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U.S. Securities and Exchange Commission

SEC News Digest

Issue 2008-187
September 25, 2008

COMMISSION ANNOUNCEMENTS

SEC Seeks More Transparent Disclosure for Investors

Roundtable to Focus on Modern Means to Provide Investors Better Information

The Securities and Exchange Commission today announced that it will hold a roundtable on October 8 to discuss ways to modernize its disclosure system to give investors more useful and timely information for investment decision-making.

The roundtable is part of the SEC's 21st Century Disclosure Initiative launched by SEC Chairman Christopher Cox in June. The roundtable's discussions will help guide the Commission as it examines how the agency acquires disclosure information from public companies, mutual funds, and other market entities as well as how that information is being made available to investors and the markets.

"Sunlight has long been the best disinfectant to prevent problems in our markets. The more direct sunlight we can shine on company disclosure documents to extract the information that investors most want and need to make financial decisions, the more honest our markets will be and the stronger investor confidence will be," said Dr. William D. Lutz, Director of the 21st Century Disclosure Initiative. "Our Initiative and our upcoming roundtable are intended to determine how we can best modernize our disclosure system to provide financial information to investors in a format they can quickly use and understand."

The roundtable will be organized into two panels. The first panel will explore the data, technology, and processes that companies and other filers use in satisfying their SEC disclosure obligations. It also will consider the data and technology that investors use in making their investment decisions. The second panel will consider how the SEC could better organize and operate its disclosure system so that companies enjoy efficiencies and investors have better access to high-quality information. The Commission will invite investor representatives, company officials, information intermediaries, practitioners, and academics to participate as panelists.

"Our roundtable discussion will help advise the Commission how to build on and accelerate its transition from the current forms-based system of collecting data to a system that is more dynamic, more accessible and user-friendly, and better organized around core company or fund information," said Dr. Lutz. "Such a company file system would collect core information about a company or fund, supplemented by periodic, current, and transactional information, in a centrally and logically organized structured data file. This would remove complexity and redundancy for filers, and give investors quick access to the information they want. We're seeking input from all stakeholders on the need for a modernized system, and on what it might look like."

The 21st Century Disclosure Initiative (http://www.sec.gov/disclosureinitiative) aims to fundamentally rethink financial disclosure. The Initiative staff will prepare a report that describes a modernized disclosure system and recommends future Commission action for a transition to the new system. The proposed new system will use new technology to collect, manage, and provide structured disclosure information that is accessible and easier to use, while providing the Commission with tools to better fulfill its mission of protecting investors, maintaining orderly markets, and facilitating the formation of capital.

The roundtable will take place at the SEC's Washington D.C. headquarters beginning at 9 a.m. ET and ending by 1 p.m. ET. The roundtable also will be webcast at www.sec.gov.

For more information, contact:

William Lutz, Director of SEC's Disclosure Initiative 202-551-4144

Jim Kaput, SEC's Disclosure Initiative 202-551-2096

Matthew Reed, SEC's Disclosure Initiative 202-551-2607

(Press Rel. 2008-227)


ENFORCEMENT PROCEEDINGS

Atlanta Homebuilder, Beazer Homes USA, Inc., Settles SEC Charges for Fraudulent Earnings Management

On September 24, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (Order) against Beazer Homes USA, Inc. (Beazer). The Order finds that in certain periods between 2000 and 2007, Beazer, acting through certain of its officers and employees, fraudulently misstated its net income for the purpose of improperly managing its quarterly and annual earnings. Specifically, the Order finds that between approximately 2000 and 2005, a period of strong growth and financial performance for Beazer, Beazer decreased its reported net income by improperly increasing certain reported operating expenses. This created improper accruals, or reserves, in Beazer's books and records. In certain quarters, the existence of these reserves had the effect of smoothing Beazer's earnings, i.e., allowing Beazer to report earnings that still met or exceeded analysts' expectations for its quarterly net income and earnings per share (EPS) while permitting it to improperly defer a portion of its income to future periods. Beginning in the first quarter of fiscal year 2006, Beazer's financial performance began to decline. In order to continue to meet or exceed analysts' expectations for its quarterly net income and EPS, Beazer began reversing many of its previously created, improper reserves. In certain instances, Beazer also began purposefully not recognizing certain current period expenses. These actions had the effect of reducing Beazer's operating expenses and thereby improperly increasing its net income. Additionally during fiscal 2006 and the first two quarters of fiscal 2007, Beazer, again acting through certain of its officers and employees, improperly recognized income from the sale of approximately 360 model homes to three separate investor pools compiled and sponsored by a third party entity.

In May 2008, as a result of its earnings management and other errors, Beazer restated its financial statements to reflect adjustments for the fiscal years 1998 through 2006, as well as the first and second quarters of fiscal year 2007.

Based on the above, without admitting or denying any of the findings, Beazer consented to the issuance of the Order, in which Beazer agreed to cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 promulgated under the Exchange Act.

The Commission's investigation is continuing. The Commission acknowledges the assistance of the United States Attorney's Office of the Western District of North Carolina. (Rels. 33-8960; 34-58633; AAE Rel. 2884; File No. 3-13234)


In the Matter of Sirios Capital Management, L.P.

On September 24, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 21(C) of the Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions and a Cease-and Desist Order (Order) against Sirios Capital Management, L.P. (Sirios). The Order finds that on two occasions on or about Aug. 7, 2003, and on or about March 13, 2006, Sirios willfully violated Rule 105 of Regulation M in connection with short sales made in advance of public offerings by Centene Corporation and Las Vegas Sands Corporation. The Order further finds that Sirios sold short securities within five business days before the pricing of each offering and covered the short sales, in whole or in part, with shares purchased in the offerings, resulting in profits of $198,069.

In view of the foregoing, the Order censures Sirios, requires it to cease and desist from committing or causing any violations and any future violations of Rule 105 of Regulation M, requires Sirios to pay disgorgement of $198,069, plus prejudgment interest of $38,989.69, and to pay a civil penalty of $50,000. Sirios consented to the issuance of the Order without admitting or denying the Commission's findings. (Rel. 34-58634; IA-2788; File No. 3-13235)


In the Matter of Bally Technologies, Inc.

On September 24, the Commission issued an Order Instituting Cease-And-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-And-Desist Order (Order) against Bally Technologies, Inc. (Bally). The Order finds that Bally violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. According to the Order, Bally materially misstated its reported revenue in its financial statements for the fiscal year ended June 30, 2003, the first two quarters of fiscal 2004, and the second and third quarters of fiscal 2005. The Order also finds that Bally made materially misleading disclosures and omissions in certain filings and public statements during the relevant period. According to the Order, some of Bally's misstatements were due to its improper recognition of revenue on a bill and hold basis. In addition, Bally recognized revenue on other transactions that were improper under GAAP where payment was not reasonably assured and the earnings process was not complete. Finally, Bally failed to disclose its recognition of revenue on a bill and hold basis, made a misleading disclosure when it discontinued the bill and hold practice, and made a further misleading disclosure regarding the reason for its restatement.

Based on the above, the Order requires Bally to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Bally consented to the issuance of the Order without admitting or denying any of its findings. (Rel. 34-58636; AAE Rel. 2885; File No. 3-13236)


In the Matter of Robert L. Saxton, CPA

On September 24, the Commission issued an Order Instituting Cease-And-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-And-Desist Order (Order) against Robert L. Saxton, CPA, the former Chief Financial Officer of Bally Technologies, Inc. (Bally). The Order finds that Saxton violated Rules 13a-14 and 13b2 1 under the Securities Exchange Act of 1934 (Exchange Act) and was a cause of Bally's violations of Sections 13(a), 13b(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 in connection with Bally's improper recognition of revenue on a bill and hold basis and misleading omissions and disclosures regarding this practice. Saxton caused Bally's reported revenues to be materially misstated in its Form 10-K for the fiscal year ended June 30, 2003; Forms 10-Q for the quarters ended September 30, 2003 and December 31, 2003; and Forms 8-K relating to the same periods. During this period, Bally recognized revenue on a bill and hold basis, but failed to meet the criteria required for doing so. In addition, Saxton caused Bally's failure to disclose its recognition of revenue on a bill and hold basis, its misleading disclosure when it discontinued the bill and hold practice, and its further misleading disclosure regarding the reason for restatement of its previously published financial statements. Saxton also certified Bally's false financial statements.

Based on the above, the Order requires Saxton to cease and desist from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder and from committing or causing any violations and any future violations of Rules 13a-14 and 13b2-1 under the Exchange Act. Saxton consented to the issuance of the Order without admitting or denying any of its findings. (Rel. 34-58637; AAE Rel. 2886; File No. 3-13237)


Commission Revokes Registration of Securities of Krupp Realty L.P. IV for Failure to Make Required Periodic Filings

On September 25, the Commission revoked the registration of each class of registered securities of Krupp Realty L.P. IV (Krupp IV) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Krupp IV consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Krupp Realty L.P. IV finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Krupp IV's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Krupp IV in In the Matter of Kaleidoscope Media Group, Inc., et al., Administrative Proceeding File No. 3-13155.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

For more information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Kaleidoscope Media Group, Inc., et al., Administrative Proceeding File No. 3-13155, Exchange Act Release No. 34-58448 (September 2, 2008). (Rel. 34-58639; File No. 3-13155)


Commission Revokes Registration of Securities of Krupp Realty L.P. VII for Failure to Make Required Periodic Filings

On September 25, the Commission revoked the registration of each class of registered securities of Krupp Realty L.P. VII (Krupp VII) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Krupp VII consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Krupp Realty L.P. VII finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Krupp VII's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Krupp VII in In the Matter of Kaleidoscope Media Group, Inc., et al., Administrative Proceeding File No. 3-13155.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Kaleidoscope Media Group, Inc., et al., Administrative Proceeding File No. 3-13155, Exchange Act Release No. 34-58448 (September 2, 2008). (Rel. 34-58640 File No. 3-13155)


Commission Revokes Registration of Securities of Belmont Resources, Inc. for Failure to Make Required Periodic Filings

On September 25, the Commission revoked the registration of each class of registered securities of Belmont Resources, Inc. (Belmont) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Belmont consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Belmont Resources, Inc. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Belmont's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Belmont in In the Matter of B.B. Walker Co., et al., Administrative Proceeding File No. 3-13193.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of B.B. Walker Co., et al., Administrative Proceeding File No. 3-13193, Exchange Act Release No. 58540 (September 15, 2008). (Rel. 34-58641; File No. 3-13193)


Delinquent Filers' Stock Registrations Revoked

The registrations of the securities of Respondents Amenity Zone, Inc., American ATM Corp. (n/k/a American Wireless Web Corp.), Digitec 2000, Inc., and 3 E International Corp. have been revoked. Each had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, each violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocations were ordered in an administrative proceeding before an administrative law judge. (Rel. 34-58642; File No. 3-13173)


SEC Charges Gaming Executives with Accounting Fraud

On September 24, the Commission filed a civil injunctive action against two former accounting executives of Las Vegas-based Bally Technologies, Inc., f/k/a Alliance Gaming Corporation (Bally) for engaging in a fraudulent accounting scheme to artificially inflate the company's reported revenue and present misleading information to investors about the company's earnings.

The Commission's complaint filed in federal district court in the District of Nevada alleges that from the fourth quarter of fiscal year 2003 through the second quarter of fiscal year 2004, Bally's former chief accounting officer and former chief financial officer Steven M. Des Champs and former vice president of finance Martha W. Vlcek fraudulently recognized revenue on bill and hold transactions, made misleading disclosures and omissions regarding revenue recognition, and made materially false statements to the company's outside auditors when they represented the transactions were proper under generally accepted accounting principles. According to the complaint, the improper bill and hold sales led to a 25% overstatement of Bally's reported earnings per share (EPS) for the fourth quarter of fiscal 2003 and to 33% and 27% overstatements of Bally's reported quarterly EPS numbers in the first and second quarters of 2004, respectively.

The complaint also alleges that in the second and third quarters of 2005, Des Champs fraudulently recognized revenue on transactions where he knew that the company could not reasonably expect that it would be paid and again made materially false statements to the auditors about his knowledge of the improper accounting, among other things. As a result, the Commission alleges that Bally was later required to reverse $6.3 million of the $10.6 million of revenue originally recognized.

The defendants are charged with violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and with aiding and abetting Bally'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, 13a-11, and 13a-13 thereunder. Additionally, Des Champs is charged with falsely certifying the accuracy of Bally's financial statements in violation of Exchange Act Rule 13a-14. The Commission's complaint seeks permanent injunctions, disgorgement of ill-gotten gains, third tier civil penalties, prejudgment interest, and an officer and director bar against both defendants. [SEC v. Steven M. Des Champs and Martha W. Vlcek, Civil Action No. 2:08-cv-1279 (D. NV)] (LR-20738; AAE Rel. 2887)


SEC Brings Civil Action against Electronics Company, its Former CEO, and its Largest Shareholder for Accounting Fraud and Orchestrating a Pump and Dump

The Commission announced that yesterday it filed a civil injunctive action against Ft. Lauderdale-based Video Without Boundaries, Inc. (also known as China Logistics Group Inc.) (Video), an electronics and entertainment technology company, its former CEO and Principal Financial and Accounting Officer, Vernon Jeffrey Harrell (Harrell), and Video's largest shareholder, David J. Aubel (Aubel), in connection with accounting fraud related to Video's annual and quarterly filings and the issuance of false and misleading press releases.

The Commission's complaint, filed in the United States District Court for the Southern District of Florida, alleges that from at least April 2003 to November 2005, Video, at the direction of its then sole officer and director, Harrell, filed annual and quarterly reports with the Commission that, among other things, materially overstated its revenues, improperly accounted for a failed acquisition, and understated its net losses. Harrell maintained Video's books and records, created its financial statements and, as sole principal executive and financial officer, certified Video's annual reports for 2002 and 2003, and quarterly reports for 2002 to 2004, filed with the Commission, that he knew, or was severely reckless in not knowing, contained material misstatements and omissions.

The complaint further alleges that from November 2003 to September 2006, Harrell and Aubel issued a series of false and misleading press releases about Video. Taking advantage of Video's artificially inflated stock price, Aubel dumped millions of shares of Video stock (acquired at a steep discount from Video) into the market, reaping millions of dollars. Harrell participated in the scheme by signing bogus stock issuance resolutions that allowed Aubel to sell the shares immediately after he received them. Moreover, throughout this time, neither Harrell nor Aubel reported their ownership of Video stock, or changes in their ownership.

The Commission's complaint charges Video, Harrell, and Aubel with violating Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder and, alternatively as to Aubel, aiding and abetting Video's violations of the antifraud provisions of the Exchange Act. The complaint further charges Video with violating the reporting, books and records, and internal control provisions of the Exchange Act, and Harrell with aiding and abetting those violations - 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; charges Harrell with knowingly circumventing or failing to implement a system of internal controls, knowingly falsifying Video's books and records, and falsely certifying Video's Forms 10-KSB for 2002 and 2003 and Forms 10-QSB from 2002 to 2004 filed with the Commission in violation of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13a-14 thereunder; and charges Harrell and Aubel with violations arising from their failure to report their ownership of Video stock, Sections 13(d) and 16(a) under the Exchange Act and Rules 13d-1, 13d-2, and 16a-3 thereunder. The Commission's complaint seeks relief in the form of permanent injunctions against Video, Harrell, and Aubel enjoining them from future violations of the provisions charged, an order requiring that Video and Aubel disgorge their ill-gotten gains, with prejudgment interest, and imposing civil penalties against Harrell and Aubel. The Commission also seeks a penny stock bar against Harrell and Aubel and an officer and director bar against Harrell.

In a related settled action, the Commission filed a complaint against Norman Stumacher, CPA, who conducted audits of Video's financial statements for 2002 and 2003. [SEC v. Video Without Boundaries, Inc. (d/b/a China Logistics Group Inc.), Vernon Jeffery Harrell, and David J. Aubel, Civil Action No. 08-61517-CIV-GOLD/MCALILY (S.D. Fla.)] (LR-20739)


SEC Files Settled Fraud Case Against Norman Stumacher, CPA, in Connection with His Audits of Video Without Boundaries, Inc.

The Commission announced that yesterday it filed a settled civil action in the United States District Court for the Southern District of Florida, against Norman Stumacher (Stumacher), a New York-based accountant. The Commission's complaint charges Stumacher with violations of the antifraud provisions of the federal securities laws in connection with his audits of the financial statements for Video Without Boundaries, Inc. (Video), a consumer electronics company based in Fort Lauderdale, Florida.

The Commission's complaint alleges that Video recorded fictitious revenue and assets through a number of accounting schemes, including improper revenue recognition, in violation of generally accepted accounting principles (GAAP). The complaint further alleges that Stumacher audited Video's 2002 and 2003 annual financial statements and issued audit reports containing audit opinions representing that the financial statements were presented in conformity with GAAP and that he conducted his audits in accordance with generally accepted auditing standards (GAAS). According to the complaint, these representations were false because Video's financial statements contained numerous departures from GAAP that materially overstated Video's revenues and understated its net losses. Moreover, contrary to Stumacher's audit reports, his audits were not conducted in accordance with GAAS because he failed to comply with professional standards related to field work and general standards in the performance of his audits.

The Commission's complaint charges Stumacher with violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. Stumacher has consented to the entry of a final judgment, without admitting or denying the allegations in the complaint, ordering him to disgorge $25,000, with prejudgment interest of $8,749.11, and to pay a civil penalty in the amount of $20,000.

In a related administrative and cease-and-desist proceeding, on September 23, 2008 the Commission issued a settled order against Stumacher finding that he engaged in improper professional conduct and violated Section 10(b) of the Exchange Act and Rule 10b-5, suspending permanently his privilege of practicing before the Commission pursuant to Rule 102(e)(1) of the Commission's Rules of Practice, and requiring him to cease and desist from committing or causing any further violations of the provisions charged.

In a related civil action, the Commission charged Video and other individuals with violations of the registration and antifraud provisions of the federal securities laws. [SEC v. Norman Stumacher, Civil Action No. 08-61518-CIV-SEITZ/O'SULLIVAN (S.D. Fla.)] (LR-20740; AAE Rel. 2888)


SEC Charges South Florida Investment Adviser with Multi-Million Dollar Misappropriation and Ponzi Scheme

On September 24, the Commission filed a civil injunctive action in the United States District Court for the Southern District of Florida against James Asset Advisory, L.L.C. (James Asset), an investment advisory firm, and its principal, Anthony A. James, for misappropriating client funds and operating a Ponzi scheme.

The Commission's complaint alleges that from at least April 2001 through January 2008, the Defendants received at least $5.2 million from at least 44 clients who were told by the Defendants that client monies would be invested in stocks, bonds, and mutual funds. According to the complaint, the Defendants never invested any client funds in the stock market or other investments. Instead, James misappropriated at least $2.4 million in client monies to fund his lavish lifestyle, including the purchase of a six-bedroom, 5,000 square foot home, a luxury condominium, a Porsche sports car, and season tickets to the Miami Heat games. Moreover, like a classic Ponzi scheme, the Defendants transferred approximately $2.8 million from new clients to existing clients to repay principal or to create the illusion of profitable trading. In addition, to facilitate and otherwise conceal their fraud, the complaint alleges that the Defendants provided clients with false account statements reflecting securities holdings and returns that did not exist.

The Commission's complaint charges James and James Asset with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

Upon the filing of the Commission's complaint, and without admitting or denying the allegations in the complaint, James and James Asset consented to the entry of a judgment permanently enjoining them from violating the above-mentioned provisions of the federal securities laws. The judgment also orders the Defendants to pay disgorgement with prejudgment interest and civil money penalties, the amounts of which will be determined by the Court at a later date. [SEC v. Anthony A. James and James Asset Advisory, L.L.C., Case No. 08-61516-CIV-ALTONAGA/BROWN (S.D. Fla.)] (LR-20741)


Complaint Names Nine in Fraudulent "Pump and Dump" Scheme

On September 24, the Commission filed a complaint in the Northern District of Texas against four individuals and five entities, alleging that they engaged in a fraudulent scheme during 2006 and 2007 to inflate the stock price of a former shell company, eCarfly, Inc. (now named Market 99, Ltd.) and to sell its stock to the public without required registration. In addition to Market 99, the complaint names as defendants Ryan M. Reynolds, Jason W. Brola, and Desmond J. Milligan, all residents of Texas, and Timothy T. Page, a resident of California. Also named as defendants are Bellatalia, L.P. and Testre, L.P. two Texas limited partnerships, Griffdom Enterprises, Inc., a Texas corporation, and Tryst Capital Group, L.L.C., a Texas limited liability company. The complaint alleges that Reynolds, Page and Milligan obtained control of eCarfly, and caused it to issue shares to Testre, Griffdom, and Bellatalia. The complaint alleges that Page, Reynolds, and Brola deposited the shares held by the entities into various brokerage accounts and sold them to the public without registering the sales with the Commission. The complaint further alleges that, to create public demand for eCarfly stock, Milligan and Brola drafted and distributed false and misleading press releases about eCarfly's purported business operations, projected revenues and projected stock price. [SEC v. Ryan M. Reynolds, Desmond J. Milligan, Jason W. Brola, Timothy T. Page, Market 99, Ltd., formerly known as eCarfly, Inc., Tryst Capital Group, L.L.C., Griffdom Enterprises, Inc., Testre, L.P., and Bellatalia, L.P., Civil Action No. 3:08-cv-01687-M (N.D. Tex.)] (LR-20742)


SEC Charges Two South Florida Men with Insider Trading

The Commission today filed an action against Jan A. Norelid, formerly a financial consultant in Fort Lauderdale, Florida, and Pedro Gil Simoes of Lighthouse Point, Florida. The Commission's complaint, filed in the United States District Court for the Southern District of Florida, alleges that Norelid and Simoes purchased stock in Services Acquisition Corporation International from March 7 to March 9, 2006, on the basis of material, nonpublic information concerning the merger of Jamba Juice, Inc., and Services Acquisition, a special purpose acquisition company (SPAC), headquartered in Fort Lauderdale, Florida.

According to the Commission's complaint, in February 2006, within the scope of his duties as a financial consultant to Services Acquisition, Norelid learned that Services Acquisition was intending to acquire Jamba Juice. Norelid recently had been assigned by the consulting company for which he worked to assist in due diligence related to the merger. Later that same month, Norelid tipped a relative, Pedro Gil Simoes, disclosing to him that Services Acquisition intended to merge with Jamba Juice.

The Commission's complaint further alleges that prior to the announcement of the merger agreement on March 13, 2006, both Norelid and Simoes purchased Services Acquisition stock while in possession of material, non-public information. Following the announcement of the merger agreement, Services Acquisition's stock jumped more than 34% over its previous day closing price. On March 22 and March 26, 2006, respectively, Norelid and Simoes sold their Services Acquisition stock, garnering illegal profits.

Norelid and Simoes have consented to the entry of a final judgment that permanently enjoins them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Norelid has agreed to pay disgorgement of $5,102 and prejudgment interest of $906, plus a penalty of $8,865 based on his and Simoes' illegal trading profits. Simoes has agreed to pay $3,763 in disgorgement and prejudgment interest of $646, plus a $3,763 penalty. As part of the settlement, which is subject to court approval, Norelid and Simoes neither admit nor deny the allegations in the complaint.

The Commission notes the substantial assistance and cooperation from the Financial Industry Regulatory Authority (FINRA). [SEC v. Jan A. Norelid and Pedro Gil Simoes, Case No. 08-61524-CIV (SDFL) (WPD/RSR)] (LR-20743)


Grand Jury Indicts Former Executive of Massachusetts Public Company for Lying and Obstructing Justice in an SEC Action

The Commission announced today that on September 24, Howard Richman, the former head of regulatory affairs of Biopure Corporation, was indicted by a grand jury convened by the United States Attorney for the District of Massachusetts for, among other things, lying and obstructing justice in an SEC action against him.

According to the Indictment, from October 26, 2006 through July 17, 2007, Richman represented to a federal judge that he was terminally ill with colon cancer and could not participate in an ongoing civil case that was brought against him by the Securities and Exchange Commission. The Indictment alleges that in reality, Richman did not have cancer. Rather, according to the Indictment, he falsely claimed to be terminally ill in order to avoid discovery in the SEC's case against him and to obtain a favorable settlement. The Indictment alleges that, to perpetuate his lie, Richman provided the Court with false affidavits and fabricated letters from a physician. If convicted, Richman faces up to ten (10) years imprisonment, to be followed by three (3) years of supervised release, and a $250,000 fine.

Previously, in September 2005, the Commission filed an enforcement action against Biopure, Richman and three other executives alleging that beginning in April 2003, Biopure received negative information from the FDA regarding its efforts to obtain FDA approval of its synthetic blood product Hemopure but failed to disclose the information, or falsely described it as positive developments in its filings with the Commission.

After Richman's lie was revealed, the Commission reached a settlement of its case with him and the Court entered a final judgment by consent against Richman on August 6, 2008 permanently enjoining Richman from violating the antifraud and other provisions of the federal securities laws, permanently barring Richman from serving as an officer or director of any public company and ordering him to pay a $150,000 civil penalty.

For further information, see Litigation Release No. 20672 (August 7, 2008)( SEC Settles Civil Injunctive Action with Former Executive of Massachusetts Public Company), Litigation Release No. 20010 (February 21, 2007)(SEC Settles Civil Injunctive Action Against Former CEO of Biopure Corporation), Litigation Release No.19825 (September 12, 2006) (SEC Settles Civil Injunctive Action Against Biopure Corporation and Its General Counsel), Litigation Release No. 19651 (April 11, 2006) (SEC Settles with Former Biopure Executive) and Litigation Release No. 19376 (September 14, 2005) (Biopure and Others Charged by the Commission). [U.S. v. Howard P. Richman, Criminal Action. No. 08-10282-MLW (D. Mass.)](LR-20744)


SEC Charges California Biotechnology Company for Fraudulent Stock Scheme

The Commission announced that it charged Rancho Cordova, Calif.-based Telomolecular Corp. and two of its former executives for their roles in a stock scheme based on false claims to investors that the biotechnology start-up company was on the verge of financial and scientific success in developing anti-aging treatments and cancer cures.

The SEC alleges that Telomolecular and its founder and former CEO, Matthew A. Sarad of Folsom, Calif., induced hundreds of investors nationwide to purchase $6.5 million worth of shares of Telomolecular stock. According to the SEC's complaint, Telomolecular and Sarad falsely claimed the company was backed by a deep management and scientific team, generating significant industry interest in its technologies, and prepared to obtain financing from substantial institutions. Instead, the complaint alleges that the company lacked the management professionals and extensive scientific staff it claimed, the supposed interest in its technologies did not exist, and the potential source of financing it touted was a sole proprietorship with no assets.

The SEC also charged Telomolecular's former Director of Investor Relations, Jeremy D. Jobe of Dallas for his role in the stock sales. The SEC's complaint, filed in federal district court in Sacramento, further alleges that Jobe improperly sold approximately $2.5 million in Telomolecular stock to investors without being registered as a broker.

Without admitting or denying the SEC's allegations, Telomolecular, Sarad and Jobe have agreed to settle the SEC's charges.

Sarad has consented to being enjoined from future violations of Sections 5(a), 5(c), and 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, and has agreed to pay a $100,000 penalty and be barred from serving as an officer or director of a public company for five years. Jobe has consented to an injunction against future violations of Sections 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act, and to an administrative order barring him from association with a securities broker or dealer for three years. Telomolecular has consented to an injunction against future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5, and to an administrative order revoking the registration of its securities under Section 12(g) of the Exchange Act. [SEC v. Matthew A. Sarad, Jeremy D. Jobe, and Telomolecular Corp., Case No. 2:08-cv-02252-GEB-DAD (E.D. Cal.)] (LR-20745)


SEC Files Action against Ricardo H. Goldman for Fraudulently Operating an Unregistered Day Trading Operation and for Selling Unregistered Securities

On September 25, the Commission filed a civil injunctive action in federal District Court for the Southern District of Florida against Ricardo H. Goldman, a Miami, Florida resident, for fraudulently operating an unregistered securities day trading firm that primarily targeted investors in the Hispanic community. The Commission's complaint alleges that Goldman violated the antifraud, broker-dealer registration, and securities registration provisions of the federal securities laws.

According to the Commission's complaint, from approximately May 2004 through at least February 2006, Goldman solicited traders to invest approximately $2.1 million in a day trading operation he ran through his company, E Trade Fund LLC (E Trade). Goldman provided securities day trading capability to E-Trade Fund's more than 110 traders and permitted them to day trade securities in E Trade Fund's own brokerage account at a registered broker-dealer through sub-accounts created for each trader. The complaint alleges that Goldman held investment seminars in Spanish, which he advertised in Spanish periodicals, to solicit traders for his day trading operation.

The Commission's complaint alleges that Goldman misled traders into believing that their trading accounts were secured by the Securities Investor Protection Corporation (SIPC) and that they would be better protected against certain losses or risks by trading with E Trade Fund. He also omitted to disclose to traders that E Trade Fund earned monthly commission rebates based on the number of trades investors executed in their trading accounts. In addition, Goldman omitted to disclose that he was criminally convicted for grand theft and forgery in 1994 even though E Trade Fund's website touted his professional experience and reputation. The complaint alleges that E Trade Fund's traders ultimately lost about $1.0 million out of the $2.1 million they originally invested.

The Commission's complaint also alleges that at the same time Goldman ran the day-trading operation, he offered and sold other investments in E Trade Fund, which he characterized as certificates of deposit. The rates of return of these securities ranged from 5 to 10 percent annually on a 6-month certificate and 7 to 12 percent annually on a 12-month certificate. Goldman offered these investments to the public via an affiliated website.

According to the Commission's complaint, Goldman misrepresented to investors that these certificates were insured and protected by the Federal Deposit Insurance Corporation (FDIC) and SIPC. He also falsely told investors that the returns on the certificates were "secured" and "guaranteed" when, in fact, the funds from the sales of these certificates were used solely to sustain E Trade Fund's high risk day trading operation and the returns were based on its success. The complaint also alleges that Goldman violated the securities registration provisions in connection with the offer and sale of the certificates. Goldman raised about $317,000 from at least two investors through the sale of the certificates.

The Commission's complaint alleges that Goldman violated Sections 5(a), 5(c), and 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. The complaint seeks a permanent injunction, disgorgement plus prejudgment interest, and a civil penalty against Goldman.

Upon filing of the Commission's complaint, and without admitting or denying the allegations in the complaint, Goldman consented to the entry of a Judgment that permanently enjoins him from violating the above-mentioned provisions of the federal securities laws. The partial settlement with Goldman leaves unresolved the issue disgorgement and a civil penalty.

E Trade Fund is not affiliated with E*TRADE FINANCIAL Corporation, the broker-dealer that is registered with the Commission. [SEC v. Ricardo H. Goldman, Case No. 08-22666-CIV-LENARD/GARBER (S.D. Fla.)] (LR-20746)


SELF-REGULATORY ORGANIZATIONS

Proposed Rule Change

The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2008-072) under Section 19(b)(1) of the Securities Exchange Act of 1934 to establish a PORTAL Reference Database and related fees. Publication is expected in the Federal Register during the week of September 29. (Rel. 34-58622)


SECURITIES ACT REGISTRATIONS


RECENT 8K FILINGS

 

http://www.sec.gov/news/digest/2008/dig092508.htm


Modified: 12/15/2008