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U.S. Securities and Exchange Commission

SEC News Digest

Issue 2008-91
May 9, 2008

COMMISSION ANNOUNCEMENTS

Commission Meetings

Change in the Meeting: Additional Item Date Change

The following matter, previously scheduled to be discussed at an open meeting on May 14, 2008, has been rescheduled to be considered at an open meeting scheduled for Wednesday, May 21, 2008, at 10:00 a.m. in the Auditorium, Room L-002:

Item 2:

The Commission will consider whether to propose amendments to provide for mutual fund risk/return summary information to be filed with the Commission in interactive data format.

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.


Closed Meeting - Thursday, May 15, 2008 - 10:00 a.m.

The subject matter of the closed meeting scheduled for May 15, 2008, will be: formal orders of investigation; institution and settlement of injunctive actions; institution and settlement of administrative proceedings of an enforcement nature; resolution of litigation claims; and an adjudicatory matter.

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.


ENFORCEMENT PROCEEDINGS

In the Matter of Joseph Miller

On May 9, the Commission issued an Order Instituting Administrative Proceedings Pursuant to 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanction (Order) against Joseph Miller, age 33 and a resident of Brooklyn, New York. The Order finds that from 1996 to 2002, Miller was a securities lending representative and registered representative associated with Morgan Stanley & Co., Inc. (Morgan Stanley), a broker-dealer registered with the Commission. The Order further finds that on Sept. 11, 2007, Miller pled guilty to one count of conspiracy to commit securities fraud and wire fraud in violation of Title 18 United States Code, Section 1349 before the United States District Court for the Eastern District of New York, in United States v. Joseph Miller, Crim. Information No. 07-CR-688. The count of the criminal information to which Miller pled guilty alleged, inter alia, that between 2001 and 2005, Miller owned and operated a stock loan finding company called Cobble Hill Consulting. During this time period, Miller, together with others, did knowingly and intentionally conspire to execute a scheme and artifice to defraud a broker-dealer of money and property and to obtain money and property from said broker-dealer by means of materially false and fraudulent pretenses, representations and promises and in executing such scheme and artifice to defraud did so by means of wire communication in interstate and foreign commerce.

Based on the above, the Order bars Miller from association with any broker or dealer. Miller consented to the issuance of the Order without admitting or denying any of the Commission's findings, except his guilty plea on Sept. 11, 2007. (Rel. 34-57810; File No. 3-13040)


In the Matter of Michael McCormack

On May 9, the Commission issued an Order Instituting Administrative Proceedings Pursuant to 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Order) against Michael McCormack, age 33 and a resident of Staten Island, New York. The Order finds that from 1994 to 2005, McCormack was a securities lending representative associated with A.G. Edwards & Sons, Inc. (A.G. Edwards), a broker-dealer registered with the Commission. The Order further finds that on Aug. 28, 2007, McCormack pled guilty to one count of conspiracy to commit wire fraud in violation of Title 18 United States Code, Section 1349 before the United States District Court for the Eastern District of New York, in United States v. Michael McCormack, Crim. Information No. 07-CR-625. The count of the criminal information to which McCormack pled guilty alleged, inter alia, that McCormack did knowingly and intentionally conspire to execute a scheme and artifice to defraud A.G. Edwards of money and property in connection with securities of issuers with a class of securities registered under Section 12 of the Securities Act of 1934.

Based on the above, the Order bars McCormack from association with any broker or dealer. McCormack consented to the issuance of the Order without admitting or denying any of the Commission's findings, except he admits his guilty plea on Aug. 28, 2007. (Rel. 34-57811; File No. 3-13041)


Final Judgments Entered Against Chief Executive Officers of Three Medical Technology Companies, the Companies' Lawyer and the Companies' Stock Promoter

The Commission today announced that in March and April 2008, the Honorable Leonard D. Wexler of the U.S. District Court for the Eastern District of New York entered final consent judgments against defendants Alfred Braunberger, Harry Masuda, Louis Matson, Hyperbaric Systems, Inc., Larry Bryant, Comco, Inc. and Paul Marotta. In 2007, judgments were entered against defendants Surgica Corporation and Intracom Corporation enjoining them from future violations of the federal securities laws.

The Commission's complaint, filed on Aug. 6, 2002, alleges that issuers Intracom, Hyperbaric and Surgica; Braunberger, Masuda and Matson, the CEOs of Intracom, Hyperbaric, and Surgica, respectively; Marotta, the three issuers' lawyer; and Bryant and Comco, the issuers' stock promoter and his company, made material misrepresentations and omissions to investors about the anticipated use of offering proceeds. According to the complaint, each issuer provided offering materials to investors that stated it would pay approximately 12% in sales commissions to brokers selling the securities and that the remaining funds will be used for corporate purposes. The complaint further alleges that the issuers, with the knowledge of the CEOs and issuers' lawyer, paid Bryant, who acted as an unregistered securities broker, undisclosed commissions of 25% to 30%, thereby substantially reducing the amount of funds available for business purposes.

Without admitting or denying the Commission's allegations, the settling defendants consented to final judgments that: (1) permanently enjoin Braunberger, Masuda, Matson, Hyperbaric, Bryant, and Comco from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; (2) permanently enjoin Marotta from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (3) permanently enjoin Bryant from future violations of Section 15(a) of the Exchange Act; (4) bar Bryant from participating in any future offering of penny stocks; (5) order Masuda to pay a $25,000 civil penalty; (6) order Matson to pay a $25,000 civil penalty; and (7) find Marotta liable for $264,000 in disgorgement and prejudgment interest of $163,379; however, based on the representations in Marotta's sworn financial statements the judgment waives payment of disgorgement except for $50,000 and $328.12 in post-judgment interest and does not impose a civil penalty. The judgment against Braunberger does not impose a civil penalty based on the representations in his sworn financial statements. The judgment against Bryant finds him liable for $1,302,040 in disgorgement plus prejudgment interest of $819,831.76, but waives payment of the disgorgement and of a civil penalty based on the representations in Bryant's sworn financial statements. The judgment against Comco does not impose a penalty due to the representations in Comco's sworn financial statement.

For more information see Litigation Release No. 17659. [SEC v. Intracom Corporation, et al., Civil Action No. 02 Civ. 4367 (E.D.N.Y.) (LDW))] (LR-20558)


SEC v. Jason R. Hyatt, Jay Johnson and Hyatt Johnson Capital, LLC

The Commission announced that on May 5, 2008, the Honorable George W. Lindberg of the United States District Court for the Northern District of Illinois issued an agreed order appointing Robert P. Handler as receiver for Defendant Hyatt Johnson Capital, LLC (HJ Capital). This order empowers the receiver, to, among other things, take control of HJ Capital's operations and marshal, recover, and preserve investor assets. Investor inquiries may be made to the receiver at (312) 428-4859 or hjcreceiver@com-rec.com.

In addition, the Court issued agreed preliminary injunctions against further violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder by Defendants Hyatt, Johnson, and HJ Capital. The Court also ordered an agreed continued freeze over the assets of Defendants Hyatt and HJ Capital for the remainder of the Commission's litigation.

Previously, on April 18, 2008, the Honorable William J. Hibbler of the United States District Court for the Northern District of Illinois, acting as emergency judge, issued an ex parte order for emergency relief against Defendants Hyatt, a resident of St. Charles, Illinois, Johnson, a resident of Downers Grove, Illinois, and HJ Capital, a privately-held company headquartered in Downers Grove, Illinois. The Order, among other things, imposed an asset freeze on all assets under the control of Defendants Hyatt and HJ Capital. See Litigation Release No. 20540 issued on April 25, 2008.

Also on April 18, 2008, the Commission filed a civil injunctive complaint alleging that Defendants Hyatt, Johnson, and HJ Capital, from approximately 2003 through 2007, while acting as unregistered broker-dealers and investment advisers, misappropriated at least $5.4 million in investor funds. The Complaint alleged that, as a result of their conduct, the Defendants violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. [SEC v. Jason R. Hyatt, Jay Johnson and Hyatt Johnson Capital, LLC, Civil Action No. 1:08-cv-2224 (N.D. Ill.)(Lindberg, J.)] (LR-20562)


SEC v. Gregory N. McKnight, et al.

The Commission announced that on May 5, 2008, the Honorable Judge Paul V. Gadola of the United Stated District Court for the Eastern District of Michigan issued an Asset Freeze Order against Gregory N. McKnight (McKnight) and Legisi Holdings, LLC (Legisi Holdings) as defendants, and against Legisi Marketing, Inc. (Legisi Marketing), Lido Consulting, LLC (Lido Consulting), Healthy Body Nutraceuticals (HBN), and Lindenwood Enterprises, LLC (Lindenwood) as relief defendants. The Asset Freeze Order froze all assets of McKnight, Legisi Holdings, Legisi Marketing, Lido Consulting, HBN, and Lindenwood. In addition, Judge Gadola issued an Order Appointing a Receiver over all assets of McKnight, Legisi Holdings, Legisi Marketing, Lido Consulting, HBN, and Lindenwood.

The SEC's complaint, filed May 5, 2008, alleged that McKnight and Legisi Holdings conducted a fraudulent, unregistered offering of securities in which, between December 2005 and at least November 2007, they raised approximately $72 million from more than 3,000 investors in all 50 states and several foreign countries through the Legisi website at www.legisi.com. According to the SEC's complaint, McKnight represented that he would invest the offering proceeds in foreign currencies, commodity futures, stocks and real estate and promised to pay interest of as much as 15 percent per month from the profits from his investments. The SEC's complaint further alleges that throughout the period of the offering, McKnight represented to investors that his investments were profitable and were generating the promised returns. The complaint charges that, contrary to these representations, McKnight invested only approximately $33 million of the offering proceeds and that, rather than earning profits, these investments resulted in millions of dollars in losses. The SEC's complaint further charges that Defendants used approximately $27.5 million of the offering proceeds to make payments of purported profits to prior investors and were, thus, operating a Ponzi scheme, and that McKnight used $2.2 million of investor funds to pay for his personal expenses and to make payments to his relatives, Jennifer McKnight, Danielle Burton, and Theresa Burton. The SEC's complaint charges that Defendants violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.

In addition to the emergency relief already obtained, the Complaint seeks preliminary and permanent injunctions against McKnight and Legisi Holdings. The Complaint also seeks disgorgement of ill-gotten gains from the defendants and relief defendants and the imposition of civil penalties against McKnight and Legisi Holdings. A Hearing on whether a preliminary injunction should be issued against the Defendants is scheduled for May 19, 2008 at 2:00 p.m. SEC v. Gregory N. McKnight, et al, Case No. 08-11887 (E.D. Michigan)] (LR-20563)


INVESTMENT COMPANY ACT RELEASES

Prudential Retirement Insurance and Annuity Company, et al.

A notice has been issued giving interested persons until May 29, 2008, to request a hearing on an application filed by Prudential Retirement Insurance and Annuity Company (PRIAC), the PRIAC Variable Contract Account A, and Prudential Investment Management Services LLC seeking an order pursuant to Section 11 of the Investment Company Act approving the terms of certain offers of exchange between certain variable annuity contract subaccounts and certain registered open-end management investment companies. (Rel. IC-28263 - May 7)


U.S. Bank National Association, et al.

The Commission has issued an order permitting the withdrawal of an application filed by U.S. Bank National Association, et al. for an exemption from Sections 12(d)(1), 17(a) and 17(e) of the Investment Company Act and pursuant to Section 17(d) of the Act and Rule 17d-1 under the Act. A notice of the application was issued by the Commission on April 16, 2008. By letter, dated May 6, 2008, the applicants requested that the application be withdrawn. (Rel. IC-28264 - May 7)


SELF-REGULATORY ORGANIZATIONS

Proposed Rule Changes

The Commission issued notice of filing of a proposed rule change (SR-NASDAQ-2008-039) and Amendment No. 1 thereto, submitted by The NASDAQ Stock Market pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, relating to the listing and trading of Managed Fund Shares. Publication is expected in the Federal Register during the week of May 12. (Rel. 34-57800)

The Fixed Income Clearing Corporation filed a proposed rule change (SR-FICC-2008-02) under Section 19(b)(1) of the Exchange Act that would allow FICC to amend the rules of the Government Securities Division to mandate Demand Comparison submission and processing for blind-brokered repo trades that are submitted by a specified cut-off time. Publication is expected in the Federal Register during the week of May 12. (Rel. 34-57802)


Accelerated Approval of Proposed Rule Change

The Commission granted accelerated approval of a proposed rule change (SR-NYSEArca-2008-31) submitted by NYSE Arca, through its wholly owned subsidiary, NYSE Arca Equities, Inc., pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the listing and trading of shares of twelve actively-managed exchange-traded funds of the WisdomTree Trust. Publication is expected in the Federal Register during the week of May 12. (Rel. 34-57801)


Approval of Proposed Rule Change

The Commission approved a proposed rule change (SR-NASD-2005-114) as modified by Amendment Nos. 1, 2, 3, and 4 and granted accelerated approval for Amendment No. 5 filed by the National Association of Securities Dealers relating to the regulation of compensation, fees and expenses in public offerings of real estate investment trusts and direct participation programs. Publication is expected in the Federal Register during the week of May 12. (Rel. 34-57803)


SECURITIES ACT REGISTRATIONS


RECENT 8K FILINGS

 

http://www.sec.gov/news/digest/2008/dig050908.htm


Modified: 05/09/2008