Statement of SEC Chairman Christopher Cox Regarding Today's Circuit Court Decision
SEC Chairman Christopher Cox today issued the following statement regarding a decision in Free Enterprise Fund v. Public Company Accounting Oversight Board:
"The decision today of the Court of Appeals for the District of Columbia Circuit upholding the constitutionality of the Public Company Accounting Oversight Board is welcome news for the Commission, investors and U.S. capital markets.
"The creation of the PCAOB was a central feature of the Sarbanes-Oxley Act, which was enacted in part in response to repeated failures of audit effectiveness and loss of investor confidence. The Commission believes that the PCAOB is a highly effective organization whose continued existence is vital to protecting investors and furthering the public interest in the preparation of accurate and informative audit reports." (Press Rel. 2008-180)
SEC Enforcement Division Announces Preliminary Settlement with Merrill Lynch to Help Auction Rate Securities Investors
The Securities and Exchange Commission's Division of Enforcement today announced that a preliminary settlement in principle has been reached with Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) that would enable investors who purchased auction rate securities from the firm to receive a total of up to $7 billion to restore their losses and liquidity.
In addition to helping individual investors, small businesses, and charities who were ARS customers of Merrill Lynch, the preliminary settlement also would require Merrill Lynch to use its best efforts to provide liquidity for approximately $1.5 billion worth of ARS purchased through Merrill Lynch by other business and institutional customers. The terms of the settlement are subject to finalization, review and approval by the Commission.
The proposed charges involve alleged misrepresentations by Merrill Lynch to thousands of its customers that ARS were safe, highly liquid investments equivalent to money market instruments and cash. Merrill Lynch did not make adequate disclosures that the liquidity of these securities was based on Merrill Lynch supporting the auctions it managed when there was not enough demand. Investors were left holding illiquid securities when Merrill Lynch stopped supporting auctions in February 2008. Furthermore, Merrill Lynch continued to tout the purported liquidity of ARS to customers despite its awareness of the escalating liquidity risks in the weeks and months preceding the collapse of the ARS market.
"Merrill Lynch's conduct harmed tens of thousands of investors who will have the opportunity to get their money back through this agreement pending Commission approval," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We will continue to aggressively investigate wrongdoing in the marketing and sale of auction rate securities, and will seek prompt and meaningful relief to auction rate securities investors as a top priority."
Under the terms of the agreement in principle:
The SEC notes the substantial assistance and cooperation from the Massachusetts Secretary of State, the North American Securities Administrators Association, the New York Attorney General and FINRA.
The SEC's investigation is continuing.
For more information, contact: David Rosenfeld, Associate Director, SEC's New York Regional Office, at (212) 336-0153 or Maureen F. Lewis, Branch Chief, SEC's New York Regional Office, at (212) 336-0125. (Press Rel. 2008-181)
Following is a schedule of Commission meetings, which will be conducted under provisions of the Government in the Sunshine Act. Meetings will be scheduled according to the requirements of agenda items under consideration.
Open meetings will be held in the Auditorium, Room L-002 at the Commission's headquarters building, 100 F Street, N.E., Washington, D.C. Visitors are welcome at all open meetings, insofar as space is available. Persons wishing to photograph or videotape Commission meetings must obtain permission in advance from the Secretary of the Commission. Persons wishing to tape record a Commission meeting should notify the Secretary's office 48 hours in advance of the meeting.
Any member of the public who requires auxiliary aids such as a sign language interpreter or material on tape to attend a public meeting should contact SECInterpreter@SEC.gov at least three business days in advance. For any other reasonable accommodation related disability contact DisabilityProgramOfficer or call 202-551-4158.
Open Meeting - August 27, 2008 - 10:00 a.m.
The subject matter of the open meeting will be:
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.
Commission Declares Decision as to Amaroq Asset Management, LLC and Dwight Andre Sean O'Neal Jones Final
The decision of an administrative law judge ordering Amaroq Asset Management, LLC, and Dwight Andree Sean O'Neal Jones to cease and desist from committing or causing any violations or future violations of Section 204 of the Investment Advisers Act of 1940 and Advisers Act Rule 204-1 has been declared final. The law judge further ordered that the registration of Amaroq Asset Management, LLC be revoked; that Dwight Andree Sean O'Neal Jones be barred from association with any investment adviser, with a right to apply for association after one year; and ordered that Jones pay a civil penalty in the amount of $15,000.
The law judge concluded that Jones willfully aided and abetted and was a cause of Amaroq's failure to: (1) file annual amendments to Form ADV; (2) promptly update its Form ADV to reflect its current business address; (3) submit to a reasonable examination and failing to furnish copies of the required books and records in connection with the scheduled examination. The law judge found that Jones showed indifference and/or a series of broken promises, when Commission attorneys repeatedly and explicitly informed him of the law's requirements, thereby demonstrating extreme recklessness. (Rel. IA-2770) Finality Order; File No. 3-12822)
In the Matter of Warren T. Chambers
On August 21, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (Order) against Warren T. Chambers (Chambers). The Order finds that on August 6, 2008, an order of permanent injunction was entered by consent against Chambers, permanently enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rules 10b-5 and 10b-10 thereunder and from aiding and abetting violations of Exchange Act Rule 10b-10, in the civil action entitled Securities and Exchange Commission v. Michael E. Kelly, et al., Civil Action Number 07-cv-4979, in the United States District Court for the Northern District of Illinois. The Commission's complaint alleged that Chambers and his business, Century Estate Planning, Inc., participated in a massive fraud orchestrated by Michael E. Kelly that victimized thousands of investors across the United States by raising at least $428 million through the offer and sale of fraudulent and unregistered securities called Universal Leases. Universal Leases were securities in the form of investment contracts that were structured as timeshares in several hotels in Cancun, Mexico, coupled with pre-arranged servicing agreements with a purportedly independent leasing agent that promised investors a safe investment and guaranteed returns. The complaint alleged that Chambers offered and sold Universal Leases to investors and recruited others to do so. The complaint further alleged, among other things, that Chambers made false and misleading statements about the safety of the Universal Leases and about the purportedly independent leasing agent, and also failed to make required disclosures about the commissions he was being paid for his Universal Lease sales.
Based on the above, the Order bars Chambers from association with any broker or dealer. Chambers consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the entry of the order of permanent injunction against him. (Rel. 34-58402; File No. 3-13144)
In the Matter of Raymond L. Leonard, Jr.
On August 22, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (the Order) in the above-referenced matter against Raymond L. Leonard, Jr. (Leonard). The Order finds that, on May 28, 2008, the Commission filed a complaint against Leonard in SEC v. Raymond L. Leonard, Jr. (Civil Action No. 6:08-cv-01159), in the United States District Court for the District of Kansas. It also finds that, on June 26, 2008, the court entered an order permanently enjoining Leonard, by consent, from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(b) of the Securities Exchange Act of 1934, and Rule 10b-5.
Based on the above, the Order finds that Respondent Leonard, pursuant to Section 15(b)(6) of the Exchange Act, is barred from association with any broker or dealer. Leonard consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-58409; File No. 3-13145)
SEC Settles Enforcement Proceedings Against Former Fleming Companies, Inc. Executives Mark David Shapiro, Albert M. Abbood, and James H. Thatcher for Their Roles in Financial Fraud Scheme
The Commission announced that on Aug. 15, 2008, the Honorable Michael H. Schneider, United States District Judge for the Eastern District of Texas, entered Final Judgments as to former Fleming Companies, Inc. executives Mark David Shapiro, Albert M. Abbood, and James H. Thatcher, in SEC v. Mark David Shapiro, et al., permanently enjoining the defendants from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting 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, 13a-13, 13b2-1 and 13b2-2 thereunder. The defendants consented to the entry of the Final Judgments without admitting or denying the allegations of the Commission's complaint. Pursuant to the Final Judgments, Abbood and Thatcher will pay civil penalties of $25,000 each, and Shapiro will pay a civil penalty of $135,000. Further, Shapiro agreed to settle proposed administrative proceedings against him pursuant to Rule 102(e) of the Commission's Rules of Practice, to be based on the entry of the Court's final judgment enjoining him. Pursuant to his offer of settlement, Shapiro consented to the issuance of a Commission order suspending him from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after three years.
The Commission's complaint alleges that over several quarters in late 2001 and the first half of 2002, Fleming improperly executed and recorded a number of accounting transactions to "bridge the gap" between Wall Street expectations and disappointing actual operation results. According to the complaint, the defendants participated directly and indirectly in this wrongdoing by obtaining misleading side letters from Fleming vendors that were used to improperly accelerate recognition of the vendors' up-front payments, in violation of generally accepted accounting principles. These transactions were the subject of settled enforcement actions the Commission brought against Fleming and several of its vendors and vendor employees on Sept. 14, 2004. See In the Matter of Fleming Companies, Inc., Lit. Rel. No. 18884 (Sept. 14, 2004). The complaint alleges that Shapiro, Fleming's chief accounting officer at the time, compounded his wrongdoing by giving Fleming's outside auditors false and misleading representation letters and signing Fleming's fraudulent 2001 Form 10-K and Forms 10-Q for the first and second quarters of 2002. Further, the complaint alleges that Shapiro inflated earnings by executing large quarter-end inventory purchases solely to generate discounts that Fleming could immediately recognize as earnings in an effort to help meet Wall Street analysts' earnings expectations. Fleming failed to disclose that these purchases were part of an intentional scheme to inflate earnings. Finally, the complaint alleges that Shapiro improperly inflated Fleming's 2001 earnings by directing the release of extensive accounting reserves, without proper justification or disclosure.
Two other defendants, former Fleming executives Philip B. Murphy and Thomas Gerald Dahlen, Jr., previously settled Commission charges concerning the same conduct. [SEC v. Mark David Shapiro, et al., Civil Action No. 4:05-CV-0364 (E.D. Texas) Sherman Division, (Schneider, J.)] (LR-20687; AAE Rel. 2865)
SEC Obtains Temporary Restraining Order Halting Sales of Fraudulent Foreign Currency Investments by Carrollton, Texas, Man and His Company
On August 20, the Commission filed a civil action in Dallas federal court against Patrick H. Haxton and Royal Forex Management, LLC (Royal) alleging that the defendants fraudulently offered unregistered securities in the form of investment contracts involving the trading of foreign currencies on the Forex market. On Aug. 21, 2008, United States District Judge Sam A. Lindsay entered orders temporarily suspending the offering, freezing the defendants' assets, and granting other emergency relief.
The SEC's complaint alleges that from at least June 2007 to the present, Haxton, personally and through Royal, raised at least $305,000 from 8 investors in three states. Haxton offers the Forex investments through the Royal web site, advertising on his work truck and personal contacts. Royal's promotional materials and Haxton's oral statements are replete with representations of phenomenal past trading returns, including claims of 400% to 500% annual returns, generated by a complex software program named "The Currency Trading Robot," purportedly created by Haxton. Haxton and the web site also represent that there is very little risk of loss. The complaint alleges, however, that Haxton and Royal never generated the claimed phenomenal returns by trading currency. Indeed, according to the complaint, Haxton lost a significant portion of investor funds trading foreign currencies and misappropriated the remaining funds for his own personal use. In some instances, investor funds were never traded, but were used to pay business and personal expenses.
The SEC's complaint alleges that defendants violated 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 and Rule 10b-5 thereunder. [SEC v. Royal Forex Management, LLC and Patrick H. Haxton (U.S.D.C., Northern District of Texas, Dallas Division, Civil Action No. 3:08-CV-1467-L)] (LR-20688)
INVESTMENT COMPANY ACT RELEASES
Genworth Life of New York VL Separate Account 1
An order has been issued under Section 8(f) of the Investment Company Act declaring that Genworth Life of New York VL Separate Account 1 has ceased to be an investment company. ((Order: Rel No. IC-28363) - August 20)
Approval of Proposed Rule Changes
The Commission approved a proposed rule change as modified by Amendment No. 1 (SR-NASDAQ-2007-067) submitted by The NASDAQ Stock Market under Rule 19b-4 of the Securities Exchange Act of 1934 to establish an Imbalance Cross. Publication is expected in the Federal Register during the week of August 25. (Rel. 34-58386)
The Commission approved a proposed rule change (SR-NASDAQ-2008-019) submitted by The NASDAQ Stock Market to remove from the Nasdaq rules fee provisions relating to Nasdaq's Mutual Fund Quotation Service. Publication is expected in the Federal Register during the week of August 25. (Rel. 34-58392)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-CBOE-2008-85) filed with the Chicago Board Options Exchange adopting a new order type 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 August 25. (Rel. 34-58394)
A proposed rule change filed by NYSE Arca (SR-NYSEArca-2008-88) to eliminate the requirement that orders sent via the InterMarket Linkage System and broker dealer orders receive the same billing treatment 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 August 25. (Rel. 34-58399)
Proposed Rule Changes
The Depository Trust Company filed a proposed rule change (SR-DTC-2008-10) under Section 19(b)(1) of the Exchange Act, which proposed rule change became effective upon filing, to make technical changes to the Collateral Loan System. Publication is expected in the Federal Register during the week of August 25. (Rel. 34-58407)
The International Securities Exchange filed a proposed rule change (SR-ISE-2008-63) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 relating to the Price Improvement Mechanism. Publication is expected in the Federal Register during the week of August 25. (Rel. 34-58401)
JOINT INDUSTRY PLAN RELEASES
Notice of Filing and Order Approving on a Temporary Basis a Proposed Amendment to the Plan for the Purpose of Developing and Implementing Procedures Designed to Facilitate the Listing and Trading of Standardized Options
The American Stock Exchange, the Boston Stock Exchange, Chicago Board Options Exchange, the International Securities Exchange, The NASDAQ Stock Market, NYSE Arca, the Philadelphia Stock Exchange, and the Options Clearing Corporation filed, pursuant to Section 11A of the Securities Exchange Act of 1934 and Rule 608 thereunder, Amendment 2 to the Plan for the Purpose of Developing and Implementing Procedures Designed to Facilitate the Listing and Trading of Standardized Options (File No. 4-443). Publication is expected in the Federal Register during the week of August 25. (Rel. 34-58385)
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