Kayla J. Gillan Named Senior Advisor at SEC
Securities and Exchange Commission Chairman Mary L. Schapiro announced today that Kayla J. Gillan has been named Senior Advisor to the Chairman and begins serving in her position today.
Ms. Gillan was a founding Board Member of the Public Company Accounting Oversight Board (PCAOB), where she served from January 2003 to January 2008 and worked extensively to advocate the needs of investors in the auditing process of U.S. public companies. She previously was General Counsel for the California Public Employees' Retirement System (CalPERS), where she spent 16 years working to protect the retirement security for more than 1.5 million public employees. At the SEC, Ms. Gillan will continue to work for investors, leading multiple projects including the creation of an Investor Advisory Council, reconsidering access to the proxy, and evaluating shareholder advisory votes on executive compensation.
"Kayla has a long and dedicated record of exemplary service to investors, and we welcome her expertise and her passion to meet their needs as she joins us here at the agency that must always be the investor's advocate," said Chairman Schapiro. "Not only will we value Kayla's proven ability to hear the concerns of the investor community, but also her vast knowledge of corporate governance and risk assessment as the Commission considers important initiatives during a critical time for our markets."
Ms. Gillan said, "I'm excited to have the opportunity to work with Chairman Schapiro, the Commission, and its staff as we work together to protect investors during these challenging times. I'm eager to play a role in this great agency's self-evaluation and recommitment to meeting the needs of the investor community as well as the challenges posed by the today's financial regulatory system."
For the past year since leaving the PCAOB, Ms. Gillan has been the Chief Administrative Officer at RiskMetrics Group, Inc., a firm that provides risk management and corporate governance products and services to financial market participants. She authored the company's first annual proxy statement, which was designated "Best Proxy for 2008" by Corporate Secretary magazine.
At the PCAOB, in addition to leading the organization's relationship with the investor community, Ms. Gillan helped lead efforts to support small businesses through the Board's Forum on Auditing in the Small Business Environment program. She also advanced the PCAOB's re-write of Auditing Standard No. 2 regarding internal control over financial reporting.
At CalPERS, Ms. Gillan was General Counsel from 1996 to 2002, serving as the chief in-house legal advisor and oversing the System's internal audit function. Between 1986 and 1996, Ms. Gillan served in various other positions at CalPERS, including Deputy General Counsel and principal in-house investment counsel. She was a key architect of CalPERS' corporate governance program.
Ms. Gillan holds a B.A. from California State University at Sacramento and a J.D. from the University of California at Davis. (Press Rel. 2009-25)
First Circuit Court of Appeals Affirms Dismissal of SEC Action Against Three Former Putnam Fiduciary Trust Company Execs
The Commission announced today that on Feb. 6, 2009, the United States Court of Appeals for the First Circuit affirmed a March 2007 federal district court decision dismissing a civil fraud action against three former executives of Putnam Fiduciary Trust Company (PFTC), a Boston-based registered transfer agent. The action filed in December 2005 in the United States District Court for the District of Massachusetts alleges that six former PFTC executives engaged in a scheme beginning in January 2001 by which the defendants defrauded a defined contribution plan client and group of Putnam mutual funds of approximately $4 million. Dismissed from the case were Virginia Papa, of Newton, Massachusetts, a former managing director and director of defined contribution servicing; Sandra Childs, of Duxbury, Massachusetts, a former managing director who had overall responsibility for PFTC's compliance department; and Kevin Crain, of Princeton, New Jersey, a managing director who had responsibility for PFTC's plan administration unit. Judgments by consent were entered in October 2008 against two of the three remaining defendants. The case against the remaining defendant, Donald McCracken, of Melrose, Massachusetts, a former managing director and head of global operations services for PFTC, is pending. [SEC v. Virginia A. Papa, Kevin F. Crain, and Sandra G. Childs (United States Court of Appeals for the First Circuit, No. 08-1172)] (LR-20900)
SEC Charges R. Allen Stanford, Stanford International Bank for Multi-Billion Dollar Investment Scheme
The Securities and Exchange Commission today charged Robert Allen Stanford and three of his companies for orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program.
Stanford's companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action.
Pursuant to the SEC's request for emergency relief for the benefit of defrauded investors, U.S. District Judge Reed O'Connor entered a temporary restraining order, froze the defendants' assets, and appointed a receiver to marshal those assets.
"As we allege in our complaint, Stanford and his close circle of family and friends with whom he ran his business perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."
Rose Romero, Regional Director of the SEC's Fort Worth Regional Office, added, "We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world."
The SEC's complaint, filed in federal court in Dallas, alleges that acting through a network of SGC financial advisers, SIB has sold approximately $8 billion of so-called "certificates of deposit" to investors by promising improbable and unsubstantiated high interest rates. These rates were supposedly earned through SIB's unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years.
According to the SEC's complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in "liquid" financial instruments (the portfolio); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoff's massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no "direct or indirect" exposure to the Madoff scheme.
According to the SEC's complaint, SIB is operated by a close circle of Stanford's family and friends. SIB's investment committee, responsible for the management of the bank's multi-billion dollar portfolio of assets, is comprised of Stanford; Stanford's father who resides in Mexia, Texas; another Mexia resident having business experience in cattle ranching and car sales; and Pendergest-Holt, who prior to joining SFG had no financial services or securities industry experience; and Davis, who was Stanford's college roommate.
The SEC's complaint also alleged an additional scheme relating to $1.2 billion in sales by SGC advisers of a proprietary mutual fund wrap program, called Stanford Allocation Strategy (SAS), by using materially false historical performance data. According to the complaint, the false data helped SGC grow the SAS program from less than $10 million in 2004 to more than $1 billion, generating fees for SGC (and ultimately Stanford) of approximately $25 million in 2007 and 2008. The fraudulent SAS performance was used to recruit registered investment advisers with significant books of business, who were then heavily incentivized to reallocate their clients' assets to SIB's CD program.
The complaint charges violations of the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act, and registration provisions of the Investment Company Act. In addition to emergency and interim relief that has been obtained, the SEC seeks a final judgment permanently enjoining the defendants from future violations of the relevant provisions of the federal securities laws and ordering them to pay financial penalties and disgorgement of ill-gotten gains with prejudgment interest.
The Commission acknowledges the assistance and cooperation of the Financial Industry Regulatory Authority (FINRA) in connection with this matter.
The SEC's investigation is continuing. [SEC v. Stanford International Bank, et al., Case No. 3-09CV0298-L (N.D.TX.)] (LR-20901)
SEC Charges Research In Motion and Four of its Senior Executives With Stock Option Backdating
On February 17, the SEC filed charges against Research in Motion Limited (RIM), the Ontario, Canada corporation that makes the BlackBerry, and four of its senior executives for stock option backdating. The SEC's complaint alleges that RIM, its former Chief Financial Officer Dennis Kavelman, former Vice President of Finance Angelo Loberto, and Co-Chief Executive Officers James Balsillie and Mike Lazaridis illegally granted undisclosed, in-the-money options to RIM executives and employees by backdating millions of stock options over an eight-year period from 1998 through 2006. The complaint alleges that the defendants made false and misleading disclosures about how RIM priced and accounted for options, and that the illicit backdating provided the executives and other employees with millions of dollars in undisclosed compensation. In addition, according to the complaint, the backdating violated the terms of RIM's stock option plan and a listing requirement of the Toronto Stock Exchange. RIM's stock is listed on both the NASDAQ Stock Market and Toronto Stock Exchange.
The SEC's complaint alleges that the defendants' misconduct caused RIM, from fiscal year 1999 to the first quarter of fiscal year 2007: (i) to falsely disclose in its annual and other reports, management information circulars and registration statements that RIM's options were granted at exercise prices equal to the fair market value of RIM's common stock at the date of the grants; and (ii) to file materially false and misleading financial statements that understated RIM's compensation expenses and overstated its quarterly and annual net income or understated its net losses.
As alleged in the complaint, Kavelman, Loberto, Balsillie and Lazaridis backdated option agreements and offer letters, which concealed the fact that the options were granted in-the-money. The complaint also alleges that Kavelman and Loberto took steps to hide the backdating from regulators, RIM's independent auditor and outside lawyer. Finally, the SEC's complaint alleges that after all four executives were aware of backdating issues that had come to light at other companies, they attended RIM's July 2006 annual shareholder meeting where Kavelman misled investors by denying that RIM was backdating options.
All defendants have agreed to settle this matter, without admitting or denying the allegations in the SEC's complaint, on the following terms:
RIM consented to the entry of an order permanently enjoining it from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and the reporting, books and records and internal controls provisions of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-16. The settlement with RIM takes into account RIM's cooperation during the SEC's investigation.
Kavelman and Loberto consented to an order permanently enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, the misrepresentations to auditors provision of Exchange Act Rule 13b2-2; and from aiding and abetting RIM's violations of the reporting, books and records and internal controls provisions. Kavelman also consented to an order permanently enjoining him from violating the certification provision of Exchange Act Rule 13a-14. Kavelman and Loberto agreed to be barred for a period of five years from serving as officers or directors of any issuer that has a class of securities registered with the SEC or that is required to file reports with the SEC. In addition, Kavelman and Loberto agreed to resolve an anticipated administrative proceeding by consenting to an SEC order prohibiting them from appearing or practicing before the SEC as accountants for five years.
Balsillie and Lazaridis consented to the entry of an order permanently enjoining them from violating the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act, and the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1; and from aiding and abetting RIM's violations of the reporting, books and records and internal controls provisions.
The individual defendants will pay civil penalties in the following amounts: $500,000 for Kavelman; $425,000 for Loberto; $350,000 for Balsillie; and $150,000 for Lazaridis. The individual defendants also agreed to disgorge the in-the-money value of backdated options they had exercised ($132,914.60 for Kavelman, $47,950.56 for Loberto, $334,250 for Balsillie and $328,300 for Lazaridis) plus interest. Their disgorgement will be deemed satisfied by their previous payment of these amounts to RIM.
The settlements in the civil injunctive action are subject to the approval of the U.S. District Court for the District of Columbia. [SEC v. Research in Motion Limited, Dennis Kavelman, Arcangelo Loberto, James Balsillie and Mihal Lazaridis, 1:09-cv-00301 (RBW) (D.D.C.)] (LR-20902; AAE Rel. 2937)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by the NASDAQ Stock Market to establish a Post-Only Order (SR-NASDAQ-2009-006) 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 February 16. (Rel. 34-59392)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-DTC-2008-13) submitted under Rule 19b-4 by the Depository Trust Company that eliminates the SRO Requirement as a condition of DTC-eligibility for securities that are eligible for resale under Rule 144A under the Securities Act of 1933. Publication is expected in the Federal Register during the week of February 16. (Rel. 34-59384)
Proposed Rule Change
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2009-12) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to amend its limited liability company operating agreement and the bylaws of NYSE Market, Inc. to eliminate the requirement that not less than two members of the Board of Directors must qualify as "Non-Affiliated Directors" and a related requirement that not less than two members of the Board of Directors must qualify as "Fair Representation Candidates". Publication is expected in the Federal Register during the week of February 16. (Rel. 34-59400)
Accelerated Approval of Proposed Rule Change
The Commission has approved a proposed rule change (SR-DTC-2009-03) filed by the Depository Trust Company under Section 19(b)(1) of the Exchange Act, on an accelerated basis, that would revise DTC's fee schedule. Publication is expected in the Federal Register during the week of February 16. (Rel. 34-59409)
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