SEC Issues Notice of Proposed Distribution Plan and Opportunity for Comment In the Matter of Gabelli Funds LLC
The Commission announced today that it has given notice, pursuant to Rule 1103 of the Securities and Exchange Commission's Rules on Fair Fund and Disgorgement Plans, 17 C.F.R. S 201.1103, that the Division of Enforcement has filed a proposed plan (Distribution Plan) for the distribution of monies in In the Matter of Gabelli Funds LLC.
The Distribution Plan provides for distribution of the disgorgement, prejudgment interest, and penalty totaling $16 million paid by Gabelli Funds LLC plus any accumulated interest, less any federal, state or local taxes on the interest. The Distribution Plan provides that the calculation of amounts to be distributed to investors will be based on records of Gabelli Funds LLC and records obtained from third-party intermediaries. Accordingly, the funds are not being distributed according to a claims-made process. The Distribution Plan provides for the distribution of the monies to eligible investors in the Gabelli Global Growth Fund to compensate them for losses resulting from market timing.
A copy of the Distribution Plan may be obtained from the Commission's public website (http://www.sec.gov), or by submitting a written request to Christopher R. Conte, Associate Director, United States Securities and Exchange Commission, 100 F Street N.E., Washington, DC 20549-5561. Any person or entity wishing to comment on the Distribution Plan must do so in writing by submitting their comments within 30 days of the date of the notice (i) to the Office of the Secretary, United States Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549-1090; (ii) via the Commission's Internet comment form (www.sec.gov/litigation/admin.shtml); or (iii) by sending an e-mail to firstname.lastname@example.org. Comments submitted by e-mail or via the Commission's web site should include the Administrative Proceeding File Number (Admin. Proc. File No. 3-13019) in the subject line. Comments received will be publicly available. Persons should submit only information that they wish to make publicly available. (Rel. 34-60656; File No. 3-13019)
Roundtable on Securities Lending and Short Sale Issues - Sept. 29 and Sept. 30, 2009
The roundtable discussion will be held in the auditorium at SEC headquarters at 100 F Street NE in Washington, D.C. On September 29, the roundtable will focus on securities lending issues and take place from 9:30 a.m. to approximately 4 p.m. On September 30, the roundtable will focus on short sale pre-borrowing and additional short sale disclosures and take place from 9:30 a.m. to approximately 12:30 p.m.
The roundtable will be open to the public with seating on a first-come, first-served basis. Visitors will be subject to security checks.
For further information, please contact: The Office of the Secretary at (202) 551-5400.
RULES AND RELATED MATTERS
Conditional Exemption Pursuant to Section 36 of the Exchange Act
The Commission granted an exemption, subject to certain conditions, to EDGX Exchange and EDGA Exchange pursuant to Section 36(a) of the Securities Exchange Act of 1934 (Exchange Act) from certain requirements of Rules 6a-1 and 6a-2 under the Exchange Act. Publication is expected in the Federal Register during the week of September 14. (Rel. 34-60650)
Notice of Filing of Applications, as Amended, for Registration as National Securities Exchanges Under Section 6 of the Securities Exchange Act of 1934
EDGX Exchange and EDGA Exchange have filed Form 1 applications, as amended, (File Nos. 10-193 and 10-194) under the Securities Exchange Act of 1934 (Exchange Act) to register as national securities exchanges under Section 6 of the Exchange Act. Publication is expected in the Federal Register during the week of September 14. (Rel. 34-60651)
Extension of Temporary Exemptions for Eligible Credit Default Swaps to Facilitate Operation of Central Counterparties to Clear and Settle Credit Default Swaps
On September 14, the Commission extended the expiration dates of the interim final temporary rules that provide exemptions under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Trust Indenture Act of 1939 for certain credit default swaps in order to facilitate the operation of one or more central counterparties for those credit default swaps. The Commission extended the expiration dates of the interim final temporary rules to Nov. 30, 2010. (Rel. 33-9063; 34-60663; 39-2467; File No. S7-02-09)
In the Matter of Dana Holding Corporation
On September 11, 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 against Dana Holding Corporation (as successor registrant to Dana Corporation). The Order finds that from 2004 through mid-2005, contrary to Generally Accepted Accounting Principles, Dana Corporation (Dana) improperly recognized revenue or income on several transactions and delayed recording expenses in the appropriate period. During this period, former Dana employees of Commercial Vehicle Systems (CVS), a subdivision of one of Dana's two main business units, the Heavy Vehicle Technologies and Systems Group (HVTSG), engaged in a fraudulent scheme with former Dana employees of HVTSG to inflate CVS's financial results. As a result, Dana's financial statements were misstated, in part because the company: (1) recognized income on transactions where assets were never transferred or risk of ownership never passed, (2) recognized revenue for price increases on parts sales without agreement from the customers, (3) improperly deferred the recognition of steel surcharge expenses, and (4) recorded other improper accounting entries, including decreasing debts owed to suppliers without any contractual support or agreement from the suppliers and recording entries that increased income without any basis or supporting documentation. Dana overstated its EBIT by $31.6 million due to the fraud.
In addition to the fraud, Dana's financial statements from 2004 through the first two quarters of 2005 contained accounting errors amounting to $56.4 million. Dana failed to maintain accurate books and records. Dana also had materially deficient internal accounting controls that significantly contributed to the accounting irregularities and errors. As a result, Dana filed materially false and misleading periodic filings with the Commission for fiscal year 2004 and the first two quarters of 2005. In total, Dana materially overstated its EBIT by $88 million, or 73.9% of restated EBIT. This is equivalent to an overstatement of $43 million or 39.8% of restated net income, as reported in Dana's Form 10-K/A and Forms 10-Q/A filed in December 2005.
Based on the above, Dana Holding Corporation was ordered to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Dana Holding Corporation consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-60657; AAE Rel. 3048; File No. 3-13614)
Commission Declares Decision as to Fortel, Inc., now known as Envit Capital Group, Inc., Final
The decision of an administrative law judge with respect to Fortel, Inc., now known as Envit Capital Group, Inc. (Envit), has become final. The law judge found that Envit violated Section 13(a) of the Securities Exchange Act of 1934 and Exchange Rules 13a 1 and 13a 13 by its failure to timely file its last twenty seven required periodic reports since the period ended June 30, 2002, including one quarterly report for 2002, three quarterly reports for each of the years 2003 2008, one quarterly report for 2009, and annual reports for the years 2002-2008.
The law judge revoked the registration of Envit's registered securities. (Rel. 34-60658; File No. 3-13465)
SEC Halts $5.2 Million Offering Fraud
On September 8, the Commission filed a civil injunctive action against Paul D. Poetter and his affiliated entities in connection with an alleged fraudulent scheme in which Poetter raised $5.2 million from more than 2300 investors nationwide. The complaint alleges that Poetter offered and sold "trust certificates" that investors could purportedly exchange for "commons shares" of a publicly traded-company. Initially, investors were told they would receive shares of 4309, Inc., a public shell company controlled by Poetter. Later, Poetter allegedly told investors they would receive shares of AMs-TEC Acquisitions (AMs-TEC), a purported Arizona entity that Poetter claimed had a "projected value of $13.5 billion" and was qualified to trade on a European stock exchange. According to the complaint, investors never received their promised shares, and Poetter's claims regarding the projected value and tradability of AMs-TEC stock were bogus. The complaint also named as defendants three of Poetter's affiliated entities, 4309 Inc., 4309 Acquisition Trust, and AMs-TEC Acquisition Trust, as well as four entities named as relief defendants, AMs-TEC Commodities, Inc., AMs-TEC Energy, Corp., Greener Cleaner Farms, Inc., and RoboCargo Corporation.
The Commission alleges Poetter began his scheme in June 2007 by convincing a few members of a small Baptist church in East Texas to invest. Poetter used those investors to recruit new investors from their church, family members, and friends. In "shareholder newsletters" mailed to investors, Poetter encouraged investors to solicit investments from family members and friends. Poetter allegedly misrepresented to investors that AMs-TEC and its affiliated entities were in the process of acquiring, or had acquired, several valuable assets or companies. It is also alleged that Poetter misappropriated and misapplied investor funds by transferring millions of dollars to various affiliated entities which were used to fund various administrative and employment-related expenses, including at least $300,000 paid to Poetter.
Without admitting or denying the Commission's allegations, defendants and relief defendants consented to the entry of a final judgment which permanently enjoins all defendants from violating the securities registration and antifraud provisions, and enjoins defendant 4309 Inc. from violating the reporting provisions and defendant Poetter from aiding and abetting those provisions; bars Poetter from serving as an officer or director of a public company registered with the Commission and orders him to pay a $150,000 civil penalty; and orders all of the defendants and relief defendants to jointly and severally disgorge $5,205,209.35, plus prejudgment interest of $17,350.70. Further, all defendants and relief defendants consented to the appointment of a receiver to recover and preserve assets for the benefit of investors. The agreed final judgment and receivership order are subject to the court's approval. [SEC v. Paul D. Poetter, et al., Civ. Action No. 6:09-CV-00398, USDC, EDTX (Tyler Division)] (LR-21206)
SEC Files Settled Accounting Fraud Charges Against Four Former Employees of Dana Corporation
On September 11, the Commission filed a settled civil action against four former employees of Dana Corporation (now known as Dana Holding Corporation), Bernard Cole, William Hennessy, Douglas Hodge and Robert Steimle, in connection with a financial accounting fraud scheme that occurred from 2004 through the first two quarters of 2005. According to the complaint, Commercial Vehicle Systems (CVS), a subdivision of one of Dana's two main business units, the Heavy Vehicle Technologies and Systems Group (HVTSG), improperly recognized revenue or income on several transactions and delayed recording expenses in the appropriate period. The improper accounting entries included, among other things: (1) recognizing revenue on transactions where assets were never transferred or risk of ownership never passed, (2) recognizing revenue for price increases on parts sales without agreement from the customers, (3) deferring the recognition of steel surcharge expenses, and (4) recording other improper accounting entries, including decreasing debts owed to suppliers without any contractual support or agreement from the suppliers and recording entries that increased income without any basis or supporting documentation. At the time, Cole was the President of HVTSG, Hennessy was the Vice-President of North and South America of HVTSG and CVS' General Manager, Hodge was the Vice-President and Group Controller of HVTSG and Steimle was the Controller for CVS. Dana overstated its earnings before interest and taxes (EBIT) by $31.6 million due to the fraud.
The complaint further alleges that as CVS' General Manager, Hennessy instructed certain Dana plant managers and controllers to record improper accounting entries. Hennessy and Hodge repeatedly directed Steimle to improperly record income or defer expenses even though Steimle expressed concerns about the propriety of the accounting treatment for a number of these entries. In turn, Steimle directed his accounting staff to make improper accounting entries despite knowing that those entries did not comply with Dana's accounting policies or with GAAP. Finally, Cole was aware that CVS had accrued income from certain proposed price increases before those increases were accepted by customers.
The complaint also alleges that Cole, Hennessy, Hodge and Steimle were each responsible for the accuracy of the financial statements of their business unit or division. They signed quarterly and year-end representations that the financial results of CVS were accurate and in accordance with GAAP. However, these statements were false.
Without admitting or denying the allegations in the Commission's complaint, Cole, Hennessy, Hodge and Steimle consented to the entry of final judgments permanently enjoining them from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; enjoining Hennessy, Hodge and Steimle from violating Section 17(a) of the Securities Act; and enjoining Hennessy and Steimle from violating Rule 13b2-2 of the Exchange Act. The final judgments impose a $65,000 civil penalty and five-year officer-and-director bar against Cole and Hodge and a $45,000 civil penalty against Hennessy and Steimle. The final judgments also order Hodge to pay $71,037 in disgorgement plus $21,420 in prejudgment interest, Hennessy to pay $44,825 in disgorgement plus $13,122 in prejudgment interest and Steimle to pay $21,744 in disgorgement and $6,449 in prejudgment interest. [SEC v. Bernard N. Cole, William E. Hennessy, Douglas W. Hodge and Robert E. Steimle, Civil Action No. 3:09-CV-2107 (N.D. Ohio) (JGC)] (LR-21207; AAE Rel. 3049)
SEC Charges a Chicago Area Man for Running a Multi-Million Investment Fraud Scheme
The United States Securities and Exchange Commission announced that on Sept. 11, 2009, it filed a civil injunctive action against Robert D. Falor (Falor) alleging that he fraudulently offered and sold approximately $9 million of securities to approximately 55 investors in the form of membership interests in various limited liability companies that he controlled and operated. From approximately July 2004 through April 2005, Falor, offered and sold securities in Printers Row Investors, LLC, South Beach Investors, LLC, and Tides Hotel Investors, LLC for the purported purpose of buying old hotels, converting them to hotel-condominiums and selling the hotel-condominium units at a profit. Contrary to these representations, Falor used a majority of the investors' money to make payments to himself and to his wife, to buy luxury automobiles, to lease private airplanes, and to finance other real estate projects. Due to the misappropriation of investor funds, Falor had insufficient capital to complete the conversion projects. All of the properties that were the subject of the conversion projects have been sold and any funds received from these sales were distributed to Falor, not the investors.
The SEC's complaint, filed in the U.S. District Court for the Northern District of Illinois Eastern Division, alleges that Falor violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks a permanent injunction against Falor, disgorgement with prejudgment interest, and civil penalties. The complaint also seeks disgorgement plus pre-judgment interest of all investor funds or assets acquired with investor funds from Relief Defendant, Jennifer L. Falor, Falor's former wife. [SEC v. Robert D. Falor, et al, Civil Action No. 1:09-cv-5644, N.D. Ill.] (LR-21208)
SEC Files Settled Insider Trading Charges Against Allen W. Moss
The Securities and Exchange Commission announced today that it has filed a settled civil injunctive action in the United States District Court for the Western District of Louisiana against Allen W. Moss. The Commission alleges that Moss engaged in unlawful trading in the securities of Callon Petroleum Company (Callon Petroleum) on the basis of material nonpublic information before Callon Petroleum announced on Nov. 26, 2008, that it suspended development of a significant drilling project.
The complaint alleges that on Nov. 26, 2008, Moss' long-time live-in girlfriend, a Callon Petroleum employee, called him and told him Callon Petroleum was having meetings and planned an announcement later that day. The complaint also alleges that in the several weeks prior to November 26, Moss' girlfriend told him she was worried about her job security because of Callon Petroleum's significant investment in the drilling project, closed-door meetings within the company, and other events she felt meant news about the project would be negative. The complaint further alleges that Moss understood the information was confidential, yet he sold short 19,000 Callon Petroleum shares shortly before the market close on Nov. 26, 2008, while in possession of material nonpublic information. According to the complaint, Moss covered his short sale the next trading day and realized a $75,400 profit.
Moss has consented, without admitting or denying the allegations in the complaint, to a final judgment permanently enjoining him from violating 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, and ordering him to pay disgorgement of $75,400, plus prejudgment interest of $2,091, and imposing a civil penalty of $75,400. [SEC v. Allen W. Moss, Case 1:09-cv-01611 (W.D. La.)] (LR-21209)
SEC Charges Former Isilon Systems CFO With Fraudulently Boosting Revenue
The Securities and Exchange Commission today filed securities fraud charges against Stuart W. Fuhlendorf, former Chief Financial Officer of Isilon Systems, Inc. On the heels of the Seattle-based electronic storage company's successful initial public offering (IPO), Fuhlendorf allegedly cut secret side deals with Isilon customers to allow the company to report inflated sales to its shareholders.
The SEC alleges Fuhlendorf concealed the true deal terms from Isilon's controller, audit committee, and outside auditor, leading the company to report $4.8 million in improper revenue during 2006 and 2007. In a separate proceeding, the SEC also filed settled charges against Isilon for its misleading financial information.
According to the SEC's complaints, filed in federal district court in Seattle, Isilon became a publicly-traded company in December 2006 and its stock price increased 77 percent on its opening day. The high expectations created by the successful IPO placed significant pressure on Isilon's management to meet analysts' lofty revenue forecasts. When anticipated deals failed to materialize, the SEC alleges that Fuhlendorf personally negotiated deal terms so that Isilon could get product out the door, even though the secret deal terms made revenue recognition improper under Generally Accepted Accounting Principles (GAAP) and the company's own internal policies.
The SEC's complaints allege that Isilon improperly booked revenue on five transactions, including three transactions with oral side agreements between Fuhlendorf and representatives of Isilon customers; a sale in which the terms were not fixed and determinable until after Isilon's quarter ended; and a roundtrip transaction that was essentially a circular flow of cash from Isilon to the customer and back to Isilon. The SEC alleges that Fuhlendorf lied to Isilon's audit committee about the true nature of the deal, which was merely a sham transaction designed to artificially boost Isilon's revenues.
In February 2008, following an internal investigation, Isilon restated its financial statements to correct its accounting for these and other transactions.
In its federal court action against Fuhlendorf, the SEC alleges Fuhlendorf violated Section 17(a)(1), (a)(2), and (a)(3) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act ("Exchange Act"), and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder and aided and abetted violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13. The SEC seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, forfeiture of bonuses and other compensation, and an officer-and-director bar.
In the separate settled proceeding against Isilon, the company has agreed (without admitting or denying the SEC's allegations) to be enjoined from future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. In deciding to accept Isilon's offer of settlement, the SEC took into account the cooperation that Isilon provided the SEC staff during the investigation. [SEC v. Stuart W. Fuhlendorf, Case No. C-09-1292 (TSZ) (W.D. Wash.); SEC v. Isilon Systems, Inc., Case No. C-09-1293 (RAJ) (W.D. Wash.)] (LR-21210; AAE Rel. 3050)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-CBOE-2009-064) filed by the Chicago Board Options Exchange related to FLEX equity option opening transactions 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 September 14. (Rel. 34-60641)
A proposed rule change filed by NYSE Arca (SR-NYSEArca-2009-82) in connection with the proposal of NYSE Euronext to require that at least three-fourths of its directors satisfy independence requirements has become immediately 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 September 14. (Rel. 34-60646)
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2009-60) in connection with the proposal of NYSE Euronext to require that at least three-fourths of its directors satisfy independence requirements has become immediately 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 September 14. (Rel. 34-60647)
Proposed Rule Change
New York Stock Exchange filed a proposed rule change (SR-NYSE-2009-83) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to amend its initial listing fees for operating companies. Publication is expected in the Federal Register during the week of September 14. (Rel. 34-60644)
Approval of Proposed Rule Changes
The Commission approved a proposed rule change (SR-FINRA-2009-039) submitted by the Financial Industry Regulatory Authority to adopt NASD Rule 3011 (Anti-Money Laundering Compliance Program) as FINRA Rule 3310 (Anti-Money Laundering Compliance Program). The rule change also adopts NASD IM-3011-1 (Independent Testing Requirements) and NASD IM-3011-2 (Review of Anti-Money Laundering Compliance Person Information) as supplementary material to FINRA Rule 3310. In addition, the rule change deletes Incorporated NYSE Rule 445 (Anti-Money Laundering Compliance Program) as duplicative. Publication is expected in the Federal Register during the week of September 14. (Rel. 34-60645)
The Commission approved a proposed rule change (SR-FINRA-2009-048) submitted by the Financial Industry Regulatory Authority to adopt FINRA Rule 5230 (Payments Involving Publications that Influence the Market Price of a Security) in the consolidated FINRA rulebook. Publication is expected in the Federal Register during the week of September 14. (Rel. 34-60648)
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