In the Matter of Raymond Rapaglia
An Administrative Law Judge has issued an Order Making Findings and Imposing Remedial Sanction by Default (Default Order) in Administrative Proceeding No. 3-13647, Raymond Rapaglia. The Order Instituting Proceedings (OIP) alleged that, on Sept. 15, 2009, the U.S. District Court for the Southern District of Florida issued a permanent injunction against Raymond Rapaglia (Rapaglia). According to the OIP, the injunction bars Rapaglia from future violations of 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.
The Default Order finds the allegations to be true. It concludes that, pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, it is in the public interest to bar Rapaglia from association with any broker or dealer. (Rel. 34-61108; File No. 3-13647)
In the Matter of Robert Bernstein
On Dec. 4, 2009, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Robert Bernstein (Bernstein). In the Order, the Commission finds that on Nov. 17, 2009, the United States District Court for the Southern District of New York entered a final judgment permanently enjoining Bernstein, by consent, from violating Section 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20 and 13a-13 thereunder. Bernstein was also ordered to pay a civil penalty of $125,000. Bernstein consented to the entry of final judgment without admitting or denying the allegations in the complaint. The Commission's complaint alleged, among other things, that Bernstein, with others analyzed the Company's reserves for expected loan losses, which showed that a substantial increase was required to account for AHM's increased loss rates on its portfolios. Bernstein did not provide this information to AHM's auditor. Instead, based on an instruction from AHM's chief financial officer, Bernstein provided to the auditor a misleading document that made the Company's understated loan loss reserves appear adequate. Bernstein also took affirmative steps to conceal a significant aged receivable balance on AHM's books for the periods ending Dec. 31, 2006 and March 31, 2007 by directing a subordinate to make a series of accounting entries designed to bury the balance in a liability account in order to mislead the Company's auditor with respect to the existence of these aged receivables. Bernstein circumvented AHM's internal controls and falsified the Company's books and records by, among other things, creating false accounting entries in connection with the aged receivables and entries which reflected the understated loan loss reserves.
Based on the above, the Order suspends Bernstein from appearing or practicing before the Commission as an accountant with a right to reapply after three years. Bernstein consented to the issuance of the Order without admitting or denying the findings in the Order, except he admitted the entry of the injunction. For further information, please see Litigation Release No. 21014 (Apr. 28, 2009), [SEC v. Michael Strauss, et al., Civ. No. 09-CV-4150 (S.D.N.Y.)]. (Rel. 34-61113; AAE Rel. 3072; File No. 3-13704)
In the Matter of Masterpiece Technology Group
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default as to Nine Respondents (Default Order) in Masterpiece Technology Group, Administrative Proceeding No. 3-13680. The Order Instituting Proceedings alleged that ten Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission (Commission). The Default Order finds these allegations to be true as to nine Respondents and revokes the registrations of each class of registered securities of Masterpiece Technology Group, Inc., MC Industrial Group, Inc., MC Liquidating Corp., Medco Health Corp., Meridian National Corp., MetaSource Group, Inc., Micel Corp., MicroENERGY, Inc., and MicroLeague Multimedia, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934.
The Commission has previously accepted an Offer of Settlement from MBC Holding Co., the tenth Respondent in the proceeding. (Rel. 34-61114; File No. 3-13680)
SEC Obtains Asset Freeze or Joseph S. Blimline for His Involvement in the Provident Royalties $485 Million Nationwide Offering Fraud
On Dec. 3, 2009, the Securities and Exchange Commission obtained a temporary restraining order and emergency asset freeze against Joseph S. Blimline relating to his involvement in a $485 million offering fraud and Ponzi scheme. The scheme was orchestrated by Joseph S. Blimline, Paul R. Melbye, Brendan W. Coughlin and Henry D. Harrison through a company they owned and controlled, Provident Royalties LLC. The Commission had previously filed a complaint against Melbye, Coughlin and Harrison and on July 7, 2009, obtained a temporary restraining order, asset freeze and appointment of a receiver with respect to those defendants. In addition to the asset freeze against Blimline, the court has extended the authority of the receiver over the newly-frozen assets.
The Commission alleges in its amended complaint that Provident advanced approximately $93 million of investor funds to Blimline and entities he controlled. The funds were for the purported purchase of oil and gas interests, or loans, to which Provident often never received title or repayment. The amended complaint also alleges that in presentations to investors and representatives of broker-dealers marketing Provident securities, Blimline failed to disclose his receipt of such funds, his involvement in the management of Provident and a prior sanction imposed against him by the Michigan securities authorities for prior conduct.
The Commission's amended complaint charges the defendants with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The amended complaint seeks a temporary restraining order and preliminary and permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and financial penalties. Officer and director bars are sought against Blimline, Melbye, Harrison and Coughlin. An additional 36 affiliated entities that did not sell securities are named as relief defendants in the amended complaint for purposes of disgorgement. [SEC v. Provident Royalties, LLC, et al., Case No. 3-09CV1238-L (N.D. Texas)] (LR-21321)
SEC Charges Purported Bio-Diesel Company With Fraud
The Securities and Exchange Commission today charged a purported bio-diesel fuels company with making false statements regarding its purported emissions-free coal conversion technology and financial condition.
The Commission's complaint names Nova Gen Company (Nova Gen) of San Diego, Calif., its current CEO, Margaret Grey (Grey), and a sales agent, Paul Randall Fraley (Fraley). The complaint alleges that Grey, of San Diego, Calif. and widow of the company's founder, has continued in Nova Gen's unregistered fraudulent securities offering since she assumed control over the company in June 2009.
According to the complaint filed in U.S. District Court in San Diego, Nova Gen falsely claimed to have technology capable of converting coal into bio-diesel fuel, virtually emissions free, and even touted a plant that was up and running. The complaint further alleges Nova Gen disseminated financial statements to investors that depicted $27 million in a brokerage account and net operating income of $21 million. The complaint alleges that, in fact, Nova Gen's technology was not "ready to go," and that it did not have any plant, did not own any brokerage account, and had not generated revenue at any time. The complaint further alleges that Fraley, of Hewitt, W.Va., located potential investors and received sales commissions for his efforts, and falsely told investors that Nova Gen was about to become a publicly-traded company that would pay a guaranteed 11% dividend.
The Commission's complaint charges the defendants with violating the securities registration provisions, Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act), the broker-dealer registration provisions, Section 15(a) of the Securities Exchange Act of 1934 (Exchange Act), and the antifraud provisions, Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, of the federal securities laws. The Commission's complaint seeks permanent injunctions, disgorgement, prejudgment interest, and financial penalties. [SEC v. Nova Gen Corporation, Margaret Grey, and Paul Randall Fraley, United States District Court for the Southern District of California, Case No. 09CV2711 MMA (JMA)] (LR-21322)
SEC Files Lawsuit Against Black Box Corporation, Former CEO and Former CFO for Stock-Options Backdating Violations
The Commission announced that on Dec. 4, 2009, it filed a civil action in the United States District Court for the Western District of Pennsylvania against Black Box Corporation (Black Box), a Lawrence, PA technical services provider, its former Chief Executive Officer Frederick C. Young, 53, of Silver Point, Tennessee, and its former Chief Financial Officer Anna M. Baird, 52, of Bridgeville, PA, alleging violations related to stock-options backdating. Without admitting or denying the Commission's allegations, all three defendants agreed to settle the matter.
The Commission's complaint alleges that, in July and August 2007, as a result of a previously announced review of its stock options practices, Black Box filed quarterly and annual reports restating its net income for fiscal years 1994 through 2006 (the Restatements) by identifying approximately $70.9 million of unrecorded expenses it had incurred as a result of mispriced stock option grants. Black Box was required to, but did not, record an expense for options issued at below-market prices (in the money options). More than one-half of the unrecorded expenses reported in the Restatements, approximately $38.1 million, stem from backdated options awarded at Young's direction.
The complaint alleges that, as Chief Executive Officer, Young had authority for the granting of stock options at Black Box. On six occasions, from 1998 through 2001, Young intentionally backdated stock option grants totaling millions of shares, to hundreds of recipients, including Black Box's officers, directors, and employees. Young chose dates for these grants from between two weeks to over a year prior to the actual dates such grants were awarded. By doing so, the options were in-the-money in amounts ranging from $3.19 to $43.86 per share on the dates they were actually granted (or 13% to 58% lower than the market price on the actual grant date).
The complaint further alleges that, in or about December 2000, Baird, then Black Box's Chief Financial Officer and a CPA, also participated in granting backdated options to Black Box's officers and employees. Baird personally exercised backdated options for $87,243 in excess profits. The complaint further alleges that Young and Baird engaged in their conduct despite knowing, or having reason to know, that the Company had improperly recorded compensation expenses for the options and violated the terms of its own stock option plans as disclosed in various filings with the Commission.
Black Box consented to the entry of an order permanently enjoining it from violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1 and 13a-13 thereunder. The settlement with Black Box takes into account the company's cooperation during the Commission's investigation.
Young consented to the entry of an order permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, Sections 10(b),13(b)(5) and 14(a) of the Exchange Act and Rules 10b-5, 13b2-2, 13a-14 and 14a-9 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Young agreed to pay a $120,000 penalty and to be barred from serving as an officer or director of a public reporting company for five years.
Baird consented to the entry of an order permanently enjoining her from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Section 13(b)(5) of the Exchange Act, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Baird also consented to disgorgement and prejudgment interest of $118,645. In addition, Baird agreed to settle a related administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice by consenting, without admitting or denying the Commission's findings, to the entry of an order suspending her from appearing or practicing before the Commission as an accountant for five years. Settlement of the civil action is pending final approval by the court. [SEC v. Black Box Corporation, Frederick C. Young, and Anna M. Baird, Case No. 09-CV-1591 (W.D. Pa.)] (LR-21323; AAE Rel. 3073)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-Phlx-2009-99) filed by NASDAQ OMX PHLX regarding the obligations of Streaming Quote Traders 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 December 7. (Rel. 34-61095)
A proposed rule change filed by the International Securities Exchange (SR-ISE-2009-99) relating to amending the Direct Edge ECN Fee Schedule 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 December 7. (Rel. 34-61101)
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2009-74) to extend the Penny Pilot through Dec. 31, 2010, 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 December 7. (Rel. 34-61106)
Proposed Rule Change
BATS Exchange filed a proposed rule change (SR-BATS-2009-031) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to establish rules governing the trading of options on the BATS Options Exchange. Publication is expected in the Federal Register during the week of December 7. (Rel. 34-61097)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval to a proposed rule change (SR-ISE-2009-100) submitted by the International Securities Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the amounts that Direct Edge ECN, in its capacity as an introducing broker for non-ISE Members, passes through to such non-ISE Members. Publication is expected in the Federal Register during the week of December 7. (Rel. 34-61100)
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