SEC Proposes New Way for Investors to Get Financial Information on Companies
The Securities and Exchange Commission today voted unanimously to formally propose using new technology to get important information to investors faster, more reliably, and at a lower cost.
At the center of the SEC proposal is "interactive data" - computer "tags" similar in function to bar codes used to identify groceries and shipped packages. The interactive data tags uniquely identify individual items in a company's financial statement so they can be easily searched on the Internet, downloaded into spreadsheets, reorganized in databases, and put to any number of other comparative and analytical uses by investors, analysts, and journalists.
The proposed rule would require all U.S. companies to provide financial information using interactive data beginning next year for the largest companies, and within three years for all public companies.
"This is all about bringing investors better, faster, more meaningful information about the companies they own," said SEC Chairman Christopher Cox. "It would transform financial disclosure from a 1930s form-based system to a truly 21st century model that taps the power of technology for the benefit of investors."
John White, Director of the SEC's Division of Corporation Finance, said, "These steps will represent real progress, both for SEC filers and investors. All of the technology is coming together to make electronic filing a true analytical tool. The staff has gathered valuable experience during the almost three years that public companies have been submitting interactive data in our voluntary filer program. This helps give us a strong foundation for moving forward."
Conrad Hewitt, the SEC's Chief Accountant, said, "Accounting is the business language of the world, and interactive data will become an easy and reliable technology to improve that language worldwide, just like many other tools available on the Internet. The SEC's Advisory Committee on Improvements to Financial Reporting has been studying the benefits of interactive data and has proposed that the Commission proceed with a mandatory adoption schedule. Over the long term, preparers are expected to benefit through better internal management information and applications, and investors will benefit with improved analytical methods to analyze financial information."
Corey Booth, SEC Chief Information Officer, said, "Interactive data represents the logical next step in the evolution of company disclosure, just as HTML and Internet access were the next logical step a decade ago. And like a decade ago, this move will usher in a quantum leap in helping companies explain their business to investors."
David M. Blaszkowsky, Director of the SEC's Office of Interactive Disclosure, said, "Information - meaningful, accurate, timely, easy-to-use financial reporting - always has been the driver of commerce and markets. This proposal provides the critical regulatory framework by which interactive data will make financial reporting more easily and quickly available, and help transform the relationship between filer and investor."
Since 2005, companies have voluntarily submitted to the SEC financial information in interactive data format. The rules proposed today would require companies to provide this information according to a phase-in schedule.
The SEC's proposed schedule would require companies using U.S. Generally Accepted Accounting Principles with a worldwide public float over $5 billion (approximately the 500 largest companies) to make financial disclosures using interactive data formatted in eXtensible Business Reporting Language (XBRL) for fiscal periods ending in late 2008. If adopted, the first interactive data provided under the new rules would be made public in early 2009. The remaining companies using U.S. GAAP would provide this disclosure over the following two years. Companies using International Financial Reporting Standards as issued by the International Accounting Standards Board would provide this disclosure for fiscal periods ending in late 2010. The disclosure would be provided as additional exhibits to annual and quarterly reports and registration statements. Companies also would be required to post this information on their websites.
The required tagged disclosures would include companies' primary financial statements, notes, and financial statement schedules. Initially, companies would tag notes and schedules as blocks of text, and a year later, they would provide tags for the details within the notes and schedules.
Companies filing under the proposed rule that use U.S. GAAP will use upgraded data tags issued April 28, 2008, by XBRL US, Inc. that were developed based on U.S. GAAP and on the review of hundreds of actual SEC filings. The SEC's EDGAR system will accept test filings using a February 11 version of these tags later this month, with the final April 28 version of the tags becoming usable in June. In addition, an interim system is expected to be announced shortly that will enable companies immediately to provide interactive data submissions to the SEC using the April 28 version of the tags.
The SEC has had an interactive data pilot program for three years, beginning in 2005. It covered the financial statements of corporate filers. In addition, the SEC began an interactive data filing program for mutual fund risk return information in August 2007. Also last year, the SEC created an online database tagging executive compensation data for 500 large companies. Filers seeking a head start on data tagging are invited to formally join these SEC voluntary filing programs or informally practice with the new data tags.
More information is available at http://www.sec.gov/spotlight/xbrl.shtml.
Public comment on the proposed rule should be received by the Commission no later than 60 days after its publication in the Federal Register. (Press Rel. 2008-85)
SEC Files Settled FCPA Action Against Willbros Group, Inc. and Several Former Employees
Today, the Commission filed a settled civil action against Willbros Group, Inc. and several former employees alleging that they violated, among other things, the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and the antifraud provisions of the federal securities laws. The complaint also names Jason Steph, a former supervisory employee in Nigeria, Gerald Jansen, a former administrative supervisor in Nigeria, Lloyd Biggers, a former employee in Nigeria and Carlos Galvez, a former accounting employee in Bolivia. According to the complaint, the company also violated the reporting, books and records and internal controls provisions of the Securities Exchange Act. Willbros Group, Steph, Jansen, Biggers and Galvez have agreed to settle the charges against them, without admitting or denying the Commission's allegations.
The Commission alleges in its complaint that Willbros Group, through the actions of others acting on its behalf, engaged in multiple schemes to bribe foreign officials. First, the complaint alleges that, beginning by at least 2003, Willbros Group, through the conduct of a former executive officer, Steph and others, engaged in a scheme to pay over $6 million in bribes to Nigerian government officials and to employees of an operator of a joint venture majority-owned by the Nigerian government in order to obtain a significant contract. A similar scheme was used to help obtain a second significant contract. Together, these contracts resulted in net profits of approximately $8,900,000. In 2005, according to the complaint, Steph assisted in the payment of $1,850,000 to satisfy a portion of these earlier commitments. The complaint further alleges that Willbros Group, through acts by a former executive officer, Steph, Jansen, Biggers and others, employed a long-running scheme using fabricated invoices to procure cash from the company's administrative headquarters in Houston to, among other things, bribe Nigerian tax and court officials. This fraudulent cash abuse was also used to fund in part the bribes paid in 2005.
Second, Willbros Group, through the conduct of the same former executive officer and others schemed to pay a $300,000 bribe to officials of an oil and gas company owned by the Ecuador government in order to obtain a $3 million contract.
Finally, Willbros Group, through the actions of the same former executive officer, an outside consultant and Galvez implemented a fraudulent tax avoidance scheme in Bolivia. This fraudulent scheme resulted in material misstatements in Willbros Group's financial statements.
The Commission alleges that, through these activities, Willbros Group violated Sections 30A, 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder, as well as Section 17(a) of the Securities Act. Willbros Group agreed to consent to the entry of a judgment that permanently enjoins it from future violations of these provisions and that orders it to pay disgorgement of $8.9 million, plus prejudgment interest of $1.4 million.
The Commission further alleges that Steph, through his actions in Nigeria, violated Sections 30A and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and aided and abetted violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of the Exchange Act. Steph consented to the entry of a judgment that permanently enjoins him from future violations of these provisions. Pursuant to the judgment, the Court will determine later whether Steph will pay a civil penalty and what the amount of such penalty will be.
Jansen, for his role in Nigeria, is alleged to have violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and to have aided and abetted violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of the Exchange Act. He has consented to the entry of a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a civil penalty of $30,000.
Biggers, based on his actions in Nigeria, is alleged to have violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and to have aided and abetted violations of Sections 13(b)(2)(A) and 30A of the Exchange Act. He has consented to the entry of a judgment that permanently enjoins him from future violations of these provisions.
Finally, the Commission alleges that Galvez, through his conduct in Bolivia, violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. Galvez has agreed to consent to the entry of a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a civil penalty of $35,000.
The Commission acknowledges Willbros Group's cooperation in the investigation.
In a related criminal proceeding, the United States Department of Justice filed a criminal Information and Deferred Prosecution Agreement in the Southern District of Texas relating to the criminal FCPA charges against Willbros Group and its subsidiary, Willbros International, Inc. (Willbros International). In that case, Willbros Group and Willbros International accepted responsibility for its employees that had violated the FCPA and agreed to pay a criminal penalty of $22 million. Pursuant to the Deferred Prosecution Agreement, the Department of Justice agreed to defer prosecution of these companies for three years and the companies agreed to retain for a period of three years an independent compliance monitor to assess the company's implementation of and compliance with new internal policies and procedures. If Willbros Group and Willbros International abide by the terms of the agreement, the Department will dismiss the Information when the term of the agreement ends.
The Commission acknowledges the assistance of the Department of Justice, Fraud Section, in the Commission's investigation. [SEC v. Willbros Group, Inc., et al., Civil Action No. 4:08-CV-01494 U.S.D.C./Southern District of Texas (Houston Division)] (LR-20571; AAE Rel. 2826)
Federal Court Grants Summary Judgment, Orders Stock Promoter Kerry Kennedy to Pay More Than $2 Million in Disgorgement and Penalties for Violations of the Anti-Fraud, Anti-Touting and Registration Provisions of the Federal Securities Laws
On April 25, 2008, the U.S. District Court for the Middle District of Florida granted the Commission's motion for summary judgment and entered an order and final judgment against Kerry P. Kennedy, a stock promoter who orchestrated the fraudulent promotion of the securities of Nutraceutical Clinical Laboratories International, Inc. ("Nutraceutical" or the "Company"), a public company based in St. Petersburg, Florida. The Court's judgment (1) enjoins Kennedy from violating the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), Exchange Act Rule 10b-5, and the registration provisions of Section 5(a) and (c) of the Securities Act of 1933 (Securities Act); (2) orders Kennedy to disgorge $1,685,413.71 in ill-gotten gains (including prejudgment interest) from his participation in the pump-and-dump scheme; (3) imposes a $400,000 civil money penalty; and (4) bars Kennedy from participating in any offering of penny stock.
The Commission's complaint, filed on Nov. 15, 2004, alleges that in 2000 and 2001 Kennedy, along with fellow stock promoter Stanley Siciliano, attorney John Zankowski and Nutraceutical CEO Paul Simmons and CFO Rodney Gilbert, 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 Kennedy helped to arrange, and in contravention of the registration provisions of the federal securities laws, CEO Simmons, CFO Gilbert, 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, unregistered distribution of their stock.
To drum up interest in the Company and to facilitate their anonymous distribution, Simmons disseminated false and misleading publicity about Nutraceutical, while, at the same time, stock promoters Kennedy and Siciliano falsely touted the stock on an Internet message board and manipulated the market for the Company's stock through fraudulent stock trading via matched and washed buy and sell orders. According to the Court's order, "Kennedy's actions showed that he was aware of the true value of Nutraceutical's stock, while simultaneously deceiving potential investors to increase the profit of his stock sale." During the course of the pump, Kennedy unlawfully dumped Nutraceutical stock through nominee accounts, reaping $1,144,583.95 in profits.
Previously, the Court had entered final judgments against all five of the other defendants in the Commission's lawsuit, enjoining them from further violations of the anti-fraud, registration or anti-touting provisions of the federal securities laws, ordering disgorgement, imposing monetary penalties and barring some of them from serving as officers or directors of public companies or participating in offerings of penny stock.
[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-20572)
Michael E. Kelly, Former South Bend Indiana Businessman, Charged in 14-Count Criminal Information
The Commission announced today that on May 9, 2008, the United States Attorney's Office for the Northern District of Illinois filed a 14-count criminal information against Michael E. Kelly, a former South Bend, Indiana businessman that the Commission previously charged with securities fraud in a civil action filed in September 2007. The information alleges that Kelly engaged in a fraudulent investment scheme by offering and selling through fraudulent means approximately $34 million in promissory notes and more than $450 million in investments called Universal Leases. The criminal information charges Kelly with 10 counts of mail fraud, two counts of wire fraud and two counts of securities fraud and also seeks the forfeiture of approximately $500 million. Kelly was initially charged in a criminal complaint when he was arrested in December 2006.
The criminal charges against Kelly are based on the same conduct underlying the SEC's September 5, 2007 civil action filed against Kelly and 25 other defendants. The SEC's complaint alleges that Kelly and the other defendants participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Leases. Universal Lease investments were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC's complaint alleges that from 1999 until 2005, Kelly and others raised at least $428 million through the Universal Lease scheme by making material misstatements and omission to investors throughout the United States.. The SEC's action, which is pending, seeks injunctions against each of the defendants from further violations of the charged provisions of the federal securities laws, disgorgement of ill-gotten gains, and civil penalties. For additional information, see Litigation Release 20267 (Sept. 5, 2007) [SEC v. Michael E. Kelly, et al., Civil Action No. 07-CV-4979 (N.D. Ill.)]. [USA v. Michael E. Kelly, Case No. 1:06-CR-964 in the United States District Court for the Northern District of Illinois; SEC v. Michael E. Kelly, et al., Case No. 1:07-CV-4979 in the United States District Court for the Northern District of Illinois] (LR-20573)
SEC Charges Four Current and Former Broadcom Officers for Backdating Options
The Commission today charged two current and two former top officers of Irvine, Calif.-based Broadcom Corporation for their alleged participation in a five-year systematic scheme to secretly backdate stock options granted to virtually all Broadcom officers and employees.
The SEC's complaint, filed in federal district court for the Central District of California, alleges that Broadcom's former chief executive officer Henry T. Nicholas, chairman and chief technology officer Henry Samueli, former chief financial officer William J. Ruehle, and general counsel David Dull perpetrated a scheme from 1998 to 2003 to fraudulently backdate stock option grants, failing to record billions of dollars of compensation expenses and falsifying documents to further the fraud. As a result of the scheme, Broadcom restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses.
The SEC alleges that, through this scheme, the four officers made it appear that the options were granted at times corresponding to low points of the closing price of Broadcom's stock - despite the fact that the purported grant date bore no relation to when the grant was actually approved. This resulted in artificially and fraudulently low exercise prices for those options. The SEC also alleges that the unrecorded compensation expenses and hidden backdating practices led Broadcom to provide false and misleading disclosures to Broadcom's shareholders in filings with the SEC through 2005.
According to the SEC's complaint, Nicholas and Samueli served on the two-member option committee that had authority to approve options to employees and all but the most senior officers, whose grants were to be decided by two independent directors comprising Broadcom's compensation committee. The SEC alleges that the option committee approved as many as 88 grants during the relevant period, but for many of the grants the committee neither held meetings nor made decisions on the dates the grants were supposedly approved. Instead, Ruehle allegedly selected most of the grant dates retroactively based on a comparison of Broadcom's historical stock prices, and Nicholas and Samueli allegedly concealed the backdating by signing false committee written consents stating that the grant had been approved "as of" the retroactive date.
In addition, the SEC alleges that Nicholas, Samueli, and Ruehle - not the compensation committee - decided on option grants to Broadcom's senior officers and used hindsight to select the dates for them. Dull allegedly knew about and participated in the backdating scheme and was involved in the preparation, review, and approval of false board and compensation committee meeting documents to conceal two backdated grants in 2001, one of which awarded him options to purchase 300,000 shares.
The SEC is alleging that Ruehle and Dull each personally benefited from the backdating scheme by receiving and exercising backdated grants that were in-the-money by more than $100,000 for Ruehle and $1.8 million for Dull.The SEC's complaint alleges that Nicholas, Samueli, Ruehle and Dull violated Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Broadcom's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. In addition, the SEC alleges that: (i) Nicholas, Ruehle, and Dull violated Section 14(a) of the Exchange Act and Rule 14a-9 thereunder; (ii) Nicholas and Ruehle violated Rules 13a-14 and 13b2-2 of the Exchange Act; (iii) Ruehle and Dull violated Section 16(a) and Rules 13a-11 and 16a-3 of the Exchange Act; and (iv) Dull aided and abetted Broadcom's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC is seeking permanent injunctions, civil monetary penalties, and officer-and-director bars against each of the individuals, disgorgement with prejudgment interest against Ruehle and Dull, and reimbursement of bonuses and profits from stock sales from Nicholas and Ruehle pursuant to Section 304 of the Sarbanes-Oxley Act of 2002.
Previously, the Commission brought enforcement actions against Broadcom and Broadcom's former vice president of human resources, Nancy M. Tullos, in connection with the option backdating scheme. The Commission's investigation in this matter is continuing.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Central District of California and the Federal Bureau of Investigation.
[SEC v. Henry T. Nicholas III, Henry Samueli, William J. Ruehle, and David Dull, Civil Action No. SACV 08-539 CJC (RNBx) (C.D. Cal.)] (LR-20574; AAE Rel. 2827)
SEC Charges Promoters of a Multi-Million Dollar Real Estate Scheme Targeting the African-American Community
The Commission today filed civil securities fraud charges against Jeanetta M. Standefor, age 40 of Altadena, California, and Pasadena, Calif.-based Accelerated Funding Group (AFG), for operating an $18 million real estate investment scheme targeting the African-American community.
The SEC's complaint, filed in federal district court in Los Angeles, alleges that between 2005 and 2007, Standefor and AFG solicited investors in a foreclosure reinstatement scheme through AFG's website, word of mouth, and testimonials by other seemingly successful investors. Standefor claimed investor funds would be used to cure defaults on distressed properties enticing investors with promises of returns of up to 50% within 30 to 45 days. AFG offering materials touted the foreclosure reinstatement program as virtually risk free and promised investors that their principal would be safely returned within 72 hours at their request.
In reality, according to the SEC's complaint, Standefor and AFG did not use investor funds to cure defaults on any residential properties and investors' requests for returns of their investments have been ignored. Standefor and AFG have instead operated a Ponzi-like scheme by using money from new investors to pay previous investors. Standefor misappropriated more than $1.9 million of investor funds for personal expenses such as her lavish wedding, honeymoon, cars, jewelry, tickets to entertainment events, and home renovations. Standefor and AFG also misused investor funds to pay $121,000 in consulting fees to Standefor's husband, Darrell R. Dansby.
The SEC's complaint alleges that the defendants violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint also alleges that the defendants violated the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties. The complaint also names Dansby as a relief defendant, alleging he received ill-gotten gains from Standefor's and AFG's fraudulent conduct.
The U.S. Attorney's Office for the Central District of California indicted Standefor yesterday, and the Federal Bureau of Investigation arrested her today. The California Department of Corporations today also issued a desist and refrain order to Standefor and AFG.
The SEC acknowledges the assistance of the U.S. Attorney's Office for the Central District of California, the Federal Bureau of Investigation, and the California Department of Corporations. [SEC v. Jeanetta M. Standefor, et al., United States District Court for the Central District of California, Civil Action No. CV 08-03164 RSWL] (LR-20575)
Accelerated Approval of Proposed Rule Change
The Commission noticed Amendment No. 1 to the proposed rule change and granted accelerated approval to a proposed rule change, as modified by Amendment No. 1 thereto (SR-ISE-2008-28), submitted pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 by the International Securities Exchange relating to the exposure of public customer orders. Publication is expected in the Federal Register during the week of May 12. (Rel. 34-57812)
Approval of Proposed Rule Change
The Commission granted approval of a proposed rule change (SR-NYSEArca-2007-104), as modified by Amendment No. 1 thereto, 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 listing standards for Warrants, Rights, and Units. Publication is expected in the Federal Register during the week of May 12. (Rel. 34-57815)
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