Special Advisor and Former Deputy Director of the Division of Enforcement George Curtis Leaves SEC
The Securities and Exchange Commission announced today that George Curtis, Special Advisor to the Director of the Division of Enforcement, has returned to the private sector to rejoin the law firm of Gibson, Dunn & Crutcher as partner.
Mr. Curtis joined the SEC staff in 2006 as the Regional Director of the SEC's Denver Regional Office after 30 years in private practice with Gibson, Dunn. He was named a Deputy Director of the Division of Enforcement in 2008, and continued in that role until becoming Special Advisor in September 2009.
"George has served the Commission with distinction during a critical time both as a regional director and as a leader of our enforcement efforts in Washington," said Robert Khuzami, Director of the SEC's Division of Enforcement. "His legal intellect and decision-making skills have been particularly valuable to the Division and the agency, and he has played a key role during the Division's period of rigorous self-assessment and rededication to our core mission of investor protection."
Mr. Curtis said, "It has been an honor to work with the Commission and its staff and to be part of their continuing effort to fulfill their role as the investor's advocate. The talent and devotion of the staff to their mission have impressed me deeply."
As Deputy Director of Enforcement from 2008-2009, a position he shared with Scott Friestad, Mr. Curtis worked closely with the staff nationwide in responding to the financial crisis, while also maintaining and expanding Enforcement's focus on preventing and punishing fraud on investors.
As the Regional Director of the SEC's Denver Regional Office, Mr. Curtis had responsibility for the staff's enforcement and examination work over a seven state region. Throughout his time with the Commission's staff, he also worked with the other Regional Directors and Senior Officers in the Division of Enforcement and with other federal regulatory authorities and state counterparts in the protection of investors.
Mr. Curtis received his B.A. degree from Fordham University in 1970, M.A. and Ph.D. degrees from the University of Virginia in 1971 and 1973 respectively, and a J.D. from the University of Chicago in 1976. (Press Rel. 2009-259)
Notice of Proposed Distribution Plan and Opportunity for Comment in the Matter of Prudential Equity Group
On Dec. 4, 2009, the Commission gave notice that, pursuant to Rule 1103 of the Commission's Rules of Practice, the Division of Enforcement has filed a proposed Distribution Plan for the distribution of monies in In the Matter of Prudential Equity Group, formerly known as Prudential Securities, Inc., Administrative Proceeding File No. 3-12400. The Distribution Plan provides for distribution to all eligible investors of their proportionate share of the over $270 million in disgorgement paid by Prudential Equity Group to compensate such investors for injury they may have suffered as a result of market timing in certain mutual funds. Any interested persons may print a copy of the proposed Distribution Plan from the Commission's public website, http://www.sec.gov, or by submitting a written request to LeeAnn G. Gaunt, Assistant Regional Director, United States Securities and Exchange Commission, 33 Arch Street, 23rd Floor, Boston, MA 02110. All persons desiring to comment on the Distribution Plan may submit their views, in writing, by no later than 30 days from the date of the Notice, to the Office of the Secretary, U.S. Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549-1090, or by using the Commission's Internet comment form (http://www.sec.gov/litigation/admin.shtml), or by sending an e-mail to email@example.com. Please include "Administrative Proceeding File Number 3-12400" on the subject line of any e-mail. Comments received will be publicly available. Persons should submit only information that they wish to make publicly available. For more information see Rel. 34-54371; Press Rel. 2006-145; File No. 3-12400. (Rel. 34-61117; File No. 3-12400)
SEC Issues Notice of Proposed Distribution Plan and Opportunity for Comment in the Matter of Federated Investment Management Company, Federated Securities Corp. and Federated Shareholder Services Company
The Commission announced today that it has given notice, pursuant to Rule 1103 of the Securities and Exchange Commission's Rules on Fair Fund and Disgorgement Plans, 17 C.F.R. S 201.1103, that the Division of Enforcement has filed a proposed plan (Distribution Plan) for the distribution of the Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 in the matter of Federated Investment Management Company, Federated Securities Corp. and Federated Shareholder Services Company (Federated).
The Distribution Plan provides for distribution of the Fair Fund which includes disgorgement of $27 million and a civil money penalty of $45 million, plus any accumulated interest, less any federal, state or local taxes on the interest. The Distribution Plan provides for distribution of the Fair Fund to eligible investors in the Federated Funds identified in the plan to compensate them for losses resulting from market timing and late trading. If the Distribution Plan is approved, eligible investors will receive a proportionate share of the Fair Fund as calculated by the Independent Distribution Consultant. The distribution amount will be calculated from information in Federated's records, and records obtained from third-party intermediaries. Eligible investors will not need to go through a claims process.
A copy of the Distribution Plan may be obtained by submitting a written request to Elaine C. Greenberg, Associate Regional Director, United States Securities and Exchange Commission, 701 Market Street, Suite 2000, Philadelphia, PA 19106. Interested parties may also print a copy of the proposed Distribution Plan from the Commission's public website, http://www.sec.gov. Any person or entity wishing to comment on the Distribution Plan must do so in writing by submitting their comments within 30 days of the date of the notice (i) to the Office of the Secretary, United States Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549-1090; or (ii) via the Commission's Internet comment form (www.sec.gov/litigation/admin.shtml); or (iii) by sending an e-mail to firstname.lastname@example.org. Comments submitted by e-mail or via the Commission's website should include the Administrative Proceeding File Number (Admin. Proc. File No. 3-12111) in the subject line. Comments received will be publicly available. Persons should submit only information that they wish to make publicly available. (Rel. 34-61118; File No. 3-12111)
RULES AND RELATED MATTERS
SEC Approves Extension and Modification of Temporary Exemptions Permitting ICE US Trust LLC to Operate as Central Counterparty for Credit Default Swaps
On Dec. 4, 2009, the Securities and Exchange Commission took additional action to help improve transparency in the multi-trillion dollar credit default swap market by approving an extension and modification of temporary exemptions that allow ICE Trust U.S. LLC (f/k/a ICE US Trust LLC) to operate as a central counterparty for clearing credit default swaps. On March 6, 2009, the SEC previously granted ICE Trust a similar exemption that was scheduled to expire on Dec. 7, 2009. The SEC's December 4th action extends the exemptions that were set to expire and expands them to address additional credit default swap clearing arrangements.
The SEC is soliciting public comment on all aspects of these exemptions to assist in its consideration of any further action that may be needed in this area. (Rel. 34-61119)
In the Matter of David Gold
On Dec. 4, 2009, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act), Making Findings and Imposing Remedial Sanctions (Order) against David Gold. The Order finds that on Nov. 2, 2009, a final judgment was entered by consent against Gold in a civil action entitled Securities and Exchange Commission v. Szur, et al., 97 Civ. 9305 (LAP), in the United States District Court for the Southern District of New York, permanently enjoining Gold from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 thereunder, and barring Gold from participating in any penny stock offering.
In the civil action the Commission alleged, among other things, that from approximately January through August 1996 Jeffrey Szur and Bertram Slutsky directed a scheme to manipulate the market for securities issued by Securitek International, Inc. (Securitek). Slutsky paid undisclosed bribes to Szur and employees of J.S. Securities, Inc. (JSSI), including Gold, of up to 50% of the proceeds of the sale of Securitek stock to unsuspecting retail customers. These bribes enabled Slutsky and his companion, Diane Larkin, to sell their large block of Securitek stock into an artificially pumped up market. Gold helped operate a JSSI branch office in Westbury, New York, which operated as a boiler room where registered and unregistered salespersons engaged in fraudulent, high-pressure sales tactics in the offer and sale of Securitek stock to retail customers.
Based on the above, the Order bars David Gold from association with any broker or dealer. David Gold consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-61111; File No. 3-13703)
Commission Sustains FINRA Disciplinary Action Against Scott Mathis
The Commission has sustained FINRA disciplinary action against Scott Mathis, a registered representative and general securities principal, for violating FINRA Conduct and Membership rules by willfully failing to amend or disclose on his Form U4 several tax liens and for failing to amend his Form U4 in a timely fashion to disclose a customer complaint and a customer initiated civil action. FINRA fining Mathis $10,000 and suspended him for three months for his failure to disclose the tax liens and fined him $2,500 and suspended him for ten business days for failing to timely disclose the customer complaint and civil action. The Commission agreed with FINRA's findings and concluded that the sanctions were neither excessive nor oppressive and will adequately serve the public interest and protect investors. (Rel. 34-61120; File No. 3-13335)
In the Matter of Simpson Capital Management, Inc., Robert A. Simpson, and John C. Dowling
On Dec. 7, 2009, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Sections 203(e) and 203(f) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) against Simpson Capital Management, Inc. (Simpson Capital), Robert A. Simpson, and John C. Dowling. The Order finds that, between May 2000 and September 2003, Simpson, the President and founder of Simpson Capital, a hedge fund manager, conducted a fraudulent scheme involving unlawful "late trading" in shares of mutual funds. Dowling, Simpson Capital's head trader, began participating in the scheme in November 2000. Respondents' late trading was part of a profitable investment strategy dependent upon the execution of mutual fund trades based on post-4:00 p.m. market information not reflected in the price they paid for the shares. Simpson profited through his investment in the managed funds, and Simpson Capital, which Simpson owns, received management and performance fees.
Based on the above, the Order censures Simpson Capital; orders that Simpson Capital, Simpson, and Dowling cease-and-desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, orders that Simpson Capital and Simpson be jointly and severally liable for disgorgement of $6,100,000 and a civil money penalty of $550,000; orders that Dowling pay a civil money penalty of $150,000; and suspends Simpson and Dowling from association with any investment adviser and from serving or acting as an employee, officer, director, member of an advisory board, investment adviser, or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter for a period of 12 months. Simpson Capital, Simpson, and Dowling consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-61123A; IA-2958A; IC-29067A; File No. 3-13705)
SEC Obtains Asset Freeze Against Canopy Financial, Inc. Co-Founder in Lawsuit Alleging $75 Million Offering Fraud and Misappropriation of Investor Funds
The Securities and Exchange Commission announced that on Nov. 30, 2009, the Honorable Blanche M. Manning in the U.S. District Court for the Northern District of Illinois entered a TRO and Asset Freeze Order against Jeremy J. Blackburn, co-founder and former Chief Operating Officer of privately-held Canopy Financial, Inc. (Canopy), for engaging in a scheme to defraud investors in a $75 million private placement offering and misappropriating investor funds. The Court has also entered an order freezing the assets of Blackburn, a resident of Grove Heights, MN and Malibu, CA. The Commission's Complaint seeks, among other things, permanent injunctions against Blackburn and Canopy, which provides services to clients for the administration and management of their employees' health services and flexible spending accounts. Canopy is headquartered in Chicago, IL, and has other offices in San Francisco, CA, and Plainsboro, NJ.
Filed on Nov. 30, 2009, in an emergency action, the Commission's Complaint alleges as follows: From at least October 2008 through at least August 2009, Canopy, through Blackburn, induced investors to invest in a private placement offering for preferred shares of Canopy by providing them with false and misleading information regarding Canopy's financial condition. Among other things, Blackburn knowingly provided investors with falsified financial statements, a falsified bank statement and a falsified "KPMG" audit opinion. These documents purported to show that Canopy had a much healthier cash balance and much more substantial client base than it actually had. For instance, Blackburn falsified a bank statement to show an account balance of approximately $8.9 million, when if fact the account was a custodial account for a Canopy client, with only approximately $86,952. Canopy raised approximately $75 million from investors and paid approximately $40 million in redemptions to existing investors, including Blackburn, who redeemed 250,000 shares in exchange for approximately $1.625 million. Blackburn also misappropriated at least $1.7 million from the offering into his personal bank accounts. The Defendants' fraud came to light when KPMG discovered that Canopy had been claiming that its financial statements for 2007 and 2008 had been audited by KPMG. In fact, KPMG had never been retained by Canopy to audit its financial statements and had never opined on the financial condition of the company. KPMG issued a cease-and-desist letter to Canopy demanding that it stop the unauthorized use of KPMG's name and the audit report purportedly issued by KPMG.
In addition to seeking permanent injunctions against Blackburn and Canopy for violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], the Commission's Complaint seeks the disgorgement of ill-gotten gains, plus prejudgment interest thereon, and civil penalties. [SEC v. Canopy Financial, Inc. and Jeremy J. Blackburn, Case No. 09-CV-7429, USDC, N.D. Ill.] (LR-21324)
SEC Files Settled Offering Fraud Case Against Striker Petroleum, LLC, Mark S. Roberts and Christopher E. Pippen
On Dec. 3, 2009, the Honorable Sidney A. Fitzwater, Chief United States District Judge for the Northern District of Texas, entered agreed permanent injunctions against Striker Petroleum, LLC (Striker), a Dallas area oil and gas company, and its principals, Mark S. Roberts, 58, and Christopher E. Pippin, 35, in an action filed by the Commission on the same date.. The Court also entered agreed orders (1) appointing a receiver to collect, marshal, manage and distribute Striker's assets for the benefit of investors and an order to freeze Striker's assets; and (2) prohibiting document alteration or destruction by Striker.
The Commission's complaint alleges that Striker, Roberts and Pippen defrauded investors in connection with the offer and sale of approximately $57 million debentures collateralized through oil and gas properties to approximately 540 investors nationwide. The Commission further alleges that the debenture offering materials included material misrepresentations and omissions concerning Striker's earnings and asset valuations, use of investor proceeds, and the existence of a third party independent trustee for the debenture collateral.
Without admitting or denying the complaint's allegations, Striker, Roberts and Pippen have consented to permanent injunctions against future violations of the antifraud provisions. In addition, Striker agreed to an order appointing a receiver and an order freezing its assets and prohibiting the destruction or alternation of documents. The Court will determine the amount of disgorgement and civil penalty that will be assessed against Striker, Roberts and Pippen. [SEC v. Striker Petroleum, LLC, et al., Civil Action No. 3:09-CV-2304-D, United States District Court for the Northern District of Texas (Dallas Division)] (LR-21325)
John E. Brake, Remaining Defendant in Offering Fraud Litigation, Settles to Permanent Injunction and Agrees to Pay $1.2 Million
The Securities and Exchange Commission today announced that the Honorable Bernard Zimmerman, United States Magistrate Judge for the Northern District of California, entered Final Judgment as to Defendant John E. Brake, of Newport Beach, California on December 4, 2009. Brake is the final defendant in the above-listed offering fraud litigation.
Pursuant to the judgment, Brake was permanently enjoined 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. Brake has also consented to an order requiring him to disgorge more than $1.2 million in ill-gotten gains.
According to the Commission, Brake's private company, Pinnacle West, LLC, issued $20 million in promissory notes to investors from 1999 through 2005. The Commission further alleges that Brake falsely represented to investors that the promissory notes were secured by real estate Pinnacle West owned when, in reality, Pinnacle West did not own any property. According to the Commission's complaint, Brake also misused investor funds to pay for a wide variety of personal expenses. Among other things, Brake allegedly used investor funds to pay for a beachfront home rental in Carmel, California, luxury automobiles, a personal chauffeur, private jet travel, jewelry and designer clothing.
Final judgments have previously been entered against all other defendants (SEC v. Mark J.P. Boucher, et al., Case No. C-08-CV-4088 (MEJ) N.D. Cal. filed Aug. 27, 2008, LR-20689). [SEC v. John E. Brake, Case No. CV 08-4089 BZ (N.D. Cal.)] (LR-21326)
SEC Charges Former Officers of Subprime Lender New Century With Fraud
The Securities and Exchange Commission today charged three former top officers of New Century Financial Corporation with securities fraud for misleading investors as New Century's subprime mortgage business was collapsing in 2006. At the time of the fraud, New Century was one of the largest subprime lenders in the nation.
The SEC's complaint names as defendants:
In its complaint, the SEC alleges that New Century disclosures generally sought to assure investors that its business was not at risk and was performing better than its peers. Defendants, however, failed to disclose important negative information, including dramatic increases in early loan defaults, loan repurchases, and pending loan repurchase requests. Defendants knew this negative information from numerous internal reports they regularly received, including weekly reports that Morrice ominously entitled "Storm Watch."
The complaint also alleges that Dodge and Kenneally fraudulently accounted for expenses related to bad loans that it had to repurchase. In the face of dramatically increasing loan repurchases and a huge, undisclosed backlog of repurchase demands, Kenneally, with Dodge's knowledge, made changes to New Century's accounting for loan repurchases in both the second and third quarters of 2006. These undisclosed accounting changes violated generally accepted accounting principles and resulted in New Century's improperly avoiding substantial repurchase expenses and materially overstating its financial results.
The complaint further alleges that the defendants' fraud caused investors substantial losses. From early 2006 to early 2007, New Century's stock price ranged from $30.00 to $50.00; and in the second half of 2006, the company raised $142.5 million by selling stock to new investors. After New Century announced in February 2007 that it would have restate its 2006 financial statements, New Century's stock price fell 36% to around $19.00. New Century's stock price continued to fall, and traded at less than $1 when the company filed for bankruptcy in April 2007.
The complaint, filed in federal court in the Central District of California, charges the defendants with violations of the antifraud provisions in Section 17(a) of the Securities Act (Morrice and Dodge only) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; the record-keeping provisions of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder (Dodge and Kenneally only); the internal control provisions of Section 13(b)(5) of the Exchange Act; the false statements to auditors provisions of Exchange Act Rule 13b2-2; the officer certification provisions of Rule 13a-14 of the Exchange Act (Morrice and Dodge only); the failure to reimburse provisions of Section 304 of the Sarbanes-Oxley Act of 2002 (Morrice and Dodge only); and aiding and abetting New Century's violations of the reporting provisions in Sections 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. The Commission seeks permanent injunctions against future violations, disgorgement with prejudgment interest, officer and director bars, and civil penalties. [SEC v. Brad A. Morrice, et al., Civil Action No. SACV09-01426 JVS (C.D. Cal.)] (LR-21327)
INVESTMENT COMPANY ACT RELEASES
PNC Bank, National Association
A notice has been issued giving interested persons until Dec. 28, 2009, to request a hearing on an application filed by PNC Bank, National Association (PNC Bank), for an order pursuant to Section 6(c) of the Investment Company Act granting an exemption from Section 18(f)(1) of the Act. The order would permit registered open-end management investment companies to participate as borrowers in loan facilities to be administered by PNC Bank. (Rel. IC-29066 - December 3)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-FINRA-2009-078) submitted by the Financial Industry Regulatory Authority to update certain cross-references within certain FINRA rules 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. 34-61087)
A proposed rule change filed by the International Securities Exchange to amend the $1 strike program to allow low-strike LEAPS (SR-ISE-2009-102) 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. 34-61102)
A proposed rule change filed by the National Stock Exchange (SR-NSX-2009-07) to amend the Fee and Rebate Schedule to increase transaction rebates to $.0024 per share and implement a 50% market data rebate for displayed Order Delivery orders of certain ETP Holders, and to adopt a new Rule 16.4 that would use "Liquidity Adding ADV" to determine the volume eligibility for all rebate tiers in Order Delivery 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. 34-61103)
A proposed rule change filed by NASDAQ OMX BX to offer several market data products (SR-BX-2009-077) 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. 34-61112)
A proposed rule change (SR-Phlx-2009-97) filed by NASDAQ OMX PHLX relating to dividend, merger and short stock interest strategies 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. 34-61115)
Proposed Rule Changes
NYSE Arca filed a proposed rule change (SR-NYSEArca-2009-106) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the listing fee and annual fee applicable to derivative securities products. Publication is expected in the Federal Register during the week of December 7. (Rel. 34-61104)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2009-082) relating to the reporting of trade cancellations to FINRA pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of December 7. (Rel. 34-61105)
The Commission noticed a proposed rule change (SR-FINRA-2009-070) submitted by the Financial Industry Regulatory Authority (f/k/a National Association of Securities Dealers, Inc. (NASD)) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 related to communications with the public about variable life insurance and variable annuities. Publication is expected in the Federal Register during the week of December 7. (Rel. 34-61107)
The Commission issued a notice of filing of a proposed rule change by the Municipal Securities Rulemaking Board pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, consisting of (i) amendments to Rule G-8 (Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers), Rule G-9 (Preservation of Records), and Rule G-11 (New Issue Syndicate Practices); (ii) a proposed interpretation of Rule G-17 (Conduct of Municipal Securities Activities); and (iii) the deletion of a previous Rule G-17 Interpretive Notice (SR-MSRB-2009-17). Publication is expected in the Federal Register during the week of December 7. (Rel. 34-61110)
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