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Fraud victim hit with fines
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November 8, 1999: 6:27 p.m. ET
PairGain pleads to felony and pays $1.4M for not disclosing loss to investors
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NEW YORK (CNNfn) - A telecommunications equipment company pleaded guilty to a felony Monday and agreed to pay $1.4 million to federal authorities even though it was the victim of a Ponzi-like fraud scheme by its former money manager.
The company, PairGain Technologies Inc. (PAIR), was a victim of what the Securities and Exchange Commission termed "massive securities futures misallocations" by S. Jay Goldinger, who also faces felony charges and already has agreed to forfeit $6 million in illegal gains to the Commodity Futures Trading Commission.
The SEC and the U.S. attorney for the central district of California took the action against PairGain because the publicly traded company allegedly withheld information on the trading losses from their investors in two quarterly reports in 1995, even after officials there learned of the problem and had demanded their money back. The company eventually lost $15.9 million on Goldinger's trading practices.
"Public companies must ensure that they accurately and timely disclose their investment results," said a statement from Richard H. Walker, director of the SEC's division of enforcement. "Even when public companies entrust their funds to well-known and supposedly reputable money managers, they must understand the trading strategy used, its objectives and associated risks and closely monitor the results."
PairGain, of Tustin, Calif., makes equipment to allow high-speed digital data transmission on copper phone lines.
Officials said in a written statement that they agreed to settle the case to avoided costly litigation.
They said they were deceived and misled by Goldinger who they contend transferred the company's' funds to other clients. They said that only after an extensive investigation did they realize they were victims of what they called a massive fraud.
The company pleaded guilty to failing to implement a system of internal accounting controls and to maintain accurate books and records but added that the plea is not expected to have an effect on its ability to do business in the future.
"The company is glad to finally get this matter behind it and expects that the government will punish Goldinger to the full extent of the law," a spokesperson said..
Goldinger, who ran the Beverly Hills, Calif., company Capital Insight Brokerage, issued a statement Monday that he intends to plead guilty to four felony charges filed against him. He said that he notified the Justice Department, the SEC and the CFTC of his illegal actions in December 1995, and surrendered his trading licenses at that time.
"From the outset, Mr. Goldinger accepted responsibility and has been working closely with federal prosecutors to help rectify the damages he caused," the SEC's statement said. "Based primarily upon information provided by Mr. Goldinger, the CFTC brought a major action against Refco, the firm through which Mr. Goldinger traded and one of the largest commodities firms in the United States. Refco realized $100 million in commissions from Mr. Goldinger's trading activities."
Refco Group Ltd. Agreed to pay the CFTC $7 million in fines in May, and four of its employees were hit with a CFTC complaint due to the Goldinger case.
SEC and federal criminal penalties against Goldinger have yet to be determined, but the amounts he pays for those charges will reduce a $6 million payment he has agreed to pay the CFTC.
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