RULES AND RELATED MATTERS
Privacy Act Systems of Records Notice
The Commission issued a notice requesting comments on five new Privacy Act systems of records as follows: "Information Pertaining or Relevant to SEC Registrants and Their Activities (SEC-55)", which contains records on individuals associated with entities or persons that are registered with the SEC; "Mailing, Contact and Other Lists (SEC-56)", which contains records related to individuals and employees who submit request for information, subscriptions, inquiries, guidance, informal advice and other assistance to the SEC; "International Program Oversight Database (SEC-57)", which contains information related to an SEC investigation, international institute training, foreign regulators and stock exchanges, SEC travel records and United States Agency for International Development (USAID) reimbursable programs; "System for Enforcement Case Tracking and Routing (SEC-58)", which contains correspondence related to litigation, pleadings in administrative proceedings, and other documents; and "Office of Interpretation and Guidance Log; Office of Broker-Dealer Finances NRSRO Log; and Office of Financial Responsibility Log (SEC-59)", which contains records of inquiries, requests, comments or other communications submitted to the Division of Trading and Markets' Office of Interpretation and Guidance, the Office of Broker-Dealer Finances relating to NRSROs or to the Office of Financial Responsibility, respectively. Publication of this notice is expected in the Federal Register during the week of July 20. (Rel. PA-39; File No. S7-14-09)
Securities and Exchange Commission Orders Hearing on Registration Revocation Against Seven Public Companies for Failure to Make Required Periodic Filings
On July 16, the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of seven companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the seven issuers are delinquent in their required periodic filings with the Commission.
In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the Administrative Law Judge will hear evidence from the Division and the Respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The Administrative Law Judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these Respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-60319; File No. 3-13549)
In the Matter of J.P. Turner & Company, LLC
On July 17, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (Order) against J.P. Turner and Company, LLC (J.P. Turner). In the Order, the Division of Enforcement alleges that between July 1, 2001 and approximately mid-September 2006, J.P. Turner failed to adopt and implement policies and procedures designed reasonably to safeguard customer records and information as required by Rule 30(a) of Regulation S-P (the Safeguard Rule). Because it allegedly never complied with the Safeguard Rule, J.P Turner, among other things, never gave its numerous branch managers or registered representatives guidance on how to protect customer records or how to dispose properly of such records when they were no longer needed. According to the Division, this lack of guidance became apparent in September 2006 when the account records of over 5,000 brokerage customers of J.P. Turner were left abandoned for several weeks at curbside outside of the former home of a J.P. Turner registered representative in Alpharetta, Georgia.
J.P. Turner is an Atlanta, Georgia-based limited liability company that has been registered with the Commission as a broker-dealer since 1997. As of mid-September 2006, J.P. Turner had approximately 488 independent contractor registered representatives, working out of over 150 branch offices, including 48 offices of supervisory jurisdiction, located throughout the United States.
Based on the above, the Division is seeking against J.P. Turner remedial action including, but not limited to, disgorgement, civil penalties, and a cease-and-desist order. (Rel. 34-60325; File No. 3-13550)
In the Matter of Stephen Cheryl Bauman
On July 17, 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 Stephen Cheryl Bauman (Bauman). The Order finds that between July 1, 2001 and approximately mid-September 2006, J.P. Turner & Company, LLC (J.P. Turner), an Atlanta-headquartered broker-dealer registered with the Commission, failed to adopt and implement policies and procedures reasonably designed to safeguard customer records and information as required by Rule 30(a) of Regulation S-P (the Safeguards Rule). During the relevant period, Bauman served as either J.P. Turner's chief compliance officer (CCO) or assistant chief compliance officer (ACCO). As J.P. Turner's CCO from July 2001 to July 2004, Bauman failed to adopt and implement policies and procedures to make J.P. Turner compliant with the Safeguards Rule. Later, when she was ACCO from July 2004 to the end of the relevant period, Bauman failed, despite specifically being delegated the responsibility to do so, to adopt and implement policies and procedures to make J.P. Turner compliant with the Safeguards Rule.
Based on the above, the Commission orders Bauman to cease and desist from causing any violations and any future violations of Rule 30(a) of Regulation S-P. Bauman consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-60326; File No. 3-13551)
Commission Dismisses Review Proceeding Brought by Timothy H. Emerson, Jr.
The Commission dismissed the review proceeding of a FINRA-member firm's application to continue to employ Timothy H. Emerson, Jr., as a registered representative. The member firm's application was necessary because Emerson is subject to a statutory disqualification. In dismissing the review proceeding, the Commission found that FINRA's denial of the application was in accordance with FINRA's rules and that FINRA applied those rules in a manner consistent with the Securities Exchange Act of 1934. Specifically, the Commission found that FINRA, in rejecting the member firm's application, appropriately considered (i) the relatively short time between Emerson's felony conviction and the member firm's application; (ii) Emerson's failure to notify a prior employer promptly that a misdemeanor charge had been upgraded to a felony; (iii) Emerson's personal history, which includes several customer complaints and discharges from his two previous employers; and (iv) shortcomings in the member firm's proposed supervisory plan. (Rel. 34-60328; File No. 3-13334)
Andrew J. McAdams, CPA Reinstated to Appear and Practice Before the Commission as an Accountant Responsible for the Preparation or Review of Financial Statements Required to be Filed with the CommissionPursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice, Andrew J. McAdams, CPA has applied for and been granted reinstatement of his privilege to appear and practice before the Commission as an accountant responsible for the preparation or review of financial statements required to be filed with the Commission. Mr. McAdams' privilege of appearing or practicing before the Commission as an accountant was denied on March 3, 2006. His reinstatement is effective immediately. (Rel. 34-60329; AAE Rel. 3013; File No. 3-12227)
Connecticut Company, Excellency Investment Realty Trust, Inc., and CEO, David D. Mladen, Settle SEC Fraud Charges
The Securities and Exchange Commission announced today that on July 16, 2009, a final judgment by consent was entered by the United States District Court for the District of Connecticut against Excellency Investment Realty Trust, Inc., a publicly-traded real estate investment trust located in Hartford, Connecticut, and its chief executive officer, David D. Mladen, age 55, of Scarsdale, New York. The Commission initially filed this case in October 2008 alleging a fraudulent market manipulation scheme. The Commission filed an amended complaint on July 13, 2009, alleging additional charges that Excellency and Mladen made a false or misleading material statement in a public filing relating to the contemplation of legal proceedings against them and that Mladen failed to file required reports relating to his beneficial ownership of Excellency. The defendants agreed to settle both the original charges and the additional charges. The final judgments against Excellency and Mladen permanently enjoin them from violating the antifraud and other provisions of the federal securities laws. In addition, Mladen was ordered to pay a $50,000 civil penalty and $5,254 in disgorgement and prejudgment interest relating to his sales of Excellency stock during the period of his alleged fraud, and is prohibited for a period of five years from acting as an officer and director of any public company.
The Commission's original complaint, filed on Oct. 16, 2008, alleges that during at least July 2006 through September 2006, Mladen and Excellency engaged in a market manipulation scheme to defraud Excellency investors. According to the complaint, Mladen, acting in his capacity of CEO of Excellency and acting through a brokerage account that was owned and controlled in part by Excellency and Mladen, traded in Excellency stock in such a way as to artificially increase the price of Excellency stock. The complaint alleges that Mladen purchased Excellency stock in small quantities at progressively higher prices and executed wash or match trades in order to create the appearance of an active market for Excellency shares. According to the complaint, Mladen's trading activity systematically manipulated the stock price of Excellency, causing it to increase from $8 per share to $24.35 per share.
The amended complaint filed on July 13, 2009 alleges, in addition to the alleged fraudulent market manipulation scheme, that Excellency filed a periodic report with the Commission on Aug. 14, 2008, which Mladen signed as CEO, in which it falsely stated that no government agency was contemplating any proceeding against it, even though the company had been notified by the Commission staff on June 27, 2008 that the staff intended to recommend enforcement action against the company concerning the market manipulation scheme. Moreover, the amended complaint alleges that Mladen was trading in Excellency stock at the same time the false or misleading statement was made and during other times. The amended complaint alleges that, as an insider of Excellency, Mladen's trading caused a change in his beneficial ownership of Excellency stock and that Mladen almost never disclosed his change in ownership in required Commission filings. According to the amended complaint, Excellency violated Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 13a-13 and Rule 12b-20 thereunder and that Mladen violated Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder and aided and abetted violations of Section 13(a) of the Exchange Act and Rules 13a-13 and Rule 12b-20 thereunder.
The final judgments against Excellency and Mladen, to which each consented without admitting or denying the Commission's allegations, enjoins Excellency from violating Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 13a-13 and Rule 12b-20 thereunder and enjoins Mladen from violating Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 13a-13 and Rule 12b-20 thereunder. Additionally, Mladen agreed to pay a $50,000 civil penalty, $5,000 in disgorgement and $254 in prejudgment interest, and to a five year bar from serving as an officer or director of any public company. [SEC v. Excellency Investment Realty Trust, Inc. and David Mladen, Civil Action No. 3:08 CV 1583 (JBA) (USDC, District of Connecticut)] (LR-21138)
Commission Voluntarily Dismisses All Claims Against Matthew Charles Stokes
The Securities and Exchange Commission announced that on July 14, 2009, the United States District Court for the Southern District of New York entered an order dismissing without prejudice all claims in this action against defendant Matthew Charles Stokes and vacating the default judgment previously entered against him on April 24, 2007. The District Court's order was based upon the Commission's stipulation of dismissal voluntarily dismissing its claims against Stokes. The previously-entered judgment against Blue Bottle Limited is not affected by the order. That judgment was based upon the Commission's allegation that Blue Bottle employed devices, schemes, or artifices to defraud in trading in the securities of at least 12 issuers shortly before the publication of news releases. The judgment enjoined Blue Bottle, a Hong Kong chartered company, from violations of the antifraud provisions of the federal securities laws, and ordered it to pay $2,707,177 in disgorgement of profits from the illegal trading, $18,047 in prejudgment interest, and an $8,121,561 million penalty equal to three times the profits from the illegal trading.
For further information, please see Litigation Release No. 20095 (April 27, 2007), Litigation Release No. 20047 (March 16, 2007) and Litigation Release No. 20018 (Feb. 26, 2007). [SEC v. Blue Bottle Limited and Matthew C. Stokes, 07 Civ. 01-CV-1380 (CSH) (KNF) (S.D.N.Y.)] (LR-21139)
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