In the Matter of Hamilton Digital Controls, Inc.
An Administrative Law Judge issued an Order Making Findings and Revoking Registrations by Default in Hamilton Digital Controls, Inc., Admin. Proc. 3-13460 (May 28, 2009). The Default Order finds that five of seven Respondents failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder by failing to file required periodic reports with the Securities and Exchange Commission. Based on these findings, the Default Order revokes the registration of each class of registered securities of Hamilton Digital Controls, Inc., Hamilton-McGregor International, Inc., Happiness Express, Inc., Harvard Industries, Inc., and HealthCor Holdings, Inc., pursuant to Section 12(j) of the Exchange Act. A prehearing conference will be held on June 17, 2009, if Respondents Haven Holding, Inc. (n/k/a Haven Holdings I, Inc.), and Helm Capital Group, Inc., have not submitted signed Offers of Settlement. (Rel. 34-59993; File No. 3-13460)
In the Matter of J. David Huber
On May 28, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Section 203(k) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) against J. David Huber. The Order finds that J. David Huber, former BISYS Fund Services, Inc. (BISYS), president and former chairman of the AmSouth Funds' board of trustees, facilitated an undisclosed marketing arrangement between BISYS, a mutual fund administrator, and AmSouth Bank (AmSouth), a mutual fund adviser.
In 1998, Huber received a legal memorandum from outside counsel, recommending that BISYS disclose marketing arrangements to fund shareholders and trustees. Huber executed a 1999 side agreement with AmSouth pursuant to which BISYS was to rebate a portion of its administration fee to AmSouth in exchange for their promise to continue recommending BISYS as an administrator to the funds' boards of trustees. Soon thereafter, Huber also executed the 1999 administration and sub-administration agreements while he sat on the board of trustees as chairman. He signed the side and administration agreements without disclosing either the existence of the side agreement or its terms to the boards of trustees or shareholders for the AmSouth mutual funds.
As part of his settlement, Huber agreed to pay a total of $18,000 in disgorgement and prejudgment interest.
Based on the above, Huber was ordered to cease and desist from committing or causing any violations and any future violations of Sections 206(1) and 206(2) of the Advisers Act. Huber consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rels. IA-2884; IC-28749; File No. 3-13492)
In the Matter of Melissa M. Hurley
On May 28, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings against former BISYS vice president and general counsel, Melissa M. (Lisa) Hurley for her willful aiding and abetting and causing AmSouth Asset Management's violations of Sections 206(1) and 206(2) of the Advisers Act. Hurley, age 53, resides in New York. Hurley was senior vice president and general counsel of BISYS from May 1998 to approximately 2002, and executive vice president and general counsel of BISYS from approximately 2002 through 2006.
BISYS Fund Services, Inc. (BISYS), a mutual fund administrator, and mutual fund advisers, including AmSouth Bank and its two adviser subsidiaries, AmSouth Investment Management Company and AmSouth Asset Management (collectively, AmSouth) entered into certain undisclosed marketing arrangements. BISYS entered into side agreements obligating BISYS to rebate a portion of its administration fee to the fund advisers in exchange for their promise to continue recommending BISYS as an administrator to the funds' boards of trustees. Following execution of the side agreements, BISYS paid for marketing expenses incurred by the advisers to promote the funds. Occasionally, the fund adviser also used the money dedicated by BISYS to pay expenses unrelated to marketing. The Order finds that Hurley knew about several of BISYS' side agreements, and reviewed drafts of AmSouth's side agreements.
The Order finds that Hurley reviewed draft side agreements, including AmSouth's 1999 and 2000 side agreements, and knew that the marketing arrangement should be disclosed to fund trustees and shareholders. Hurley did not disclose the terms of the side agreements to the fund trustees or shareholders. In 2003, Hurley also drafted a disclosure template concerning the marketing arrangements for certain fund shareholders, and reviewed and commented on a disclosure template for certain fund boards of trustees. These disclosure templates did not disclose material facts such as the written nature of the agreements, the exchange of a portion of the administration fee for a recommendation to the fund boards, or the source of funds used for marketing.
As part of her settlement, Hurley agreed to pay $15,000 in disgorgement, prejudgment interest, and a $15,000 civil penalty. Hurley consented to the issuance of the Order without admitting or denying any of the findings. (Rels. IA-2885; IC-28750; File No. 3-13493)
In the Matter of David A. Finnerty, et. al
On May 28, the Commission issued an Order Making Findings, Imposing Remedial Sanctions, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b)(6), 21C and 11(b) of the Securities Exchange Act of 1934 and Rule 11b-1 Thereunder as to David A. Finnerty (Order). The Order finds that during the period from at least Jan. 1, 1999 to approximately April 2003, David A. Finnerty (Finnerty), a former specialist on the New York Stock Exchange at Fleet Specialist, Inc. (now known as Banc of America Specialist, Inc.), knowingly or recklessly engaged in approximately 26,300 instances of interpositioning, locking in a riskless profit of approximately $4,500,000 for his firm's proprietary account at the expense of customer orders, and approximately 15,000 instances of trading ahead, causing approximately $5,000,000 in customer harm, and, in doing so, willfully violated Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Section 11(b) of the Exchange Act and Rule 11b-1 thereunder.
Based on the above, the Order orders Finnerty to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, and Sections 10(b) and 11(b) of the Exchange Act and Rules 10b-5 and 11b-1 thereunder, bars Finnerty from association with any broker or dealer, and orders Finnerty to pay a civil money penalty in the amount of $150,000. Finnerty consented to the issuance of the Order without admitting or denying any of the findings therein. (Rels. 33-9033; 34-59998; File No. 3-11893)
Commission Finds that Maria T. Giesige Violated Antifraud Provisions of Securities Laws, Sold Unregistered Securities, and Acted as an Unregistered Broker-Dealer
The Commission found that Maria T. Giesige, a former associated person of registered broker-dealer Investors Capital Corp., and subsequently registered as an investment adviser in the State of Ohio, made material misstatements and omitted material facts in connection with the sale of the securities of Carolina Development Co., a Nevada corporation headquartered in California, in violation of the antifraud provisions of the federal securities laws. The Commission further found that Giesige sold unregistered Carolina Development securities when no exemption from registration was available and that Giesige sold these shares without first obtaining the required approvals to do so from Investors Capital, thus acting as an unregistered broker-dealer. The Commission ordered: that Giesige cease and desist from violations of the applicable provisions; that Giesige be barred from association with any broker, dealer, or investment adviser; that Giesige disgorge $21,105.03 in ill-gotten gains, plus prejudgment interest; and that Giesige pay a civil money penalty of $500,000. The Commission ordered that the disgorgement and civil money penalty amounts be used to create a "Fair Fund" for the benefit of Giesige's harmed customers. (Rel. 34-60000; IA-2886; File No. 3-12747)
In the Matter of Gregg Thomas Rennie
On May 29, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, and Section 203(f) of the Investment Advisers Act of 1940 and Notice of Hearing. The Order alleges that a final judgment was entered by default against Rennie on May 18, 2009. The Order further alleges that, according to the Commission's complaint, the Respondent, while employed at an insurance and financial services agency and acting as an investment adviser, 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. According to the Order, however, the investments were completely fictitious and that Rennie had no relationship with the real estate investment company whose name he used. In connection with the sale of the federal housing certificates, Rennie misappropriated investor funds, falsely stated to investors that their funds were invested, sent out false account statements indicating that investors funds were fully invested and earning positive returns, and otherwise engaged in a variety of conduct that operated as a fraud and deceit on investors. The complaint also alleged that Rennie sold unregistered securities. (Rels. 34-60007; IA-2887; File No. 3-13496)
SEC Charges Hawaii Resident With Running Ponzi Scheme
On May 27, the Securities and Exchange Commission filed a complaint in the U.S. District Court in Honolulu, Hawaii, charging David E. Ruskjer (Ruskjer) with fraudulently raising $16 million from at least 140 investors in a Ponzi scheme. The SEC's complaint alleges that between September 2004 and December 2008, Ruskjer engaged in an unregistered offering of promissory notes to investors that were to pay fixed monthly returns of 3 percent to 5 percent from Ruskjer's purportedly profitable trading in call options. According to the SEC's complaint, Ruskjer, a self-employed computer consultant who lives in Koloa, Hawaii, used only half of the investors' monies to trade securities, which incurred an average monthly loss over the four years of his scheme, and used remaining monies to pay fictitious trading profits to investors and his personal expenses.
The SEC's complaint alleges that Ruskjer induced investors to purchase his promissory notes by misrepresenting his unsuccessful options trading and his use of their funds. The SEC asserts that Ruskjer claimed to have a safe and non-speculative options trading strategy that made a monthly net profit of 5 percent to 5.5 percent, from which he promised to pay investors, depending on the time period and investor, a 3 percent to 5 percent monthly return. According to the SEC's complaint, Ruskjer's securities trading from 2004 to 2008 sustained an average monthly loss of 5.8 percent and a net loss of $2.6 million. Moreover, as alleged in the complaint, Ruskjer used only $7.9 million of the $16 million entrusted to him by investors to trade securities, $5.5 million to pay fictitious securities trading profits to investors, and most of the remaining funds for personal expenses, such as $523,466 to buy a condominium, $112,000 on cash withdrawals, and $743,000 on debit card purchases.
The SEC's complaint charges Ruskjer with violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, the securities registration provisions of Section 5(a) and 5(c) of the Securities Act, and the broker-dealer registration provisions of Section 15(a) of the Exchange Act. The complaint seeks a permanent injunction, disgorgement of ill-gotten gains, and a financial penalty against Ruskjer. [SEC v. David E. Ruskjer, Civil Action No. CV 09-00237 SOM (KSC) (D. Haw.)] (LR-21062)
In the Matter of United Industrial Corporation
On May 29, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (Order) against United Industrial Corporation (UIC). The Order finds that UIC violated the anti-bribery provision of the federal securities laws as a result of illicit payments to a foreign agent that were authorized by Thomas Wurzel, the president of a former UIC subsidiary. The Commission's Order finds that Wurzel knew or consciously disregarded the high probability that the agent would offer, provide or promise at least a portion of such payments to Egyptian Air Force officials in exchange for business related to a military aircraft depot in Cairo, Egypt. The Order also finds, among other things, that UIC's corporate legal department approved the retention of the foreign agent despite a lack of documented due diligence and despite an agency agreement that violated corporate policy. The Commission's Order requires UIC to cease and desist from committing or causing any violations and any future violations of Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and to pay disgorgement of $267,571 and prejudgment interest of $70,108.42. UIC consented to the issuance of the Order without admitting or denying any of the findings. In determining to accept UIC's offer of settlement, the Commission considered remedial acts promptly undertaken by UIC and cooperation afforded the Commission staff.
In a related action, on May 29, 2009, the Commission also filed a settled enforcement action in the United States District Court for the District of Columbia against Wurzel. Wurzel, without admitting or denying the Commission's allegations, consented to the entry of a final judgment permanently enjoining him from future violations of Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 13b2-1 and from aiding and abetting violations of Exchange Act Sections 30A and 13(b)(2)(A), and ordering him to pay a $35,000 civil penalty. [SEC v. Thomas Wurzel, Case No. 09-Civ-01005 (RWR) (USDC, D.C.)] (LR-21063; AAE Rel. 2980); (Administrative Proceeding In the Matter of United Industrial Corporation - (Rel. 34-60005; AAE Rel. 2981; File No. 3-13495)
SEC v. Mark R. Hamlin, Kingdom First Trading, LLC, and Kingdom First Corp.
The Securities and Exchange Commission announced that on May 26, 2009, it filed a civil injunctive action against Mark R. Hamlin (Hamlin), a resident of Owosso, Michigan, and two companies owned and controlled by Hamlin, Kingdom First Trading, LLC (KFT) and Kingdom First Corp. (KFC), for conducting a fraudulent, unregistered offer and sale of approximately $2 million in securities.
The SEC's complaint, filed in the United States District Court for the Western District of Michigan, alleges that from approximately April 2005 through June 2008, Hamlin offered and sold securities to at least 90 investors and raised approximately $2 million. The complaint alleges that Hamlin represented to investors that he was a day trader who would invest their funds, along with other investors' funds, in the stock market. The complaint further alleges that Hamlin told investors that he closed out all open positions at the end of the day and told some investors that he only invested in stocks. According to the complaint, Hamlin represented to some investors that he could double their money, had earned past investment returns exceeding 100%, and investors would not lose their money invested with him. According to the complaint, Hamlin, who acted as an unregistered investment adviser, also represented that he would send the investors weekly reports of his trading and their profits or losses and that he would not receive a commission or any other financial benefit unless the investments were profitable. In the weekly trading reports, Hamlin represented that the investors earned profits in all but seven weeks of trading during the period in question. The complaint alleges that Hamlin's representations to investors regarding his use of investor funds, trading profits, and trading strategy were all false. Specifically, the complaint alleges that Hamlin did not invest all of the investor funds that he raised. Hamlin invested only a portion of the funds raised from investors, and used $668,000 of investor funds to pay his personal expenses and $755,000 to pay prior investors' redemption requests. The complaint further alleges that Hamlin's trading generated losses totaling approximately $644,862 and his trading was profitable for only nine of the 39 months of the offering and generated a total of only $22,150 in profit for those months . In addition, the Commission's complaint alleges that Hamlin did not close out all open securities positions at the end of the day and frequently traded options.
Without admitting or denying the allegations in the SEC's complaint, Hamlin, KFC, and KFT consented to the entry of an order of permanent injunction enjoining them from violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, enjoining Hamlin and KFC from violations of Sections 5(a) and 5(c) of the Securities Act, enjoining Hamlin from violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and enjoining KFC from violations of Section 7(a) of the Investment Company Act of 1940. The order requires that Hamlin, KFC, and KFT pay disgorgement, jointly and severally, in the amount of $1,252,071 together with prejudgment interest in the amount of $340,197 for a total of $1,592,268, but waiving these amounts and not imposing a civil penalty against Hamlin or the entities based on their sworn statements of financial condition. [SEC v. Mark R. Hamlin, Kingdom First Trading, LLC, and Kingdom First Corp., Case No. 1:09-CV-483 (W.D. Michigan] (LR-21064)
STANDARDS SETTING BOARDS
Final Rule Amendments
The Commission approved a proposed rule amendment (PCAOB-2008-06) submitted by the Public Company Accounting Oversight Board to its rules governing inspections of foreign registered public accounting firms. Publication is expected in the Federal Register during the week of June 1, 2009. (Rel. 34-59991)
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