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Smoothing Out SEC Revenue Reports

September 11, 2011

Mary L. Schapiro – Chairperson                   Patricia Hynes
SEC Headquarters                                        Allen & Overy LLP
100 F Street, NE                                           1
221 Avenue of the Americas
Washington, DC 20549                                
New York, NY 10020
Re:       Stock Price Manipulation & Laundering
Dear Chairperson Schapiro & Staff,

            I received your 09-09-11 invitation to submit a whistleblower presentation. What follows first is short “on record” testimony identifying admitted stock price manipulation by way of not reporting all revenues. Second, I present some supremely controlling authority on this subject.

I.                   Not Reporting “All” Revenues & “Keeping IT”

           First, the following is sworn testimony about manipulating the price of stock by not reporting all revenues received through “off invoice” payments to retailers from suppliers:
A.                Let’s say for an example that we were having a relatively good period and we did not need that money to achieve our gross margin for that period and we know that the next month we were going to have a pretty difficult one, we would put that money up in a holding account with our accounting department, and they would hold it to the next period when we would put it against our gross margins to smooth out our gross [revenues] so that we were on a consistent basis, so on a quarterly basis we were able to achieve our target margins.[1]
A.                So by taking those monies and setting them aside in a fund and having them come back to the division, they didn't go to any other division, they went back into mine, which was that gross that I was responsible for. That's how the rebate program got started and continued.
Q.        Over what period of time did you make use of those funds?
A.        It would generally be within the period I, I got them or the next ‑‑ it would kind of depend on my numbers that period. If I, if I had really good numbers and I could afford to keep that money, I would maybe hold ‑‑ and the sales were good, I would say, "Okay. Next month I have some money that we could really do something with," because I didn't have to use it. The next month I would be having more rebates come in.  And now I have almost two months of rebates ….[2]
Q.        So you don't know what the real cost is, do you, after backing out these rebates?
A.        Not exactly.[3]
This is confession is a direct admission to, among other things:
1)                  Not reporting all revenues, i.e., those received from off invoice rebates; &
2)                  Using those funds to stabilize and or maintain the price of stock, e.g.
II.                Not Reporting All To Criminally Stabilize Price – Simple Law

            Second, supplementing applicable reporting statutes, the High Court opined on this very “rebate” or “off invoice” practice topic in two key price manipulation cases:

Stabilizing prices as well as raising them is within the ban of … the … Act. As we said …, "in terms of market operations, stabilization is but one form of manipulation."[4]
[T] he industry...prices were fixed and all forms of concessions and rebates were forbidden.  [T]he practice developed on the part of some, but not all, [sellers] ... of … secret concessions. There were some...who never indulged in that [combination] …, but others, called 'unethical' ... did so to such an extent that ...all...[stuff] sold ...carried secret concessions of some kind.
The need of secrecy was urgent, for as soon as it was known that a specific concession was granted it would be generally demanded.
That concessions were widely granted was generally known in the trade, & while each was able to find out in a general way the approximate prices & terms of his competitors, it was impossible to know with any degree of accuracy the actual prices & terms granted in innumerable transactions.  The court also found that various causes contributed to these selling methods on the part of the unethical [ones], chief among which was an overcapacity….[5]
III.             Conclusion

One enforcer, in a related briefing, explained how firms to cover this species of crime:

"[T]he most startling characteristic of the multinational [firm] cartels we have prosecuted is how cold blooded and bold they are. ***   [T]hey [go] to great lengths to cover up their actions -- such as … creating false 'covers' -- i.e., facially legal justifications ….[6]
Attached are directly on point testimony dabs to assist in this opening qui tam briefing. More shall follow. My contact information is indicated above should you have any questions.

cc: San Diego District Attorneys Bonnie Dumanis, Carol Buck and Phyllis Shess.

[1]08-16-99 Wall Street Chains’ VP Bill Gensemer, deposition testimony (played at trial), page 151:46-152:47.
[2] Wall Street Chains’ VP Bill Gensemer, at page 2623:3-18:3-18.
[3] Wall Street Chains’ VP Bill Gensemer, at page 2545:23-2546:24.
[4]United States v. Socony-Vacuum Oil Co., 310 U. S. 150 (1940).
[5] Sugar v. U.S., 297 U.S. 553, 573-74 (1936).
[6] Seven Steps to Better Cartel Enforcement, Thomas O. Barnett (June 2, 2006).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Nore testimony based details are disclosed