SEC Suspends Trading in the Securities of SpongeTech Delivery Systems, Inc.
The Securities and Exchange Commission announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act), of trading in the securities of SpongeTech Delivery Systems, Inc. (SpongeTech), of New York, NY at 9:30 a.m. EDT on Oct. 5, 2009, and terminating at 11:59 p.m. EDT on Oct. 16, 2009.
The Commission temporarily suspended trading in the securities of SpongeTech because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the amount of sales and customer orders received by SpongeTech, investment agreements entered into by SpongeTech, and SpongeTech's revenues as reported in its financial statements. In addition, SpongeTech has not filed any periodic reports with the Commission since the period ended Feb. 28, 2009.
The Commission cautions broker-dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.
Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not he has complied with the rule, he should not enter any quotation but immediately contact the staff in the Division of Trading and Markets, Office of Interpretation and Guidance, at (202) 551-5777. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, it should refrain from entering quotations relating to SpongeTech's securities until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action. (Rel. 34-60788)
Lori Schock Named Director of SEC Office of Investor Education and Advocacy
The Securities and Exchange Commission today announced that Lori Schock has been named Director of the agency's Office of Investor Education and Advocacy (OIEA).
Ms. Schock returns to the SEC after serving as Associate Director at the Financial Industry Regulatory Authority's (FINRA) Investor Education Foundation and Office of Investor Education. Before that, she was Director of Outreach at the Center for Audit Quality.
"As more than half of American households are invested in the markets for their retirement, children's education, health care or other goals, it's imperative that the SEC have a world class program to provide investor education and promote financial literacy for Americans of all ages," said SEC Chairman Mary L. Schapiro. "I am delighted to welcome Lori back to the agency to lead this vital function."
OIEA each year has direct contact with tens of thousands of individual investors--reaching out to hear their needs, answering their questions and helping solve their problems. The office also leads the Commission's investor education and financial literacy efforts and other key initiatives, including helping older investors guard against securities fraud.
"Because of the many unique opportunities to serve investors at OIEA, I am eager to once again join my colleagues at the SEC and continue the work of looking out for investors' interests," Ms. Schock said.
Earlier in her career at the SEC, Ms. Schock held the positions of Acting Director, Deputy Director and Special Counsel to the Director of OIEA. She joined the agency in 2001 as a Staff Attorney. Ms. Schock received her J.D. and Master's of Taxation from the University of Akron and her Bachelor of Arts from Furman University. (Press Rel. 2009-214)
SEC Approves New Exchange Rules for Breaking Clearly Erroneous Trades
The Securities and Exchange Commission today announced that it has approved new exchange rules for breaking stock trades that deviate so substantially from current market prices that they are considered "clearly erroneous." The rules would for the first time provide a consistent standard across stock exchanges and reduce uncertainty about what happens to a trade depending on where it is executed.
"Adopting consistent standards across exchanges for breaking trades will strengthen the resiliency of our markets by reducing the potential for market confusion, especially during periods of high market volatility," said SEC Chairman Mary L. Schapiro. "These changes will promote the orderly and efficient operation of our markets."
Clearly erroneous trades can result from a variety of causes, including human error or computer malfunction. Because the markets today are so fast, automated and interconnected, an erroneous trade on one market can very rapidly trigger a wave of similarly erroneous trades on other markets. For example, if the last trade in a stock is $20, and a computer malfunction at one firm causes a series of trades to occur on multiple exchanges at prices exceeding $50, the automated systems of other firms may quickly follow, with erroneous trades rapidly impacting multiple markets and market participants.
Historically, the clearly erroneous execution rules varied from exchange to exchange, with some breaking trades only if the price exceeded an objective threshold based on the preceding market price, and others relying more heavily on the subjective judgment of exchange officials. In addition, there were variations in the time periods within which exchanges required the clearly erroneous review process to be triggered and completed. The problems with inconsistent exchange rules became particularly evident last fall when the extraordinary market volatility led to a substantial increase in the number of erroneous trades.
To better assure consistent results across the equities markets, the exchanges - led by NYSE Arca - worked together with Commission staff to develop "model" rules with more objective standards for breaking trades. These new rules, filed by BATS Exchange, Chicago Board Options Exchange, Chicago Stock Exchange, International Securities Exchange, NASDAQ Stock Market, NASDAQ OMX BX, National Stock Exchange, New York Stock Exchange, NYSE Amex, and NYSE Arca, become effective today.
In general, the new rules allow an exchange to consider breaking a trade only if the price exceeds the consolidated last sale price by more than a specified percentage amount: 10% for stocks priced under $25; 5% for stocks priced between $25 and $50; and 3% for stocks priced over $50. In addition, the erroneous trade review process generally must commence within 30 minutes of the trade, and be resolved within 30 minutes thereafter. (Press Rel. 2009-215)
Proceedings Instituted Against Energy Source, Inc. for Failure to File Required Periodic Reports
On October 5, the Commission issued an Order Instituting Proceedings Pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act) and Notice of Hearing against Energy Source, Inc. (Energy Source) to determine whether the registration of each class of its securities should be revoked or suspended for a period not exceeding twelve months based on its failure to file required periodic reports.
The Division of Enforcement (Division) alleges that Energy Source has failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder by failing to file periodic reports required by those laws.
A hearing will be scheduled before an Administrative Law Judge to provide Energy Source an opportunity to respond to the allegations of the Division contained in the Order Instituting Proceedings, to determine whether these allegations are true, and to determine whether Energy Source's registration should be suspended for a period not exceeding twelve months, or revoked, pursuant to Section 12(j) of the Exchange Act. As directed by the Commission, the administrative law judge shall issue an initial decision in this matter not later than 120 days from the date of service of the Order Instituting Proceedings. (Rel. 34-60786; File No. 3-13638)
Frank Dipascali, Jr. Barred From Association with Any Broker, Dealer, or Investment Adviser
On October 5, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Frank DiPascali, Jr. DiPascali, 52, a resident of Bridgewater, New Jersey, had been an employee of Bernard L. Madoff Investment Securities LLC (BMIS) since 1975. BMIS, founded in 1960, was a broker-dealer and investment adviser registered with the Commission that purportedly engaged in three different operations: investment adviser services, market-making services, and proprietary trading. Since from at least the early 1990s, DiPascali was involved in and eventually oversaw the bulk of the investment adviser services at BMIS.
The Order further finds that on Aug. 13, 2009, the District Court entered a Partial Judgment on Consent Imposing Permanent Injunction against DiPascali permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933; and violations, or aiding and abetting violations, of Section 10(b), 15(c) and 17(a) of the Exchange Act and Rules 10b-3, 10b-5 and 17a-3 thereunder, and Sections 204, 206(1) and 206(2) of the Advisers Act, and Rule 204-2 thereunder, in the civil action entitled Securities and Exchange Commission v. Frank DiPascali, Jr., 09 CV. 7085 (LLS), in the United States District Court for the Southern District of New York. The Commission's complaint charged DiPascali with securities fraud for overseeing the mechanics of BMIS' entirely fictitious investment strategy and creating millions of phony documents and trading records to conceal the fraud from regulators and investors.
On Aug. 11, 2009, DiPascali pleaded guilty to ten felony counts contained in a Criminal Information, United States v. DiPascali, 09 Cr. 764 (RJS), filed in the District Court by the United States Attorney's Office for the Southern District of New York. The Criminal Information against DiPascali contained many of the same factual allegations as those in the Commission's Complaint. That same day, DiPascali, pleaded guilty to conspiracy, securities fraud, investment adviser fraud, falsifying records of a broker-dealer, falsifying records of an investment adviser, mail fraud, wire fraud, international money laundering, perjury, and attempting to evade federal income taxes. DiPascali faces a statutory maximum sentence of 125 years in prison. He is also subject to mandatory restitution and faces criminal fines up to twice the gross gain or loss derived from the offense. Additionally, the Criminal Information to which DiPascali pleaded guilty includes forfeiture allegations that would require DiPascali to forfeit the proceeds of the charged crimes, as well as all property involved in the money laundering offenses and all property traceable to such property. The District Court remanded DiPascali and set a sentencing control date for May 15, 2010.
Based on the above, the Order bars DiPascali from association with any broker, dealer, or investment adviser. DiPascali consented to the issuance of the Order without admitting or denying any of the findings, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the entry of the injunction and his guilty plea. (Rels. 34-60787; IA-2931; File No. 3-13639)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by Chicago Stock Exchange relating to CHX Rule regarding clearly erroneous transactions (SR-CHX-2009-11) 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. 34-60775)
A proposed rule change filed by the NASDAQ Stock Market amending NASDAQ Rule 11890 governing Clearly Erroneous Executions (SR-NASDAQ-2009-086) 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. 34-60776)
A proposed rule change filed by NASDAQ OMX BX amending BX Rule 11890 governing Clearly Erroneous Executions (SR-BX-2009-060) 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. 34-60777)
A proposed rule change filed by New York Stock Exchange amending NYSE Interim Rule 128 governing Clearly Erroneous Executions for NYSE equities (SR-NYSE-2009-103) 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. 34-60781)
A proposed rule change filed by NYSE Amex amending NYSE Amex Rule 128 governing Clearly Erroneous Executions for NYSE Amex equities (SR-NYSEAmex-2009-69) 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. 34-60782)
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