Securities and Exchange Commission v. Joseph J. Monterosso, et. al., Civil Action No. 07-61693 (S.D. Fla., initial complaint filed on November 21, 2007)

District Court Orders More Than $3 Million In Remedies, Grants Motions For Disgorgement, Civil Penalties and Officer-And-Director Bars Against Timothy Huff, Lawrence Lynch, Joseph J. Monterosso, Luis Vargas

Recently, the Securities and Exchange Commission (Commission) announced that the United States District Court for the Southern District of Florida granted the Commission’s motions for disgorgement, civil penalties, and officer-and-director bars against the four remaining defendants in a civil action arising from a Florida-based accounting fraud.

The district court adopted a recommendation previously entered by a magistrate judge and ordered the following remedies:

  • Former GlobeTel Communications (GlobeTel) chief executive officer Timothy Huff to pay a $1.21 million penalty and $1.5 million in disgorgement plus prejudgment interest. Judge Joan A. Lenard calculated Huff’s penalty by imposing a third-tier penalty for each of Huff’s 10 most-serious false disclosures. She also ordered him to disgorge the full $1.5 million that he received when he exercised stock options in the midst of the fraud.
  • Former GlobeTel chief financial officer Lawrence Lynch to pay a $780,000 civil penalty.
  • Former GlobeTel former executive Joseph J. Monterosso to pay a $300,000 penalty and $675,000 in disgorgement plus prejudgment interest (joint-and-severable with Luis Vargas) and Monterosso barred from serving as an officer or director of a public company for 10 years.
  • Former GlobeTel employee Luis Vargas to pay a $150,000 penalty and $675,000 in disgorgement plus prejudgment interest (joint-and-severable with Joseph J. Monterosso) and Vargas barred from serving as an officer or director of a public company for 10 years.

Starting in November 2007, the Commission brought civil actions against the defendants in connection with GlobeTel Communications Corp., now World Surveillance Group Inc. (GlobeTel). GlobeTel reported millions of dollars in telecommunications revenue from 2002 to 2006 that the Commission alleged was fake. Huff and former GlobeTel chief financial officer Thomas Jimenez were sentenced to prison as a result of parallel criminal prosecutions. See U.S. v. Huff, 09-cr-60295-DMM (S.D. Fla.); U.S. v. Jimenez, 08-cr-60367-DTKH (S.D. Fla.). GlobeTel and Jimenez previously consented to the entry of judgments against them in the Commission’s action.

The Commission’s complaint against Huff alleged that he created a scheme from 2002 to 2004 that made it appear that GlobeTel bought and sold telecom “minutes” with other companies in Mexico, Brazil and the Philippines. The complaint alleged that, in reality, there were no transactions and that Huff and Jimenez created false invoices and technical documents and that they lied to auditors.

The Commission’s complaint against Monterosso and Vargas alleged that they created hundreds of false invoices from 2004 to 2006 that made it appear that GlobeTel’s three wholly-owned subsidiaries, Centerline Communications, LLC (Centerline), Volta Communications, LLC (Volta), and Lonestar Communications, LLC (Lonestar) bought and sold telecom “minutes” with other wholesale telecom companies. The complaint alleged that, in reality, there were no transactions under the program that GlobeTel executives described as the “off-net” revenue program. It alleged that two of GlobeTel’s subsidiaries – Volta and Lonestar – actually did no business. It alleged that the third subsidiary, Centerline, reported millions of dollars in business with Monterosso’s and Vargas’ own private company, Carrier Services Inc. (CSI), which did not occur.

The Commission’s complaint against Lynch alleged that he was aware that the invoices submitted by Monterosso and Vargas did not represent actual telecom business conducted by Centerline. The complaint alleged that Lynch made and approved journal entries in GlobeTel’s financial records to record revenue and to conceal that GlobeTel and its supposed counter-parties were not paying their bills.

In May 2008 and August 2010 respectively, Lynch and Huff consented to the entry of judgments against them in the Commission’s action. On May 20, 2008, the court barred Lynch from serving as an officer or director for five years. On September 7, 2010, the court permanently barred Huff from serving as an officer or director.

On March 31, 2011, the court granted the Commission’s motions for summary judgment against Monterosso and Vargas.

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