SEC Charges Former MusclePharm Corp. Execs with Accounting Fraud

SEC Charges Former MusclePharm Executives with Accounting and Disclosure Fraud

The Securities and Exchange Commission today filed a settled complaint charging Las Vegas-based nutritional supplement company MusclePharm Corp.’s former Executive Vice President of Sales and Operations, Brian H. Casutto, former Vice President of Sales, Matthew J. Zucco, and former contract Chief Financial Officer, Kevin R. Harris, for engaging in improper revenue recognition practices to achieve revenue growth demanded by its former Chief Executive Officer, Ryan C. Drexler. The SEC also separately charged Drexler with fraud in a litigated complaint for disclosure violations and control failures.

The SEC’s settled complaint alleges that Casutto, with the assistance of Zucco, engaged in a fraudulent scheme to prematurely recognize revenue for orders that remained in MusclePharm’s control. The complaint further alleges that Harris should have known that MusclePharm prematurely recognized certain revenue and that MusclePharm overstated other revenue by misclassifying customer credits as advertising expenses rather than as reductions to revenue. The defendants’ misconduct allegedly inflated the company’s publicly reported quarterly revenues by as much as 25 percent and gross profits by as much as 49 percent.

Man Is Sentenced in $9 Million Cow Manure Ponzi Scheme

A California man was sentenced on Monday to more than six years in prison for running an $8.75 million Ponzi scheme that hinged on a nonexistent factory that was supposed to create green energy out of cow manure, federal prosecutors said.

For five years, Raymond Holcomb Brewer falsely claimed to be an engineer who ran a company that built anaerobic digestion plants, which convert manure into biogas, the United States attorney’s office for the Eastern District of California said in a statement on Monday.

Mr. Brewer, 66, of Porterville, Calif., told his investors that he was building the plants and would generate millions of dollars in revenue by selling the biogas, the statement said. He told the investors that they would receive two-thirds of the profits, as well as tax incentives.

“None of this was true,” Phillip A. Talbert, the U.S. attorney for the Eastern District of California, wrote in a sentencing memorandum. “Mr. Brewer did not begin construction on a single digester. He simply took his investors’ money and ran.”

Ex-McKinsey Partner Dikshit Who Traded on Goldman Deal Seeks Prison Release

Puneet Dikshit, who is currently serving a two-year sentence, said in a May 30 Manhattan federal court filing that he received a particularly harsh penalty because his lawyers at the law firm Kramer Levin Naftalis & Frankel failed to highlight his immediate remorse over his conduct and earlier efforts to turn himself in.

According to Dikshit, 42, this was partly because the lead prosecutor in his case, Joshua Naftalis, is the son of Kramer Levin name partner Gary Naftalis. Kramer Levin lawyers showed deference to Joshua Naftalis, who sometimes worked out of the firm’s offices and had “much greater than normal access to and influence over the law firm and the defense counsel,” Dikshit said.

The Second FTX Asset Recovery Report Is Packed With Bombshells

The second report of John J. Ray III and his FTX restructuring team (the “debtors”) was released on Monday, June 26, and it’s a doozy. The report firms up our sense of specific financial flows, including the use of customer funds for political donations and venture capital investments at defunct crypto exchange FTX and related hedge fund Alameda Research. Among those are many flows to entities controlled by friends and family of Sam Bankman-Fried, reinforcing the picture of a vast and coordinated criminal effort.

More explosively, the report claims that FTX executives were aware as early as August 2022 that the exchange was missing more than $8 billion in customer funds. This recasts many statements made by executives like Caroline Ellison, and especially by FTX CEO and co-founder Sam Bankman-Fried himself, in the following weeks and months.

FTX Spent Its Crypto Money on Yachts, E-Sports and Margaritaville

It will be up to the courts to decide whether Sam Bankman-Fried, who’s been accused of orchestrating a multibillion-dollar fraud at the crypto exchange FTX, was a criminal or merely a poor businessman. SBF, whose story is the focus of a new podcast from Bloomberg and Wondery called Spellcaster, denies wrongdoing and is fighting the charges. What’s clear, beyond any reasonable doubt, is that he and his inner circle didn’t have the greatest taste. Here’s a partial list of where their money went….

Contractual Liability Exclusion Does Not Bar Coverage for Fiduciary Duty Claim

Many management liability exclusions contain contractual liability exclusions to clarify that the policy doesn’t provide coverage for contractual breach claims. However, as I have pointed out in prior posts, insurers, in reliance on the exclusion’s broad wording, often seek to apply these exclusions broadly, to apply to a wide variety of kinds of claims beyond contractual liability disputes. In a recent Fifth Circuit decision, the appellate court rejected an insurer’s attempt to apply a contractual liability exclusion to preclude coverage for an underlying breach of fiduciary duty claim. The reasoning of the Fifth Circuit in rejecting the insurer’s arguments provide policyholders with common sense reasoning on which to rely in seeking to avoid the application of the exclusion to noncontractual claims.