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COMMISSION ANNOUNCEMENTSSEC Charges Madoff Computer ProgrammersThe Securities and Exchange Commission today charged two computer programmers for their role in helping convicted Ponzi schemer Bernard L. Madoff cover up the fraud at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 15 years. The SEC alleges that Jerome O'Hara of Malverne, N.Y., and George Perez of East Brunswick, N.J., provided the technical support necessary to produce false documents and trading records, and took hush money to help keep the scheme going. "Without the help of O'Hara and Perez, the Madoff fraud would not have been possible," said George S. Canellos, Director of the SEC's New York Regional Office. "They used their special computer skills to create sophisticated, credible and entirely phony trading records that were critical to the success of Madoff's scheme for so many years." According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, Madoff and his lieutenant Frank DiPascali, Jr., routinely asked O'Hara and Perez for their help in creating records that, among other things, combined actual positions and activity from BMIS' market-making and proprietary trading businesses with the fictional balances maintained in investor accounts. O'Hara and Perez wrote programs that generated many thousands of pages of fake trade blotters, stock records, Depository Trust Corporation (DTC) reports and other phantom books and records to substantiate nonexistent trading. They assigned file names to many of these programs that began with "SPCL," which is short for "special." A separate computer internally known as "House 17" was used to process BMIS investment advisory account data at the direction of Madoff, DiPascali and others. The SEC alleges that O'Hara and Perez knew that the House 17 computer was missing a host of functioning programs necessary for actual securities trading and reporting. According to the SEC's complaint, they recognized that the trades being entered into House 17 and the account statements and trade confirmations being sent to investors did not reflect actual trades. The SEC alleges that O'Hara and Perez had a crisis of conscience in 2006 and tried to cover their tracks by attempting to delete approximately 218 of the 225 special programs from the House 17 computer. But they did not delete the monthly backup tapes. O'Hara and Perez then cashed out hundreds of thousands of dollars each from their personal BMIS accounts before confronting Madoff and refusing to generate any more fabricated books and records. According to O'Hara's handwritten notes from the encounter, one of them told Madoff, "I won't lie any longer. Next time, I say 'ask Frank,'" meaning that Madoff should rely on DiPascali alone to create the false data and reports. The SEC's complaint alleges that Madoff responded by telling DiPascali to offer O'Hara and Perez as much money as necessary to keep quiet and not expose the misrepresentations. O'Hara and Perez considered the offer and demanded a salary increase of nearly 25 percent along with one-time bonuses in late 2006 of more than $60,000 each. They stated to DiPascali at the time that they did not ask for more because a greater amount might appear too suspicious. DiPascali then managed to convince O'Hara and Perez to modify computer programs so that he and other 17th floor employees could create the necessary reports themselves. This is the SEC's latest enforcement action concerning the Madoff fraud since the scheme collapsed last December. The Commission previously charged Madoff and BMIS, DiPascali, and auditors David G. Friehling and Friehling & Horowitz CPA's, PC. The SEC also charged certain feeders with committing securities fraud through a Ponzi scheme perpetrated on advisory and brokerage customers of BMIS. Madoff, DiPascali and Friehling have all pleaded guilty to criminal charges related to their conduct. The SEC's complaint specifically alleges that O'Hara and Perez aided and abetted violations of Sections 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. Among other things, the SEC's complaint seeks financial penalties and a court order requiring O'Hara and Perez to disgorge their ill-gotten gains. The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation, with which the Commission has coordinated its investigation. The Commission's investigation is continuing. [SEC v. JEROME O'HARA AND GEORGE PEREZ (S.D.N.Y. 09 CV 9425 (LLS)] (LR-21292; Press Rel. 2009-243) Paul Beswick Named SEC Deputy Chief Accountant in Charge of Accounting GroupThe Securities and Exchange Commission today announced that Paul A. Beswick has been named the Deputy Chief Accountant overseeing the Accounting group within the agency's Office of the Chief Accountant. Mr. Beswick fills the position vacated by Jim Kroeker, who was recently named SEC Chief Accountant. In his new role, Mr. Beswick will be responsible for resolution of accounting issues, rulemaking projects, and oversight of private sector accounting standard-setting efforts. Mr. Beswick has been serving as Deputy Chief Accountant for Professional Practice in the SEC's Office of the Chief Accountant since September 2008. He joined the SEC staff in October 2007 as a Senior Advisor to the Chief Accountant. "I am pleased that Paul has agreed to transition to this important role," said Mr. Kroeker. "Paul's knowledge and expertise in financial reporting will be a valuable resource to our office, this agency, and investors. I am confident that he will continue to perform in an outstanding manner for the Commission." The Office of the Chief Accountant is divided primarily into three major groups: Accounting, Professional Practice and International Affairs. These three groups work collaboratively to serve as the principal adviser to the Commission on accounting and auditing matters. The Accounting group works closely with private-sector accounting bodies such as the Financial Accounting Standards Board. Registrants, auditors, and other divisions and offices within the SEC regularly consult with the group regarding the application of accounting standards and financial disclosure requirements. Mr. Beswick will continue to support the Office of the Chief Accountant's work related to oversight of the Public Company Accounting Oversight Board (PCAOB) until a replacement is named for his prior position. Prior to joining the SEC staff, Mr. Beswick was a Partner with Ernst & Young LLP, where he worked in the firm's Professional Practice and Risk Management Group. Mr. Beswick previously served as a practice fellow at the Financial Accounting Standards Board (FASB) from July 2005 to June 2007. Mr. Beswick is a graduate of Miami University in Oxford, Ohio. (Press Rel. 2009-244) Securities Regulators to Talk Financial Literacy With Students18 Elementary Schools Nationwide to Participate in November 20 Events With Top Officials at SEC, FINRA and Jump$tart CoalitionThe Securities and Exchange Commission today announced a new financial literacy outreach program to promote financial literacy to elementary school students. Project CHANGE: "Creating Habits and Awareness for the Next Generation's Economy" is a joint partnership between the SEC, the Financial Industry Regulatory Authority (FINRA) and the Jump$tart Coalition for Personal Financial Literacy. On November 20, top officials from the SEC, FINRA and Jump$tart will visit 18 elementary schools throughout the country to teach a class on financial literacy. They will share advice on saving, spending and sharing money from a curriculum based on the national standards for financial literacy in grades four through six. "While we are experiencing a financial crisis that's one of the worst in decades, the financial literacy of high school students has fallen to its lowest level ever, with 73.9 percent of students failing Jump$tart's 2008 national survey," said SEC Chairman Mary L. Schapiro. "Teaching children about money is an investment in the future, because an investment in financial literacy can pay a lifetime of dividends." In addition to on-site financial literacy presentations, FINRA will donate a slingpack containing financial literacy tools to each child participating in the program. FINRA will also provide every child in the selected schools with a moonjar, a unique tool to encourage children to learn about "saving," "spending" and "sharing." In addition, "money-related" games and books will be donated to participating schools. The following schools will be participating in the inaugural Project CHANGE visits from securities regulators:
To learn more about this new initiative, and to find games and fun information to help elementary school students learn more about financial literacy, visit the Project CHANGE Web site at http://projectchange.sec.gov. (Press Rel. 2009-245) SEC Announces Agenda and Panelists for Small Business ForumThe Securities and Exchange Commission today announced the agenda, speakers and panelists for its November 19 forum on small business capital formation. The SEC forum will begin at 9 a.m., ET, at its Washington, D.C., headquarters, with opening remarks by SEC Chairman Mary L. Schapiro. SEC Commissioner Troy A. Paredes also will deliver remarks. The forum panels, to be held in the morning, will focus on the state of small business capital formation and the SEC's "accredited investor" definition. In the afternoon, forum breakout groups will develop recommendations to facilitate small business capital formation. Pre-registered members of the public may attend the forum without charge. Online registration is available at the SEC small business forum Web page. The forum also will be webcast live at www.sec.gov. * * * U.S. Securities and Exchange Commission
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| 9:00 a.m. |
Opening Remarks |
| 9:15 a.m. |
Panel Discussion: The State of Small Business Capital Formation Moderators:
Panelists:
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| 11:00 a.m. |
Remarks by SEC Commissioner Troy A. Paredes |
| 11:15 a.m. |
Panel Discussion: Academic Perspectives on the SEC's "Accredited Investor" Definition Moderators:
Panelists:
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| 2:00 p.m. |
Breakout Groups to Develop Recommendations
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| 4:45 p.m. |
Plenary Session |
| 5:30 p.m. |
Networking Reception |
(Press Rel. 2009-246)
On Nov. 12, 2009, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 (Securities Act), Sections 21C and 15(b)(6) of the Securities Exchange Act of 1934 (Exchange Act), Sections 203(e), (f), and (k) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940 against S4 Capital, LLC (S4 Capital) and Sharath Sury (Sury).
In the Order, the Division of Enforcement alleges that Sury is the Chief Executive Officer and majority owner of S4 Capital, a registered investment adviser. The Division of Enforcement also alleges that from December 2005 to February 2006, Sury caused an unregistered hedge fund managed by S4 Capital to engage in undisclosed, unhedged, high-risk trading, primarily in Google stock options, which resulted in substantial losses to the fund. The Division of Enforcement further alleges that during this period, Sury failed to disclose to investors in the hedge fund with whom S4 Capital had investment advisory agreements, that Sury was engaging in risky, unhedged trading that was contrary to the investment strategy described in the hedge fund's private placement memorandum and their personal investment objectives and that the fund was suffering mounting losses. The Division of Enforcement further alleges that Sury also sent certain investors emails that lulled them into believing that their investments were profitable and failed to disclose the risky trading and related losses. The Division of Enforcement further alleges that Sury's undisclosed high-risk trading caused the hedged fund to lose all of its assets, totaling approximately $12 million, in about two months time.
As a result of this conduct, the Division of Enforcement alleges that S4 Capital and Sury willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. The Division of Enforcement further alleges that S4 Capital willfully violated Sections 206(1) and 206(2) of the Advisers Act and that Sury willfully aided and abetted and caused S4 Capital's violations of Sections 206(1) and 206(2) of the Advisers Act.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide S4 Capital and Sury an opportunity to establish any defense to these allegations, and to determine what, if any, remedial action is appropriate in the public interest against S4 Capital and Sury. The Order directs the administrative law judge to issue an initial decision within 300 days from the date of service of the Order. (Rels. 33-9083; 34-60993; IA-2948; IC-28996; File No. 3-13683)
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in Redtop Mountain Corp., Administrative Proceeding No. 3-13662. The Order Instituting Proceedings alleged that Redtop Mountain Corp. (n/k/a Weblogix, Inc.), Reliable Power Systems, Inc., Renaissance Acceptance Group, Inc., Republic Goldfields, Inc., Rexon, Inc. (n/k/a Tecmar Technologies, Inc.), River Oaks Furniture, Inc., Roberds, Inc., and Rochem Environmental, Inc., each failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission.
The Default Order finds the allegations to be true and revokes the registrations of each class of registered securities of Redtop Mountain Corp. (n/k/a Weblogix, Inc.), Reliable Power Systems, Inc., Renaissance Acceptance Group, Inc., Republic Goldfields, Inc., Rexon, Inc. (n/k/a Tecmar Technologies, Inc.), River Oaks Furniture, Inc., Roberds, Inc., and Rochem Environmental, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-60994; File No. 3-13662)
On Nov.13, 2009, 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, Making Findings, and Imposing Remedial Sanctions (Order) against William T. Dailey, III, a former securities trader at broker-dealer Needham & Co., LLC. The Order finds that on Nov. 3, 2009, a final judgment was entered by consent against Dailey in the civil action entitled Securities and Exchange Commission v. Benjamin Jones, et al., Civil Action Number 09-CV-4895, in the United States District Court for the Northern District of California, enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The Commission's complaint alleged that Dailey received material nonpublic information regarding an issuer known as Jamdat Mobile, Inc. (Jamdat), which he knew or should have known was provided to him in breach of a fiduciary duty to the issuer; that Dailey profited by trading in his own account on the basis of the material nonpublic information that he received; and that Dailey tipped material nonpublic information regarding Jamdat's acquisition to a friend of his, which resulted in further illicit trading in the securities of Jamdat.
Based on the above, the Order bars Dailey from association with any broker or dealer and investment adviser, with the right to reapply after five years. Dailey consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to the Commission's jurisdiction over him and the entry of the permanent injunction against him. [SEC v. Benjamin P. Jones et. al., Civil Action No. 09-4895 (VRW), N.D. Cal.] (See also LR-21249 (Oct. 15, 2009). (Rel. 34-60998; IA-2949; File No. 3-13684)
A proposed rule change filed by NASDAQ OMX PHLX (SR-PHLX-2009-95) relating to the extension of a pilot program concerning non firm quote conditions 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 November 16. (Rel. 34-60951)
A proposed rule change filed by The NASDAQ Stock Market (SR-NASDAQ-2009-099) relating to strike price intervals of $0.50 for options on stocks trading at or below $3.00 on the NASDAQ Options Market 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 November 16. (Rel. 34-60952)
A proposed rule change (SR-ISE-2009-86) filed by the International Securities Exchange, as modified by Amendment No. 1, to add 75 options classes to the Penny Pilot Program 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 November 16. (Rel. 34-60962)
A proposed rule change filed by the Financial Industry Regulatory Authority to increase the session fee for the regulatory element of the continuing education requirements pursuant to FINRA Rules (SR-FINRA-2009-071) 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 November 16. (Rel. 34-60963)
A proposed rule change, as modified by Amendment No. 1, filed by NASDAQ OMX PHLX (SR-Phlx-2009-94) to add seventy-five options classes to the Penny 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 November 16. (Rel. 34-60966)
A proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2009-086) relating to $1 strike intervals for the Mini-Russell 2000 Index (RMN) 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 November 16. (Rel. 34-60977)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2009-061) to require Members to report OTC transactions in equity securities within 30 seconds of execution pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60960)
NASDAQ OMX PHLX filed with the Securities and Exchange Commission a proposed rule change under Rule 19b-4 (SR-Phlx-2009-84) relating to conduct of business on the Exchange. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60961)
The Commission approved a proposed rule change (SR-NYSEArca-2009-84), as modified by Amendment No. 1, filed by NYSE Arca permitting an affiliation with NYFIX Millennium L.L.C. and NYFIX Securities Corporation pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60967)
The Commission granted approval of a proposed rule change submitted by NYSE Arca (SR-NYSEArca-2009-83), through its wholly owned subsidiary, NYSE Arca Equities, Inc., to list and trade shares of the Grail American Beacon International Equity ETF. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60975)
The Commission issued an order approving a proposed rule change, as modified by Amendment No. 1, by the New York Stock Exchange (SR-NYSE-2009-84) amending NYSE Rule 36 to Permit the Use of Personal Portable or Wireless Communication Devices Off the Exchange Trading Floor and Outside Other Restricted Access Areas. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60983)
The Commission issued an order approving a proposed rule change, as modified by Amendment No. 1, by NYSE Amex (SR-NYSEAmex-2009-57) to Amend Rule 36 - NYSE Amex Equities to Conform with Proposed Amendments to Corresponding NYSE Rule 36 to Permit the Use of Personal Portable or Wireless Communication Devices Off the Exchange Trading Floor and Outside Other Restricted Access Areas. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60984)
The Commission issued notice of Amendment No. 1 and approved on an accelerated basis a proposed rule change, as modified by Amendment No. 1, submitted by NYSE Arca (SR-NYSEArca-2009-79) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to Listing of Five Fixed Income Funds of the PIMCO ETF Trust. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60981)
http://www.sec.gov/news/digest/2009/dig111309.htm
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