RULES AND RELATED MATTERS
Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies
The Commission adopted technical amendments to various rules, forms and schedules and the Codification of Financial Reporting Policies to conform to two recently issued accounting standards issued by the Financial Accounting Standards Board: Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations, and Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51. (Rels. 33-9026; 34-59775; FR-79)
Receiver Appointed in Ponzi Scheme Case
The Securities and Exchange Commission announced today that the Honorable Gerard E. Lynch, United States District Judge, entered an order yesterday, April 14, 2009, appointing H. Thomas Moran, II as receiver for the assets of defendant Edward T. Stein and entities under his control, i.e., Edward T. Stein Associates, Ltd.(ETSA); Gemini Fund I, L.P. (Gemini); Prima Capital Management LLC (Prima); Vibrant Capital Corp. (Vibrant); and Vibrant Capital Funding I LLC (Vibrant Capital Funding). Mr. Moran is president and chief executive officer of the Heritage Group, a provider of consulting and receivership services with a focus on life and viatical settlements. Among other things, the Court's order provides that, as receiver, Mr. Moran has the authority to take immediate custody and control of all assets of Mr. Stein, ETSA, Gemini, Prima, Vibrant, and Vibrant Capital Funding.
On April 1, 2009, the Commission filed this enforcement action charging Edward T. Stein with securities fraud. At that time, Judge Lynch entered an order freezing the assets of Mr. Stein and entities under his control and requiring accountings of those assets. The Judge's April 1 order also included a preliminary injunction barring Mr. Stein from committing further securities law violations. See Litigation Release No. 20983 (April 1, 2009).
The Commission's investigation into these matters is continuing. [SEC v. Edward T. Stein, et. al., Civil Action No. 09-3125 (SDNY)] (LR-20983 and LR-21002)
Court Permanently Enjoins Michael E. Kelly in SEC Action Arising from $428 Million Securities Fraud that Targeted Senior Citizens and Retirement Savings
The Securities and Exchange Commission announced that on April 14, 2009, Judge Elaine Bucklo of the United States District Court for the Northern District of Illinois entered an order permanently enjoining Michael E. Kelly (Kelly), a former resident of North Liberty, Indiana and Cancun, Mexico, in connection with a civil injunctive action filed in September, 2007 against Kelly and 25 other defendants. The order, entered with Kelly's consent, permanently enjoins him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
The SEC's complaint in this matter charges that Kelly and 25 other defendants participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Lease investments. Universal Leases were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC's complaint alleges that from 1999 until 2005, Kelly and others raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts. The SEC further alleges that Kelly used a nationwide network of unregistered salespeople who sold the Universal Leases and collected undisclosed commissions totaling more than $72 million. The SEC also alleges that Kelly and others ran the scheme from Cancun, Mexico through a number of foreign entities in Mexico and Panama. According to the SEC's complaint, Kelly and others told investors that Universal Leases would generate guaranteed income through the leasing of investor timeshares by a large, independent leasing agent. In fact, the complaint alleges the leasing agent was a small Panamanian travel agency controlled by Kelly and for most of the scheme its payments to investors came from accounts funded by money raised from new investors. Further, the complaint alleges that Kelly and others failed to disclose key facts about the Universal Lease investments, including the risks of the investments and that more than $72 million in investor funds were used to pay commissions as high as 27% to the selling brokers. The SEC continues to pursue its claims against Kelly for disgorgement and civil penalties. The SEC's action against the remaining defendants is also pending.
The SEC acknowledges the assistance of the United States Attorney's Office for the Northern District of Illinois and the Federal Bureau of Investigation in this matter.
For additional information, see Litigation Release Nos. 20267 (Sept. 5, 2007), 20573 (May 14, 2008), 20578 (May 15, 2008), 20579 (May 15, 2008), 20664 (July 31, 2008), 20679 (Aug. 12, 2008), 20708 (Sept. 9, 2008); 20709 (Sept. 9, 2008) and 20799 (Nov. 6, 2008). SEC v. Michael E. Kelly, et al., Case No. 1:07-CV-4979 in the United States District Court for the Northern District of Illinois]. [SEC v. Michael E. Kelly, et al., Civil Action No. 07-cv-4979 (N.D. Ill.)] (LR-21003)
Former Director of Fidelity National Financial Settles SEC Insider Trading Case
The Commission announced today that on April 10, 2009, the Honorable Margaret M. Morrow, United States District Judge for the Central District of California, entered a final judgment against J. Thomas Talbot, a former Director of Fidelity National Financial Inc., in an insider trading case the Commission filed on June 24, 2004. See SEC v. J. Thomas Talbot, Civil Action No. CV 04-4556 MMM (C.D. Cal.)/Lit. Rel. No. 18762. Without admitting or denying the allegations in the complaint, Talbot consented to the entry of the final judgment which (1) permanently enjoins him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, (ii) orders him to pay disgorgement of $67,881 and prejudgment interest of $26,916, and (iii) orders him to pay a civil penalty of $135,762.
The Commission's complaint alleged that in April 2003, Talbot engaged in insider trading by purchasing stock of LendingTree, Inc., after learning at a meeting of the Fidelity Board of Directors that LendingTree would be acquired by another company. According to the Complaint, on April 22, 2003, Fidelity's Chief Executive Officer told Talbot and other Fidelity board members that LendingTree would likely be acquired by another company at a significant premium over its then-current trading price. At the time of the meeting, Fidelity owned approximately 12% of LendingTree. At the Fidelity Board meeting, the Complaint alleged, Talbot heard the CEO's comments about the potential acquisition, and wrote "LendingTree" on the top of his meeting agenda. These words constituted the only notes that Talbot made during the four-hour Board meeting. The Complaint alleged that after this information was conveyed to the Board of Directors, a Fidelity Board member cautioned the directors not to trade in LendingTree securities because they had been provided with confidential information.
The Complaint alleged that two days after the Board meeting, Talbot breached the fiduciary duty he owed to Fidelity and purchased 5,000 shares of LendingTree stock at $13.50 per share on the basis of the material, non-public information he misappropriated from Fidelity. According to the Complaint, Talbot similarly purchased an additional 5,000 shares of LendingTree at $14.50 per share on April 30, 2003. The Complaint further alleged that on May 5, 2003, the day that USA Interactive announced that it would acquire LendingTree, Talbot sold his 10,000 shares of LendingTree stock, realizing illicit profits of $67,881.
This concludes the Commission's action against Talbot. [SEC v. J. Thomas Talbot, No. CV 04- 4556 MMM (PLAx) (C.D. Cal.)] (LR-21004)
INVESTMENT COMPANY ACT RELEASES
UBS AG, et al.
The Commission has issued an order to UBS AG, et al. under Section 9(c) of the Investment Company Act exempting applicants and any other company of which UBS AG is or becomes an affiliated person from Section 9(a) of the Act with respect to an injunction entered by the U.S. District Court for the District of Columbia on March 19, 2009. (Rel. IC-28695 - April 14)
ProShares Trust, et al.
A notice has been issued giving interested persons until May 11, 2009, to request a hearing on an application filed by ProShares Trust, et al., for an order to amend a prior order that permits: (a) series of an open-end management investment company (Initial Funds) to issue shares redeemable in large aggregations only (Creation Unit Aggregations); (b) secondary market transactions in the shares to occur at negotiated prices; (c) dealers to sell the shares to purchasers in the secondary market unaccompanied by a prospectus, when prospectus delivery is not required by the Securities Act of 1933; and (d) certain affiliated persons of the Initial Funds to deposit securities into, and receive securities from, the Initial Funds in connection with the purchase and redemption of Creation Unit Aggregations (Prior Order). Applicants seek to amend the Prior Order to: (a) provide greater operational flexibility to the funds; (b) expand the category of funds designed to correspond to the return of an underlying index to include funds that seek to match the performance of an underlying index that applies a strategy referred to as 130/30; (c) permit funds that are based on foreign equity securities indices to pay redemption proceeds more than seven days after the tender of a Creation Unit Aggregation for redemption; (d) delete a condition related to future relief in the Prior Order and permit applicants to offer additional series using underlying securities indices different than those permitted under the Prior Order; (e) delete the relief granted in the Prior Order from section 24(d) of the Investment Company Act of 1940 and revise the applications on which the Prior Order was issued (Prior Applications) accordingly; and (f) amend the terms and conditions of the Prior Applications with respect to certain disclosure requirements. (Rel. IC-28696 - April 14)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-FINRA-2009-006) submitted by the Financial Industry Regulatory Authority pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to establish a new limited representative registration category for investment banking professionals. Publication is expected in the Federal Register during the week of April 20. (Rel. 34-59757)
Proposed Rule Change
Financial Industry Regulatory Authority has filed a proposed rule change (SR-FINRA-2009-023) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to adopt FINRA Rule 2320 in the consolidated FINRA rulebook. Publication is expected in the Federal Register during the week of April 20. (Rel. 34-59762)
Accelerated Approval of Proposed Rule Change
The Commission issued a Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as modified by Amendment No. 1, submitted by the Financial Industry Regulatory Authority pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 (SR-FINRA-2009-004) to Expand the Definition of "TRACE-Eligible Security". Publication is expected in the Federal Register during the week of April 20. (Rel. 34-59768)
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