Business Crimes Hotline

CONNECTICUT

United Rentals, Inc. Ordered to Pay $14 Million For Accounting Fraud

The SEC filed charges against United Rentals, Inc. (“URI”), one of the largest rental equipment companies in the world, alleging that the company engaged in financial fraud and improper accounting practices from 2000 to 2002. The SEC claims that URI engaged in a series of frauds designed to meet URI's earnings forecasts and analysts expectations. The fraud was allegedly accomplished primarily through a series of interlocking three-party sale-leaseback transactions orchestrated by URI's former Chief Financial Officer and Chief Acquisitions Officer, who were previously charged by the SEC.

The complaint charges URI with a host of fraudulent financial practices. SEC v. United Rentals, Inc., No. 08-CV-01354 (D. Conn. Sept. 8, 2008) (Complaint), available at http://www.sec.gov/litigation/complaints/2008/comp20706.pdf.

Of particular note, the complaint alleges that URI sold used equipment to a financing company and leased it back for a short period, and then arranged for a third party equipment manufacturer to agree to sell the equipment at the end of the lease period and guarantee the financing company against any losses incurred in the resale of the equipment. URI separately guaranteed the equipment manufacturer against any losses it might incur under the guarantee it had extended to the financing company. The SEC also claims that the company engaged in several fraudulent “trade packages” with suppliers.

URI settled the case without admitting or denying the charges. The SEC has indicated that it will place the $14 million penalty in a Fair Fund for later distribution to aggrieved investors.

NEW JERSEY

Three Former ITXC Corporation Executives Sentenced for African Bribery Scheme

Three former executives of telecommunications firm ITXC Corporation were sentenced and ordered to pay criminal fines for their role in a foreign-bribery scheme. The former employees pled guilty to conspiring with each other, and other former ITXC employees, to make corrupt payments to employees of foreign-owned telecommunications carriers in Africa, in violation of the Foreign Corrupt Practices Act (FCPA) and The Travel Act. The bribes totaled $267,000, and were disguised in the form of illegal “commissions” to employees of state-owned industries in Africa, and were offered for the purpose of helping ITXC obtain and retain business from the African entities. A former managing director at ITXC was sentenced to five years' probation, plus three months' home confinement and three months in a community confinement. Two cooperating defendants ' Roger Young and Steven Ott ' were also sentenced. Young was ordered to pay a $7000 fine, and Ott was sentenced to serve five years' probation, including six months in a community confinement center, six months' home confinement, and a $10,000 fine. A fourth defendant, Yaw Osei Amoako, pleaded guilty in 2006 and was sentenced last year to 18 months in prison and a $7500 fine. An investigation by the FBI into the case is ongoing.

CONNECTICUT

United Rentals, Inc. Ordered to Pay $14 Million For Accounting Fraud

The SEC filed charges against United Rentals, Inc. (“URI”), one of the largest rental equipment companies in the world, alleging that the company engaged in financial fraud and improper accounting practices from 2000 to 2002. The SEC claims that URI engaged in a series of frauds designed to meet URI's earnings forecasts and analysts expectations. The fraud was allegedly accomplished primarily through a series of interlocking three-party sale-leaseback transactions orchestrated by URI's former Chief Financial Officer and Chief Acquisitions Officer, who were previously charged by the SEC.

The complaint charges URI with a host of fraudulent financial practices. SEC v. United Rentals, Inc., No. 08-CV-01354 (D. Conn. Sept. 8, 2008) (Complaint), available at http://www.sec.gov/litigation/complaints/2008/comp20706.pdf.

Of particular note, the complaint alleges that URI sold used equipment to a financing company and leased it back for a short period, and then arranged for a third party equipment manufacturer to agree to sell the equipment at the end of the lease period and guarantee the financing company against any losses incurred in the resale of the equipment. URI separately guaranteed the equipment manufacturer against any losses it might incur under the guarantee it had extended to the financing company. The SEC also claims that the company engaged in several fraudulent “trade packages” with suppliers.

URI settled the case without admitting or denying the charges. The SEC has indicated that it will place the $14 million penalty in a Fair Fund for later distribution to aggrieved investors.

NEW JERSEY

Three Former ITXC Corporation Executives Sentenced for African Bribery Scheme

Three former executives of telecommunications firm ITXC Corporation were sentenced and ordered to pay criminal fines for their role in a foreign-bribery scheme. The former employees pled guilty to conspiring with each other, and other former ITXC employees, to make corrupt payments to employees of foreign-owned telecommunications carriers in Africa, in violation of the Foreign Corrupt Practices Act (FCPA) and The Travel Act. The bribes totaled $267,000, and were disguised in the form of illegal “commissions” to employees of state-owned industries in Africa, and were offered for the purpose of helping ITXC obtain and retain business from the African entities. A former managing director at ITXC was sentenced to five years' probation, plus three months' home confinement and three months in a community confinement. Two cooperating defendants ' Roger Young and Steven Ott ' were also sentenced. Young was ordered to pay a $7000 fine, and Ott was sentenced to serve five years' probation, including six months in a community confinement center, six months' home confinement, and a $10,000 fine. A fourth defendant, Yaw Osei Amoako, pleaded guilty in 2006 and was sentenced last year to 18 months in prison and a $7500 fine. An investigation by the FBI into the case is ongoing.