Commission MeetingsClosed Meeting - Monday, March 3, 2008 - 2:00 p.m.
The subject matter of the closed meeting scheduled for Monday, March 3, 2008, will be: Formal order of investigation; Institution and settlement of injunctive actions; Resolution of a litigation claim; Institution of administrative proceedings of an enforcement nature; and a matter related to an enforcement proceeding.
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.
In the Matter of Accent Color Sciences, Inc., et al.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default as to Three Respondents (Default Order) in the matter of Accent Color Sciences, Inc., et al. The Order Instituting Proceedings alleged that six Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Commission. The Default Order finds these allegations to be true as to three of the six Respondents. The Default Order revokes the registrations of each class of registered securities of Accent Color Sciences, Inc., ActFit.com, Inc., n/k/a Telum International Corp., and Alford Refrigerated Warehouses, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934.
The Commission accepted an offer of settlement from a fourth Respondent, AdPads, Inc., on Feb. 12, 2008. The proceeding remains pending as to the fifth and sixth Respondents, Advanced Products Group, Inc., n/k/a Cloudtech Sensors, Inc., and Aero Group, Inc. (Rel. 34-57378; File 3-12922)
SEC Charges Two Individuals in Pump and Dump Scheme Involving "Hijacking" a Public Shell Company and Counterfeiting Securities
The Commission today announced that it filed a complaint in the U.S. District Court for the District of Arizona against Mario A. Pino for violating the antifraud and securities registration provisions of the federal securities laws. The complaint alleges that Mario A. Pino usurped the "corporate identity" of Bancorp International Group, Inc. (BCIT), a public shell, by fabricating, issuing, and trading fraudulently issued shares of the company. The complaint also alleges that Pino issued false press releases between May 2 and July 13, 2005, and issued millions of shares of fraudulent BCIT stock to himself and others. The complaint alleges Pino sold 175,005,000 shares, earning profits of $269,033, in unregistered, non-exempt transactions into the resulting inflated market.
The complaint alleges that Pino violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Commission seeks a permanent injunction against Pino, disgorgement, including pre- and post-judgment interest, third-tier civil penalties, an officer and director bar, and a penny stock bar.
On February 25, the Commission issued an Order Instituting Administrative and Cease-and Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Sections 17A(c) and 21C of the Securities Exchange Act of 1934 (Order) as to Pamela J. Thompson. The Order finds that, in April and May 2005, Thompson prepared false BCIT documents, including counterfeit stock certificates, while knowing she did not have the proper authority. Thompson is a resident of Phoenix, Arizona. During June and July 2005, Thompson received and sold two million shares of fraudulent BCIT stock, earning profits of $7,632. Thompson also acted as the transfer agent of BCIT between April and August 2005 even though she never registered as a transfer agent with the Commission. As a result of the conduct described above, Thompson committed violations of Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act and willfully violated Section 17A of the Exchange Act and Rule 17Ac2-1 thereunder.
The Commission ordered that Thompson cease and desist from committing or causing any violations and any future violations of Sections 5(a), 5(c), 17(a)(2), and 17(a)(3) of the Securities Act and Section 17A of the Exchange Act and Rule 17Ac2-1 thereunder; be barred from association with any transfer agent, with the right to reapply for association after three (3) years; and pay disgorgement of $7,632 and prejudgment interest of $830.82. The Commission is not imposing a penalty against Thompson based on her inability to pay. Finally, the Commission ordered Thompson to comply with her undertaking to cooperate with the Commission. Thompson consented to the issuance of the Order without admitting or denying any of the findings in the Order. [SEC v. Mario A. Pino, Civil Action No. 08-CV-353 (MHM), U.S. District Court for the District of Arizona] (LR-20466); (Administrative Proceeding - Rels. 33-8899; 34-57379; File No. 3-12969)
In the Matter of Nicholas Difazio, CPA
In the Matter of Duane Higgins, CPA
Two Deloitte & Touche Partners Settle Improper Professional Conduct Charges, Pursuant to Commission Rule 102(E), for their Audits of Delphi Corporation
On February 26, the Commission instituted two settled administrative proceedings finding that Nicholas Difazio and Duane Higgins, Deloitte & Touche LLP (D&T) engagement partners on the 2000 and 2001 audits of the financial statements of Delphi Corporation, engaged in improper professional conduct on those audits.
In its first Order, the Commission found that Difazio, the lead engagement partner, engaged in improper professional conduct in auditing: (1) Delphi's improper accrual of an estimated warranty expense by its former parent as a direct charge to equity in the second quarter of 2000, rather than as an expense of the period in accordance with GAAP; (2) Delphi's improper classification of most of a $237 million payment settling the former parent's warranty claims to pension and other post-employment benefit "true-up," causing the amount to be accounted for as prepaid pension cost in the third quarter of 2000 in contravention of GAAP; and (3) Delphi's failure to account for the fourth quarter 2000 sale of certain batteries and generator cores, coincident with a side agreement to repurchase that inventory, as a financing transaction, as required by GAAP.
In a separate Order, the Commission found that Higgins, the audit engagement partner, engaged in improper professional conduct with respect to issue (3) above, as well as in connection with Delphi's failure to account for the simultaneous execution of agreements to sell and repurchase precious metals in the fourth quarter of 2000 as a financing transaction, as required by GAAP.
In each Order, the Commission found that Difazio and Higgins, among other things, failed to obtain sufficient competent evidential matter to afford a reasonable basis for the opinion rendered by D&T, to exercise due professional care in the planning and performance of the Delphi audit, and in performing the audit to identify material departures from GAAP in the financial statements.
The Commission's Orders denied Difazio the privilege of appearing or practicing before the Commission, pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice, with a right to reapply after three years, and denied Higgins the privilege of appearing or practicing before the Commission, pursuant to Rule 102(e)(1)(ii), with a right to reapply after two years.
Both Difazio and Higgins consented, respectively, to the issuance of the Orders without admitting or denying the findings of the Orders. (Higgins - Rel. 34-57380, AAE Rel. 2791, File No. 3-1297; Difazio - Rel. 34-57381, AAE Rel. 2792, File No. 3-12971)
SEC Sues Former AXM Pharma, Inc. Officer for Massively Inflating the Company's Revenue
The Commission filed civil charges on February 21 against Chester E. Howard, the former chief executive and acting chief financial officer of AXM Pharma, Inc., based in Las Vegas, Nevada. The Commission's complaint, filed in federal district court in Las Vegas, alleges that Howard, age 65 and a resident of Las Vegas, improperly directed AXM to overstate its revenues by over 700 percent for the quarter ended June 30, 2005.
According to the complaint, Howard directed AXM to overstate its reported revenue of $3.2 million by approximately $2.8 million. The complaint alleges that the overstated revenue resulted from sales to distributors in Asia in which the distributors had a right to return the goods and were not obligated to pay for them until they re-sold the goods. Further, the complaint alleges that Howard knew that at least a portion of the goods had not been delivered to the distributors. The complaint further alleges that these sales failed to meet several of the fundamental criteria for revenue recognition under Generally Accepted Accounting Principles. In addition, the complaint alleges that Howard caused AXM to falsely report quarterly net income of approximately $179,000, when in fact AXM had a net loss of approximately $1.46 million for the quarter.
The Commission's complaint further alleges that Howard misled investors about AXM's revenue and earnings in the company's quarterly and current reports filed with the Commission, in press releases, and in a conference call with investors and analysts. The complaint also alleges that Howard falsely certified the company's quarterly report, made false statements to AXM's independent accountant in connection with the quarter review, and caused AXM's violations of the internal controls and books and records provisions of the securities laws.
The complaint seeks a permanent injunction against Howard from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-11, and 13a-13. The complaint also seeks an order baring Howard from serving as an officer and director of a public company and imposing civil penalties.
In a separate but related action, on February 14, the Commission instituted administrative proceedings against AXM for various violations of the antifraud, issuer reporting, books-and-records, and internal controls provisions of the federal securities laws. Simultaneously with the institution of the proceedings, and without admitting or denying the Commission's findings other than as to the Commission's jurisdiction over it, AXM consented to the issuance of the order. For further information see Exchange Act Release No. 57330, Accounting and Auditing Enforcement Release No. 2784 (Feb. 14, 2008). [SEC v. Chester E. Howard, Civil Action No. 2:08-CV-00221, USDC, D. NEV.] (LR-20467; AAE Rel. 2790)
INVESTMENT COMPANY ACT RELEASES
NETS Trust, et al.
A notice has been issued giving interested persons until March 14, 2008, to request a hearing on an application filed by the NETS Trust, Northern Trust Investments, N.A. and Foreside Fund Services, LLC for an order to permit (a) series of registered open-end management investment companies whose portfolios will consist of the securities of equity securities indices to issue shares that can be redeemed only in large aggregations, (b) secondary market transactions in shares of the series to occur at negotiated prices, (c) dealers to sell the series' shares to purchasers in the secondary market unaccompanied by a prospectus when prospectus delivery is not required by the Securities Act of 1933, (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series, (e) certain series to pay redemption proceeds more than seven days after the tender of shares for redemption under certain circumstances, and (f) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire shares. (Rel. IC-28166 - February 25)
Schroder Series Trust, et al.
An order has been issued on an application filed by Schroder Series Trust, et al., under Section 6(c) of the Investment Company Act for an exemption from Rule 12d1-2(a) under the Act. The order permits funds of funds relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-28167 - February 25)
Kohlberg Capital Corporation
A notice has been issued giving interested persons until March 21, 2008, to request a hearing on an application filed by Kohlberg Capital Corporation (Kohlberg Capital) for an order under Section 6(c) of the Investment Company Act for an exemption from Sections 23(a), 23(b) and 63 of the Act, and under Sections 57(a)(4) and 57(i) of the Act and Rule 17d-1 under the Act authorizing certain joint transactions otherwise prohibited by Section 57(a)(4) of the Act. The order would permit Kohlberg Capital to issue restricted shares of its common stock to its officers and employees under the terms of its equity incentive compensation plan. (Rel. IC-28168 - February 25)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-NYSEArca-2008-17) filed by NYSE Arca to create a delta hedging exemption from equity options position limits 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. 34-57358)
A proposed rule change (SR-Phlx-2008-07) filed by the Philadelphia Stock Exchange to create a delta hedging exemption from equity options position limits 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. 34-57359)
A proposed rule change (SR-ISE-2008-06) filed by the International Securities Exchange to create a delta hedging exemption from equity options position limits 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. 34-57360)
A proposed rule change filed by the International Securities Exchange (SR-ISE-2008-14) relating to Solicitation of Interest orders has become 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. 34-57375)
Proposed Rule Change
The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2007-120) and Amendment No. 1 thereto under Rule 19b-4 of the Securities Exchange Act of 1934 relating to Market-Makers and Remote Market-Makers. Publication is expected in the Federal Register during the week of February 25. (Rel. 34-57367)
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