SEC Files Charges Against Ex-General Employment Chairman

U.S. regulators have filed civil fraud charges against a former federal prosecutor and Kentucky lieutenant governor, saying he misled auditors about missing funds as chairman of an employment staffing company.

The Securities and Exchange Commission alleged that Stephen Pence, who was majority shareholder and chairman of General Employment Enterprises, acted as front man for a convicted felon who schemed to divert $2.3 million from the company.

Pence “had nothing to do with that, had no knowledge of” the missing funds, his attorney, Michael Valenti, said by telephone Wednesday. Valenti said Pence will contest the charges, which he called “a heavy-handed tactic” by the regulators to punish Pence for not agreeing earlier to a settlement of more narrow allegations.

The SEC settled separate charges with big accounting firm BDO for missing red flags and issuing misleading audits of Oakbrook Terrace, Illinois-based General Employment in 2009. BDO, based in Chicago, admitted wrongdoing and is paying a $1.5 million fine and returning about $600,000 in audit fees and interest. Five BDO partners also settled charges for their alleged roles in the deficient audits; they neither admitted nor denied the allegations.

In addition, two former CEOs of General Employment agreed to settle SEC charges of making misleading statements and omissions to the BDO auditors. Each of them is paying a $150,000 fine, and neither admitted nor denied wrongdoing.

Pence, 61, who lives in Louisville, was lieutenant governor of Kentucky from 2003 to 2007 and U.S. attorney for the western district of Kentucky from 2001 to 2003.

In its suit against Pence, the SEC said he misled the BDO auditors in 2009 about $2.3 million in company funds that was said to have been invested in a 90-day certificate of deposit. The auditors were told that the money – representing about half of General Employment’s assets and effectively all its cash – wasn’t repaid by the bank when the CD matured.

The company later received deposits totaling $2.3 million from three businesses not connected to the bank, one of which was said to be owned by Pence, circumstances that the SEC called suspicious.

In exchange for acting as a front man for businesses owned by the felon, Wilbur Anthony Huff, Pence received $500,000 and a Cadillac Escalade valued at $50,000, the SEC said.

Valenti said that Pence did legal work for Huff. No General Employment shareholders lost money as a result of the incident, and Pence as chairman never received money from the company, he said.

Huff, a Louisville businessman, pleaded guilty last December to corruption, fraud, bribing New York bank officials and costing the Internal Revenue Service $53 million in losses. The offenses he acknowledged included misappropriating the $2.3 million from General Employment. Huff was sentenced in June to 12 years in prison.

Federal prosecutors have said that Huff had a corrupt relationship with Charles Antonucci Sr., the former president and CEO of Park Avenue Bank, which failed in 2010. Antonucci was the first person convicted of fraud in the federal bailout program, put in place during the financial crisis in 2008 to rescue hundreds of banks and bolster the U.S. financial system. He was sentenced last month to 2 1/2 years in prison.

The SEC alleged that Pence directed General Employment to open a checking account at Park Avenue Bank and became one of three signatories on the account, knowing at the time that Huff had dealings with Antonucci. Huff caused General Employment to transfer $2.3 million from its account at the bank to a business owned by Antonucci, Park Avenue Insurance, as part of a criminal scheme, the SEC said.