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U.S. Securities and Exchange Commission

SEC News Digest

Issue 2008-98
May 20, 2008

ENFORCEMENT PROCEEDINGS

Commission Dismisses Petition for Review of NASD Disciplinary Action

The Commission has dismissed a petition for review of disciplinary action taken against Robert M. Ryerson by NASD. NASD found that Ryerson engaged in private securities transactions in violation of NASD Rules 3040 and 2110, improperly paid commissions to a non-NASD member in violation of NASD Rule 2110, and failed to provide timely on-the-record testimony to NASD staff in violation of NASD Rules 8210 and 2110. NASD (1) imposed a two-year suspension in all capacities, a $230,000 fine, and ordered that Ryerson requalify in all capacities for his improper private securities transactions and (2) imposed a fifteen business-day suspension and a $5,000 fine for his improper payment of commissions to a non-NASD member.

Ryerson failed to file a petition for review within thirty days after NASD issued its decision as required by Commission Rule of Practice 420. Instead, Ryerson filed a petition for review over fourteen months after NASD issued its decision. In that petition, Ryerson requested that the Commission "reverse" the NASD decision and "stay" its efforts to collect the monetary sanctions. The Commission found that Ryerson failed to demonstrate any extraordinary circumstances under Commission Rule of Practice 420 that would justify accepting his late-filed petition for review. (Rel. 34-57839; File No. 3-12874)


Commission Sustains in Part and Remands in Part NYSE Action Against James Gerard O'Callaghan

The Commission has sustained the NYSE's findings that James Gerard O'Callaghan, an NYSE member and independent floor broker, violated Section 11(a) and Rule 11a-1 of the Securities Exchange Act of 1934 and NYSE Rules 90, 95, and 476 by executing trades in an account over which he exercised investment discretion. However, the Commission has determined to remand the proceeding for the NYSE to reconsider the sanctions imposed, particularly the three-month suspension. On remand, the Commission stated that the NYSE should address the protective interests to be served by removing O'Callaghan from the exchange floor, the mitigating factors presented in the record, and any other factors related to whether a suspension is appropriately remedial and not punitive. (Rel. 34-57840; File No. 3-12668)


Court Enters Orders of Preliminary Injunction Against Gregory N. McKnight and Legisi Holdings, LLC

On May 16, the Commission obtained Orders of Preliminary Injunction and Other Relief (Orders) from the United States District Court for the Eastern District of Michigan against Swartz Creek, Michigan resident Gregory N. McKnight (McKnight) and Legisi Holdings, LLC (Legisi), pursuant to their consent. The Orders preliminarily enjoin the Defendants from violating the anti-fraud and registration provisions of the federal securities laws in connection with a $72 million Ponzi scheme. The Orders also continue the asset freezes and certain other ancillary relief previously ordered by the Court on May 5, 2008.

The Commission'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 Commission'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 Commission's complaint further alleged 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 Commission'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 Orders preliminarily restrain and enjoin McKnight and Legisi from violating 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. The Orders also, among other things, continue the freeze of McKnight's and Legisi's assets and the freeze of Legisi investor funds wherever located. [SEC v. Gregory N. McKnight, et al., Case No. 08-11887 (E.D. Michigan)] (LR-20588)


SELF-REGULATORY ORGANIZATIONS

Proposed Rule Changes

The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2008-41) relating to the Automated Improvement Auction. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57816)

The NYSE Arca has filed a proposed rule change (SR-NYSEArca-2008-49) relating to Rule 10.12 (Minor Rule Plan) and underlying rules. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57827)

The Municipal Securities Rulemaking Board filed a proposed rule change relating to MSRB Rule G-34, CUSIP Numbers and New Issue Requirements, to require underwriter registration and testing with Depository Trust and Clearing Corporation's New Issue Information Dissemination System (SR-MSRB-2008-04). Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57830)


Accelerated Approval of Proposed Rule Changes

The Commission granted accelerated approval to a proposed rule change (SR-FINRA-2008-017) filed by the Financial Industry Regulatory Authority relating to Section 1(a) of Article III of the FINRA by-laws. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57820)

The Commission granted accelerated approval to a proposed rule change, as modified by Amendment Nos. 2 and 3, submitted by the NASDAQ Stock Market (SR-NASDAQ-2007-001) to amend Nasdaq's Clearly Erroneous Rule. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57826)

The Commission granted accelerated approval to a proposed rule change (SR-NYSE-2008-35) submitted by the New York Stock Exchange to amend Section 703.21 of the Listed Company Manual relating to equity-linked debt securities. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57833)

The Commission granted accelerated approval to a proposed rule change (SR-Phlx-2008-33), as modified by Amendment No. 1 thereto, submitted by the Philadelphia Stock Exchange relating to equity linked notes. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57834)


Approval of Proposed Rule Changes

The Commission granted approval to a proposed rule change (SR-Amex-2008-30), as modified by Amendment No. 1 thereto, submitted by the American Stock Exchange to amend the eligibility criteria for components of an index or portfolio underlying Portfolio Depositary Receipts and Index Fund Shares. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57818)

The Commission granted approval to a proposed rule change (SR-Amex-2007-107), as modified by Amendment Nos. 3 and 4 thereto, filed by the American Stock Exchange relating to Section 31 related fees. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57829)


Immediate Effectiveness of Proposed Rule Changes

The Fixed Income Clearing Corporation filed a proposed rule change (SR-FICC-2008-03) under Section 19(b)(1) of the Exchange Act, which became effective upon filing, to eliminate the Coverage Component and Margin Requirement Differential from the Mortgage-Backed Securities Division participants fund calculation. Publication is expected in the Federal Register during the week of May 19. (Rel. 34-57821)

A proposed rule change filed by the NASDAQ Stock Market to modify the opening of trading on the NASDAQ Options Market (SR-NASDAQ-2008-045) 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 May 19. (Rel. 34-57822)

A proposed rule change (SR-NYSE-2008-38) filed by the New York Stock Exchange to extend, through Dec. 31, 2008, the pilot program that offers liquidity takers a reduced transaction fee structure for certain bond trades executed on the NYSE Bonds system 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 May 19. (Rel. 34-57823)

A proposed rule change filed by the Philadelphia Stock Exchange relating to FLEX Equity Option opening transactions (SR-Phlx-2008-35) 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 May 19. (Rel. 34-57824)

A proposed rule change filed by the International Securities Exchange to amend its Schedule of Fees to establish fees for transactions in options on five Premium Products (SR-ISE-2008-39) 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 May 19. (Rel. 34-57831)


SECURITIES ACT REGISTRATIONS


RECENT 8K FILINGS

 

http://www.sec.gov/news/digest/2008/dig052008.htm


Modified: 05/20/2008