFC's annual report cites the words "Term Auction" 0 times, and "TAF" 0 times, with no mention of the overall size of WFC's Federal Reserve Term Auction Facility credit lines, interest rates and maturities, all of which were material inside information known to Wells Fargo CEO John Stumpf and Chairman Richard Kovacevich but not WFC shareholders, Congress, the public and presumably the SEC.

On 2008-05-15, while WFC was in possession of undisclosed Federal Reserve provided Term Auction Facility loans, Stumpf John G. purchased 1,550 of Wells Fargo stock valued at $44,841 without being prosecuted for Insider Trading and Securities Fraud.

On 2008-06-06, while WFC was in possession of undisclosed Federal Reserve provided Term Auction Facility loans, Kovacevich Richard M. purchased 40,398 of Wells Fargo stock valued at $1,052,367 without prosecution for Insider Trading and Securities Fraud.
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In his dissent, Commissioner Aguilar documented the same non-enforcement of Sarbanes-Oxley reporting statutes cited by Complainant, and spelled out how our nation's regulatory enforcement infrastructure prevented fraud related material information from being disseminated to the public, and how the government didn't enforce the law.

If Respondent made arrangements or was informed/assured of non-action by regulatory authorities in response to Complainant's whistleblowing activities, an adverse event would have taken place against Hartzman as a consequence, meaning the communications are relevant and discoverable.

Per Commissioner Aguilar's dissent among multiples of other instances of non-action by those tasked with law enforcement, Complainant correctly concluded in the first quarter of 2012 that he had been 'hung out to dry' by Wells Fargo in collusion with regulators etc..., which, after his anonymity was violated and sought action by his management chain of command, was placed in jeopardy.

The governmental consent bestowed upon Wells Fargo among others to get away with breaking the law makes these proceedings fall under special circumstances exceptions, considering the extent to which Respondent's and tens of other 'To Big to Jail' corporate executives have acted outside the law without reprimand, for example;

On May 22 2008, unknown to shareholders but known to JPM CEO Jamie Dimon,  J.P. Morgan Chase Bank borrowed $2 billion from the Federal Reserve Bank's Term Auction Facility at 2.1% interest, with a massive and material $90.536 billion in Unencumbered Collateral representing an undisclosed credit line with the Fed.

On Nov 6 2008, unknown to shareholders but known to JPM CEO Jamie Dimon,  J.P. Morgan Chase Bank borrowed $5 billion from the Federal Reserve Bank's Term Auction Facility at 0.6% interest, with $81.700 billion in Unencumbered Collateral representing an undisclosed credit line with the Fed.

On Dec 23 2008, unknown to shareholders but known to JPM CEO Jamie Dimon,  J.P. Morgan Chase Bank borrowed $10 billion from the Federal Reserve Bank's Term Auction Facility at 0.6% interest, with $81.080 billion in Unencumbered Collateral.

JPM's annual report doesn't mention of the overall size of JPM's Federal Reserve Term Auction Facility credit lines, interest rates and maturities, all of which were material inside information known to Jamie Dimon but not JPM shareholders, the public or presumably the SEC.

On 2009-01-16, while JPM was in possession of an undisclosed Federal Reserve provided Term Auction Facility credit line of more than $80 billion, Jamie Dimon purchased 500,000 of J.P. Morgan stock valued at $11,464,500 without being prosecuted for Insider Trading and Securities Fraud.

Like Messrs. Stumpf, Kovacevich and Wachovia's Robert Steel, Mr. Dimon violated Sarbanes-Oxley, specifically cited as "Signed false certifications in connection with the Company’s periodic filings" by SEC Commissioner Luis A. Aguilar in his dissent concerning lack of SEC enforcement and transparency.
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During late 2007 and throughout 2008, unknown to shareholders but known to Citibank CEO Vikram Pandit, who certified Citibank's 2008 annual report filed with the SEC, Citibank borrowed billions from the Federal Reserve Bank's Term Auction Facility on nine occasions at interest rates as low as 0.42%, with up to $21.371 billion in Unencumbered Collateral representing an undisclosed credit line with the Fed, details of which were not disclosed in Citibank's 2008 annual report in violation of Sarbanes Oxley, cited by SEC Commissioner Luis A. Aguilar, which culminated in false certifications by Mr. Pandit.

On 2008-11-13, while Citibank was in possession of undisclosed Fed provided Term Auction Facility loans, Citibank CEO Vikram Pandit purchased 850,000 shares of Citibank stock valued at $9,633,050 without prosecution for Insider Trading and Securities Fraud.
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During late 2008 and through August 2009, unknown to shareholders but known to BB&T CEO Kelly King and CFO Daryl Bible, who certified BB&T's 2009 annual report filed with the SEC, BB&T borrowed billions from the Federal Reserve Bank's Term Auction Facility on nine occasions at interest rates as low as 0.25%, with up to $19.343 billion in Unencumbered Collateral representing an undisclosed credit line with the Fed, details of which was not disclosed by BB&T's 2009 annual report in violation of Sarbanes Oxley, cited by SEC Commissioner Luis A. Aguilar, which culminated in false certifications by Messrs. King and Bible without prosecution.
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Courts have applied an exception to general rules where "the obvious result of following the rule would be a plain miscarriage of justice or would be inconsistent with substantial justice." Seniority Research Group v. Chrysler Motor Corp.

I believe this exception applies in this case as the regulatory issues highlighted have been proven to be systemic by officials in the SEC and the Justice Department etc... tasked with securities law enforcement;

"There are exceptions, as where the obvious result of following the rule would be a plain miscarriage of justice or would be inconsistent with substantial justice. Kelley v. Crunk, 713 F.2d 426 (8th Cir.1983). In Stafford I, ...this Court found that substantial justice required a review of whether ... procedure had been exhausted...

...if an impartial hearing is not available at one level, it can be obtained at the next. "

http://openjurist.org/976/f2d/1185
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The pursuit of Complainant's allegations were made in good faith, and "the obvious result of following the rule would be a plain miscarriage of justice or would be inconsistent with substantial justice", because Respondent, the SEC and the Justice Department etc... didn't follow their own rules in multiples of different instances.

Complainant contends all procedures have been exhausted by non-enforcement and judicial inaction, and communications between regulatory authorities and Respondent's in-house attorneys concerning Hartzman's whistleblowing activities should be discoverable as relevant as they may provide evidence of adverse acts against Complainant, under the concept of substantial justice, and justified by a Fiduciary Exception, as addressed in August 28, 2014's Motion to compel Wells Fargo to produce Attorney Privileged Information under a Fiduciary Exception.

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