SEC Votes on Measures to Further Strengthen Oversight of Credit Rating Agencies
On September 17, the Securities and Exchange Commission voted unanimously to take several rulemaking actions to bolster oversight of credit ratings agencies by enhancing disclosure and improving the quality of credit ratings.
Credit rating agencies are organizations that rate the creditworthiness of a company or a financial product, such as a debt security or money market instrument. In particular, the Commission voted to adopt or propose measures intended to improve the quality of credit ratings by requiring greater disclosure, fostering competition, helping to address conflicts of interest, shedding light on rating shopping, and promoting accountability.
"These proposals are needed because investors often consider ratings when evaluating whether to purchase or sell a particular security," said SEC Chairman Mary Schapiro. "That reliance did not serve them well over the last several years, and it is incumbent upon us to do all that we can to improve the reliability and integrity of the ratings process and give investors the appropriate context for evaluating whether ratings deserve their trust."
In 2006, Congress passed the Credit Rating Agency Reform Act that provided the SEC with authority to impose registration, recordkeeping, and reporting rules on credit rating agencies registered as Nationally Recognized Statistical Rating Organizations (NRSRO). Currently, 10 credit rating agencies are registered with the Commission as NRSROs.
Among the Commission's actions to create a stronger, more robust regulatory framework for credit rating agencies:
Public comments on new rules or amendments proposed today must be received by the Commission within 60 days after their publication in the Federal Register. (Press Rel. 2009-200)
RULES AND RELATED MATTERS
Elimination of Flash Order Exception from Rule 602 of Regulation NMS
The Commission is proposing a rule amendment to eliminate an exception for the use of flash orders by equity and options exchanges. If adopted, the proposal would prohibit the practice of displaying marketable flash orders. Publication is expected in the Federal Register during the week of September 21. (Rel. 34-60684; Press Rel. 2009-201)
In the Matter of Tops Appliance City, et al.
An Administrative Law Judge issued an Order making Findings and Revoking Registrations by Default as to Tops Appliance City, Inc., Tower Global Ventures Corp. (n/k/a Coffeehouse.com, Inc.), Transact International, Inc., Trizak Corp., and Tropic Air Cargo, Inc., in Tops Appliance City, Inc., Admin. Proc. 3-13573 (Sept. 17, 2009). The Default Order finds that each of the Respondents 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 because they have failed to make required periodic filings with the Commission for a number of years. Based on these findings the Default Order revokes the registration of each class of registered securities of each named Respondent. (Rel. 34-60682; File No. 3-13573)
In the Matter of V-Twin Holdings, Inc. (n/k/a Tobacco One, Inc.)
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in V-Twin Holdings, Inc. (n/k/a Tobacco One, Inc.), Administrative Proceeding No. 3-13575. The Order Instituting Proceedings alleged that seven Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true. It revokes the registrations of each class of registered securities of V-Twin Holdings, Inc. (n/k/a Tobacco One, Inc.), Valley Media, Inc., Venturequest Group, Inc. (n/k/a Dex-Ray Resources, Inc.), Verex Laboratories, Inc., Vibro-Tech Industries, Inc., Video City, Inc., and Vidikron Technologies Group, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-60685; File No. 3-13575)
The Commission Enters an Order Suspending William D. Shovers, Former CFO of Hayes Lemmerz International, Inc., from Appearing or Practicing Before It
The Securities and Exchange Commission announced today that it suspended William D. Shovers from the privilege of appearing or practicing before it, pursuant to 17 CFR S 201.102(e), following the entry of a permanent injunction against him by the U.S. District Court for the Eastern District of Michigan. Shovers may request that the Commission consider his reinstatement by submitting and application to resume appearing or practicing before the Commission after a period of five years from the date of the Order.
On Dec. 18, 2008, the U.S. District Court for the Eastern District of Michigan entered a final judgment against Shovers. The Final Judgment followed a jury trial in which the jury found that Shovers had violated the following provisions of the securities laws and rules and regulations promulgated thereunder: (1) Section 10(b) of the Securities Exchange Act of 1934) (Exchange Act) [15 U.S.C. S 78j(b)] and Rule 10b-5 [17 C.F.R. S 204.10b-5] thereunder; (2) Section 17(a)(3) of the Securities Act of 1933 (the Securities Act) [15 U.S.C. S 77q(a)(3)]; and (3) Section 13(b)(5) of the Exchange Act [15 U.S.C. S 78m(b)(5)], and Rules 13b2 1 [17 C.F.R. S 240.13b2 1] and 13b2-2 [17 C.F.R. S 240.13b2 2] thereunder. The jury also found that he aided and abetted certain of Hayes' violations of the federal securities laws.
The Final Judgment permanently enjoined Shovers from violating Section 10(b) of the Exchange Act [15 U.S.C. S 78j(b)] and Rule 10b-5 [17 C.F.R. S 204.10b-5] thereunder; Section 17(a)(3) of the Securities Act [15 U.S.C. S 77q(a)(3)]; Section 13(b)(5) of the Exchange Act [15 U.S.C. S 78m(b)(5)], and Rules 13b2 1 [17 C.F.R. S 240.13b2 1] and 13b2-2 [17 C.F.R. S 240.13b2 2] thereunder; and from aiding and abetting violations of Section 13(a), Section 13(b)(2)(A), and Section 13(b)(2)(B) of the Exchange Act [15 U.S.C. S78m(a), S78m(b)(2)(A), and S78m(b)(2)(B)], and Rules 12b-20, 13a-1, and 13a-13 [17 CFR S240.12b-20, 17 CFR S 240.13a-1, and 17 CFR S 240.13a-13] thereunder. The Final Judgment also barred Shovers, for a period of five (5) years, from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. S 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. S 78o(d)], and ordered him to pay a civil money penalty of $50,000.
For more information about earlier developments in this matter, please see Litigation Release Number 20864/Jan. 23, 2009; Litigation Release Number 20686/Aug. 21, 2008; Litigation Release Number 19668/April 25, 2006; Litigation Release Number 34-53716/April 25, 2006; Litigation Release Number-53716/ April 25, 2006; Litigation Release Number 34-53717/April 25, 2006; Litigation Release Number 34-53718/April 25, 2006. (Rel. 34-60689; File No. 3-13618; AAE Rel. 3053)
In the Matter of Daniel F. Stulac, CPA
On September 18, the Commission issued an order suspending Daniel F. Stulac, CPA, from appearing or practicing before the Commission as an accountant. The Commission's order provides that, after five years from the order's issuance, Stulac may request that the Commission consider his reinstatement.
The Commission suspended Stulac based upon a United States District Court's order enjoining him from violating the antifraud and other provisions of the federal securities laws. [SEC v. Stephen P. Gardner, et al., Civil Action No. 04 CV 2002 (S.D. Cal., Sept. 14, 2009]. The Commission's complaint in that action alleged, among other things, that Peregrine Systems, Inc. (Peregrine) and its senior officers fraudulently inflated the revenues Peregrine reported in its filings with the Commission and elsewhere. Peregrine improperly recorded millions of dollars of revenue based on non-binding arrangements with resellers. This ultimately caused uncollectible receivables from the non-binding arrangements to swell on Peregrine's balance sheet. The complaint further alleged that Peregrine's management improperly wrote off unpaid receivables by falsely characterizing the write-offs as "acquisition costs and other." According to the Commission's complaint, Stulac knew, or was reckless in not knowing, that the receivables Peregrine intended to write off were unrelated to acquisitions and should not have been recorded as "acquisitions costs and other." The complaint also alleged that Stulac knew, or was reckless in not knowing, that Peregrine's 2001 financial statements improperly recognized millions of dollars of revenue from agreements with resellers. (See LR-18919) Stulac consented to the order, which was issued pursuant to Rule 102(e) of the Commission's Rules of Practice, without admitting or denying its findings, except as to the entry of the final judgment against him.
The final judgment of the federal court--on which the Commission's order pursuant to Rule 102(e) of the Commission's Rules of Practice is based--permanently enjoined Stulac from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5, and from aiding and abetting violations of Exchange Act Section 13(a) and Exchange Act Rules 13a-1 and 13a-13. (Rel. 34-60693; AAE Rel. 3054; File No. 3-13619)
Court Imposes Officer And Director Bar, Injunction And Civil Penalty Against Former Chief Executive Officer Of Purchasepro.Com, Inc.
The Securities and Exchange Commission announced today that the U.S. District Court for the District of Columbia granted summary judgment against Charles Johnson, Jr., former Chief Executive Officer of PurchasePro.com, Inc. (PurchasePro) after finding that he had violated the securities laws in connection with an accounting scheme at the company.
On September 15, Judge Gladys Kessler entered a final judgment against Johnson that imposed a civil monetary penalty of $3 million, permanently enjoined him from violating Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, 13b2-2 thereunder, and Securities Act of 1933 Section 17(a), and permanently barred him from acting as an officer or director of a publicly traded company.
Following a bench trial before Judge Walter D. Kelly in District Court for the Eastern District of Virginia, Johnson was convicted of conspiracy to commit securities fraud, securities fraud for violating Exchange Act Section 10(b) and Rule 10b-5 thereunder, witness tampering and obstruction of justice on May 15, 2008. On Nov. 14, 2008, Judge Liam O'Grady (E.D. Va.) sentenced Johnson to, among other things, 108 months in prison and ordered him to pay restitution of $9.7 million. Following Johnson's sentencing, the stay of the Commission's case against Johnson was lifted on Jan. 12, 2009.
Previously, on April 24, 2008, a jury found Christopher Benyo, former Senior Vice President for Marketing and Network Development for PurchasePro, liable for aiding and abetting PurchasePro's violation of the antifraud provisions of the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5 thereunder). The jury found Benyo not liable on other charges. The jury also found Michael Kennedy and Kent Wakeford not liable on the charges against them. The SEC voluntarily dismissed the allegations against John Tuli on Nov. 3, 2008.
Moreover, as previously announced, the Commission settled with six other former executives of PurchasePro -- R. Geoffrey Layne, James S. Sholeff, Dale Boeth, Shawn McGhee, Jeffrey R. Anderson, and Scott H. Miller -- for violations of the federal securities laws. A PurchasePro vendor, Garg Data International, Inc., and its President, Sushil K. Garg, also previously settled with the Commission for aiding and abetting PurchasePro's financial fraud.
For more information about earlier developments in this matter, please see Litigation Release Number 19029/Jan. 10, 2005; Litigation Release Number 18999/Dec. 15, 2004; Litigation Release Number 18903/Sept. 28, 2004; Litigation Release Number 18358/Sept. 23, 2003. [SEC v. Charles Johnson, Jr., Christopher Benyo, Michael Kennedy, John Tuli, and Kent Wakeford, Civil Action No. 05-CV-0036-GK (D.D.C.)] (LR-21213; AAE Rel. 3052)
INVESTMENT COMPANY ACT RELEASES
OOK, Inc., et al.
An order has been issued on an application filed by OOK, Inc., et al. The order permits (a) certain open-end management investment companies and their series to issue shares (Fund Shares) that can be redeemed only in large aggregations (Creation Unit Aggregations); (b) secondary market transactions in Fund Shares to occur at negotiated prices; (c) certain affiliated persons of the investment companies or series to deposit securities into, and receive securities from, the investment companies or series in connection with the purchase and redemption of Creation Unit Aggregations; and (d) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the investment companies or series to acquire Fund Shares. (Rel. IC-28902 - September 17)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NASDAQ OMX PHLX relating to position limit exemptions (SR-Phlx-2009-79) 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 September 21. (Rel. 34-60673)
A proposed rule change filed by NASDAQ OMX PHLX (SR-Phlx-2009-81) relating to FLEX option expirations 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 21. (Rel. 34-60679)
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