Chairman Cox to Testify
Christopher Cox, Chairman, U.S. Securities and Exchange Commission, will testify before the Contracting and Technology Subcommittee of the House Small Business Committee on Tuesday, Feb. 26, 2008, concerning 'Plain Language in Paperwork — The Benefits to Small Business'. The hearing will be held in Room 2360 of the Rayburn House Office Building at 2:00 p.m.
SEC Settles with Former Stock Options Administrator for Stock and Stock Options Theft
The SEC announced today that it settled its enforcement action with Vencent A. Donlan (Donlan), former stock options administrator at Wireless Facilities, Inc. (WFI) (now Kratos Defense & Security Solutions, Inc.) for his violations of the federal securities laws in fraudulently obtaining stock and stock options from WFI. The SEC also settled with Donlan's wife, Robin D. Colls Donlan (Colls), who was named as a relief defendant to recover proceeds from the fraud.
The Honorable John A. Houston, U.S. District Judge for the Southern District of California, entered a permanent injunction against Donlan enjoining him from violations of the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 and the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Judge Houston also ordered Donlan to pay disgorgement in the amount of $6,252,715.42, plus prejudgment interest thereon in the amount of $153,611.23, but payment was waived for the amount exceeding $5.5 million and civil penalties were not imposed against Donlan based on his sworn representation of his financial condition. Colls was held jointly and severally liable for the disgorgement and prejudgment interest, and she also made a sworn representation of financial condition. Donlan and Colls were ordered to pay the disgorgement by turning over to WFI all assets related to the fraud, including bank and brokerage accounts, retirement accounts, and real property.
The Commission's first amended complaint alleged that between November 2002 and November 2003, Donlan abused his position as WFI's stock options administrator to issue and transfer over 700,000 shares of WFI stock and stock options to a brokerage account. According to the amended complaint, Donlan caused these transfers by making false entries in WFI's stock options software to create and then hide the unauthorized stock options grants and by providing false information to WFI's brokerage firm and transfer agent. Donlan sold the fraudulently obtained stock and stock options for a net gain of approximately $6.3 million.
On Oct. 26, 2007, under the terms of a plea agreement with the U.S. Attorney's Office for the Southern District of California, Donlan began serving a forty-six month prison sentence for federal wire fraud and tax evasion violations related to his fraudulent scheme.
For additional information, see Litigation Release No. 20101 (May 3, 2007), Litigation Release No. 20218 (July 31, 2007) and Litigation Release No. 20329 (Oct. 12, 2007). [SEC v. Vencent A. Donlan, Defendant, and Robin D. Colls Donlan, Relief Defendant, Civil Action No. 07 CV 793 JAH (S.D. Cal.).] (LR-20464)
SEC Files Charges Against Florida-Based Energy Company and its CEO
On February 22, the Commission filed an action against GMC Holding Corporation (GMC) and its chief executive officer, Richard Brace, for defrauding investors by issuing false press releases touting the company's development of a motor technology device capable of generating unlimited energy and negotiations to sell this technology for hundreds of millions of dollars. The Commission's complaint further alleges that these false press releases enabled GMC and Brace to raise more than $2 million from investors through illegal unregistered offerings of the company's stock.
According to the Commission's complaint, GMC and Brace issued press releases in 2005 falsely claiming independent tests, issued by a professional engineer, on the motor device showed it was able to produce more energy than it consumed. The complaint also alleges that GMC and Brace issued false press releases in February and March 2006 stating that it was negotiating with unnamed S&P 500 corporations to acquire the company's technology for $300–500 million. These press releases, drafted by Brace, were utterly false. In reality, according to the complaint, the press releases claiming that the motor device produced more energy than it consumed failed to include the professional engineer's limitations, namely that the efficiency lasted only a few moments and that they were unable to duplicate the results in subsequent tests. Additionally, GMC and Brace never contacted, much less negotiated with, an S&P corporation, or any other company, regarding the sale of the company's technology. According to the complaint, GMC's false press releases artificially pumped up the company's share price and trading volume and helped GMC raise more than $2 million from investors through illegal unregistered stock offerings, which provided GMC's only source of revenue.
The Commission's complaint charges that the defendants violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (Exchange Act) by conducting an unregistered offering of securities and making material misrepresentations and omissions to investors. The Commission's complaint seeks a final judgment permanently enjoining defendants from further securities laws violations, ordering defendants to disgorge their ill-gotten gains, and assessing civil penalties. The complaint further seeks an order barring Brace from serving as an officer or director of a public company and from participating in any offering of a penny stock. [SEC v. GMC Holding Corporation and Richard Brace, Case No. 6:08-CV-00275-GKS-KRS (M. D. Fla.)] (LR-20465)
INVESTMENT COMPANY ACT RELEASES
Orders of Deregistration Under the Investment Company Act
Orders have been issued under Section 8(f) of the Investment Company Act declaring that each of the following has ceased to be an investment company:
Proposed Rule Changes
A proposed rule change (SR-CBOE-2008-14) has been filed by the Chicago Board Options Exchange to establish a Solicitation Auction Mechanism and to amend its Automated Improvement Mechanism under Section 19(b)(2) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57357)
The Depository Trust Company filed a proposed rule change (SR-DTC-2006-16) pursuant to Section 19(b)(1) of the Act that will update, standardize, and restate the requirements for the Fast Automated Securities Transfer Program (FAST), will delineate the responsibilities of DTC and the transfer agents with respect to the securities held by transfer agents as part of the FAST program, and will restate the requirements for transfer agents participating in the Direct Registration System. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57362)
The Commission is publishing notice of a proposed rule change (SR-CHX-2007-21), as modified by Amendment No. 1 thereto, submitted by the Chicago Stock Exchange under Rule 19b-4 of the Securities Exchange Act of 1934 to amend rules relating to its registration requirements. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57363)
The American Stock Exchange filed a proposed rule change, and Amendment No. 1 thereto, under Rule 19b-4 (SR-Amex-2008-09) relating to options linkage fees. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57373)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval of a proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2007-109), as modified by Amendment No. 1 thereto, adopting generic listing standards for exchange-traded funds based on international or global indexes or portfolios, or indexes or portfolios described in exchange rules previously approved by the Commission as underlying benchmarks for derivative securities. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57365)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by The Depository Trust Company (SR-DTC-2008-01) to modify its system to provide its participants with the option of submitting deliver orders from 8 p.m. to 11 p.m. has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57374)
A proposed rule change (SR-NASDAQ-2008-011) filed by The NASDAQ Stock Market to allow issuers of PORTAL equity securities to select alternative settlement procedures has become effective pursuant to Section 19(b)(3)(A)(iii) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57368)
A proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2008-13) relating to fee changes has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57374)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS