U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

SEC News Digest

Issue 2009-168
September 1, 2009


SEC and CFTC Announce Participants for Joint Meetings on Regulation Harmonization

First meeting to take place at the CFTC on September 2, 2009 and the second meeting to take place at the SEC on September 3, 2009

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) today announced the participants for the two agencies' joint meetings to seek input from the public on harmonization of market regulation. The SEC and the CFTC expect these meetings will provide the agencies valuable insight on any recommendations for changes to their statutes and regulations that would eliminate regulatory differences with respect to similar types of financial instruments.

See attachment for Meeting Agendas and Participants. Agenda

The meetings will be open to the public and will be webcast via the internet. In addition, audio of the September 2, 2009, meeting will be available via a listen-only conference call. The record will remain open for public comment until September 14, 2009.

What: SEC/CFTC joint meetings on harmonization of market regulation

Dates: Wednesday, September 2, 2009, and Thursday, September 3, 2009

Times: September 2, 9:00 a.m. EDT - 5:00 p.m. EDT and September 3, 9:00 a.m. EDT - 12:30 p.m. EDT


September 2nd meeting - CFTC Headquarters, Lobby-level Hearing Room, 1155 21st Street, NW, Washington, DC.

September 3rd meeting - SEC Headquarters, Lower-level Auditorium, 100 F Street, NE

Viewing/Listening Information:

The CFTC and the SEC will make available the following options to access the meeting:

  1. Watch a live broadcast of the September 2nd meeting via webcast on www.cftc.gov. Watch a live broadcast of the September 3rd meeting on www.sec.gov.

  2. Listen to the September 2nd meeting via a toll-free telephone line to connect to a live audio feed.

Call-in participants should be prepared to provide their first name, last name and affiliation. Conference call information is listed below:

Domestic/Canada Toll-Free: (888) 691-4252
International Toll: (404) 537-3379
The conference ID: 27943671
Call leader name: CFTC

Media Contacts
Scott Schneider (CFTC)
(202) 418-5174
R. David Gary (CFTC)
(202) 418-5085

SEC Office of Public Affairs
(202) 551-4120

(Press Rel. 2009-190)

SEC Announces $35 Million Fair Fund Distribution to Defrauded Cardinal Health Investors

The Securities and Exchange Commission today announced the distribution of more than $35 million in Fair Funds to more than 98,000 investors in Cardinal Health, Inc. who were harmed by a fraudulent revenue and earnings management scheme.

The SEC's enforcement action against Cardinal Health in July 2007 alleged that the company presented a false picture of its operating results to the financial community and the investing public - one that matched its publicly disseminated earnings guidance and analysts' expectations rather than its true economic performance. Cardinal Health settled the SEC's charges and paid $35 million in penalties and disgorgement that were placed into the Fair Fund being distributed.

The Sarbanes-Oxley Act of 2002 (SOX) 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. The SEC has returned more than $6.5 billion in Fair Funds to investors since gaining this new authority.

The Fair Fund Administrator responsible for this distribution is Gilardi & Co. Investor questions regarding the distribution may be directed to Gilardi & Co. by calling 1-800-447-7657 or by writing to Claims Administrator c/o Gilardi & Co., P.O. Box 808003, Petaluma, CA 94975-8003. (Press Rel. 2009-191)

SEC Atlanta Regional Director Kit Addleman Leaving After 20 Years of Service

The Securities and Exchange Commission today announced that Katherine (Kit) Addleman, Director of the SEC's Atlanta Regional Office, will be leaving the SEC after 20 years of dedicated service at the agency in four different SEC regional offices.

As Regional Director in Atlanta since June 2007, Ms. Addleman oversaw all aspects of the office's operations, including its enforcement, examination, litigation, and bankruptcy reorganization programs. She will join the law firm of Haynes and Boone LLP in October.

SEC Chairman Mary Schapiro said, "The ability of the SEC to enforce securities laws and to protect investors derives from the dedicated efforts of people like Kit Addleman. She has made a significant contribution to the work of the Commission during her tenure as the Regional Director in the Atlanta Regional Office and in the other senior management positions she has held within the SEC."

SEC Director of Enforcement Rob Khuzami said, "Kit has played a critical role in the success of the Atlanta Regional Office's enforcement and examination programs since becoming the head of that Office. Under her leadership and guidance, the Atlanta Office has initiated a number of important cases that have made our markets safer for investors. I wish Kit continued success in her new career."

John Walsh, Acting Director of the Office of Compliance Inspections and Examinations, stated that "Kit played a key role in protecting investors in the region. She led a vigorous program of on-site examinations of brokers, funds and advisers. Under her leadership the Atlanta Regional Office found and stopped several significant frauds and helped develop innovative examination techniques. We will miss Kit and we wish her the best of luck in her future career."

Ms. Addleman said, "I have appreciated the honor and privilege of being an advocate for investors while at the Commission for more than two decades. I also have been blessed by the opportunity to work alongside SEC staff who are the best and brightest in their fields and whose strong dedication is the cornerstone of the Commission's efforts to keep the markets free from fraud and deception."

Under Ms. Addleman's leadership, the Commission brought numerous significant enforcement actions, including:

  • Accounting fraud and disclosure violations by public companies and their officers and directors, including Krispy Kreme Doughnuts, Inc., Beazer Homes USA, Inc., Qwest Communications International Inc., OCA, Inc. and the Coca-Cola Company.
  • Audit failures by accounting firms and individuals including Deloitte & Touche LLP, its engagement partner and audit manager for an audit of the financial statements of Just for Feet, Inc., and an engagement partner at Arthur Anderson LLP in the Qwest matter.
  • Insider trading by corporate insiders and others in the stock of Georgia-Pacific Corporation, Tyson Foods, Inc., and ShowBiz Pizza Time, Inc.
  • Insider trading involving market participants including a Pakistani banker who traded in the securities of TXU Corp. and nine other issuers, as well as an investment banker and his father, a founding member and Director of the Chicago Board Options Exchange and Director of the American Stock Exchange, for trading in three companies.
  • Fraud and compliance violations by investment advisers including Consulting Services Group, Battery Wealth Management, ProTrust Management, Inc., and Waddell & Reed, Inc.
  • Fraud by broker-dealers and representatives including churning at Aura Financial Services, Inc., fraudulent auction rate securities sales by Morgan Keegan & Company, Inc., fraudulent 529 Plan sales by 1st Global Capital Corp., and violations of the customer privacy protections by JP Turner & company, LLC, and its former COO.
  • Offering fraud, Ponzi schemes, and market manipulation resulting in temporary restraining orders, asset freezes, expedited hearing and other emergency actions.

During Ms. Addleman's tenure, the Atlanta office also conducted hundreds of routine, cause and sweep examinations of broker-dealers, investment advisers and mutual fund firms in the region, which led to the detection and correction of compliance violations. The Atlanta office also led significant risk-targeted examinations to assess potential industry trends and problems and piloted new exam techniques.

Ms. Addleman also coordinated numerous regulatory and enforcement initiatives with other federal and state law enforcement and financial regulatory agencies, including the Department of Justice and U.S. Attorneys offices, state Attorneys General, and self-regulatory organizations, including Financial Industry Regulatory Authority.

Ms. Addleman began her legal career in September 1986 as an enforcement staff attorney and special counsel in the SEC's office in Philadelphia. After later serving as an associate with a Dallas law firm where she specialized in securities litigation, Ms. Addleman returned to the SEC in 1992 as Enforcement Branch Chief in the Fort Worth Regional Office. Ms. Addleman was an Assistant Regional Director for Enforcement in the SEC's Denver office from 1997 to 2005. She was the Associate Regional Director for Enforcement in the Atlanta office from 2005 to 2006 and in the Fort Worth office from 2006 to 2007.

Ms. Addleman received her B.A. degree from Wake Forest University in 1983 and her J.D. with distinction from Oklahoma City University Law School in 1986. (Press Rel. 2009-192)


Notice to Establish a System of Records

The Commission issued a notice requesting comments on a proposed new Privacy Act system of records: "Ethics Conduct Rules Files (SEC-60)." This system will contain information related to applicable SEC Ethics Conduct Rules (currently found at 17 CFR Part 200 Subpart M), including outside employment and activities, and covered securities transactions, securities holdings and securities accounts. Publication of this notice is expected in the Federal Register during the week of September 7. (Rel. PA-40; File No. S7-19-09)


In the Matter of Jose Daniel Iriarte, Jr.

On September 1, the Commission issued an Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940 (Order) against Jose Daniel Iriarte, Jr. The Order finds that, among other things, Iriarte, a former registered broker-dealer representative, misappropriated customer funds for his own use. The Order further finds that Iriarte was convicted of wire fraud by the U.S. District Court for the District of Maryland based on this misappropriation of funds.

Based on the above, the Order states that Iriarte is barred from association with any broker, dealer, or investment adviser. Iriarte consented to the issuance of the Order without admitting or denying any of the findings except as to the entry of his guilty plea. (Rel. 34-60599; IA-2922; File No. 3-13484)

SEC Files Insider Trading Charges Related to Acquisition of Covansys Corporation

On Aug. 31, 2009, the Securities and Exchange Commission filed a settled insider trading action against Sarath B. Gangavarapu, a resident of Chattanooga, Tennessee. The Commission's complaint, filed in the U.S. District Court for the Eastern District of Tennessee, alleges that Gangavarapu violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder when he misappropriated material non-public information from his sister, whose husband was an executive officer at Covansys Corporation, and purchased over 54,000 shares of Covansys stock at a cost of over $1.4 million based on that information during the nine days leading up to Covansys' public announcement that it would be acquired by Computer Sciences Corporation (CSC).

The Commission's complaint alleges that throughout the month of April 2007, Covansys was in discussions with CSC and another company about their interest in acquiring it. According to the complaint, Gangavarapu spoke frequently with his sister by telephone during April 2007 and asked her questions about her husband's work activities and whereabouts. Among other things, Gangavarapu's sister told him that her husband was in meetings behind closed doors, that he was working extra hours and that he traveled twice overseas for work. The complaint alleges that on the night of April 24, 2007, after learning from her husband that Covansys' board of directors would vote the next day on which acquisition offer to accept, Gangavarapu's sister told Gangavarapu "by tomorrow, it's a relief, it will be over." According to the complaint, Gangavarapu purchased over 17,000 shares of Covansys stock at a cost of nearly $450,000 between April 17 and April 24, 2007. On April 25, 2008, the day after the telephone call from his sister, Gangavarapu purchased an additional 37,000 shares of Covansys stock at a cost of over $980,000. After the close of the stock market on April 25, 2007, Covansys and CSC publicly announced that CSC would acquire Covansys for $34 per share. The next day, the price of Covansys' stock rose 24%. According to the complaint, Gangavarapu's profits from his illegal trading totaled more than $361,761.

Without admitting or denying the allegations in the complaint, Gangavarapu has consented to the entry of a final judgment permanently enjoining him from further violations of the antifraud provisions of the Exchange Act and ordering him to pay disgorgement of his ill-gotten gains in the amount of $361,761.56, prejudgment interest of $46,408.12 and a civil penalty of $361,761.56.

The Commission acknowledges the assistance and cooperation of the Financial Industry Regulatory Authority in this matter. [SEC v. Sarath B. Gangavarapu, Civil Action No. CV09-231, (E.D. Tenn., Chattanooga Div.] (LR-21192)

SEC Charges Penny Stock Company, Former President, Attorney, and Profiter in Pump-and-Dump Scheme

The Securities and Exchange Commission filed a complaint yesterday in the Southern District of New York charging Golden Apple Oil and Gas, Inc. (Golden Apple), its former President Jay Budd, former company attorney John Briner, and Ethos Investments, Inc., with securities law violations in connection with a fraudulent scheme to inflate artificially the market for Golden Apple stock. Golden Apple was incorporated as CDI Developments, Inc. and subsequently underwent a series of name changes. On April 7, 2006, the Commission suspended trading in Golden Apple's securities.

The SEC's complaint alleges that:

  • In the fall of 2004, defendant Briner, Golden Apple's counsel, orchestrated an illegal stock offering that gave him control of the company's purportedly free-trading shares and then, as an underwriter, Briner illegally distributed the stock to entities he controlled. Thereafter, in May 2005, Briner created the false impression of a legitimate market for Golden Apple stock by initiating an artificial stock price quotation and directing a matched trade.

  • Subsequently, from approximately June 2005 through April 2006, defendants Golden Apple and Budd issued a number of false and misleading press releases touting the success of Golden Apple's business, first as a seller of home warranties, and then as an oil and gas exploration company.

  • At the same time, Golden Apple, Budd, and Briner engaged in a series of unregistered securities offerings that enabled their affiliates to obtain shares privately, sell them to the public at a profit, and share those profits with Budd and Golden Apple.

  • Defendant Ethos was the largest Budd affiliate to profit illegally from dumping its Golden Apple stock. In September 2005, Budd caused Golden Apple to issue Ethos five million shares of stock in violation of federal securities laws stock registration requirements and based on a fraudulent, backdated promissory note. Ethos sold the stock to the public for more than $3 million. Budd and Ethos used part of those proceeds to stage a sham financing that Budd touted in three separate false press releases. Ethos then sold more stock at prices inflated artificially by the false releases about the purported financing.

The Complaint alleges that defendants Golden Apple, Budd, Briner and Ethos violated Sections 5(a) and 5(c) of the Securities Act of 1933, and that defendants Golden Apple, Budd and Briner violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10-b thereunder. The Commission is seeking permanent injunctions against all defendants, disgorgement with prejudgment interest, civil penalties, and verified accountings from Budd, Briner, and Ethos, and officer and director bars and penny stock bars against Budd and Briner. [SEC v. Golden Apple Oil and Gas, Inc., et al., Civil Action No. 09 CV 7580 (HB) (SDNY)] (LR-21193A)

SEC Charges Verifone for Artificially Inflating its Income

The Securities and Exchange Commission today charged Silicon Valley technology company VeriFone Holdings, Inc. and a former finance department employee for falsifying the company's accounting records which boosted gross margins and income reported to shareholders. The SEC alleges that in three consecutive quarters in 2007, the company made unsupportable alterations to its records to compensate for an unexpected decline in gross margins, overstating VeriFone's operating income by a total of 129 percent. When the misrepresentations came to light in December 2007, the company's stock price fell 46 percent, resulting in a one-day drop in market capitalization of $1.8 billion.

"Through poor oversight and controls, VeriFone senior management allowed an employee to make millions of dollars of unsubstantiated accounting adjustments that enabled the company to meet its guidance to Wall Street," said Marc J. Fagel, Director of the SEC's San Francisco Regional Office. "Public companies need to ensure that their financial statements give an accurate assessment of their financial results, and are not improperly adjusted to meet analyst expectations."

The SEC's complaint, filed in federal court in San Jose, alleges that at the end of each of the first three quarters of 2007, internal company reports showed that gross margins would be markedly lower than previously released guidance to analysts. According to the SEC, senior management was convinced that the previous forecasts were correct and directed finance employees to figure out and fix the problem so the company could report results in line with forecasts and thereby avoid, in the words of a senior officer, an "unmitigated disaster."

The SEC alleges that VeriFone's former supply chain controller, Paul Periolat, then made large manual adjustments to inventory balances on VeriFone's books each quarter, dramatically increasing both gross margins and operating income. In each of the first three quarters of 2007, the accounting adjustments allowed the company to meet its internal forecasts and guidance to investors. However, the complaint alleges that the adjustments were based on incorrect assumptions which Periolat did not take adequate steps to verify. In fact, the company's unreported results had been correct, and Periolat's adjustments led to VeriFone's improper inflating of its income by over $37 million.

Without admitting or denying the SEC's allegations, VeriFone agreed to a permanent injunction against future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 12b-20, 13a-11, and 13a-13 thereunder. Without admitting or denying the SEC's allegations, Periolat agreed to a permanent injunction against future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, and Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder, and to pay a $25,000 civil penalty [SEC v. VeriFone Holdings, Inc. and Paul Periolat, Case No. CV-09- 09 4046 RS (N.D. Cal.)] (LR-21194; AAE Rel. 3044)





Modified: 09/01/2009