SEC Suspends Trading in 26 Companies to Combat Corporate Hijackings
The Commission announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934, of trading of the securities of the following 26 companies at 9:30 a.m. EDT on March 13, 2008, and terminating at 11:59 p.m. EDT on March 27, 2008: Andros Isle Development Corp. (AVPJ); Asante Networks, Inc. (ASTN); Beluga Composites Corporation (BGCC); Cobra Energy Inc. (CBNG); Complete Care Medical, Inc. (CCMI); Disability Access Corporation (DBYC); El Alacran Gold Mine Corp. (EAGM); Extreme Fitness Inc. (EXTF); Gaming Transactions Inc. (GGTS); Global Equity Fund, Inc. (GEQF); HealthSonix Inc. (HSXI); IQ Webquest, Inc. (IQWB); JSX Energy Inc. (JSXG); Kensington Industries, Inc. (KSGT); Kingslake Energy Inc. (KGLJ); L International Computers Inc. (LITL); Let's Talk Recovery Inc. (LKRV); Mobilestream Oil, Inc. (MSRM); Mvive, Inc. (MVIV); Native American Energy Group Inc. (NVMG); Paramount Gold and Silver Corp. (PZG); Regal Technologies Inc. (RGTN); Remington Ventures, Inc. (REMV); Straight Up Brands, Inc. (STRU); Transglobal Oil Corp. (TRGO); and Turquoise Development Company (TQDC).
The Commission temporarily suspended trading in the securities of the 26 companies because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning their status as publicly-traded companies. Certain persons appear to have usurped the identity of 26 defunct or inactive publicly traded corporations, initially by incorporating 26 new entities using the same names as each of the defunct entities, and then by obtaining new CUSIP numbers and ticker symbols for use by the newly incorporated entities based on the apparently false representation that they were duly authorized officers, directors and/or agents of the original publicly traded corporations. See In the Matter of Andros Isle Development Corporation, Asante Networks, Inc., Beluga Composites Corporation, Cobra Energy Inc., Complete Care Medical, Inc., Disability Access Corporation El Alacran Gold Mine Corp., Extreme Fitness Inc., Gaming Transactions Inc., Global Equity Fund, Inc., HealthSonix Inc., IQ Webquest Inc., JSX Energy Inc., Kensington Industries, Inc., Kingslake Energy Inc., L International Computers Inc., Let's Talk Recovery Inc., Mobilestream Oil, Inc., Mvive Inc., Native American Energy Group Inc., Paramount Gold and Silver Corp., Regal Technologies, Inc., Remington Ventures, Inc., Straight Up Brands Inc., Transglobal Oil Corp., Turquoise Development Company, File No. 500-1. (Rel. 34-57486)
In the Matter of Gary Thomas Scherping, CPA
On March 13, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Gary Thomas Scherping, a certified public accountant who was licensed to practice in the State of Colorado from June 29, 1988 to May 31, 1998, when his license lapsed. He was Executive Vice President of Finance and Chief Financial Officer of Quovadx, Inc. (Quovadx) from approximately September 2000 until April 2004.
The Order finds that, on Feb. 29, 2008, a final judgment was entered against Scherping, in the U.S. District Court for Colorado, which permanently enjoins Scherping from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting any violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The Court ordered the injunction based on allegations in the Commission's complaint in the civil action entitled SEC v. Sweeney, et al., No. 1:07-cv-01511-WYD-MEH (filed July 17, 2007). Scherping was also ordered to pay a $70,000 civil money penalty and prohibited from acting as an officer or director for five years.
The Commission's complaint alleges, among other things, that between the second and fourth quarters of 2003, Quovadx fraudulently recognized over $12 million in software licensing revenue from transactions with three different third parties, overstating its software licensing revenue by proportions ranging from approximately 9 percent to nearly 180 percent. The complaint alleges that Scherping knew or was reckless in not knowing that Quovadx could not recognize the revenue from these transactions. The complaint also alleges that Scherping made false representations in letters to Quovadx's auditors about these transactions and that he signed false disclosure certifications in connection with the Company's reports on Form 10-Q for the pertinent quarters and its annual report on Form 10-K for 2003. Finally, the complaint alleges that Scherping circumvented internal accounting controls and falsified books and records in connection with these transactions.
Based on the Court's entry of an injunction against Scherping, the Commission ordered that Scherping be suspended from appearing or practicing before the Commission as an accountant with the right to seek reinstatement after five years. Scherping consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the Commission's jurisdiction over him, the subject matter of the proceedings, and the fact that the federal court entered the injunction against him. (Rel. 34-57490; AAE Rel. 2797; File No. 3-12989); [SEC v. Lorine Sweeney and Gary Scherping, Civ. No. 07-CV-01511 (WYD-MEH) (D. Colo.)] (LR-20493)
SEC Issues Notice of Proposed Distribution Plan and Opportunity for Comment in Alliance Capital Management Market Timing Case
The Commission announced today that it has given notice, pursuant to Rule 1103 of the Securities and Exchange Commission's Rules on Fair Fund and Disgorgement Plans, 17 C.F.R. § 201.1103, that the Division of Enforcement has filed a proposed plan (Distribution Plan) for the distribution of the Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 in the Matter of Alliance Capital Management, L.P. (Alliance Capital), Administrative Proceeding File No. 3-11359. The Fair Fund is comprised of $321 million in disgorgement and civil penalties plus accumulated interest paid in aggregate by Alliance Capital, three former Alliance Capital employees; and a market timer in certain Alliance Capital funds, as set forth in the Distribution Plan. Under the Distribution Plan, eligible investors would receive proportionate shares of the Fair Fund to compensate them for market timing at various times during the period of July 2000 to July 2003. Interested parties may print a copy of the Distribution Plan from the Commission's public website, http://www.sec.gov. Interested parties may also obtain a written copy of the Distribution Plan by submitting a written request to Gerald Gross, Assistant Regional Director, United States Securities and Exchange Commission, Room 4300, 3 World Financial Center, New York, NY 10281-1022. All persons who desire to comment on the Distribution Plan may submit their comments, in writing, no later than April 14, 2008: (1) to the Office of the Secretary, United States Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549-1090; (2) by using the Commission's Internet comment form (http://www.sec.gov/litigation/admin.shtml); or (3) by sending an e-mail to firstname.lastname@example.org. Comments submitted by e-mail or via the Commission's website should include "Administrative Proceeding File Number 3-11359" on the subject line. Comments received will be publicly available. Persons should submit only information that they wish to make publicly available.
For more information, see Investment Advisers Act of 1940 Release No. 2205A; Investment Company Act of 1940 Release No. 26312A; Press Release No. 2003-176 (Administrative Proceeding File No. 3-11359); and Litigation Release No. 19526 (Jan. 10, 2006) (SEC v. Daniel Calugar and Security Brokerage, Inc., Case No. CV-S-03-1600-RCJ-RJJ (D. Nev.). (Rel. 34-57489; File No. 3-11359)
Former Officers of St. Petersburg, Florida Company, Paul L. Simmons and Rodney C. Gilbert, are Ordered to Pay More Than $1 Million In Disgorgement and Penalties for Violations of The Anti-Fraud and Registration Provisions of The Federal Securities Laws
On Feb. 28, 2008, the U.S. District Court for the Middle District of Florida entered final judgments against Paul L. Simmons and Rodney C. Gilbert, the former CEO and CFO of Nutraceutical Clinical Laboratories International, Inc. ("Nutraceutical" or the "Company"), a public company based in St. Petersburg, Florida. The Court's judgment orders Simmons and Gilbert to disgorge, jointly and severally, $692,048 in ill-gotten gains from their participation in a fraudulent pump-and-dump scheme and imposes on each a $220,000 civil money penalty. The Court's judgment also bars both Simmons and Gilbert from serving as an officer or director of a public company and from participating in any offering of penny stock.
Gilbert, against whom the Court entered a default in July 2007, also was enjoined from violating Section 5(a) and (c) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5. In June 2005, the Court entered a default against Simmons and imposed an identical injunction on him at that time. (Litigation Release No. 19541.)
The Commission's complaint, filed on Nov. 15, 2004, alleges that in 2000 and 2001 Simmons and Gilbert, along with stock promoters Kerry Kennedy and Stanley Siciliano and attorney John Zankowski, engaged in a multi-faceted pump-and-dump scheme involving the securities of Nutraceutical, which now, under different management, operates as Preservation Sciences, Inc and EFUEL Network, Inc. (Litigation Release No. 18968.) As part of a reverse merger transaction and in contravention of the registration provisions of the Federal securities laws, Simmons and Gilbert, along with promoter Kennedy and attorney Zankowski, secretly purchased nearly all of Nutraceutical's purportedly free trading stock through their offshore nominee accounts. They did so in order to make a public market for the illegal distribution of their stock. To facilitate the distribution, Simmons disseminated false and misleading publicity about the Company, while, at the same time, stock promoters Kennedy and Siciliano falsely touted Nutraceutical stock on an Internet message board and manipulated the market for the Company's stock through fraudulent stock trading. During the course of the manipulation, Simmons and Gilbert unlawfully sold Nutraceutical stock through nominee accounts, reaping $692,048 in profits.
Previously, the Court entered final judgments against three other defendants. In March 2006, the Court entered judgment against stock promoter Siciliano and attorney Zankowski and ordered each to pay more than $600,000 in disgorgement and civil money penalties and barred them from participating in penny stock offerings. (Litigation Release No. 19593.) Miami attorney Eric P. Littman, who the Commission alleged had sold Simmons, Gilbert, Kennedy and Zankowski nearly all of the outstanding shares of Nutraceutical in an unregistered sale, consented to a final judgment in January 2006 enjoining him from future violations of the registration provisions of the Securities Act and requiring him to pay $164,000 in disgorgement and civil money penalties. (Litigation Release No. 19541.) In a related administrative proceeding, the Commission suspended Zankowski from appearing or practicing before the Commission as an attorney pursuant to Rule 102(e)(3) of the Commission's Rules of Practice. (In the Matter of John B. Zankowski, Esq., Rel. 34-52487, File No. 3-12053.) The Commission is still pursuing its action against stock promoter Kerry Kennedy. [SEC v. Paul Simmons, Rodney Gilbert, John Zankowski, Esq., Kerry Kennedy, Stanley Siciliano and Eric Littman, Esq., 8:04-CV-2477-T-17MAP (Middle District of Florida)] (LR-20490)
SEC Charges Vice Chairman of ISE Holdings and Business Partners with Insider Trading
Defendants also Charged in Parallel Criminal Action
The Commission today filed an insider trading case against three individuals alleging illegal tipping and trading in advance of the April 30, 2007, announcement of Eurex Frankfurt A.G.'s $2.8 billion cash merger agreement with International Securities Exchange Holdings, Inc.
The defendants, John F. Marshall, Vice Chairman of ISE, Alan L. Tucker, of Yardley, Pa., and Mark R. Larson, of Miller Place, N.Y., were all partners in Marshall Tucker & Associates, LLC, a New York-based financial consulting partnership. The SEC's complaint alleges that Marshall received detailed and current information regarding the highly confidential ISE-Eurex merger talks, and tipped Tucker and Larson. According to the complaint, Tucker and Larson then purchased ISE securities resulting in illegal profits totaling approximately $1.1 million and $31,000, respectively.
Simultaneous with the filing of the SEC action, the U.S. Attorney's Office for the Southern District of New York announced the filing of a criminal complaint charging the three men with conspiracy to commit securities fraud.
The SEC's complaint alleges that each defendant violated the antifraud provisions of the Securities Exchange Act of 1934 - Section 10(b) of that Act and Rule 10b-5 thereunder. The complaint seeks permanent injunctions against future violations, disgorgement of unlawful trading profits plus prejudgment interest, civil penalties, and an officer and director bar against Marshall.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Options Regulatory Surveillance Authority (ORSA), and the New York Stock Exchange (NYSE).
The Commission's investigation in this matter is ongoing. [SEC v. John F. Marshall, Ph.D., et al., Civil Action No. 08-CV-2527 (S.D.N.Y)] (LR-20491)
Court Ruling in Commission Suit Causes Defendant to Pay $100,000 Penalty Assessed in Commission Administrative Proceeding
The Commission announced that on Nov. 16, 2007, it filed an Application for a Court Order Directing Anne P. Hovis to Comply with an Order issued by the Commission in In the Matter of Phlo Corporation, James B. Hovis and Anne P. Hovis, A.P. File No. 3-11909, Securities Exchange Act of 1934 Release No. 55562 (March 30, 2007) (the Commission Order). The Commission Order required Hovis to pay a $100,000 penalty based on violations of securities laws related to Hovis' role running the transfer agent activities of Phlo Corp., an issuer serving as its own transfer agent. Under Hovis' direction, Phlo failed to comply with the requirements for processing transfer requests and properly responding to inspections by the Commission's Office of Compliance Inspections and Examinations. When Hovis failed to pay the assessed penalty, the Commission filed an Application in the District Court for the District of Columbia seeking to compel Hovis to comply with the Commission Order by paying the penalty.
On Nov. 28, 2007, in response to the Commission's Application, United States District Court Judge Henry H. Kennedy entered an order to show cause against Hovis and set a hearing. Hovis then made two $50,000 payments to the Commission to fulfill her penalty obligation. [SEC v. Anne P. Hovis, Case No. 1:07-mc-00495 (District of Columbia)] (LR-20492)
SEC Charges Former Diebold Sales Representative with Insider Trading
The Securities and Exchange Commission announced today that it filed an insider trading complaint in the United States District Court for the Western District of Oklahoma against Robert G. Cole, a former sales representative for Diebold, Inc. Diebold is an Ohio-based public company that manufacturers and sells automated teller machines, bank security systems, and electronic voting machines. The Commission charges that Cole made over $500,000 in illegal profits by using material, nonpublic information concerning revenue and order shortfalls at Diebold to trade Diebold securities.
The Commission's complaint alleges that on September 15, 2005, shortly after learning from his sales manager that revenues and orders in the Diebold's North American regional bank business were significantly below target, Cole began purchasing hundreds of soon-to-expire Diebold put options contracts, at a total cost of $70,110, anticipating that Diebold would lower its earnings forecast and the price of Diebold stock would fall. As alleged in the complaint, on September 21, 2005 -- one day after Cole completed purchasing these Diebold put option contracts -- Diebold announced that it was lowering its earnings forecasts, primarily because of a revenue shortfall in the company's North American regional bank business. After this public announcement, Diebold's stock price dropped sharply, closing at $37.27 per share, which was a 16% drop from the previous day's closing price of $44.13. Cole immediately sold the Diebold put option contracts for $579,190, realizing illicit profits of $509,080 (a 700% return).
The Commission alleges that by engaging in illegal insider trading, Cole violated Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Commission's complaint seeks permanent injunctive relief, disgorgement of illicit trading profits with prejudgment interest, and civil monetary penalties.
The Commission wishes to thank the Philadelphia Stock Exchange for its valuable assistance in this matter. [SEC v. Robert G. Cole, Case No. Civ 08-265 C (W. D. Okla.)] (LR-20494)
Approval of Proposed Rule Changes
A proposed rule change (SR-NYSEArca-2008-08), filed by NYSE Arca pertaining to the imposition of fines for minor rule violations has been approved pursuant to Section 19(b)(2) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57469)
The Commission approved a proposed rule change (SR-FINRA-2008-001) submitted by the Financial Industry Regulatory Authority relating to amendments to FINRA's Gross Income Assessment and technical changes to Schedule A to FINRA's By-Laws. Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57474)
A proposed rule change (SR-ISE-2008-09), filed by the International Securities Exchange to amend exchange rules related to the imposition of fines for minor rule violations has been approved pursuant to Section 19(b)(2) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57468)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-CBOE-2008-23) filed by the Chicago Board Options Exchange relating to the Hybrid Agency Liaison (HAL) step-up rebate program 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 March 17. (Rel. 34-57470)
A proposed rule change, as modified by Amendment No. 1 thereto, filed by the Chicago Board Options Exchange regarding the CBOE Stock Exchange market data infrastructure fee (SR CBOE-2008-24) has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934 and Rule 19b-4(f)(2) thereunder. Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57472)
Order Approving and Declaring Effective an Amendment to the Plan for the Allocation of Regulatory Responsibilities
The American Stock Exchange, the Boston Stock Exchange, the Chicago Board Options Exchange, the International Securities Exchange, Financial Industry Regulatory Authority, the NASDAQ Stock Market, the New York Stock Exchange, NYSE Arca, and the Philadelphia Stock Exchange filed with the Commission a proposed plan for the allocation of regulatory responsibilities pursuant to Rule 17d-2 (File No. S7-966). Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57481)
Amendment No. 2 to a Proposed Rule Change; and Order Granting Accelerated Approval to the Proposed Rule Change
Pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, the NASDAQ Stock Market filed Amendment No. 2 to a proposed rule change (SR-NASDAQ-2007-004) to establish rules governing the trading of options on the NASDAQ Options Market (NOM), and the Commission granted accelerated approval of the proposed rule change, as amended. The Commission also granted approval of a proposed rule change (SR-NASDAQ-2007-080) filed by Nasdaq pursuant to Rule 19b-4 under the Act relating to the LLC Agreement establishing the NASDAQ Options Market LLC and the Delegation Agreement delegating to NOM LLC the authority to operate NOM. In addition, the Commission granted Nasdaq's application for an exemption pursuant to Section 36(a) of the Act from the requirements of Section 19(b) of the Act, and granted an exemption for Nasdaq from Section 11A(b) of the Act. Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57478)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS