SEC Announces First Distribution from $267 Million Bear Stearns Fair Fund
On May 15, the Securities and Exchange Commission announced the start of a $267 million Fair Fund distribution to mutual funds and mutual fund shareholders who were harmed by late trading and market timing that occurred through Bear Stearns, which was charged by the SEC in a 2006 enforcement action.
This disbursement of more than $216 million will go to approximately 761,000 shareholders who were harmed by the wrongdoing, and to the asset bases of more than 1,000 affected mutual funds. The Bear Stearns Fair Fund will ultimately return more than $267 million to harmed mutual funds and shareholders before the end of this year.
"We are very pleased to make this first distribution from the Bear Stearns Fair Fund to injured mutual funds and their shareholders and look forward to disbursing the remaining money in the coming months," said James A. Clarkson, Acting Director of the SEC's New York Regional Office.
The Sarbanes-Oxley Act of 2002 gave the SEC authority to increase the amount of money returned to injured investors by allowing civil penalties to be included in Fair Fund distributions. Prior to SOX, only disgorgement could be returned to investors.
Dick D'Anna, Director of the Office of Collections and Distributions added, "The SEC staff continues to work diligently to ensure the distribution of Fair Funds to affected funds and investors. Since passage of the Sarbanes-Oxley Act, the SEC has now returned more than $5 billion in lost funds to harmed investors."
The SEC brought and settled public administrative and cease-and-desist proceedings against Bear Stearns & Co., Inc. and Bear, Stearns Securities Corp. in March 2006 for violations of the federal securities laws in connection with late trading and market timing of mutual funds. The SEC's order found that shareholders were harmed by the late trading and market timing of mutual funds facilitated by Bear Stearns from January 1999 through October 2003. Bear Stearns consented to the order without admitting or denying the findings. Among other things, the order required Bear Stearns to pay $250 million in disgorgement and penalties for distribution through a Fair Fund. The SEC issued an order approving the Bear Stearns Distribution Plan on Feb. 4, 2009.
This distribution is not being made pursuant to a claims process. Therefore, mutual funds and others eligible for distributions from the Bear Stearns Fair Fund do not need to contact the SEC in order to receive a payment.
The Fair Fund Administrator responsible for distribution is Rust Consulting, Inc. Investor questions regarding the distribution may be directed to Rust at (888) 356-0259. Information regarding the distribution can also be obtained at http://www.bearstearnsfairfundsettlement.com.
Distribution Plan: http://www.sec.gov/litigation/admin/2009/34-59356-dp.pdf
Order Approving the Distribution Plan:
March 16, 2006 Order Instituting Administrative and Cease-and-Desist Proceedings against Bear Stearns: http://www.sec.gov/litigation/admin/33-8668.pdf
For more information, contact:
Andrew M. Calamari, Associate Regional Director
SEC to Hold Public Seminar on New Interactive Data Reporting Requirements
The Securities and Exchange Commission will conduct a public seminar on June 10, 2009, to help companies and preparers comply with new rules that require financial reports to be filed using interactive data (XBRL).
The Commission staff will present information about the technology requirements for complying with the rules and will also provide an overview of the tools and information provided by the Commission to assist with compliance. The seminar will also cover frequently asked questions about the rules and technology requirements.
In adopting the final rule, the Commission noted that interactive data has the potential to increase the speed, accuracy, and usability of financial disclosure and eventually reduce costs.
This event will be held in the auditorium at the SEC's headquarters at 100 F Street, N.E., in Washington, D.C. The seminar will be open to the public with seating on a first-come, first-served basis. The seminar also will be web cast via the SEC Web site.
To ensure the seminar is responsive to the needs of companies and preparers, the Commission staff is seeking suggested questions and topics to be discussed at the seminar. Interested parties should email their questions to Ask-OID@sec.gov and include in the subject line "Public Education Seminar." For additional information about the seminar, contact Ask-OID@sec.gov or (202) 551-4144. (Press Rel. 2009-114)
In the Matter of X-Ramp.com, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in X-Ramp.com, Inc., Admin. Proc. 3-13450 (May 18, 2009). The Default Order finds that Respondents X-Ramp.com, Inc., Xraymedia, Inc. (f/k/a Xraymedia.com, Inc.), and Zydant Corp. failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 13a-1 and 13a-13 by failing to file required periodic reports over a period of several years. Based on these findings, and pursuant to Section 12(j) of the Exchange Act, the Default Order revokes the registrations of the registered securities of these three Respondents. (Rel. 34-59934; File No. 3-13450)
SEC Charges Monster Worldwide Inc. for Options Backdating Scheme
The Securities and Exchange Commission today charged Monster Worldwide, Inc., for its multi-year scheme to secretly backdate stock options granted to thousands of Monster officers, directors and employees. Monster agreed to pay a $2.5 million penalty to settle the SEC's charges that the company defrauded investors by granting backdated, undisclosed "in-the-money" stock options while failing to record required non-cash charges for option-related compensation expenses.
The SEC's complaint, filed in the District Court for Southern District of New York, alleges that in connection with this scheme, Monster filed false and materially misleading statements concerning the true grant date and exercise price of stock options in its annual, quarterly and current reports, proxy statements and registration statements. Many of these documents also falsely represented that stock options were being granted at fair market value. Further, Monster failed to record and disclose the compensation expense associated with the "in-the-money" portion of stock option grants. As a result, Monster materially overstated its quarterly and annual earnings in its financial statements and was required to restate its historical financial results for 1997-2005 in a cumulative pre-tax amount of approximately $339.5 million to record additional non-cash charges for option related compensation expenses.
Without admitting or denying liability, Monster agreed to be permanently enjoined from violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. Monster also agreed to pay a $2.5 million penalty. The Commission took into account the cooperation that Monster provided Commission staff during the course of the investigation. [SEC v. Monster Worldwide, Inc., United States District Court for the Southern District of New York, Civil Action No. 09 CV 4641 (S.D.N.Y.)] (LR-21042; AAE Rel. 2970)
SEC Obtains Default Judgment Against Massachusetts Broker for Securities Fraud
On May 18, the United States District Court for the District of Massachusetts entered a final judgment by default against Gregg Thomas Rennie of Quincy, Massachusetts. The Securities and Exchange Commission's emergency action, filed on Jan. 23, 2009, alleged that Rennie, while working at an insurance and financial services agency in Rhode Island and acting as an investment advisor, defrauded numerous clients in Massachusetts and New Hampshire of over $3 million. The final judgment enjoins Rennie from future violations of the securities laws. Additionally, Rennie was ordered to pay disgorgement in the amount of $3,678,377, profits gained as a result of the conduct alleged in the Complaint, prejudgment interest in the amount of $30,653, and a penalty of $500,000.
According to the Commission's complaint, from early 2007 through early 2009, Rennie made misrepresentations to several of his clients about investing their money in risk-free "federal housing certificates" that paid up to 12% per year, tax free, and were offered by a real estate investment company based in Boston. In fact, however, the complaint alleges that the investments were completely fictitious and that Rennie had no relationship with the real estate investment company whose name he used. According to the Commission's filings, Rennie defrauded clients who were elderly, including an 89 year old man. The filings allege that Rennie induced some clients to cash out their investments in annuities, incurring substantial surrender charges, in order to invest in his fraudulent program. According to the complaint, Rennie used investor proceeds to pay personal expenses, including a gym membership and liquor, grocery, shoe and department store purchases, and withdrew thousands of dollars in cash from the account where investor funds were sent.
In addition to ordering Rennie to pay $4,209,030 in disgorgement, prejudgment interest and penalties, the judgment imposes a permanent injunction against the defendant prohibiting 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 thereunder; and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
The Commission brought this action in collaboration with the Massachusetts Securities Division, which, simultaneously with the filing of the Commission's complaint, filed an administrative action seeking immediate suspension and subsequent revocation of Rennie's Massachusetts broker-dealer agent registration.
The Commission acknowledges the assistance provided by the Financial Industry Regulatory Authority in this matter. [SEC v. Gregg Thomas Rennie, Civil Action No. 09-CV-10107 -DPW, United States District Court for the District of Massachusetts] (LR-21043)
SEC Files Action Against WellCare Regarding Scheme to Withhold Money From Florida Health Care Programs; Company to Pay $10 Million Penalty
The Securities and Exchange Commission today filed a settled civil injunctive action against WellCare Health Plans, Inc. (WellCare), a managed care services company that administers federal government-sponsored health care programs. According to the Commission's complaint, from at least November 2003 to October 2007, WellCare fraudulently retained over $40 million it was required to return to Florida state agencies under programs that provided mental health services to Medicaid recipients and health care services to uninsured children. As a result, WellCare materially overstated its publicly reported net income and diluted earnings per share in periodic filings made with the Commission.
As alleged in the complaint, WellCare executed its scheme by intentionally underpaying refunds it owed to two Florida state health care entities, the Florida Agency for Health Care Administration (AHCA), and the Florida Healthy Kids Corporation (Healthy Kids). Under these contracts, WellCare received funds, or premiums, from the state to be used to provide medical and health benefits. To ensure a proper balance between cost savings and quality health care, the state required WellCare to spend a certain percentage of the premiums on eligible medical expenses. If WellCare spent less than the minimum amounts on eligible expenses, it was required to refund some or all of the difference to the state.
According to the Commission's complaint, WellCare did not follow the state's guidelines and regulatory framework governing how the company was required to calculate the refunds under each program. Instead, the company evaded the statutory requirements and fraudulently included ineligible payments to a subsidiary and administrative expenses as legitimate medical expenses. In addition, for certain refunds, WellCare considered a range of arbitrary amounts to refund to AHCA, and then reverse-engineered a methodology to arrive at a particular refund target. WellCare also engaged in a rate-swapping scheme whereby it inflated reimbursement rates for its Healthy Kids plan in exchange for lower Medicaid and Medicare rates at two Florida hospitals. In total, through its fraudulent conduct, WellCare reduced the refunds it paid to AHCA by approximately $35 million and to Healthy Kids by approximately $6 million.
WellCare's fraudulent retention of over $40 million materially inflated its net income and earnings per share by essentially the same amounts - 14% for fiscal year (FY) 2004, 9% for FY 2005, 13% for FY 2006, and 9% for the first quarter of FY 2007. On January 26, 2009, WellCare filed its Form 10-K for FY 2007 and restated its financial results for its FYs 2004 through 2006 and the first two quarters of FY 2007.
Without admitting or denying the allegations in the Commission's complaint, WellCare has consented to the entry of a final judgment for violations of the antifraud provision of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5, the reporting provisions, Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-13, and the record-keeping and internal controls provisions, Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. In addition, the company has agreed to pay $1 in disgorgement and a $10 million civil penalty. The Commission acknowledges WellCare's cooperation with its investigation.
In conducting its investigation, the Commission received assistance from the U.S. Attorney's Office for the Middle District of Florida, the Office of Inspector General for the Department of Health and Human Services and the Federal Bureau of Investigation.
The Commission's investigation is continuing. [SEC v. WellCare Health Plans, Inc., Civil Action No. 8:09-CV-00910-T-33-EAJ (M.D. Fla.] (LR-21044; AAE Rel. 2971)
Immediate Effectiveness of Proposed Rule Changes
The Fixed Income Clearing Corporation, the National Securities Clearing Corporation, and the Depository Trust Company filed proposed rule changes (SR-FICC-2009-06, SR-NSCC-2009-03, and SR-DTC-2009-07) under Section 19(b)(1) of the Exchange Act to clarify FICC's, NSCC's, and DTC's rules with regards to the economic sanctions and embargo programs administered and enforced by the Office of Foreign Assets Control, U.S. Department of the Treasury. The proposed rule changes were effective upon filing. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59917)
A proposed rule change filed by NASDAQ OMX BX (SR-BX-2009-024) making clerical corrections to the Rules of the Boston Options Exchange Facility 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 May 11. (Rel. 34-59918)
A proposed rule change filed by the NASDAQ Stock Market relating to the criteria for securities that underlie options traded on the exchange (SR-NASDAQ-2009-046) 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 May 11. (Rel. 34-59923)
Proposed Rule Changes
The Commission issued notice of a proposed rule change submitted by the NASDAQ Stock Market (SR-NASDAQ-2009-042) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to amend its Limited Liability Company Agreement. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59907)
The Commission noticed a proposed rule change (SR-BX-2009-025) submitted by NASDAQ OMX BX pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to retroactively amend the Fee Schedule to clarify and correct references to the volume discount given to Market Makers. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59919)
The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2009-029) to permanently establish the Quarterly Option Series Pilot Program. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59920)
The Commission has published notice of a proposed rule change (FINRA-2009-028), filed by the Financial Industry Regulatory Authority to adopt FINRA Rule 2231 in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59921)
Approval of Proposed Rule Changes
The Commission granted approval of a proposed rule change as modified by Amendment No. 1 and noticed and granted accelerated approval to the filing as amended by Amendment No. 2 (SR-FINRA-2009-008) submitted by the Financial Industry Regulatory Authority relating to changes to Forms U4, U5, and FINRA Rule 8312. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59916)
The Commission approved a proposed rule change (SR-Phlx-2009-23) submitted by NASDAQ OMX PHLX to amend the By-Laws, Rules and Option Floor Procedure Advices concerning governance of the Exchange. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59924)
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