Small Public Companies to Begin Providing Audited Assessment of Internal Controls Over Financial Reporting in Nine Months
Final Stage of Section 404 of Sarbanes-Oxley to Begin in June
The Securities and Exchange Commission today announced that the smallest publicly reporting companies will begin complying in nine months with the final portion of a key provision of a 2002 corporate governance law that requires companies to report to the public about the effectiveness of their internal control over financial reporting.
Under the provisions of Section 404 of the Sarbanes-Oxley Act, public companies and their independent auditors are each required to report to the public on the effectiveness of a company's internal controls. The smallest public companies with a public float below $75 million have been given extra time to design, implement and document these internal controls before their auditors are required to attest to the effectiveness of these controls.
This extension of time will expire beginning with the annual reports of companies with fiscal years ending on or after June 15, 2010. This expiration date previously had been for fiscal years ending on or after Dec. 15, 2009. The extension was granted so that the SEC's Office of Economic Analysis could complete a study of whether additional guidance provided to company managers and auditors in 2007 was effective in reducing the costs of compliance. Because the study was published less than three months before the December 15 deadline, the Commission determined that additional time is appropriate and reasonable so that small public companies and their auditors can better plan for the required auditor attestation.
While the reporting and auditor-attestation grew out of the 2002 law passed by Congress, all U.S. public companies have been required to maintain internal accounting controls since 1977.
"Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance," said SEC Chairman Mary L. Schapiro. (Press Rel. 2009-213)
In the Matter of GLB Trading, Inc. and Robert A. Lechman
On October 1, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (Order) against GLB Trading, Inc. (GLB Trading), a broker-dealer registered with the Commission, and Robert A. Lechman (Lechman), GLB Trading's owner and former president, CEO, and chief compliance officer (collectively, Respondents).
Respondents each submitted an Offer of Settlement (the Offers), which the Commission has determined to accept. Without admitting or denying the Commission's findings, Respondents have consented to the entry of the Order, which finds that from 2006 to March 2008, Respondents knowingly and substantially assisted Tuco Trading, LLC, a firm that provided day-trading capability to its customers and that was run by a registered representative of GLB Trading. The Order further finds that through Tuco's accounts at GLB Trading, Tuco effected its customers' securities transactions and received commissions on such trading but that it was not registered with the Commission as a broker-dealer. The Order also finds that Respondents knew of Tuco's activities and provided it with substantial assistance by allowing Tuco to operate through GLB Trading; helping Tuco solicit new customers; structuring Tuco's operations; and loaning funds so that Tuco could meet day-trading calls. As a result of the conduct described above, the Order finds that Respondents willfully aided and abetted and caused Tuco's violations of Section 15(a) of the Securities Exchange Act of 1934 (Exchange Act).
Pursuant to the Offers, an order has been entered against Respondents, requiring Respondents to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act. In addition, GLB Trading has been censured, and its registration with the Commission as a broker-dealer has been revoked. Respondents have also been ordered to pay disgorgement of $216,507.00, and prejudgment interest of $4,163.00 for a total of $220,670.00, which obligation is jointly and severally held by GLB Trading and Lechman. Lechman has also been barred from association with any broker or dealer, with a right to reapply for association after three (3) years from the date of the Order, and has been ordered to pay a $75,000.00 civil penalty. (Rel. 34-60764; File No. 3-13443)
SEC Obtains Injunctions Against HedgeLender LLC and its Principals for Their Roles in a Fraudulent Stock-Based Loan Scheme
The Securities and Exchange Commission announced today that, on September 30, it filed a complaint against HedgeLender LLC, a stock-based loan broker located in Philadelphia, and its two principals, Daniel W. Stafford and Fred R. Wahler, Jr., for their conduct in connection with a fraudulent stock-based loan scheme orchestrated by Michael and Melissa Spillan through One Equity Corporation and other companies. Upon filing of the complaint, the defendants consented to the entry of orders, without admitting or denying the allegations of the complaint, that will permanently enjoin them from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. The orders also provide that the Court shall order disgorgement of ill-gotten gains, prejudgment interest and civil penalties in amounts to be determined upon later motion of the Commission.
The Commission's complaint alleges that in February 2006, HedgeLender entered into an agreement with One Equity through which HedgeLender referred borrowers to One Equity in exchange for commissions on successful stock-based loan transactions. One Equity was not, however, a legitimate lender. The Spillans, through One Equity, induced borrowers to transfer ownership of publicly traded stock to them as collateral for purported non-recourse loans. They represented that all shares would be returned to borrowers upon repayment of the loans. Instead, the Spillans generally liquidated the shares to fund the loans and failed to maintain adequate cash reserves necessary to repurchase and return the shares to borrowers.
According to the complaint, HedgeLender promoted One Equity's stock-based loan program as Hedgelender's Star HedgeLoan(R). On its website, HedgeLender represented to potential clients that it had certified its stock-based loan programs, vetted the professional reputations of those that administered the programs, and took steps to ensure the security of borrowers' shares. In reality, Stafford, a resident of Gaithersburg, Maryland, and Wahler, a resident of Philadelphia, conducted minimal due diligence and failed to investigate "red flags" that cast doubt on One Equity's ability to administer and fund its stock-based loans. Adequate due diligence would have revealed that One Equity had no funding source and that the Spillans had never run a legitimate stock-based lending enterprise. The complaint further alleges that from February 2006 through at least November 2007, HedgeLender referred approximately 54 borrowers to One Equity and received approximately $1.7 million in commission payments. [SEC v. HedgeLender LLC, et al., Case No. 2:09-cv-859 (S.D. Ohio)] (LR-21234)
SEC Obtains Judgments Against One AIG and Four Gen Re Former Executives for Aiding in AIG Securities Fraud
The Securities and Exchange Commission today announced that the United States District Court for the Southern District of New York entered final judgments against five former senior executives of General Re Corporation (Gen Re) and American International Group, Inc. (AIG) for their roles in helping AIG mislead investors through the use of fraudulent reinsurance transactions. Four of the former executives, Ronald Ferguson, Elizabeth Monrad, CPA, Robert Graham, Esq., and Christopher Garand, worked for Gen Re, while the fifth, Christian Milton, worked for AIG.
On Feb. 2, 2006, the Commission filed its civil action against the defendants, alleging that they aided and abetted AIG's violations of the antifraud and other provisions of the securities laws. The complaint alleged that Ferguson, Monrad, Graham, Garand, and others at Gen Re worked with Milton and others at AIG to fashion two sham reinsurance contracts between Cologne Re Dublin, a Gen Re subsidiary in Dublin, Ireland, and an AIG subsidiary. The sham reinsurance transactions made it appear that AIG had legitimately increased its general loss reserves.
Without admitting or denying the allegations in the complaint, the defendants each consented to the entry of a final judgment, permanently enjoining them from violating or aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1. Defendants also consented to officer and director bars. In separate administrative proceedings, Monrad and Graham were suspended from appearing and practicing before the Commission.
On Feb. 25, 2008, in a criminal action filed by the U.S. Attorney's Office for the Eastern District of Virginia, and tried in the U.S. District Court for the District of Connecticut, United States v. Ronald E. Ferguson, et al., D. Conn. No. 3:06-CR-137 (CFD), a jury returned a guilty verdict on all sixteen felony counts against all five defendants in connection with the AIG sham reinsurance transactions. All five defendants subsequently were sentenced to serve terms of imprisonment and to pay monetary penalties. In determining to accept defendants' settlement offers in which they consented to final judgments, the Commission considered the sanctions the court ordered against them in the criminal proceedings.
The SEC previously charged AIG in 2006 with securities fraud and improper accounting, and the company settled the charges by paying disgorgement of $700 million and a penalty of $100 million, among other remedies. [SEC v.Ronald Ferguson, Elizabeth Monrad, Christian Milton, Robert Graham and Christopher Garand; Case No. 06 Civ 0778 (S.D.N.Y.) (LAP)] (LR-21235; AAE Rel. 3054)
Proposed Rule Changes
The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2009-070) under Rule 19b-4 of the Exchange Act relating to the preferencing of complex orders. Publication is expected in the Federal Register during the week of October 5. (Rel. 34-60746)
The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2009-068) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to amend the $1 strike program to allow low-strike LEAPS. Publication is expected in the Federal Register during the week of October 5. (Rel. 34-60749)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-NYSEArca-2009-87) filed by NYSE Arca, extending the pilot period to receive inbound routes of orders from Archipelago Securities LLC 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 October 5. (Rel. 34-60750)
A proposed rule change (SR-NYSEAmex-2009-67) filed by NYSE Amex extending the pilot period to receive inbound routes of orders from Archipelago Securities LLC 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 October 5. (Rel. 34-60751)
A proposed rule change (SR-NYSE-2009-101) filed by the New York Stock Exchange extending the pilot period to receive inbound routes of orders from Archipelago Securities LLC 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 October 5. (Rel. 34-60752)
A proposed rule change filed by the Chicago Stock Exchange, relating to the fees and rebates in various trading sessions (SR-CHX-2009-14) 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 October 5. (Rel. 34-60753)
A proposed rule change filed by New York Stock Exchange amending NYSE Rule 103B to: 1) Codify the Exchange's Existing Practice that Renders Designated Market Marker Units Ineligible to Interview for Securities that are Directly Related to the Performance or Credit of Any of the DMM's Affiliated Entities; 2) Define "Related Security" for Purposes of NYSE Rule 103B; 3) Provide that all Related Securities Listed Under Section 703.19 of the Exchange's Listed Company Manual will be Automatically Assigned to the Designated Market Maker Unit; 4) Define Repackaged Security for Purposes of NYSE Rule 103B, and Provide that Repackaged Securities are Allocated Through the Allocation Process pursuant to NYSE Rule 103B (SR-NYSE-2009-99) 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 October 5. (Rel. 34-60755)
A proposed rule change filed by New York Stock Exchange (SR-NYSE-2009-100) extending until November 30, 2009 the New Market Model pilot program and the Supplemental Liquidity Providers pilot program 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 October 5. (Rel. 34-60756)
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2009-65) extending until Nov. 30, 2009, the New Market Model pilot program 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 October 5. (Rel. 34-60758)
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