SEC News Digest

COMMISSION ANNOUNCEMENTS

SEC Division of Enforcement Announces ARS Settlement in Principle With RBC Capital Markets Corp.

The Securities and Exchange Commission's Division of Enforcement today announced a preliminary settlement in principle with RBC Capital Markets Corp. (RBC) that would provide individual investors, small businesses, small nonprofits, charities and religious organizations the opportunity to sell back to RBC all of the auction rate securities (ARS) they purchased from RBC before the ARS market collapsed in February 2008.

The Division of Enforcement expects this settlement in principle to provide liquidity of up to $800 million to more than 2,000 aggrieved investors. The agreement in principle also would require RBC to use its best efforts to provide liquidity to other larger ARS investors. The terms of the settlement are subject to finalization, review, and approval by the Commission.

"The Division of Enforcement's settlement in principle with RBC will quickly restore liquidity to those individual, charitable, and small business investors who can least afford to have their funds unavailable in the short term," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Soon, these investors will have restored to them the liquidity they thought they were getting when they invested in the ARS market. Under the settlement in principle, pending Commission approval, RBC also must use its best efforts to restore liquidity to ARS holdings of institutional investors."

The proposed settlement would include charges in U.S. District Court alleging that RBC made misrepresentations to its customers when it told them that ARS were safe and highly liquid cash equivalent and money market alternative investments. The liquidity of these securities, however, was premised on RBC providing support bids for auctions when there was not enough customer demand, and RBC did not adequately disclose the extent of this support to customers. RBC continued to market ARS this way despite its awareness of the escalating liquidity risks in the weeks and months preceding the collapse of the ARS market in February 2008. When RBC stopped supporting auctions in February 2008, there were widespread auction failures for RBC customers.

Under the terms of the agreement in principle:

• No later than Dec. 15, 2008, RBC will offer to purchase, at par, all ARS from individual investors, small business investors with account values up to and including $10 million, and investors that are nonprofit, charitable or religious organizations with account values up to and including $25 million, that purchased ARS from RBC prior to the collapse of RBC's ARS market on Feb. 11, 2008, and for which ARS the auctions are not successful (Individual Investors). RBC's purchase offer will remain open for at least six months.
• By Dec. 15, 2008, RBC will make whole any losses sustained by any Individual Investors described above who purchased eligible ARS before Feb. 11, 2008, and sold them after that date at a price below par.
• Until RBC actually purchases the securities as set forth above, RBC will offer Individual Investors non-recourse loans at no net cost to the borrower, which loans will remain outstanding until RBC purchases the ARS or until an investor declines RBC's purchase offer.
• To the extent that any of the Individual Investors described above have incurred consequential damages beyond the loss of liquidity in their ARS holdings (which should be restored pursuant to the purchase terms above), RBC will participate in a special arbitration process that the investor may elect, and that will be overseen by the Financial Industry Regulatory Authority (FINRA), whereby RBC will not contest liability related to the misrepresentations and omissions concerning the sale or liquidity of the underlying ARS, but may challenge the existence or amount of any consequential damages. At the investor's election, the arbitration claim may be heard by a single, non-industry arbitrator.
• This arbitration process will be voluntary on the part of the ARS investor, and if investors elect not to take advantage of these special procedures, they may pursue all other legal or equitable remedies available through any other available administrative or judicial process.
• RBC will use its best efforts to provide liquidity by the end of 2009 to its institutional and business ARS investors with accounts valued at more than $10 million, and investors that are nonprofit, charitable and religious organizations with accounts valued at more than $25 million that purchased ARS from RBC prior to the collapse of RBC's ARS market on Feb. 11, 2008, and for which ARS the auctions are not successful (Institutional Investors).
• RBC will not liquidate its own inventory of a particular ARS at par before offering to liquidate an Institutional Investor's holdings in that security. Otherwise, RBC will not liquidate its own inventory of a particular ARS at any price below par before offering to liquidate the same ARS holding of an Institutional Investor that has informed RBC of its intention or willingness to sell that security at such price or better.
• RBC will provide notice of the settlement terms to all investors who purchased ARS from RBC before Feb. 11, 2008.
• RBC will establish a toll-free telephone assistance line, with appropriate staffing, to respond to questions from investors concerning the terms of the settlement.
• RBC will be permanently enjoined from violating the provisions of Section 15(c) of the Securities Exchange Act of 1934, which prohibits the use of manipulative or deceptive devices by broker-dealers.
• RBC will cooperate with the Commission's ongoing ARS investigation.
• RBC faces the prospect of a financial penalty to the Commission after it has completed its obligations under the agreement in principle. Determinations as to the amount of the penalty, if any, will take into account, among other things, the extent of RBC's misconduct in marketing and selling ARS, the extent of RBC's cooperation with the Commission's investigation, an assessment of whether RBC has satisfactorily completed its obligations under the settlement, and the costs incurred by RBC in meeting those obligations, including penalties imposed by other regulators and the cost of remediation.

The Commission notes the substantial assistance and cooperation of the New York Attorney General's Office, the North American Securities Administrators Association, and FINRA.

The Commission's investigation is continuing as to individuals and other entities that participate in the auction rate securities market.

For more information, contact:

Fredric D. Firestone
Associate Director, Division of Enforcement
(202) 551-4711

Gregory G. Faragasso
Assistant Director, Division of Enforcement
(202) 551-4734

(Press Rel. 2008-246)

Bank of America Agrees in Principle to ARS Settlement

Securities and Exchange Commission's Division of Enforcement today announced a preliminary settlement in principle with Banc of America Securities LLC and Banc of America Investment Services, Inc. (collectively, Bank of America) that would provide 5,500 individual investors, small businesses, and small charities the opportunity to sell back to Bank of America up to $4.7 billion in auction rate securities (ARS) they purchased before the ARS market collapsed in February 2008.

The agreement also would require Bank of America to use its best efforts to provide up to $5 billion in liquidity to other businesses, charities, and institutional investors. The terms of the settlement are subject to finalization, review, and approval by the Commission.

The proposed settlement would include charges alleging that Bank of America made misrepresentations to thousands of its customers when it told them that ARS were safe and highly liquid cash and money market alternative investments. The liquidity of these securities, however, was premised on Bank of America providing support bids for auctions when there was not enough customer demand, and Bank of America did not adequately disclose this support to customers. Bank of America continued to market ARS as cash and money market alternatives despite its awareness of the escalating liquidity risks in the weeks and months preceding the collapse of the ARS market. When Bank of America stopped supporting auctions in February 2008, there were widespread auction failures for Bank of America customers.

"Throughout the auction rate securities market freeze, the Division's primary objective has been to restore liquidity to the investors most in need of access to their funds," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "The Division's settlement in principle with Bank of America will quickly restore billions of dollars in liquidity to thousands of Bank of America investors."

Under the terms of the agreement in principle:

• Starting as soon as practicable after today, Bank of America will offer to liquidate at par all ARS from individual investors, small business investors with account values up to $15 million, and charitable investors with account values up to $25 million, who purchased ARS from Bank of America prior to the collapse of the ARS market in mid-February 2008. The offer will remain open until Dec. 1, 2009, and investors may accept it at any time during that period.
• Bank of America will be permanently enjoined from violating the provisions of Section 15(c) of the Securities Exchange Act of 1934 and Rule 15c1-2 thereunder, which prohibit the use of manipulative or deceptive devices by broker-dealers.
• Starting as soon as practicable after today, Bank of America will make whole any losses sustained by any of the investors described above who purchased ARS before Feb. 13, 2008 and sold them after that date at a loss.
• Until Bank of America actually provides for the liquidation of the securities on the schedule set forth above, Bank of America will offer customers no-net-cost loans that will remain outstanding until the ARS are repurchased or until an investor declines Bank of America's offer to repurchase the securities at par.
• To the extent that any of the individual investors, small business investors, and charitable investors described above has incurred consequential damages beyond the loss of liquidity in the customer's holdings of ARS (which should be restored pursuant to the settlement terms above), Bank of America will participate in a special arbitration process that the customer may elect, and that will be overseen by the Financial Industry Regulatory Authority (FINRA), whereby Bank of America will not contest liability for its misrepresentations and omissions concerning the sale of ARS, but may challenge the existence or amount of any consequential damages. At the customer's election, the arbitration claim may be heard by a single, non-industry arbitrator.
• This arbitration process will be voluntary on the part of the customer, and if a customer elects not to take advantage of these special procedures, a customer may pursue all other legal or equitable remedies available through any other administrative or judicial process available to the customer.
• Bank of America will use its best efforts to provide liquidity to its ARS institutional customers and business customers with accounts valued at $15 million or more, and charities with accounts valued at $25 million or more by the end of 2009.
• Bank of America will not liquidate its own inventory of a particular ARS before it liquidates its institutional customers' holdings in that security.
• Bank of America will provide notice of the settlement terms to all customers who purchased ARS before the collapse of the ARS market in February 2008.
• Bank of America will establish a toll-free telephone assistance line, with appropriate staffing, to respond to questions from customers concerning the terms of the settlement.
• Bank of America faces the prospect of a financial penalty to the SEC after it has completed its obligations under the settlement agreement. Determinations as to the amount of the penalty, if any, will take into account, among other things, an assessment of whether Bank of America has satisfactorily completed its obligations under the settlement, the costs incurred by Bank of America in meeting those obligations, including penalties imposed by other regulators and the cost of remediation, and the extent of Bank of America's cooperation with the Commission's investigation.

The Commission notes the substantial assistance and cooperation from the New York Attorney General's Office, the North American Securities Administrators Association, the Massachusetts Secretary of State, Securities Division, and FINRA.

The Commission's investigation is continuing as to individuals and other entities that participate in the auction rate securities market.

For more information, contact:

Fredric D. Firestone
Associate Director, Division of Enforcement
(202) 551-4711

Gerald W. Hodgkins
Assistant Director, Division of Enforcement
(202) 551-4719

(Press Rel. 2008-247)

ENFORCEMENT PROCEEDINGS

Commission Revokes Registration of Securities of East West Distributors, Inc. for Failure to Make Required Periodic Filings

On October 8, the Commission revoked the registration of each class of registered securities of East West Distributors, Inc. (East West) 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, East West 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 East West Distributors, 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 East West's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against East West in In the Matter of East West Distributors, Inc., et al., Administrative Proceeding File No. 3-13202.

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 East West Distributors, Inc., et al., Administrative Proceeding File No. 3-13202, Exchange Act Release No. 58556 (Sept. 16, 2008). (Rel. 34-58746; File No. 3-13202)

Initial Decision Issued in the Matter of Maria T. Giesige

An Administrative Law Judge has issued an Initial Decision in Maria T. Giesige, Admin Proc. No. 3-12747, finding that Maria T. Giesige (Giesige) has willfully violated the antifraud provisions of the federal securities statutes, sold unregistered securities, and acted as an unregistered broker. Based on the findings of illegal conduct and public interest factors, Chief Administrative Law Judge Brenda P. Murray has:

1. barred Giesige from association with any broker, dealer, or investment adviser;

2. ordered her to cease and desist from committing or causing any violations, or any future violations, of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) 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;

3. ordered her to disgorge $21,015.03, and prejudgment interest; and

4. ordered her to pay a civil money penalty in the amount of $500,000. The amount of disgorgement, prejudgment interest, and civil money penalty shall be collected and placed in a Fair Fund and used for the benefit of Carolina Development Company investors who were harmed by Giesige's violations. (Initial Decision No. 359; File No. 3-12747)

Delinquent Filers' Stock Registrations Revoked

The registrations of the stock of Far East Ventures Trading Co. (f/k/a Nico Telecom, Inc.), Ultimate Ventures I, Inc., Ultimate Ventures II, Inc., Ultimate Ventures III, Inc., Ultimate Ventures IV, Inc., and Ultimate Ventures V, Inc. 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. 34-58749; File No. 13218)

In the Matter of Jeremy D. Jobe

On October 8, 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 against Jeremy D. Jobe (Jobe). The Order finds that while serving as Director of Investor Relations for Telomolecular Corp. (Telomolecular), Jobe sold Telomolecular stock on commission for proceeds of approximately $2.5 million without being associated with any broker-dealer registered with the Commission or himself registered with the Commission. The Order further finds that on September 30, 2008, a final judgment was entered by consent against Jobe, permanently enjoining him from future violations of Sections 5(a) and 5(c) of the Securities Act of 1933 and Section 15(a) of the Exchange Act, in the civil action entitled Securities and Exchange Commission v. Matthew A. Sarad, et. al, Civil Action Number 2:08-cv-02252-GEB-DAD, in the United States District Court for the Eastern District of California. The Commission's complaint in the civil injunctive action alleged that Jobe offered and sold securities in the form of Telomolecular stock while no registration statement was on file or in effect as to the offers and sales and while he was not registered with the Commission as a broker or dealer or associated with an entity registered with the Commission as a broker or dealer.

Based on the above, the Order bars Jobe from association with any broker or dealer with the right to reapply for association after three years. Jobe consented to the issuance of the Order without admitting or denying any of the findings except as to jurisdiction and the entry of the final judgment. (Rel. 34-58750; File No. 3-13272)

Initial Decision Barring Douglas G. Frederick Declared Final

The decision of an administrative law judge barring Douglas G. Frederick from associating with any broker or dealer has become final. The initial decision found that, on March 17, 2008, the United States District Court for the Southern District Court of California permanently enjoined Frederick from violations of Sections 15(a) and 10(b) of the Exchange Act and Exchange Act Rule 10b-5. See SEC v. Tuco Trading, LLC, Civil Action No. 08 CV 00400 DMS (BLM) (S.D. Cal. Mar.17, 2008). The initial decision determined that it was in the public interest to bar Frederick from association with any broker or dealer. (Rel. 34-58751; File No. 3-13004)

In the Matter of Sterling Capital Planners, Inc.

On October 8, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(e) of the Investment Advisers Act, Making Findings and Imposing Remedial Sanctions (Order) against Sterling Capital Planners, Inc. (Sterling). The Order finds that on Oct. 1, 2008 a final judgment was entered in SEC v. Kothare, et al. (07-cv-954) (S.D.N.Y.). The Order finds that in the Commission's complaint, in connection with the sale of interests in a limited liability company, Players Choice Club, LLC, Sterling misused and misappropriated at least $1.85 million from investors, sent out false account statements indicating that investors funds were fully invested and earning returns when, in fact, the investments were essentially worthless, and otherwise engaged in a variety of conduct which operated as a scheme to defraud and deceive Sterling's clients.

Based on the above, the Order revokes Respondent's registration as an investment adviser. Sterling consented to the issuance of the Order without admitting or denying the findings in the Order, except it admitted the entry of the injunction. (Rel. IA-2797; File No. 3-13271)

SEC Charges Four Stock Promoters With Market Manipulation

The announced today that on Sept. 18, 2008, the Commission filed a civil injunctive action against Glenn Grossman, Lawrence Steven Cohen, David Schmidt, and John Zanic, four stock promoters, alleging that they engaged in a fraudulent broker bribery scheme designed to manipulate the market for the common stock of Guyana Gold, Corp. (GYGC).

The complaint alleges that Glenn Grossman, Lawrence Steven Cohen, David Schmidt and John Zanic (Defendants) engaged in an undisclosed kickback arrangement with an individual who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Unbeknownst to the Defendants, the individual actually was an undercover FBI agent. The Defendants promised to pay a 30% kickback to the agent and the registered representatives he purported to represent in exchange for the purchase of up to $3 million of GYGC stock through the customers' accounts.

The complaint further alleges that from May 1-5, 2008, Zanic instructed the agent to purchase approximately 115,000 shares of GYGC stock for a total of approximately $72,000 through matched trades using detailed instructions concerning the size, price and timing of the purchase orders. Thereafter, the Defendants paid bribes of almost $14,000 to the agent.

The complaint charges the Defendants with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains, if any, plus pre-judgment interest, civil penalties, and a judgment prohibiting Defendants from participating in any offering of penny stock. [SEC v. Glenn Grossman, Lawrence Steven Cohen, David Schmidt, and John Zanic, Civil Action No. 08 Civ. 8078 (DC) (S.D.N.Y.)] (LR-20776)

SEC Charges A Stock Promoter With Market Manipulation

The Commission announced today that on Sept. 18, 2008, the Commission filed a civil injunctive action against Jason Jadidian, a stock promoter, alleging that he engaged in a fraudulent broker bribery scheme designed to manipulate the market for the common stock of Tecton, Corp. (TTNC).

The complaint alleges that Jadidian engaged in an undisclosed kickback arrangement with an individual who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Unbeknownst to Jadidian, the individual actually was an undercover FBI agent. Jadidian promised to pay a 30% kickback to the agent and the registered representatives he purported to represent in exchange for the purchase of TTNC stock through the customers' accounts.

The complaint further alleges that on May 1, 2008, Jadidian instructed the agent to purchase approximately 80,000 shares of TTNC stock for a total of approximately $18,600 through matched trades using detailed instructions concerning the size, price and timing of the purchase orders. Thereafter, Jadidian paid a $5,000 bribe to the agent.

The complaint charges Jadidian with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains, if any, plus pre-judgment interest, civil penalties, and a judgment prohibiting Jadidian from participating in any offering of penny stock. [SEC v. Jason Jadidian, Civil Action No. 08-Civ-8079 (PGG) (S.D.N.Y.)] (LR-20777)

INVESTMENT COMPANY ACT RELEASES

Calamos Convertible Opportunities and Income Fund, et al.

A notice has been issued giving interested persons until Nov. 3, 2008, to request a hearing on an application filed by Calamos Convertible Opportunities and Income Fund, et al., under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act, and Rule 19b-1 under the Act. The order would permit certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i)with respect to their common stock as part of a managed distribution plan as frequently as twelve times each year, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28435 - October 7)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

The Commission issued a notice of immediate effectiveness of a proposed rule change (SR-NYSEArca-2008-106) filed by NYSE Arca pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 amending Rule 6.87 - obvious errors and catastrophic errors. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58717)

A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2008-102) to amending Rule 48 to permit the Exchange to declare an extreme market volatility condition and suspend certain NYSE requirements relating to the closing 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 October 6. (Rel. 34-58743)

A proposed rule change (SR-ISE-2008-76), filed by the International Securities Exchange relating to fee changes 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 October 6. (Rel. 34-58744)

Proposed Rule Changes

The Depository Trust Company filed a proposed rule change (SR-DTC-2008-09) under Section 19(b)(2) of the Securities Exchange Act of 1934 to expand DTC's debit cap look-ahead process for money market instruments. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58730)

NYSE Arca filed a proposed rule change (SR-NYSEArca-2008-105) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to listing certain Derivative Products pursuant to continued listing criteria. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58734)

The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-91) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to adopt a policy relating to its treatment of trade reports that it determines to be inconsistent with the prevailing market. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58736)

The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-98) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to adopt an additional listing standard for operating companies. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58740)

The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-97) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to adopt an initial listing standard applicable only to companies transferring from NYSE Arca. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58741)

Accelerated Approval of Proposed Rule Changes

The Commission granted accelerated approval to a proposed rule change filed by the Financial Industry Regulatory Authority (SR-FINRA-2008-005) as modified by Amendment No. 1 thereto, relating to party submissions to arbitrators after a case has closed. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58739)

The Commission granted accelerated approval of a proposed rule change submitted by NYSE Arca (SR-NYSEArca-2008-94), through its wholly owned subsidiary, NYSE Arca Equities, Inc., amending NYSE Arca Equities Rules 5.1(b)(14) and 5.2(j)(2) to permit the listing of Equity Linked Notes that are linked to securities issued by companies registered under the Investment Company Act of 1940. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58745)

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