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The Securities and Exchange Commission yesterday charged Texas Attorney General Ken Paxton with fraud in a civil case, saying that he recruited investors to a technology company without disclosing he was being compensated to promote the company’s stock, the Wall Street Journal reported today. The SEC action comes eight months after Paxton was indicted by a county grand jury in Texas on similar securities fraud charges involving the tech company, Servergy Inc., and another firm. Paxton, a Republican, in August pleaded not guilty to the Texas grand-jury charges and has said that he won’t resign. The alleged violations took place before Paxton’s election as attorney general, when he was a state legislator. If convicted of the felony securities-fraud criminal charges in Texas, Paxton faces jail time of five to 99 years. The SEC action could result in a fine. Read more. (Subscription required.) 

Learn more about unwinding a fraud case by picking up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

Bankruptcy Judge Stuart Bernstein ordered that Bernard Madoff must submit to a deposition by lawyers for some former customers who lost money when the imprisoned swindler's firm collapsed in December 2008, Reuters reported on Friday. Judge Bernstein restricted questions to the meaning of more than 91,000 transactions recorded as "profit withdrawal" on the books of the former Bernard L. Madoff Investment Securities LLC. The judge also said whatever Madoff says can be used only in litigation over the profit withdrawal issue, and that Madoff must be instructed in advance not to wander off topic. Madoff would be deposed at the North Carolina prison where he is serving a 150-year sentence for running a huge Ponzi scheme, though it is unclear when the deposition will take place. Read more. 

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

A federal bankruptcy judge has ruled that Bernard Madoff can be questioned by lawyers for some former customers who lost money when the imprisoned swindler's firm collapsed in December 2008, Reuters reported yesterday. Bankruptcy Judge Stuart Bernstein authorized a deposition of Madoff at a March 23 hearing, and yesterday’s filing proposed a formal order that it be scheduled. A hearing on that request is scheduled for Wednesday. Questions would be limited to the meaning of more than 91,000 transactions recorded as "profit withdrawal" on the books of the former Bernard L. Madoff Investment Securities LLC, court papers showed. Some former customers believe that Irving Picard, the court-appointed trustee liquidating Madoff's firm, has undervalued their claims. They have argued that only Madoff would know how to properly account for profit withdrawals, and that what he might say could strengthen their hand in litigation. Read more.

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

HSBC Holdings Plc continues to struggle in its efforts to improve its anti-money laundering and sanctions violations controls, according to the latest annual review compiled by Michael Cherkasky, the bank’s court-appointed monitor, Bloomberg News reported on Friday. After a $1.9 billion fine and more than two years of oversight, HSBC has made “commendable progress” in improving its compliance program, but hasn’t gone far enough to satisfy Cherkasky that it can detect violations, according to a Justice Department summary of the review, filed in federal court on Friday. "The monitor believes that the bank continues to face significant challenges in implementing an AML and sanctions compliance program that effectively detects and prevents potential financial crime," prosecutors told U.S. District Judge Ann Donnelly in Brooklyn. HSBC agreed to submit to the monitor’s oversight as part of a December 2012 deferred-prosecution agreement with the Justice Department. The government required HSBC to improve its in-house controls after investigators found that it allowed billions of dollars to be transferred in violation of U.S. sanctions laws and anti-money-laundering statutes.

Two former TierOne Bank executives were sentenced Thursday to federal prison for their roles in a conspiracy plot to cover up loan issues, HousingWire.com reported on Friday. It’s being called “the largest failure in Nebraska’s history,” according to the office of the Special Inspector General for the Troubled Asset Relief Program. U.S. District Judge John Gerrard of the District of Nebraska, sentenced James Laphen, TierOne’s former president and chief operating officer, to 34 months in prison, and the bank’s former chief credit officer, Don Langford, to 21 months in prison. "Senior bank officials who keep two sets of books will be held accountable for their crimes, and the court's sentencing of two bank officials to prison today is proof of that," said Special Inspector General for TARP Christy Goldsmith Romero.

KaloBios Pharmaceuticals Inc. has lined up $14 million in loans to see it through and out of bankruptcy, financing that could be paid off in the form of bargain-priced stock that would water down the holdings of Martin Shkreli, Dow Jones Daily Bankruptcy Review reported today. Nomis Bay Ltd. has joined Black Horse Capital LP in offering loans designed to fund a deal to get KaloBios back on its feet and soothe a sore spot — the company's association with Shkreli, who attained notoriety for hiking the price of a vital drug by 5,000 percent last year. KaloBios was on the point of being liquidated last November when Shkreli took control of it, driving up the stock price. About a month later, he was pushed out of KaloBios after his arrest on fraud charges unrelated to KaloBios. He remains one of the company's largest shareholders.