SEC Modernizes Oil and Gas Company Reporting Requirements to Provide Investors With More Meaningful and Comprehensive Disclosure
The Securities and Exchange Commission today announced that it has unanimously approved revisions to modernize its oil and gas company reporting requirements to help investors evaluate the value of their investments in these companies.
"In the more than a quarter century since the SEC last reviewed its rules in this area, there have been significant changes in technology that have increasingly limited the usefulness of current disclosures to the market and investors," said SEC Chairman Christopher Cox. "These updates to the SEC rules will help ensure more meaningful and comprehensive disclosure of information that, even though it does not appear on a company's balance sheet, is of significance to investors in making informed investment decisions."
John W. White, the Director of the SEC's Division of Corporation Finance, added, "The Commission's adoption of these rule amendments is the final phase of a key, long-term initiative of the Division of Corporation Finance and the Office of the Chief Accountant. These updated rules consider the significant changes that have taken place in the oil and gas industry since the adoption of the original reporting requirements more than 25 years ago."
The Commission staff first recommended the issuance of a Concept Release for public comment. Those public comments were used to formulate the rule amendments that the Commission proposed earlier this year.
The new disclosure requirements approved by the Commission include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes. The new requirements also will allow companies to disclose their probable and possible reserves to investors. Currently, the Commission's rules limit disclosure to only proved reserves.
The new disclosure requirements also require companies to report the independence and qualifications of a reserves preparer or auditor; file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of the average price will maximize the comparability of reserves estimates among companies and mitigate the distortion of the estimates that arises when using a single pricing date. (Press Rel. 2008-304)
RULES AND RELATED MATTERS
Temporary Exemptions Granted
An Order has been issued granting temporary exemptions under the Securities Exchange Act of 1934 in connection with request of LIFFE Administration and Management and LCH.Clearnet Ltd. related to central clearing of credit default swaps, and request for comments. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59164)
Temporary Conditional Exemption Pursuant to Section 36 of the Exchange Act
Pursuant to Section 36 of the Exchange Act, the Commission granted a temporary exemption, subject to certain conditions, from the requirements of Sections 5 and 6 of the Exchange Act for broker-dealers and exchanges effecting transactions in credit default swaps. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59165)
In the Matter of William J. Del Biaggio III
On December 29, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against William J. Del Biaggio III. The Order, which is based on the entry of an injunction on Dec. 12, 2008, in Securities and Exchange Commission v. William J. Del Biaggio III (Civil Action No. CV-08-5450 CRB) in the United States District Court for the Northern District of California, finds that the Commission filed a complaint against Del Biaggio alleging that, in connection with the sale of unsecured promissory notes and other investments, Del Biaggio made false and misleading statements to, or omitted material information from, his advisory clients and other investors. On Dec. 12, 2008, the court entered a final judgment against Del Biaggio, by consent, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, 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.
Based on the above, the Order bars William J. Del Biaggio III from association with any investment adviser. Del Biaggio consented to the issuance of the Order without admitting or denying any of the findings in the Order, except that he admitted the entry of the injunction. (Rel. IA-2824; File No. 3-13319)
SEC Revokes the Registration of Rica Foods' Securities and Files a Settled Financial Fraud Case Against Rica Foods and Its Former CEO
On December 29, the Commission revoked the registration of each class of registered securities of Rica Foods, Inc. (Rica Foods) 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, Rica Foods consented to the entry of an Order Instituting Proceedings, Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Rica Foods, 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 Rica Foods securities pursuant to Section 12(j) of the Exchange Act.
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 . . . .
The Commission also announced today that it filed settled civil injunctive actions against Rica Foods and its former Chief Executive Officer, Calixto Chaves. According to the Commission's complaint, between 1998 and 2004, while serving as CEO of Rica Foods, Chaves engaged in pervasive self-dealing resulting in millions of dollars in related-party transactions which Rica Foods failed to disclose in its Commission filings, and the improper valuation of millions in assets Chaves caused Rica Foods to purchase from him and his family. Rica Foods and Chaves each consented, without admitting or denying the allegations in the Commission's complaint, to the entry of a Final Judgment of Permanent Injunction and Other Relief (Final Judgment).
The Final Judgment will permanently enjoin Rica Foods and Chaves from violating Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 12b-20, 13a-1 thereunder; and Chaves from violating Section 13(b)(5) of the Exchange Act, and Rules 13a-14, 13b2-1, and 13b2-2, thereunder. The Final Judgment against Chaves will further order him to pay $50,000 in civil penalties, and permanently bar him from serving as an officer or director of a public company in the United States. [Securities and Exchange Commission v. Rica Foods, Inc. and Calixto Chaves, Case No. 08-23546-CIV-Hoeveler/Garber (S.D. Fla.] (LR-20839)
INVESTMENT COMPANY ACT RELEASES
Grail Advisors, LLC and Grail Advisors' Alpha ETF Trust
A notice has been issued giving interested persons until Jan. 15, 2009, to request a hearing on an application filed by Grail Advisors, LLC and Grail Advisors' Alpha ETF Trust for an order to permit (a) series of certain open end management investment companies to issue shares (Shares) redeemable in large aggregations only (Creation Units); (b) secondary market transactions in Shares to occur at negotiated market prices; (c) certain series to pay redemption proceeds, under certain circumstances, more than seven days after the tender of Shares for redemption; (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of Creation Units; and (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire Shares. (Rel. IC-28571 - December 23)
Proposed Rule Changes
The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2008-123) to adopt a Trade, Flash and Cancel order type for CBSX. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59147)
The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2008-101) to adopt a policy relating to its treatment of trade reports that it determines to be inconsistent with the prevailing market retroactive to Sept. 1, 2008. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59149)
The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2008-127) to eliminate the $3 underlying price requirement for continued listing and listing of additional series. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59152)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2008-062) to adopt FINRA Rule 2267 (Investor Education and Protection) in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59160)
The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2008-097) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder adopting a limited exemption from OATS Order Data Recordation Requirements for registered Options Market Makers. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59163)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by The NASDAQ Stock Market (SR-NASDAQ-2008-100) to adopt a policy relating to its treatment of trade reports that it determines to be inconsistent with the prevailing market 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 December 29. (Rel. 34-59151)
A proposed rule change (SR-ISE-2008-97) filed by the International Securities Exchange that makes technical changes to the certificate of incorporation of ISE's parent, International Securities Exchange Holdings, Inc., 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 December 29. (Rel. 34-59159)
Accelerated Approval of Proposed Rule Change
The NASDAQ Stock Market filed a proposed rule change regarding routing to an affiliated exchange (SR-NASDAQ-2008-098) and the Commission has granted accelerated approval of the proposed rule change. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59153)
Immediate Effectiveness of Amendments to a National Market System Plan
Proposed amendments to the National Market System Plan for the Selection and Reservation of Securities Symbols filed by New York Stock Exchange, NYSE Arca, NYSE Alternext US and Chicago Board Options Exchange in order to become parties to the plan, have become effective pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 and Rule 608 thereunder. Publication is expected in the Federal Register during the week of December 29. (Rel. 34-59162)
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