Stewart Mayhew Named Deputy Chief Economist
The Securities and Exchange Commission announced today that Dr. Stewart Mayhew has been promoted to Deputy Chief Economist in the agency's Office of Economic Analysis.
Dr. Mayhew joined the SEC staff in 2002 as a Visiting Academic Scholar, and since 2004 has served as an Assistant Chief Economist, leading a group that provides economic analysis and support for the SEC's Division of Investment Management, Division of Trading and Markets, and Office of Compliance Inspections and Examinations. His promotion to Deputy Chief Economist is effective immediately.
"I look forward to working with Stewart in his new role," said SEC Chief Economist Dr. James Overdahl. "Stewart's background and skills make him perfectly suited to help ensure that Commission's rulemaking, policymaking, market oversight, and enforcement functions fully integrate rigorous economic analysis."
Dr. Mayhew earned a Ph.D. in finance from the University of California, Berkeley in 1996. Prior to joining the SEC staff, he served on the faculty of the Terry College of Business at the University of Georgia and the Krannert School of Management at Purdue University. Dr. Mayhew has published numerous academic articles in such publications as the Journal of Finance, the Journal of Financial and Quantitative Analysis, and the Journal of Futures Markets. (Press Rel. 2008-132)
SEC Publishes Regulatory Actions to Streamline SRO Rule Filing Process
The Securities and Exchange Commission today published a final rule and new interpretative guidance to improve the rulemaking process for exchanges and other self-regulatory organizations (SROs) that operate under SEC oversight.
The Commission voted unanimously on June 25, 2008, to approve the final rule and issue the guidance to help increase the competitiveness of U.S. markets, the speed with which new products and services can be made available to investors, and the effectiveness of measures designed to protect investors.
Over the past decade, major securities markets have transformed themselves from member-owned quasi-utilities into shareholder-owned, for-profit, multi-national businesses, and technology has revolutionized securities trading. Trades are now measured in milliseconds, and competitive decision making in the marketplace is urgent and immediate. This era of high-tech, global, and competitive exchanges has put an even greater premium on the SEC reviewing the rule proposals of SROs in a timely manner.
"Exchanges are competing with one another to provide more products to more investors more efficiently than ever before," said SEC Chairman Christopher Cox. "But exchanges today also need to be able to change their rules quickly to respond to investors' needs in this competitive environment. These changes in the SEC's internal procedures should help strengthen the protection of investors who reap the benefits of healthier and more competitive markets."
Under the Securities Exchange Act of 1934, when a proposed rule change is submitted by an SRO for Commission review, the Commission is required to approve it or institute proceedings to disapprove it within 35 days of its publication. This 35-day deadline can be extended for up to 90 days in certain cases.
To address concerns from market participants and others about rule-processing delays, the Commission has proposed to amend its internal rules of procedure to require that any proposed rule change filed by an SRO for review be published within 15 business days. In the rare instance when a rule change is unusually complex or raised novel issues, the Director of the Division of Trading and Markets would be able to make exceptions to this 15-day requirement.
The Commission also is issuing new interpretive guidance to elaborate on the Commission's views regarding proposed rule changes that may properly be filed for immediate effectiveness, and specifically, those proposed rule changes filed pursuant to Exchange Act Rule 19b-4(f)(6), under which "non-controversial" rule changes may be filed.
First, the guidance would address the proposed changes to rules governing exchange trading systems that could be filed for immediate effectiveness. If these changes implicated any policy issues, they would have to be addressed consistently with how the Commission has dealt with them in the past. The guidance provides many helpful examples in this regard.
Additional changes that also could be filed for immediate effectiveness would include:
The guidance and rules will be effective upon their publication in the Federal Register.
The full text of the final rule and new interpretative guidance has been posted to the SEC Web site. (Press Rel. 2008-133)
SEC Wins Summary Judgment on Fraud Claims Against Company and Its CEO
On June 30, 2008, the Commission obtained an order on summary judgment against a San Francisco-based company and its former Chairman and CEO on claims that they misled investors about the company's expected revenues and its sources of financing. The order, issued by the U.S. District Court for the Northern District of California, found Indigenous Global Development Corporation (IGDC) and Deni G. Leonard liable for fraud in connection with the purchase and sale of IGDC securities. The case is entitled Securities and Exchange Commission v. Indigenous Global Development Corporation and Deni G. Leonard, Civ. Action No. C-06-05600 (N.D. Cal. June 30, 2008).
According to the Court's order, IGDC claimed, among other things, to be involved in the purchase and sale of natural gas, with the goal of providing "financial self-sufficiency for Native Americans . . . and indigenous people worldwide."
The Court found, that from May 2003 through September 2005, in a series of press releases and in filings with the Commission, IGDC and Leonard falsely told investors that IGDC had contracts to purchase and sell millions of dollars in natural gas and also had access to millions of dollars in financing. In fact, the Court found, IGDC was a start-up company that had no revenues and no significant contracts or sources of financing.
The Court found that Leonard committed fraud in connection with the purchase and sale of securities, in violation of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; issued false certifications as to the accuracy of IGDC filings with the Commission, in violation of Exchange Act Rule 13a-14; and aided and abetted IGDC in making filings with the Commission that were materially inaccurate, in violation of Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13.
The Court's order enjoins Leonard from violations of these provisions of the securities laws; requires him to pay disgorgement of $249,793.68 (representing the proceeds from his sales of IGDC stock to the public during the course of his fraud) plus prejudgment interest of $37,586.84; imposes a monetary penalty of $249,793.68; prohibits Leonard from serving as an officer or director of any public company; and also prohibits Leonard from involvement in the offering of any penny stock.
In addition, the Court entered judgment against IGDC, which is now defunct, and imposed a penalty of $208,000. [SEC v. Indigenous Global Development Corporation and Deni G. Leonard, Civ. Action No. C-06-05600 (N.D. Cal.)] (LR-20634)
SEC v. Enterprise Trust Company, et al.
On July 2, 2008, the Commission obtained an Order of Permanent Injunction (Order) from the United States District Court for the Northern District of Illinois against John H. Lohmeier (Lohmeier), of Oak Brook, Illinois, pursuant to his consent. The Order permanently enjoins Lohmeier from violating the anti-fraud provisions of the federal securities laws in connection with the purchase and sale of securities. Lohmeier consented to the entry of the Order against him without admitting or denying the allegations in the Commission's complaint.
The Commission's complaint, filed on March 3, 2008, alleges that Defendants Lohmeier, Enterprise Trust Company (Enterprise) and Rebecca A. Townsend (Townsend) fraudulently induced hundreds of customers of Advisory Financial Consultants (AFC), a registered broker-dealer, to transfer custody of approximately $49 million in mutual funds to Enterprise. The complaint further alleges that unbeknownst to and without the authorization of the customers, Defendants Lohmeier, Enterprise, and Townsend placed the AFC customers' mutual funds into margin and other accounts where the AFC customers' securities served as collateral for leveraged margin trading, including options trading and short selling, that was intended to benefit Enterprise's principals, Lohmeier and Townsend, and other Enterprise customers. This margin trading was not intended to and did not benefit the AFC customers. The complaint further alleges that on February 13, 2008, more that $8 million of the AFC customers' mutual funds were sold without the AFC customers' knowledge or approval to cover Enterprise's margin debt.
The Order permanently enjoins Lohmeier from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The agreed Asset Freeze Order, entered on March 3, 2008 and which froze all assets of Lohmeier and Enterprise, remains in effect. Additionally, the Court's March 12, 2008 order appointing a receiver for Enterprise also remains in effect. The Court will determine whether to impose disgorgement and prejudgment interest, and civil penalties against Lohmeier and Enterprise will be determined at a future date. The Commission's investigation in this matter is ongoing. [SEC v. Enterprise Trust Company, et al, Civil Action 08 C 1260, United States District Court for the Northern District of Illinois] (LR-20635)
Former Employees of Morgan Stanley and ING Investment Management Services Settle SEC Insider Trading Charges
The Securities and Exchange Commission announced today that on July 3, 2008, the Honorable Alvin K. Hellerstein, United States District Judge for the Southern District of New York, entered a final judgment against Jennifer Xujia Wang, a former employee of Morgan Stanley & Co., Inc., and her husband, Ruben Chen a/k/a Ruopian Chen, a former employee of ING Investment Management Services, LLC, in SEC v. Wang, et al., C.A. No. 07-CV-3715, an emergency insider trading case the Commission filed on May 10, 2007. On that same day, the Court issued a temporary restraining order, which among other things, froze the defendants' assets and on May 18, 2007, following the consent of the defendants, the Court issued a preliminary injunction.
The criminal authorities arrested and charged Chen and Wang the same day the Commission filed its emergency action. On Sept. 5, 2007, Chen and Wang pled guilty to conspiracy to commit securities fraud and insider trading. On December 4, 2007, Chen and Wang were each sentenced to 18 months in prison, to be served consecutively. Chen surrendered on March 3, 2008, and is currently incarcerated.
The Commission's amended complaint alleges that Chen and Wang used online brokerage accounts in Wang's mother's name, Zhiling Feng, to purchase securities of companies on the verge of announcing they would be acquired. Wang and Chen used material non-public information from Wang's then employer, Morgan Stanley, which was contacted to provide services in connection with the acquisitions. Wang and Chen obtained illegal profits of $727,733 by trading on the basis of material nonpublic information before the public announcements of five impending acquisitions: Town & Country Trust; Glenborough Realty Trust; Genesis HealthCare Corporation; Penn National Gaming, Inc.; and American Financial Realty Trust.
Without admitting or denying the allegations in the amended complaint, Chen and Wang consented to the entry of a final judgment which: (1) permanently enjoins them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (2) orders them to pay jointly and severally disgorgement of $727,733, plus prejudgment interest of $57,096, for a total of $784,829; and (3) imposes a civil penalty against each of $50,000, such penalty amounts having been limited based on the defendants' sworn representations in their statement of financial condition. Chen and Wang also consented to the entry of Commission orders barring Chen from association with any investment adviser and Wang from association with any broker-dealer or investment adviser.
For further information, please see Litigation Rel. No. 20112 (May 10, 2007). [SEC v. Jennifer Xujia Wang and Ruben Chen a/k/a Ruopian Chen, Civil Action No. 07-CV-3715 (S.D.N.Y.) (AKH)] (LR-20636)
INVESTMENT COMPANY ACT RELEASES
The Penn Mutual Life Insurance Company, et al.
A notice has been issued giving interested persons until July 24, 2008, to request a hearing on an application filed by The Penn Mutual Life Insurance Company, The Penn Insurance and Annuity Company, Penn Mutual Variable Annuity Account III, Penn Mutual Variable Life Account I, and PIA Variable Annuity Account I (collectively the Section 26 Applicants), Penn Series Funds, Inc. (collectively with the Section 26 Applicants, the Section 17 Applicants). The Section 26 Applicants request an order under Section 26(c) of the Investment Company Act to permit the substitution of securities issued by certain registered investment companies for shares of a certain other registered investment companies. The Section 17 Applicants also request an order pursuant to Section 17(b) of the Act exempting them from the provisions of Section 17(a) of the Act to permit certain in-kind transactions in connection with the substitution. (Rel. IC-28328 - July 2)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the Chicago Board Options Exchange to extend the duration of CBOE Rule 6.45A(b) pertaining to orders represented in open outcry (SR-CBOE-2008-65) 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 July 7. (Rel. 34-58048)
The Options Clearing Corporation filed a proposed rule change (SR-OCC-2008-10), which became effective upon filing, under Section 19(b)(1) of the Exchange Act relating to the new methodology for adjusting options contracts for cash dividends and distributions. Publication is expected in the Federal Register during the week of July 7. (Rel. 34-58059)
A proposed rule change filed by the American Stock Exchange (SR-Amex-2008-49) to amend Section 107 of the Company Guide 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 July 7. (Rel. 34-58060)
A proposed rule change filed by The NASDAQ Stock Market regarding technical and conforming changes to Nasdaq rules (SR-NASDAQ-2008-054) has become immediately 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 July 7. (Rel. 34-58069)
A proposed rule change filed by the International Securities Exchange (SR-ISE-2008-51) to establish an exemption for certain Regulation NMS-compliant intermarket sweep orders from the requirements in Rule 2119 (Equity EAMs Acting as Brokers) and to conform Rule 2119 to Financial Industry Regulatory Authority rules has become immediately 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 July 7. (Rel. 34-58072)
A proposed rule change (SR-CBOE-2008-71) filed by the Chicago Board Options Exchange relating to the temporary membership status access fee 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 July 7. (Rel. 34-58073)
A proposed rule change filed by the NYSE Arca to permit the use of a new order type known as Price Improving Orders and Quotes (SR-NYSEArca-2008-69) has become immediately 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 July 7. (Rel. 34-58079)
Proposed Rule Change
The American Stock Exchange filed a proposed rule change (SR-Amex-2008-54) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 relating to closed-end fund of hedge fund listing requirements. Publication is expected in the Federal Register during the week of July 7. (Rel. 34-58067)
Approval of Proposed Rule Change
The Commission granted approval to a proposed rule change and Amendments No. 1 and 2 thereto submitted by the New York Stock Exchange (SR-NYSE-2008-20) under Section 19(b)(1) of the Securities Exchange Act of 1934 relating to Exchange Rule 36 (Communications Between Exchange and Member's Offices) to make permanent an existing portable phone pilot. Publication is expected in the Federal Register during the week of July 7. (Rel. 34-58068)
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