In the Matter of Aaro Broadband Wireless Communications, Inc.
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 Aaro Broadband Wireless Communications, Inc. The Order Instituting Proceedings alleged that four Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission (Commission). The Default Order finds these allegations to be true as to three of the four Respondents. The Default Order revokes the registrations of each class of registered securities of Aaro Broadband Wireless Communications, Inc., Agri Bio-Sciences, Inc., and Alchemy Holdings, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934.
The Commission accepted an offer of settlement from a fourth Respondent, Alabaster Corp., on March 26, 2008. (Rel. 34-57673; File No. 3-12985)
In the Matter of Mitchell M. Maynard and Dorice A. Maynard
On April 16, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Notice of Hearing (Order) against Mitchell M. Maynard and Dorice A. Maynard (Respondents). The Order alleges the Respondents founded and were associated with LIMCO, a Vermont-based investment adviser that was previously registered with the Commission. The Order further alleges that on Jan. 3, 2007 the Commissioner for the State of Vermont's Department of Banking, Insurance, Securities, and Health Care Administration issued a decision against the Respondents in a state administrative action in connection with their involvement with LIMCO. According to the Order, the Vermont decision found that the Respondents violated multiple provisions of Vermont's Securities Act and ordered the Respondents barred for five years from association or employment with a registered broker-dealer or investment adviser, required them to pay $400,000 in restitution, and imposed a $20,000 administrative penalty.
A hearing will be held by an Administrative Law Judge to determine whether the allegations contained in the Order are true, to provide the Respondents an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and 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 this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. IA-2724; File No. 3-13008)
SEC Charges Former Fidelity Trader and a Broker with Defrauding Fidelity and its Advisory Clients
On April 16, the Commission filed a civil action in the U.S. District Court in Boston against David K. Donovan, Jr. (Donovan), a former equity trader at Fidelity Investments, and David R. Hinkle (Hinkle), a former broker at Capital Institutional Services, Inc. (Capital Institutional Services), for defrauding Fidelity and its advisory clients. The complaint alleges that, between July and September 2003, the defendants defrauded Fidelity and its advisory clients by gaining access to confidential trading information stored on Fidelity's internal order database, by learning that Fidelity's advisory clients, including the Fidelity mutual funds, were purchasing and intended to continue purchasing a substantial amount of the common stock of Covad Communications Group, Inc. (Covad), by using that confidential information concerning Fidelity's pending securities orders to trade on and ahead of Fidelity's securities orders for the stock of Covad, by failing to disclose to Fidelity and its clients that they were trading on and ahead of those orders, and by profiting thereby.
According to the Commission's complaint, Donovan accessed Fidelity's internal order database on approximately 107 occasions and obtained confidential information that Fidelity was purchasing and intended to continue purchasing for its advisory clients a substantial amount of Covad common stock. The complaint further alleges that Donovan requested authorization from Fidelity to trade Covad stock in his personal account during the same period, and was denied.
According to the complaint, during the above-mentioned period, Donovan viewed Fidelity's pending Covad orders using the internal order database, communicated with Hinkle, disclosed confidential trading information of Fidelity and its advisory clients, and, shortly thereafter, Hinkle purchased the stock. In addition, the Commission's complaint alleges that after viewing Fidelity's orders and being denied permission to buy Covad stock, Donovan caused purchases of the stock to be made in the account of his mother, who is a resident of Marblehead, Massachusetts. According to the complaint, profits accrued to both Hinkle and Donovan's mother's account when they sold out positions in Covad in the weeks following the purchases.
The Commission's complaint alleges that Donovan and Hinkle 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 with prejudgment interest, and civil penalties.
For further information, please see Litigation Release Nos. 19930 (Dec. 1, 2006), 19983 (Jan. 29, 2007), and 20528 (April 16, 2008). [SEC v. David K. Donovan, Jr. and David R. Hinkle, Civil Action No. 08-CA-10649-RWZ (D.Mass.)] (LR-20528)
SEC Files Settled Illegal Trading Charges Against Day Trader Who Traded on Information He Fraudulently Obtained From his Brother-in-Law
The Commission announced today that it filed a settled civil action in the U.S. District Court for the Southern District of New York against Michael A. Stummer alleging illegal trading in the common stock of Ryan's Restaurant Group (Ryan's), a restaurant company operating more than 340 restaurants in the Southern and Midwest United States. The settlement is subject to Court approval.
The Commission's complaint charges Stummer with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by fraudulently obtaining material, non-public information about the impending acquisition of Ryan and then using that information to trade Ryan's securities. The Commission complaint alleges that on July 21, 2006, Stummer and his family arrived at the New York home of his brother-in-law for an annual weekend gathering. At this time his brother-in-law served as director of the private equity firm advising the acquiring company on the impending Ryan's transaction. During the weekend visit, Stummer snuck into the brother-in-law's bedroom office, where, secretly and without permission, he accessed his brother-in-law's bedroom office computer. By correctly guessing his brother-in-law's password, Stummer deceptively gained unauthorized access to the private equity firm's computer network and read several confidential and nonpublic emails relating to the Ryan transaction.
The Commission's complaint further alleges that Stummer used the information he fraudulently obtained to buy 5,500 shares of Ryan's on July 21, and July 24, 2006. Shortly following the public announcement of the acquisition of Ryan's on July 25, 2006, Stummer sold his entire position realizing a total profit of $22,351.17. On the day of the announcement, the closing price for Ryan's shares increased 40 percent from the prior day's close, reaching a high of $15.70.
Without admitting or denying the Commission's allegations, Stummer consented to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The final judgment also requires Stummer to pay $46,386.66, representing the disgorgement of his illegal trading profits, prejudgment interest, and a civil penalty in an amount equal to the profits.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter. [SEC v. Michael A. Stummer, Defendant. 1:2008CV03671 (S.D. N.Y)] (LR-20529)
INVESTMENT COMPANY ACT RELEASES
MetLife Insurance Company of Connecticut, et al.
An order has been issued pursuant to Sections 26(c) and 17(b) of the Investment Company Act on an application filed by MetLife Insurance Company of Connecticut, et al. (Applicants). The order permits the Applicants to substitute shares of certain registered management investment companies for shares of certain other registered management investment companies. The order also exempts them from Section 17(a) of the Act to the extent necessary to permit certain in-kind transactions in connection with the substitutions. (Rel. IC-28236 - April 16)
American Family Life Insurance Company, et al.
An order has been issued approving an application filed by American Family Life Insurance Company, American Family Variable Account I, and American Family Variable Account II (collectively, Applicants). The Applicants have been authorized under Section 26(c) of the Investment Company Act to substitute shares of certain registered management investment companies with shares of certain other registered management investment companies. (Rel. IC-28237 - April 16)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by the National Stock Exchange to amend NSX rule 16.2(b) and the NSX BLADESM Fee and Rebate Schedule to reflect the availability and pricing of the Zero Display Reserve Order type previously approved by the Commission (SR-NSX-2008-09) 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 April 21. (Rel. 34-57664)
Proposed Rule Changes
The Depository Trust Company filed a proposed rule change (SR-DTC-2007-05) under Section 19(b)(1) of the Securities Exchange Act. The proposed rule change would restructure its rules relating to fines and harmonize them with similar rules of its affiliates. Publication is expected in the Federal Register during the week of April 21. (Rel. 34-57665)
The Fixed Income Clearing Corporation filed a proposed rule change (SR-FICC-2007-05) under Section 19(b)(1) of the Exchange Act to restructure the rules of the Government Securities Division and the Mortgage-Backed Securities Division and to harmonize them with similar rules of its affiliates and to restructure the watch list. Publication is expected in the Federal Register during the week of April 21. (Rel. 34-57666)
The National Securities Clearing Corporation filed a proposed rule change (SR-NSCC-2007-07) under Section 19(b)(1) of the Exchange Act to restructure its rules relating to fines and to harmonize them with similar rules of its affiliates. Publication is expected in the Federal Register during the week of April 21. (Rel. 34-57667)
Accelerated Approval of Proposed Rule Changes
The Commission granted accelerated approval to a proposed rule change (SR-NYSE-2008-027) submitted by the New York Stock Exchange to amend an exemption to NYSE Rule Interpretation 344/02 for certain research analysts employed by a member's foreign affiliate who contribute to the preparation of a member's research report. Publication is expected in the Federal Register during the week of April 21. (Rel. 34-57671)
The Commission granted accelerated approval to a proposed rule change (SR-NYSE-2008-028) submitted by the New York Stock Exchange to amend NYSE Rule 472 with respect to a member's disclosure and supervisory review obligations when it distributes or makes available third-party research reports. Publication is expected in the Federal Register during the week of April 21. (Rel. 34-57672)
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