Following is a schedule of Commission meetings, which will be conducted under provisions of the Government in the Sunshine Act. Meetings will be scheduled according to the requirements of agenda items under consideration.
Open meetings will be held in the Auditorium, Room L-002 at the Commission's headquarters building, 100 F Street, N.E., Washington, D.C. Visitors are welcome at all open meetings, insofar as space is available. Persons wishing to photograph or videotape Commission meetings must obtain permission in advance from the Secretary of the Commission. Persons wishing to tape record a Commission meeting should notify the Secretary's office 48 hours in advance of the meeting.
Any member of the public who requires auxiliary aids such as a sign language interpreter or material on tape to attend a public meeting should contact Rochelle Franks, Office of Human Resources, to make arrangements. Ms. Franks can be reached at TTY number (202) 551-4106. In the event Ms. Franks cannot be reached, you may call the interpreter directly at (202) 551-4158. If you are calling from a non TTY number, please call the Relay Service at 1 866 377 8642.
Open Meeting - Wednesday, January 30, 2008 - 10:00 A.M.
The subject matter of the open meeting scheduled for Wednesday, January 30, will be:
The Commission will hear oral argument in an appeal by Jeffrey L. Gibson from the decision of an administrative law judge. Gibson is a part-owner and associated person of Gibson Gaither Wealth Management Advisors, an investment adviser, and also was, during the time at issue, associated with H. Beck, Inc., a broker-dealer. On May 9, 2006, the United States District Court for the Northern District of Georgia enjoined Gibson, with his consent, from violations of the antifraud provisions of the securities laws.
Upon motion for summary disposition, the law judge found that it was undisputed that Gibson was associated with an investment adviser and a broker-dealer and that he had been enjoined from violating the antifraud provisions of the securities laws. The law judge determined that Gibson should be barred from association with an investment adviser or broker-dealer.
Among the issues likely to be argued are:
Closed Meeting - Wednesday, January 30, 2008 - 11:00 A.M.
The subject matter of the closed meeting scheduled for Wednesday, January 30, will be: Post-argument discussion.
Closed Meeting - Thursday, January 31, 2008 - 10:00 A.M.
The subject matter of the closed meeting scheduled for Thursday, January 31, will be: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings of an enforcement nature; Resolution of litigation claims; and Post-argument discussion.
At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.
Commission Files Settled Actions Against Four Former Arthur Andersen Partners in Connection With the Audits of Enron's Financial Statements
The Commission today announced the filing and simultaneous settlement of actions against former Arthur Andersen LLP (Andersen) partners in connection with the audits of Enron Corp.'s financial statements. David B. Duncan, former global engagement partner for the Enron engagement, consented to a settled civil injunctive action charging him with violating the antifraud provisions of the federal securities laws, and to a related administrative proceeding permanently suspending him from appearing or practicing before the Commission. Three other Andersen partners, Thomas H. Bauer, Michael M. Lowther and Michael C. Odom, consented to settled administrative proceedings which found that they had each engaged in improper professional conduct in connection with their Enron work, and each was denied the privilege of appearing or practicing before the Commission. The defendant and respondents settled without admitting or denying the allegations or findings in the Commission's Complaint and Orders.
Despite these risks, Duncan failed to exercise due professional care and the necessary skepticism required under Generally Accepted Auditing Standards ("GAAS") to ensure Enron's financial statements were presented in conformity with Generally Accepted Accounting Principles ("GAAP"). For example, Duncan failed to ensure that the engagement team audited certain transactions known as the "Prepays," "Nahanni" and the "Raptors" in accordance with GAAS and failed to ensure that Enron properly presented and disclosed the transactions in its financial statements. Duncan, as the global engagement partner for the Enron audits, was ultimately responsible for determining whether an unqualified opinion should be issued within the auditors' report. As such, when he issued unqualified audit opinions indicating Andersen's audits of Enron's financial statements for the years 1998 through 2000 were conducted in accordance with GAAS, and that Enron's financial statements were presented, in all material respects, in accordance with GAAP, he made material misstatements or omissions in Andersen's auditors' reports that were filed with Enron's 1998, 1999, and 2000 Forms 10-K. As a result of his conduct, Duncan violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Duncan's settled civil injunctive action is subject to court approval.
Duncan also consented to an order under Rule 102(e) of the Commission's Rules of Practice ("Rule 102(e)") permanently suspending him from appearing or practicing before the Commission as an accountant, based on the anticipated entry of an injunction against him, pursuant to Rule 102(e)(3).
The Commission's Order as to Bauer finds that during the 1997 audit, Bauer engaged in improper professional conduct by failing to conduct the audit of an Enron transaction known as "JEDI/Chewco" in accordance with GAAS. Bauer failed to obtain sufficient competent evidential matter to support his analysis of Chewco in determining whether the newly-formed entity met certain GAAP requirements concerning special purpose entities ("SPEs"). In particular, Bauer asked for, but was denied access to, documents relating to the funding of Chewco. Instead, he relied on oral management representations. Bauer should have insisted on seeing additional relevant documents related to the funding of Chewco. Bauer also violated professional standards by failing to sufficiently document his planning and supervision of audit procedures and the audit evidence obtained in reaching his conclusions. Based on these findings, the Commission found that Bauer engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii).
The Commission's Order as to Lowther finds that during the 1999 and 2000 audits, Lowther engaged in improper professional conduct by concurring with the audit engagement team's faulty conclusions regarding Enron's accounting and disclosure for certain transactions and authorizing the issuance by Andersen of unqualified audit reports that were materially false and misleading. In particular, Enron's management rejected the engagement team's recommendation for more robust disclosure of the Prepays. Despite this, Lowther consulted with Duncan and others regarding the Prepay disclosures and they determined, improperly, that Enron's disclosures complied with GAAP without the proposed enhancements.
The Commission's Order further finds that in his concurring partner role during the 1999 audit, Lowther reviewed documentation for the Nahanni transaction and missed various red flags indicating that Nahanni was purely a "window dressing" transaction that had no material economic benefit to Enron. Consequently, in his review of the Nahanni transaction, Lowther failed to exercise due professional care and skepticism and failed to ensure Enron's balance sheet and cash flow statement were not materially misleading.
Lowther also failed in his obligations to exercise due professional care and professional skepticism in his review of the Raptors - four complex SPE structures involving LJM2, a fund formed and managed by Enron's then Chief Financial Officer. Despite internal Andersen documents noting Enron's "extreme" or "very significant" financial reporting risk, Lowther concurred with the engagement team and overlooked repeated red flags and accepted Enron's accounting and misleading disclosure of the Raptors. Based on these findings, the Commission found that Lowther engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii).
The Commission's Order as to Odom finds that during the 1999 and 2000 audits, Odom engaged in improper professional conduct by concurring with the audit engagement team's faulty conclusions regarding Enron's accounting and disclosure for certain transactions and authorizing the issuance by Andersen of unqualified audit reports that were materially false and misleading. In particular, in 1999 and 2000, Enron's management rejected the engagement team's recommendation for more robust disclosure of the Prepay transactions. Odom consulted with Duncan and others regarding the Prepay disclosures and they determined, improperly, that Enron's disclosures complied with GAAP without the proposed enhancements. Odom also failed in his obligations to exercise due professional care and professional skepticism in determining whether the accounting and disclosure of the Raptor transactions complied with GAAP. Based on these findings, the Commission found that Odom engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii).
The Commission's investigation is continuing. (Rels. Odom - 34-57209, AAE Rel. 2774, File No. 3-12937; Lowther - 34-57210, AAE Rel. 2775, File No. 3-12938; Bauer - 34-57211, AAE Rel. 2776, File No. 3-12939); [SEC v. David B. Duncan, Civil Action No. 4:08-CV-00314(S.D. Tex.)] (LR-20441; AAE Rel. 2777)
In the Matter of Joseph A. Ferona, Jr.
On January 25, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940 and Notice of Hearing against Joseph A. Ferona, Jr. (Ferona), formerly of Castle Rock, Colorado.
In the Order Instituting Proceedings (Order), the Division of Enforcement alleges that Ferona entered a guilty plea to one count of mail fraud and that he was permanently enjoined by default from future violations of the securities laws. The Division of Enforcement further alleges that Ferona was an associated person of an unregistered investment adviser, Castle Rock Trading Company, and that he acted as a broker or dealer when he sold securities in the Global Prosperity Fund.
By order dated Feb. 22, 2006, an administrative law judge dismissed without prejudice a prior administrative proceeding against Ferona, which was based upon the entry of the injunction against him, due to the Division of Enforcement's failure to serve Ferona with the Order Instituting Proceedings. See Investment Advisers Act Release No. 2447 (Nov. 25, 2005). The Commission thereafter ratified the actions taken resulting in the dismissal and authorized the institution of this proceeding.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Ferona an opportunity to dispute these allegations, and to determine what remedial sanctions, if any, are appropriate in the public interest. The Order requires the administrative law judge to issue an initial decision no later than 210 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rels. 34-57205; IA-2697; File No. 3-12935)
Delinquent Filers Stock Registrations Revoked
The registrations of the stock of Respondents ABC Dispensing Technologies, Inc., Access Tradeone.com, Inc., Addison-Davis Diagnostics, Inc., Aden Enterprises, Inc., Advanced Recycling Sciences, Inc., and Advanced Systems International, Inc., have been revoked. None had filed any annual or quarterly reports with the Securities and Exchange Commission for more than a year. Thus, each violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocations were ordered in an administrative proceeding before an administrative law judge. (Rel. 34-57208; File No. 3-12921)
In the Matter of Heartland Advisors, Inc., et al
On January 25, the Commission issued an Order Instituting Administrative and Cease-And-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and Cease-and-Desist Orders Pursuant to Section 8A of the Securities Act of 1933, Sections 15(b)(4), 15(b)(6) and 21C of the Securities Exchange Act of 1934, Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940 against Heartland Advisors, Inc. (Heartland), a Wisconsin-based investment adviser, and several current and former employees of Heartland: William J. Nasgovitz, Thomas J. Conlin, Greg D. Winston, Paul T. Beste, Kevin D. Clark, Kenneth J. Della, and Hugh F. Denison, for violations of the Securities Act of 1933, Investment Advisers Act of 1940, and Investment Company Act of 1940. The respondents consented to the Order without admitting or denying the Commission's findings, except as to jurisdiction, which was admitted.
The Order finds that from March 1, 2000 into October 2000, Heartland negligently mispriced certain bonds owned by two high-yield municipal bond funds. The funds' portfolios included several municipal bonds that were valued by the funds at prices above their fair values. As a result, throughout that time period, the funds' net asset values were incorrect, the funds' shares were incorrectly priced, and investors purchased and redeemed fund shares at prices that benefited redeeming investors at the expense of remaining and new investors. On October 13, 2000, Heartland devalued the bonds, thereby resulting in approximately $60 million in monetary losses to shareholders.
The Order finds violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, Section 206(2) of the Investment Advisers Act, and Section 34(b) of the Investment Company Act and Rule 22c-1(a) thereunder. The Order imposes civil penalties, disgorgement, and prejudgment interest totaling $3,907,095, censures Heartland Advisors, Nasgovitz, Conlin, Winston, Beste, Clark, and Della, and imposes twelve-month suspensions against two former employees, Winston and Della, for liquidating their shares of the mutual funds prior to the October 13, 2000 devaluation. The Order also directs Heartland Advisors, Nasgovitz, Conlin, Winston, Beste, Clark, Della, and Denison to cease and desist from committing or causing future violations of some or all of the forgoing provisions of the federal securities laws. (Rels. 33-8884; 34-57206; IA-2698; IC-28136; File No. 3-12936)
INVESTMENT COMPANY ACT RELEASES
Schroder Series Trust, et al.
A notice has been issued giving interested persons until Feb. 19, 2008, to request a hearing on an application filed by Schroder Series Trust, et al., for an order under Section 6(c) of the Investment Company Act for an exemption from Rule 12d1-2(a) under the Act. The order would permit funds of funds relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-28133 - January 24)
Notices of Deregistration Under the Investment Company Act
For the month of January 2008, a notice has been issued giving interested persons until Feb. 19, 2008, to request a hearing on any of the following applications for an order under Section 8(f) of the Investment Company Act declaring that the applicant has ceased to be an investment company:
Proposed Rule Changes
The Commission issued notice of filing of a proposed rule change, as modified by Amendment No. 1 thereto (SR-Amex-2007-109), submitted by the American Stock Exchange relating to the trading of Exchange Traded Notes (ETNs). Publication is expected in the Federal Register during the week of January 28. (Rel. 34-57187)
A proposed rule change (SR-NASD-2005-114) and Amendment Nos. 1, 2, 3 and 4 thereto has been filed by the National Association of Securities Dealers. (n/k/a Financial Industry Regulatory Authority, Inc.) relating to the regulation of compensation, fees, and expenses in public offerings of real estate investments trusts and direct participation programs. Publication is expected in the Federal Register during the week of January 28. (Rel. 34-57199)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval of a proposed rule change, as modified by Amendments No. 1 and 2 (SR-Amex-2007-70), submitted by the American Stock Exchange under Rule 19b-4 of the Securities Exchange Act of 1934 relating to the listing and trading of units of the United States Heating Oil Fund, LP and the United States Gasoline Fund, LP. Publication is expected in the Federal Register during the week of January 28. (Rel. 34-57188)
Immediate Effectiveness of Proposed Rule Changes
The Options Clearing Corporation filed a proposed rule change (File No. SR-OCC-2007-17), which became effective upon filing, under Section 19(b)(1) of the Exchange Act relating to its clearing fee schedule. Publication is expected in the Federal Register during the week of January 28. (Rel. 34-57192)
SECURITIES ACT REGISTRATIONS
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